A few days ago, I posted about the tremendous increase in assets ETFs experienced over the past few years.

The following story made me chuckle because the answer surprised me and may surprise you as well.

MarketWatch had an interview with Morningstar mutual fund analyst Marta Norton. The point of the interview was Marta’s contention that funds should earn their place in your portfolio by “meeting future expectations” rather than past performance. As an example, she mentioned CVGRX and CAAPX.

Hmm. How do you do that?

Being a numbers person, I first compared the 2 funds against each other over 2 years, 5 years and 10 years. The 2 year comparison is shown below:

It’s obvious that, based on all momentum figures for our current buy cycle, CAAPX came out ahead.

What I am referring to in this heading are not the mutual funds a fee-only advisor gets you into if he manages your portfolio; I am talking about those that a commissioned advisor sells you.

I ran across an article on the Motley Fool website, which is titled “Are Advisor-Sold Funds Ever Worth It?” It outlines some of the upfront, deferred and trailing fees commissioned advisors can charge.

It’ll help you to become a little more educated about the pros and cons of different advisor services. I am biased and believe that the only way that you can get truly unbiased advice is via a fee-only advisor.

How else can you be sure that a recommended mutual fund is truly in your best interest, and based on the advisor’s honest research result, rather than his (possible) motivation of receiving a large upfront commission?

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Despite Thursday’s sell off, the markets eked out another gain.
Our Trend Tracking Index (TTI) for domestic funds/ETFs now sits +5.59% above its long-term trend line (red) as the chart below shows:



The international index has now moved to +10.00% above its own trend line, as you can see below:



For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

A few days ago, I wrote that the media does not like to include bear markets when reporting performance comparisons between mutual funds/ETFs and the S&P; 500.

Of course, I can’t read every financial paper in the universe, so my view is limited to those that I do read. Reader (and client) Nitin pointed out an article in the NYT that actually addressed the issue to a degree.

The heading was very appropriately named “Oops, It May Be Time To Rebalance That Portfolio.” It then goes on to explain the hardly impressive S&P; 500 returns when measured over the past 7 years.

Unfortunately, the article quoted John Bogle (founder of Vanguard) who is the icon of Buy and Hope investing. While his Vanguard 500 Index fund had big losses in 2000 and 2001 (how about 2002?), he would have broken even ahead of the S&P; 500 (in “only” 6 years as opposed to 6-1/2) because the fund reinvests dividends.

Yes, you are reading this right. Having had steep losses in the last bear market qualifies for boasting if your losses were slightly less than that of a similar index. How sick is that?

The article goes on to evaluate various portfolio allocations that would have broken even as early as the end of 2004. Sure, the benefit of hindsight…

Okay, then it’s time for the portfolio rebalancing act, where every ‘expert’ has a different opinion as to how it should be done. Articles like this make my hair stand up, because it’s the same drool I’ve been reading for about 30 years.

There never seems to be any change or improvement to dealing with the absurdities of Wall Street. How about this: Let’s try to avoid the brunt of a bear market altogether?

Some people are using the basic ideas of trend tracking in their investment approaches without even being aware of it.

I was reminded of that yesterday as I was reading Random Roger’s blog. Here are a few points he addressed, which are the essence of our trend tracking methodology. His points are excellent and he says, among other things, that:

1. Perma-bulls are not planning for a cold winter

True. Most people remain bullish no matter what and have no exit strategy to protect themselves from severe market reversals. While we will never sell at the top of the markets, we try to be within 10% of it.

2. Perma-bears are missing too much normal upside movement

True. While we can determine a potential top in the market only after it has happened, the same holds true at the bottom. However, with a clearly defined entry strategy, we attempt to be back in the market within 10% of the bottom.

3. Personally I don’t see the benefit in trading ahead of an Armageddon (intentional hyperbole) that has shown no signs of starting.

True. Guessing is what gets most investors into trouble. Usign trailing sell stops allows you to see whether the market is actually rolling over and correcting. Let that fact tell you when it’s time to get out.

4. I also think it is irresponsible for the perma bulls on the various TV shows to never talk about exit strategies, what signs to watch out for or even acknowledge the bear case.

Couldn’t have said it better myself. Most media articles and financial TV shows never make a case for the bear, as I have posted about before. Not only that, but performance figures conveniently only cover bull markets.

5. I also think it helps clients to acknowledge that down turns come, they should not be feared and that we have a simple exit plan to take defensive action when the next bear market starts.

Amen. These are 5 points that trend tracking accomplishes without becoming emotionally upset or suffering from sleepless nights.

Discomfort when investing almost always stems from the fact that you are uncertain and have no definite plan to deal with unforseen events. Once you resolve this issue, by being methodical in your approach, you will be less inclined to suffer emotionally (and financially) when markets go against you.