| |
| |
|
|
Stocks and Mutual Funds |
|
Lies, Damn Lies and Mutual Fund Returns
How many times has this happened to you? You're at a social function and the conversation turns to investing. Pretty soon, people are comparing how well their investments are doing. As you might imagine, being an investment advisor this happens to me a lot. However, I recently had an experience with it that startled me. Bob, one of the guys I was chatting with at a party, asked what kind of returns I had made for my clients with my methodical no load mutual fund strategy during the past year. I replied that they had unrealized gains of slightly over 29%, after management fees, for the 8 months that we were invested. Bob countered with a smirk that he had made a 40% return. I raised my eyebrows and told him that was darn good-and suggested that maybe he ought to be managing my money. At that point we were interrupted and, as the evening went on, I began to wonder exactly how Bob had gotten his great return. I cornered him a little later on and, upon digging a little deeper, the story looked somewhat different. Yes, he had made a 40% return on a mutual fund he had some money invested in, however, we were comparing apples and bananas. He had a total portfolio of $100k. Being cautious, he had invested only $10k into a mutual fund, from which he profited $4k after he sold it. The balance of his portfolio ($90k) was sitting in a money market fund earning some 0.35% per year. So, while he had made 40% on 10% of his investment, he had only made 4.35% on his whole portfolio. My methodology was also focused on protecting my clients' investments and it had increased their entire portfolio 29% (unrealized). That would be an apple to apple comparison when measuring my returns against his. Bob's one fund realized 40% return. However, had I approached it the same way Bob had, I could have described one of the funds I used that had realized over 49% for the same period. Actually, Bob's not-so-good-news story didn't stop there. Bob admitted to having followed the losing Buy and Hope strategy through the bear market of 2000 and had finally sold out at a 50% loss a year ago, before committing $10k to a mutual fund investment. I was pleased to be able to tell him that my methodology had gotten my clients out of the market before the bear took his big bite, and they suffered only minimal losses before finding safety in money markets accounts. And when my trend tracking figures directed us to move back into the market, they still had most of their money poised to start earning for them again-which it did and very nicely, thank you. The moral of the story is to look past the surface and don't take any numbers thrown at you at face value. Remember, most people returning from a weekend in Las Vegas will shout about their winnings and mumble about their 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. ulli@successful-investment.com
MORE RESOURCES:
Stocks-Mutual-Funds - Google News |
|
|
|
RELATED ARTICLES
How To Be A Winner Everyone who invests in the stock market wants to be a winner. Each person's definition of a winner will be somewhat different, but there is hardly one who isn't looking for that stock that will double in price within one year. Again With the Bubbles? A few years back - it seems like an eternity today - the U.S. "Fears Only Enemy Is Action" What a great statement!I just heard someone use it in the context of personal and financial success and it struck me as a brilliant summary of an issue we raise in the SMG Tutorials.Fear is a huge issue with a lot of traders. Never Lose Money Never lose money in the stock market again. Yeah, I know. The Information Age It is wonderful to be alive in the information age. We know in a matter of seconds the change in the value of gold in Switzerland, the death of a world leader or the birth of a peasant in Israel. Trading Tips No 6: The High Cost of Low Cost Stock Market Information It has been said that low cost or even free stock market information or trading advice can be the most expensive advice you can get. The meaning is clear. Paddle Your Canoe At some time in your life you have been on a river in a canoe and hopefully you had a paddle. You know about being up the creek without one. Which Way The Market I am hearing predictions by brokers, financial planners, talk show hosts and the talking heads on TV that the market is going back to its old highs - DOW 11,700 and NASDAQ 5000 here we come.It seems to me that in 2000 I heard these same people saying there was no top to the market and were looking into their crystal balls for DOW 30,000 or some other fantastic number. Online Broker Trade History Not Doing the Job Let me start by saying that.. It Cant Be Done Wouldn't it be nice if you were only in the stock market when it was going up and have everything transferred to cash while it is going down? It is called 'market timing' and your broker or financial planner will tell you "it can't be done". What that person just told you is he doesn't know how to do it. Option Spread Trading Spread trading is a technique that can be used to profit in bullish, neutral or bearish conditions. It basically functions to limit risk at the cost of limiting profit as well. A Stock Market Investment Plan that Never Lets You Down The bulls and bears of the stock market are both tempting and scary to the investors. Speculators are enchanted by the stock market's potential to help them in making quick money with a big M. The Cub; II We keep hearing about this bear market and that the bottom is "in" or "very close" so we should be invested in these bargain basement prices to take advantage of the next bull so we won't lose out on the expected huge profits.This is not a big bear market - yet. I Love To Lose Money Well, not really. What I mean is I don't mind losing a small amount when I have to sell a stock or mutual fund that is going down or taking away the profit I have made. Dont Buy Stocks based on P/E Ratio alone I use the P/E ratio as a secondary indicator for buying and selling stocks but I don't use the ratio in the same a manner as many value investors teach. I will explain the difference in my methodology for using the P/E ratio to your advantage. Lights of the Stock Market There are red lights, green lights, blue lights and spot lights. There are orange lights, pink light and flash lights. Hot Stock Trader: How to Pick Momentum Stocks with Ease and Simplicity Most stock traders know that momentum trading can be a very profitable activity. You can make big amounts of cash in a short period of time. Stock and Fund Dividends When is a dividend not a dividend?The latest thing "conservative" brokers are preaching these days is to buy stocks that pay dividends. Everyone likes dividends. Forces that Move Stock Prices Among the largest forces that affect stock prices are inflation, interest rates, bonds, commodities and currencies. At times the stock market suddenly reverses itself followed typically by published explanations phrased to suggest that the writer's keen observation allowed him to predict the market turn. Prosperity It has fallen upon the consumer to make our economy strong. All the politicians, economists and talking heads on TV are telling him (that's you and me) to get out there and spend your money.
|
||||||||||||||