You'd have had to be living on a desert island with no TV, newspaper or internet connection to have missed hearing about the great mutual fund scandal of 2003.
The issue was that some mutual fund companies allowed certain hedge funds to engage in after-hours trading, sometimes incorrectly referred to as market timing. Unfortunately, some companies have used the confusion about the term "market timing" to further their own cause. How?
They have used this issue to pretty much ban all forms of trading their funds, and some companies are imposing hefty short-term redemption fees-penalties for all intents and purposes-in the name of avoiding impropriety. But the real idea behind it all is: Buy our fund and never sell it!
These companies advocate a stubborn Buy & Hold philosophy despite the devastating effects that approach had on investors' portfolios during the recent bear market. Performance is immaterial to them-they want your money in their fund whether it's going up or down.
With all of the negative press over the months you'd think that mutual fund companies would have cleaned up their act and started giving more consideration to the individual investor. Not so.
This was brought home to me when a fund manager of an $800 million mutual fund called me to see what my plans were in respect to holding our positions with his fund (about $2 million).
I explained my trend tracking methodology and he got very angry when he heard I would protect my clients' accumulated profits by selling his fund if it were to drop 7% off its highs.
His blustering made it quite clear that he did not like anyone managing for the benefit of their clients; he only cared about what was best for him and his company.
So, what can you do to prevent being taken advantage of? For one thing, do what your mutual fund company does - not what they tell you to do. Adopt a strategy for following trends, such as I do, and use the mutual fund manger's superior stock picking ability to your advantage by buying and holding only as long as the fund is performing well.
Remember, the fund manager has one big disadvantage over you: He always "has to" be invested so that the public can purchase shares in his fund. You don't!
If market conditions dictate that you are better off in the safety of a money market account because we are in a severe downtrend, then you can take your money and run for cover. He can't. He is constantly trying to adjust his portfolio to ever-changing economic conditions so that his potential losses are minimized. At the same time you are being told that his fund is the investment for all seasons. Don't fall for it!
You as an individual investor are really in the driver's seat. Unfortunately, you have probably been conditioned to think that Buy & Hope is a good investment strategy, when in fact it is a losing proposition.
Bottom line is, use a well performing mutual fund during strong up trends and get over to the sidelines during trend reversals. (That's exactly what I did for my clients in October, 2001, and we retained the lion's share of their profits while Buy & Holders kept insisting the emperor was wearing new clothes.) Pretty soon you will feel that you are in charge of your financial destiny and any chosen mutual fund is merely a tool to bring you closer to your goals of maximizing your gain and minimizing your losses.
About The Author
Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: www.successful-investment.com.
maide service in Park Ridge ..I cringe every time I hear a novice investor tell... Read More
From the book 'The Stockopoly Plan' by the author Charles... Read More
On Monday, November 25, 2000 Investor's Business Daily listed on... Read More
Reach in your pocket and take out that big roll... Read More
Among the largest forces that affect stock prices are inflation,... Read More
After the publication of the first part of this two... Read More
Every publicly traded company is required by the SEC(Securities and... Read More
This article describes the model of a natural relationship between... Read More
A stock market index is a statistical measure of changes... Read More
Peter is a professional trader, Paul is not. Peter has... Read More
Forget making a profit; instead focus on the income provided... Read More
It looks like the market is ready to start up... Read More
What are you thinking when it comes to your no... Read More
A PEG ratio cannot be used alone but is a... Read More
Exchange Traded Funds (ETFs) are a group of passive index... Read More
During the month of January the Dow Jones Industrial Average,... Read More
What does it take to be a stock trader? It... Read More
If you haven't heard of the technical indicator with the... Read More
Well, not really. What I mean is I don't mind... Read More
Let's assume that you want to make some serious money... Read More
All stock trading and investing methods must deal with the... Read More
What can I expect to make my first year of... Read More
Never lose money in the stock market again. Yeah, I... Read More
Recently I watched my favorite football team lose a vital... Read More
Time to look back2004 is over, now we are in... Read More
after renovation cleaning Highland Park ..As GuruFocus updates the stock buys and sells of gurus,... Read More
With the stock market stubbornly refusing to settle down and... Read More
Minority Report the movie may not be far off if... Read More
For some "long term" would mean holding a stock position... Read More
From the book 'The Stockopoly Plan' by the author Charles... Read More
Much like the middle child, mid-cap stocks have long struggled... Read More
There are red lights, green lights, blue lights and spot... Read More
Investors who exclusively use broadly diversified, no load mutual funds... Read More
Unfortunately, most of you who are reading my column are... Read More
Having lived aboard a sailboat for 2 years I was... Read More
Do you have a nest egg? You know, a place... Read More
For the last few weeks we have seen the stock... Read More
There can't be many traders who haven't at least considered... Read More
If you were to find that you had some severe... Read More
The Law of Chaos is the theory of random unpredictable... Read More
"If you don't know where you are going, any road... Read More
I have watched my cat play with a bag of... Read More
In his wonderful book, 'Multiple Streams of Income', best selling... Read More
People are always asking me when should I sell my... Read More
As an investor you will want to check out any... Read More
Spread trading is a technique that can be used to... Read More
Every successful trader has a winning system. There are of... Read More
We all know that emotions control every decision that an... Read More
Using Swing Trading Strategies and Technical Analysis when Trading Stocks... Read More
A PEG ratio cannot be used alone but is a... Read More
Stocks & Mutual Fund |