Mark Twain said it best in this quote: “When you find yourself on the side of the majority, it’s time to pause and reflect.”
To my way of thinking, this certainly holds true when it comes to handling your money. There are few advisors and others who don’t believe in the Wall Street induced herd instinct type of investing. It has proven to be one a sided “win” situation with the masses of investors usually being left stranded on the street licking their wounds after another failed attempt to stay fully invested during a bear market.
If you are new to investing, these words may not mean much to you because you haven’t lost enough money to appreciate them. If you’ve been around the block for a while (translation: a severe bear market), you should have learned (hopefully) how to adjust your investment approach.
One of the books I referred to in a recent post to on this subject was Al Thomas’s “If It Doesn’t Go Up, Don’t Buy It.”
While Al covers a variety of investment areas, the book is easy to understand and contains words of wisdom from over 40 years of exposure to the financial industry. He has no ax to grind and no allegiances. He calls it as he sees it, which is very rare, nor does he care if anybody is offended, which makes him my kind of a guy.
I have gone through his mutual fund section, which advocates trend tracking, and picked out a few gems that you might consider adapting:
1. Mr. William O’Neil, on of the market technicians and found of Investor’s Business Daily, did a study that found that between 1953 and 1993, 67% of the move upward in any stock can be credited to the positive advance of the Industry Group of the Market Sector to which it belongs.
A more recent study shows 49% of the move of any stock is due to the industry itself, 31% to the general market movement and 20% to the company itself. This is ‘proof’ that research is nonsense. Just because the research report on a company is good doesn’t mean it’s going up unless the entire industry group catches fire. Birds of a feather flock together.
2. You leave the picking of the individual stocks to the mutual fund manager. That is his job. You want the best mutual fund manager on the street “at that time.” You can find him not by name because his name is unimportant, but by performance of his fund. You want the fund that is outperforming all the other funds. You want get on the ‘up escalator’ with him and follow him to the top. When he doesn’t seem to be able to go any higher, you get off. Take the next escalator to the higher level following another fund manager. I have no idea who is managing the funds I own and, you know what—I don’t care.
That is the way I want you to picture the stock market—you riding gently, easily and steadily up to a level where you get off one mutual fund which has leveled off and choosing another one for the ride to the next higher level. That’s what rotation is all about.
3. Another great fallacy of the mutual fund gurus is “expense ratios.” They tell you not to invest in any fund that has expenses over 1-1/2%. Who cares what the expense ratio is if that fund makes 40% or more annually? The same for 12b-1 expenses. Who cares? Show me the bottom line. That’s all that counts. Basic rule: Follow the money!
Even though Al’s book was written years ago, his wisdom gained by years in the trenches is simply timeless. It advocates exactly what I have been saying in my weekly updates and in my blog: Focus on being invested only during up trends in the markets, avoid the bear at all costs and disregard Wall Street’s self serving stories.
Comments 3
Pt.#3 100% correct…been singing this song for years especially with Vandguard nuts who will quote you their expense cost %…but not sure of their “net” return!
But Pt.#2…Can not believe anyone would hire someone to manage their Money and NOT want to know their Qualifications!
If you buy funds based only on returns…and don’t know who is running the ship!!!good luck to you!
Point 2 and 3 go together. Just as it does not matter what the fee is, as long as the performance is great, it does not matter either who runs the fund.
What else matters, other than performance? Since mutual fund companies don’t just hire anyone of the street, gives him some qualification by default. Of course, since you posted anonymously, you may very well be a fund manager who is offended by these remarks. I can understand that.
Ulli…
I hired someone to manage my money and I knew their qualifications. They only invested in funds they got commission on and had no exit strategy, I lost my booty, but he made lots.