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(Marketwatch)   What?? You mean mutual funds don't go straight up and make you gobs and gobs of money?   (marketwatch.com) divider line 21
    More: Advice, mutual funds  
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1735 clicks; posted to Business » on 19 Jun 2013 at 6:32 PM (1 year ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-06-19 04:58:14 PM
Translation for anyone who doesn't want to click through a ton of stupid slides:

"You can lose money on stocks. Hedge fund managers don't give a shiat, because they get their cut regardless."
 
2013-06-19 05:29:54 PM

BKITU: Translation for anyone who doesn't want to click through a ton of stupid slides:

"You can lose money on stocks. Hedge fund managers don't give a shiat, because they get their cut regardless."


Don't discourage them to look. The more they understand the risks of investing, the better customers they'll be.
 
2013-06-19 05:33:42 PM
But in a bear market (a decline of 20% or more), usually 85% or more of stocks lose money. This is called market risk, and very few mutual fund managers do anything to protect shareholders against it.

Many investors think fund managers will try to "stop the bleeding," but they don't - and they aren't required to even try.


And how would they do that, prey tell? Time the market? Good farking luck with that. That's a recipe for disaster. I'm only on page 2, and I can already tell this is going to be a stupid list.
 
2013-06-19 05:46:00 PM
Page 3: "Mutual fund companies can market their performance and their expert managers. But when that expertise walks out the door, they downplay it. They don't want your money walking out the door too."

*jerk off motion with hand*

To answer this question, Fama and French compared the distribution of fund returns to a distribution of simulated portfolio returns formed with randomly selected stocks. Using a bootstrapping technique, they created thousands of simulated U.S. equity portfolios that selected stocks randomly. The range of actual mutual fund returns was then compared to the range of bootstrapped returns. The overlay was very close, which means most actual fund returns were a result of random stock selection and not skill.
Link
 
2013-06-19 05:48:53 PM
Page 5: How can this be? Investors tend to buy after an increase in prices and sell after prices decline. That amounts to the opposite of "buy low, sell high," which is the obvious path to profits. The fund's portfolio stays the course, avoiding that trap.

One of the most spectacular fund records of the past decade was that of CGM Focus CGMFX -1.24% , which reported an annual return of 17.8% in the 10 years ending July 31, 2009. When Morningstar tracked the cash in and cash out of this famous fund, it found that average investors actually LOST16.8% annually.


Ok, that's actually hilarious.
 
2013-06-19 05:53:59 PM
Page 6: When a fund performs poorly, the fund family can close it or merge its assets with another fund that has done better. Instantly, the "dog" funds are gone and the average of open funds is improved!

That I didn't know.

Page 4 through 6 weren't that bad.
 
2013-06-19 06:22:09 PM
Right about the turn of the millenium, our company decided to switch from 401(k) to Smart IRA.  I asked our 401(k) advisor how much of my money was in tech stocks.  He said, "Not much".  I decided to do my own research and immediately pulled most of my investments from stock funds into bond funds.

/My calculations were that I still lost several hundred dollars
//as opposed several thousand dollars and half of my investments at the time if I had done nothing
 
2013-06-19 06:48:27 PM
Can someone submit it to cracked so it will only be a two page article?
 
2013-06-19 06:49:12 PM

impaler: And how would they do that, prey tell? Time the market?


Hedge it with derivatives, obviously. That way you win whether the market goes up or down!

(What if it stays flat? Shut up and pay your 3.5% MER.)
 
2013-06-19 06:54:03 PM
Start 10 mutual funds with stocks picked at random. 8 suck or correlate with market, merge all those into 1 fund. Take the 2 winners and brag about how 2 out of every 3 of your companies funds beat the market by significant margins. And best of all, you wouldn't be lying.

I know enough stats to realize that everyone can't have the secret to beating the average, because it then becomes the average.

/Gambling is much less fun when you understand math
 
2013-06-19 06:58:24 PM
Unless you have inside access it's all luck. Put your money in a low-cost S&P 500 index fund and wait. If you want to make a lot of money than start a number of business for products or services that people want.
 
2013-06-19 07:58:08 PM

BKITU: Translation for anyone who doesn't want to click through a ton of stupid slides:

"You can lose money on stocks. Hedge fund managers don't give a shiat, because they get their cut regardless."


Actually, I think all of those can fall under the narrower missive "don't buy managed funds, stick to the indexes."

1) "At the peak of the technology boom in the late 1990s, many fund companies scrambled to create new tech funds in order to lure investor dollars. They knew (accurately as it turned out) that a huge bust was likely. But they never told investors that."

This completely defeats the purpose of a mutual fund if all your stocks are in the same field.  That's like saying you have a diversified portfolio because on a rental home, five duplexes, and an apartment building.  If rental prices crash, you might be screwed because all of your investments are in the same area.

2) "Many investors think fund managers will try to "stop the bleeding," but they don't - and they aren't required to even try."

I don't want my fund manager to "stop the bleeding."  I want him to buy and hold because the numbers show that's the best strategy and because the less fussy they are generally the lower the maintenance fees are and lower maintenance fees often lead to better returns.

3) "Mutual fund companies can market their performance and their expert managers. But when that expertise walks out the door, they downplay it. They don't want your money walking out the door too."

I don't care who your manager is because there's no evidence that any particular manager can beat the market long-term.

5) "Investors tend to buy after an increase in prices and sell after prices decline. That amounts to the opposite of "buy low, sell high," which is the obvious path to profits. The fund's portfolio stays the course, avoiding that trap."

That's their fault, not the fund's.  And if this is that common, then it's going to affect every fund so all returns are a little inflated.

6) "Most of these points apply to actively managed funds. Index funds avoid most of them, as their only job is to mirror an index."

Yet more evidence that investing in managed funds is for suckers.
 
2013-06-19 09:33:28 PM
Meanwhile, my index funds are doing just fine, thank you very much.
 
2013-06-19 09:36:42 PM
Ha ha suckers-all my money is in silver!

SHUT UP.  IT'LL GO BACK UP.
 
2013-06-19 10:25:12 PM

Snarcoleptic_Hoosier: /Gambling is much less fun when you understand math


I need a T-shirt.
 
2013-06-19 11:14:25 PM
 
2013-06-19 11:18:11 PM

impaler: Page 6: When a fund performs poorly, the fund family can close it or merge its assets with another fund that has done better. Instantly, the "dog" funds are gone and the average of open funds is improved!

That I didn't know.

Page 4 through 6 weren't that bad.


When the commercials reference that "X number of our funds beat the Lipper averages" this is why...funds that don't get their track record buried into a better fund or just get closed outright.  It's hard to find funds that perform very poorly over time because they don't stay open because either the fund company buries the failure or it gets buried for them because investors bail and it becomes more expensive to run the fund than it is worth.
 
2013-06-19 11:53:07 PM

orangehat: When the commercials reference that "X number of our funds beat the Lipper averages" this is why...funds that don't get their track record buried into a better fund or just get closed outright. It's hard to find funds that perform very poorly over time because they don't stay open because either the fund company buries the failure or it gets buried for them because investors bail and it becomes more expensive to run the fund than it is worth.


That I could understand, but I didn't know they could pass assets from one fund to another. I'm not really sure of any real advantage. To make one perform better, they have to make another perform worse.
 
2013-06-20 01:14:40 AM

BKITU: "You can lose money on stocks. Hedge fund managers don't give a shiat, because they get their cut regardless."


Hedge fund managers care a great deal about returns. The only reason they get the fat management fees is if they blow away benchmarks. And if they don't the fund closes up shop and it can happen really quickly too. Amaranth had up to $9 billion under management and their losses may have exceeded 65 percent of their investment when their bet on natural gas prices went awry. Six billion dollars went <poof> in a matter of weeks.

Hedge fund managers DO NOT manage mutual funds. There are a lot of rules regarding mutual funds that aren't required of hedge funds. Mutual funds can't sell stocks short and buying stocks on margin without disclosing it nor can they buy/sell derivatives, distressed assets and private equity funds. Hedge funds can do all of that and as a result can have much high gains but can conversely fail really spectacularly.

Also money managers bonuses are based on how they compare to their benchmarks and bonuses are the major component of their pay. If they are very good their bonus could easily double their salary. But if they do poorly they can be given the boot, regardless of manager's standing in the firm. Something that the article does not mention is that many funds require their portfolio managers to eat their own dog food and have a certain amount assets in their fund.
 
2013-06-20 10:03:50 AM
farm4.staticflickr.com
"People spend less time researching their investment options/the market than they do researching the purchase of a new TV, then they biatch because their investment isn't making money."
 
2013-06-20 08:15:17 PM
As a financial advisor, I get why people want to go to the discount brokers and such.  People think our job is to sell them mutual funds.  They fail to realize that our job is to nicely tell them they are being stupid.  You don't know how many times I've had to tell them the five start rating on Morningstar is looking back at a time where that sector was doing well.  It all comes down to asset allocation... but greed takes over far to often.
 
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