Comments on: MUST READ: THE MUTUAL FUND INDUSTRY – INVESTORS DESERVE BETTER http://pragcap.com/the-mutual-fund-industry Sun, 12 Feb 2012 01:45:26 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Stuart Gray http://pragcap.com/the-mutual-fund-industry/comment-page-1#comment-7051 Stuart Gray Tue, 13 Oct 2009 21:16:03 +0000 http://pragcap.com/?p=10605#comment-7051 Good article in that is highlights a common error with mutual fund salespeople -- if a portfolio manager lost 6.7% in 2007 and 55% in 2008, he will need to show outstanding performance (124% gain) just to get his investors back to where they started in 2007. So I am not happy with a 34% return in 2009 when I have cumulative losses over 62%, and there is no way to sugarcoat my losses. I would simply remind investors that investment returns (up and down) are not additive. Second, what you call risk management, other investors refer to as "margin of safety". However, I wouldn't jump to the conclusion that all active managers are bad and therefore index funds are the way to go. That sounds like an advertisement for index funds. There is still one great active manager who practices "margin of safety" and for $12 per trade you can buy his diversified portfolio of companies (Berkshire Hathaway). Someone reading this post will probably invent a Bershire Hathaway ETF and why not? The bottom line is after-tax capital appreciation. If the goal of most active managers is to beat the S&P500 index fund, then the goal of most S&P500 index funds should be to beat the Berkshire Hathaway index (and this we know for certain -- over the last 10 years, 100% of S&P500 index funds have failed to reach that benchmark). Enough said about index funds. Stuart Gray President Franklin Business Practices Baltimore, MD Good article in that is highlights a common error with mutual fund salespeople — if a portfolio manager lost 6.7% in 2007 and 55% in 2008, he will need to show outstanding performance (124% gain) just to get his investors back to where they started in 2007. So I am not happy with a 34% return in 2009 when I have cumulative losses over 62%, and there is no way to sugarcoat my losses. I would simply remind investors that investment returns (up and down) are not additive. Second, what you call risk management, other investors refer to as “margin of safety”. However, I wouldn’t jump to the conclusion that all active managers are bad and therefore index funds are the way to go. That sounds like an advertisement for index funds. There is still one great active manager who practices “margin of safety” and for $12 per trade you can buy his diversified portfolio of companies (Berkshire Hathaway). Someone reading this post will probably invent a Bershire Hathaway ETF and why not? The bottom line is after-tax capital appreciation. If the goal of most active managers is to beat the S&P500 index fund, then the goal of most S&P500 index funds should be to beat the Berkshire Hathaway index (and this we know for certain — over the last 10 years, 100% of S&P500 index funds have failed to reach that benchmark). Enough said about index funds.

Stuart Gray
President
Franklin Business Practices
Baltimore, MD

]]> By: TPC http://pragcap.com/the-mutual-fund-industry/comment-page-1#comment-7027 TPC Tue, 13 Oct 2009 15:59:31 +0000 http://pragcap.com/?p=10605#comment-7027 Exactly Mark! Exactly Mark!

]]> By: Mark Wolfinger http://pragcap.com/the-mutual-fund-industry/comment-page-1#comment-7025 Mark Wolfinger Tue, 13 Oct 2009 15:56:16 +0000 http://pragcap.com/?p=10605#comment-7025 John Woods: Your use of the term 'option-like returns' shows you know nothing about options. Before you criticize the maturity of others, it you who needs to get out of kindergarten. Options are risk-reducing investment tools. That's their purpose. That's how intelligent investors use them. John Woods:

Your use of the term ‘option-like returns’ shows you know nothing about options. Before you criticize the maturity of others, it you who needs to get out of kindergarten.

Options are risk-reducing investment tools. That’s their purpose. That’s how intelligent investors use them.

]]> By: Katy H http://pragcap.com/the-mutual-fund-industry/comment-page-1#comment-7017 Katy H Tue, 13 Oct 2009 12:05:08 +0000 http://pragcap.com/?p=10605#comment-7017 Nice analysis but really, why is volatility equated with risk. What we are really taling about here, is volatility adjusted returns. Unless you are a pension fund with liabilities to match, why would you give a toot about volatility year by year? On Bill Miller, he will be the first to admit that his 15 year streak was a complete freak - if you base his record off calendar year ends (say, running to end May or August) there werte plenty of down "years". Also, tell me there is no risk in a benchamrk -I'll point to financials being almost 27% of most global benchmarks start ofg 2008 and notables such as Japan and Nortel. You held onto the slug on those suggested by the index at the peak and you would have regretted it. The problem with comparing "apples" and "apples" is it assumes one is good and one is bad. its not, one is cheaper to track and may prove less volatile. Its not necessarily more likely to make you money because of that. Risk adjusted returns won't pay for your Aston Martin. Nice analysis but really, why is volatility equated with risk. What we are really taling about here, is volatility adjusted returns. Unless you are a pension fund with liabilities to match, why would you give a toot about volatility year by year?

On Bill Miller, he will be the first to admit that his 15 year streak was a complete freak – if you base his record off calendar year ends (say, running to end May or August) there werte plenty of down “years”.

Also, tell me there is no risk in a benchamrk -I’ll point to financials being almost 27% of most global benchmarks start ofg 2008 and notables such as Japan and Nortel. You held onto the slug on those suggested by the index at the peak and you would have regretted it.

The problem with comparing “apples” and “apples” is it assumes one is good and one is bad. its not, one is cheaper to track and may prove less volatile. Its not necessarily more likely to make you money because of that.

Risk adjusted returns won’t pay for your Aston Martin.

]]> By: TPC http://pragcap.com/the-mutual-fund-industry/comment-page-1#comment-7009 TPC Tue, 13 Oct 2009 00:34:09 +0000 http://pragcap.com/?p=10605#comment-7009 I should add - I don't mean my comment to sound condescending. I think it's a serious problem that the investing public does not understand these topics before they invest their hard earned money in these funds. It would help you greatly to learn more about this topic.... I should add – I don’t mean my comment to sound condescending. I think it’s a serious problem that the investing public does not understand these topics before they invest their hard earned money in these funds. It would help you greatly to learn more about this topic….

]]> By: Bob G. http://pragcap.com/the-mutual-fund-industry/comment-page-1#comment-7007 Bob G. Mon, 12 Oct 2009 21:34:57 +0000 http://pragcap.com/?p=10605#comment-7007 TPC, excellent article! I was aghast seeing Bill Miller make the cover of Barron's. I'm sure he's a wonderful man, but he was obviously a recipient of extremely good luck during that 15 year period where he beat the S&P 500 every single year. His eventual downfall makes him a poster child for the efficient market theorists for he has now been relegated to the status of a monkey throwing darts (a very fortunate monkey). I've written my own scathing review (but without your revealing data) at: http://stockmarketadvantage.blogspot.com/2009/10/barrons-article-on-bill-miller-shreds.html TPC, excellent article! I was aghast seeing Bill Miller make the cover of Barron’s. I’m sure he’s a wonderful man, but he was obviously a recipient of extremely good luck during that 15 year period where he beat the S&P 500 every single year. His eventual downfall makes him a poster child for the efficient market theorists for he has now been relegated to the status of a monkey throwing darts (a very fortunate monkey).

I’ve written my own scathing review (but without your revealing data) at:

http://stockmarketadvantage.blogspot.com/2009/10/barrons-article-on-bill-miller-shreds.html

]]> By: HankB http://pragcap.com/the-mutual-fund-industry/comment-page-1#comment-6997 HankB Mon, 12 Oct 2009 18:30:13 +0000 http://pragcap.com/?p=10605#comment-6997 Exactly TPC! Dead on. Exactly TPC! Dead on.

]]> By: HankB http://pragcap.com/the-mutual-fund-industry/comment-page-1#comment-6995 HankB Mon, 12 Oct 2009 18:27:21 +0000 http://pragcap.com/?p=10605#comment-6995 John, You've done 1.6% worse than the S&P 500 PER YEAR since 1983 and you've paid about 1% more in fees. Plus, you've shelled out your annual cap gains taxes every year. How can you feel good about that? John,

You’ve done 1.6% worse than the S&P 500 PER YEAR since 1983 and you’ve paid about 1% more in fees. Plus, you’ve shelled out your annual cap gains taxes every year. How can you feel good about that?

]]> By: TPC http://pragcap.com/the-mutual-fund-industry/comment-page-1#comment-6994 TPC Mon, 12 Oct 2009 18:15:16 +0000 http://pragcap.com/?p=10605#comment-6994 The point is John Woods, as my analysis shows, you would have done better with an index fund. You would have paid lower fees, obtained better returns and taken less risk. There is no disputing that fact…. You would be wise to read up on risk adjusted returns as you clearly don’t understand the concept. The point is John Woods, as my analysis shows, you would have done better with an index fund. You would have paid lower fees, obtained better returns and taken less risk. There is no disputing that fact….

You would be wise to read up on risk adjusted returns as you clearly don’t understand the concept.

]]> By: John Woods http://pragcap.com/the-mutual-fund-industry/comment-page-1#comment-6992 John Woods Mon, 12 Oct 2009 18:05:23 +0000 http://pragcap.com/?p=10605#comment-6992 You are full of bull crap. I used Bill Miller's Value Trust, his philosophy, and skillful planning for my personal accounts since 1983. You guys sound like amateurs seeking quick, option-like returns. A little more experience and maturity is in order here. Are you or any of your followers more than 8 years old? 18 maybe? There is risk in any investment (as johnnycomelatelies who bought a house with govt. guaranteed loans. Grow up. You are full of bull crap. I used Bill Miller’s Value Trust, his philosophy, and skillful planning for my personal accounts since 1983. You guys sound like amateurs seeking quick, option-like returns. A little more experience and maturity is in order here. Are you or any of your followers more than 8 years old? 18 maybe? There is risk in any investment (as johnnycomelatelies who bought a house with govt. guaranteed loans. Grow up.

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