Mutual Fund Investing: You can’t Win ‘em All

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The media was at it again analyzing the great fund performance record of fund manager’s Bill Miller’s Legg Mason Value Trust. They did it in all fairness (this time) by giving credit to his great 15-year performance, during which he prevailed over the S+P 500 every year.

In fact, his fund showed an average annual rate of 15.8% vs. the S+Ps 11.9%.

This year, he wasn’t able to match his past record and his fund gained only +6.7%. However, keep in mind that this doesn’t tell the whole story. Take a look at the chart below. It shows a 5-year price history of Miller’s Legg Mason Value fund:

As you can see, during the bear market of 2000 to 2003 (red arrow), this fund dropped just as much as any other, from a high of some $60 to a low of around $40, before rebounding in 2003.

So, before you run out and place your buy order, keep in mind that, no matter which equity fund you chose, they will all go down in a bear market. An appropriate exit strategy, with trailing stop loss points, is the best insurance against jeopardizing your portfolio.

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Comments 7

  1. But no, taxxcpa. Investors who sit on their mutual funds and ETFs hoping for a turnaround will lose in a bear market. I have no intention of losing. When the trend starts downwards and my stops are triggered, then I will sell & wait it out in money market funds.
    – J

  2. Not only do the mutual fund companies get all bent out of shape, my broker sent me an email and then a hard copy because I bought and sold a MF in a period of less than two months. T.Rowe Price suspended my rights to buy for several months because of the same thing. So, love those ETF’s. Eat your hearts out, mutuals.

  3. Amen! Had increased my 401k exposure in mutuals to 90%+ last spring. Then May hit and it dropped 10% in a short period of time. Bearing in mind what passed a few years ago and being unable to bear a 40% loss, I moved most of my funds back into bonds. Fidelity, who manages the account, was quick to tell me that I was guilty of excessive trading since I had increased my holdings in some of the mutual funds a couple of months before. I was then restricted to one trade day per quarter as compared to the generous 3/q allowed previously which I normally did not use all of. Not to say that I won’t invest in any more mutual funds but ETFs and some selected individual stocks will get more favorable attention as I move out into IRAs not managed by Fidelity. Your comments have strengthened my resolve.
    Ret’d Chemist

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