The Past Does Not Equal The Future: Mutual Fund Returns!
A way that investors get ripped off and in a sense rip themselves off is based on the culture of performance in the mutual fund industry. If you stop and think about it there is absolutely no reason that the past has to equal the future. If you have not been particularly successful as a stock investor in the past, for instance, there is no reason that you won't be unsuccessful in the future. One reason I hope that you are reading this article is that you want to improve as an investor. Let's discuss how professional gamblers profit in Las Vegas. Card counters are a type of professional gambler that uses their memory of what card cards have been dealt out of a deck in a game of blackjack (also called 21). Since there are only a certain number of each type of card they can increase their bets when it is more likely that they will win then lose. This works because after the shuffle the deck starts with a certain composition and a number of games are played until the next shuffle. Toward the end of the deck you can know what may be coming out if you are paying attention because each hand in the deck is depends on what has been dealt before. There are no professional gamblers who count the numbers rolled on a pair of dice on the craps tables. This is because there are only two dice and each roll is different. In other words, each roll of the dice is independent of any other roll. Since each roll is different it doesn't matter what was rolled in the past. The same thing would happen if the deck in a game of blackjack were shuffled each time between hands. This is a lot like the stock market where we don't know what the general level will be from time to time because of random information entering the market in the sort term. Mutual fund managers try to outsmart the market in the short term instead of patiently waiting in the long term where it is more likely to correctly determine if stocks are high or low. So why then does the public pay so much attention to the nonsensical advertising of mutual funds that brag about prior performance in past years? Mutual funds buy expensive ads in newspapers, magazines, and on television where they tout their performance over the past one, three, five, and ten years. The mutual fund industry irresponsibly promotes this "culture of performance," even though it knows perfectly well that it misleads investors. Studies have shown that if you take the top 10% highest yielding funds in any year, four out of five of them will not be in the top 10% a year later! For this reason I strongly recommend that if you can only buy mutual funds, as in the case of the 401(k), then restrict your purchases to indexed funds like the Vanguard 500 (VFINX). ABOUT THE AUTHOR: Dr. Scott Brown, Ph.D., a.k.a. "The Wallet Doctor", is a successful futures trader, real estate investor, and stock investor. Dr. Brown holds a Ph.D. in finance from the University of South Carolina. His 1998 articles in Technical Analysis of Stocks and Commodities were prophetic in predicting an impending stock market crash. He has helped many people become profitable investors by teaching them to look out over many years to spot stocks that are low and primed for rise in the new bull market. His second article met with approval by Dr. Bob Shiller of Yale University. Dr. Shiller is the economist that Alan Greenspan most highly regards who coined the term "Irrational Exuberance." In 1998 he shouted to the world to "get out" of the stock market but now he is shouting to everyone that it is time to "get in!" The Wallet Doctor is not only sought after for investment advice and coaching in stock investing but also in futures trading and real estate investing. Visit Dr. Brown's site at http://www.BonanzaBase.com or sign up for his investment tips at http://www.WalletDoctor.com
Related News
|
 |
|
|
RELATED ARTICLES
Investigate Before You Invest
"Through wisdom is a house built. And by understanding it is established. And by knowledge shall every room be filled with precious and pleasant riches!" --Bible
Art Investing for a Financial Future
When we think of investing we probably conjure images in our minds of the New York Stock Exchange, suited stock brokers making deals, bonds and treasury bills, and all manner of financial matters. The last thing we probably think about is art. Art investing, however, can be a big money business, and can create incredible financial gains and losses for those who choose to speculate in the art market.
Inflation Proof Your Investment Portfolio with ETF?s
Even though inflation has been relatively quiet in the U.S. since the late 1980's, there now appears to be some strong evidence that it may be starting to heat up again with an expanding economy, combined with skyrocketing oil and housing prices in certain key regions of the country. While the Federal Reserve has been raising key interest rates citing the threat of rising inflation, the cautious message coming out from the Feds are that, inflation is still benign and not yet a threat. Inflation is benign? Excuse me, but the cheapest gas I can find anywhere in this area is $2.23 a gallon, which is up almost 50% from last year and housing prices in my Howard County, MD neighborhood have more than doubled in the past five years.
Ask The SEC
Who is the SEC and why should I ask them anything? The Securities and Exchange Commission in Washington, DC is the government bureau that regulates the securities industry. They make the regulations that all stock exchange listed companies, brokerage houses and mutual funds must follow.
Planning for Retirement
Almost without exception, people don't start planning for their retirement early enough in their lives. Young people leaving High School or College and going into their first paid position find it difficult to look or see ahead to age sixty or sixty-five. Still, time marches on and retirement does arrive.
A Secret Revealed: Why Most (Day) Traders Fail
The following perspective on (day) trading comes from my many years of experience of active day trading or being the moderator of one of the largest day trading chat rooms on the Internet.
The Benefits of Laddering Your CD Investments
If you've decided to stock some money away in a certificate of deposit, why not reap the highest benefit over time by laddering your CD investments? What's a CD latter? I'm glad you asked.
Investing Online Has Its Rewards: Find Out How To Take Advantage Of Them
Computerized investing. Online investing. Have you taken the next step yet? These days among savvy investors, online investment resources are synonymous with opportunity.
It Must Be Joe Cockers Market
Agonizing displays of poor theatrics failed to entertain my mind one recent Saturday evening. I scrolled across several television channels hoping for an engaging program. Finally, one particular concert intrigued my senses. There on the stage performed one of rock and roll's most expressive singers.
Guru Focused: Robert Olstein?s Short Sells
While it is rather rare that value gurus sell stocks short, Robert Olstein has been selling short in his Financial Alert Fund. The accountant-turned fund manager spots values by looking behind the numbers. In the second quarter of 2004, Robert Olstein sold short American Italian Pasta Co. (PLB) at $31. After about 6 months he covered at $20, easily made more than $1 million for his fund. Currently he is shorting two stocks: Computer Sciences Corp (CSC) and Fleetwood Enterprises Inc (FLE), although things do not always go that smoothly.
Expand Your Pool of Investors for Your Company
If you own a company that sells complicated products and you want more investors, consider having topics on your web site that discuss the background needed to understand your products and your company. For example, if your company specializes in producing and researching monoclonal antibodies, post articles discussing exactly what monoclonal antibodies are, how they are produced and what research your company is engaged in. In some cases, it may be a good idea to work with an outside writer, one who can explain the information in layman's terms.
Invisible Mutual Fund Fees Erode Your Returns!
Many investors think that investing in mutual funds is free. What nonsense! Funds collect more than $50 billion a year in fees from investors. That is truly a ton of money. The first way you get hosed in a mutual fund is due to high fees charged. These fees can dramatically reduce your returns over time!
Time is Money and We Are Running Out of Both!
One of the fundamental principles of finance is the concept that $1 today is more valuable than $1 a year from now.
Investing Offshore for Retirement
As an expatriate you are in a privileged savings and investing position. Make the most of the options available to you while you can, consider investing offshore for your retirement.
Stock Market Leaders and Laggards
Leaders are stocks that breakout immediately when the market confirms a new rally. In the first several weeks, strong stocks with leadership ability will breakout on volume above their 50-day average. Some of these stocks will breakout on the largest volume ever. Typically, newer stocks that have come public in the past few years will have the most strength for sizable gains.
Is Starting A Business For Me? What To Consider Before Starting A Business
Do you have the right temperament?
Diversify!
The best way to avoid being hit hard by a stock market crash or another Enron/Worldcom fiasco is to make sure you don't put all your eggs in one basket. Diversification helps ensure steady growth of your net worth as you accumulate more assets.
Introduction To FOREX
The Foreign Exchange Market, better known as FOREX, is a worldwide market for buying and selling currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day, and American stock markets exchange about $100 billion a day.
Risk and Reward
If you are doing your own investing in the stock market, what would be the first question you would ask yourself before you make any trade or investment? If your answer is how fundamentally sound the stock is, or whether the stock just broke out of a trading range on a chart, or the fact that the stock has gone down 50% in the last 6 months, or whether the volatility is low now so it is a good time to buy or sell, then you are probably on the road to ruin. These strategies have nothing in common with each other and there are all kinds of different criteria that I did not mention that have nothing in common with each other. However no matter what type of strategy you use to make your investment decisions, there is only one crucial question that must be asked before you pull the trigger and make the trade. That is, what is my risk and what is my reward on this trade. Even if you are going to buy a stock and hold it for a long time, you still have to be aware of your risk and your reward. Why? Because the entire stock market may be here for the rest of your life, any one stock might not be. You think, that is okay I diversified a lot so I don't need to know risk and reward. Wrong.
Overbought/Oversold
Has your broker ever told you that a stock is "overbought" or "oversold"? He probably went on the explain that the stock you own (I hope you didn't) had gone down so far that it now was oversold and due for a rally. He might also have encouraged you to buy an equal amount to "dollar cost average" your position so that when ("if"- he didn't say that, I did)) it did go back up you could "get out even". He might even say you "could make a fortune".
|
