Mutual funds suck, but a good stock pick is...

[troysvihl]

Some of you may remember my post in a previous thread where I said mutual funds are a waste of money and the best bet is to sink your cash into index funds or just buy the stock yourself. The best stock to get are large companies that have hit a bit of a snag. Well, there is one out there now IMHO. Gateway has been battered the last couple of days with it's announcement that it's going to loose money for the next couple of quarters. The stock is way down. At the time of this post it's sitting at around $19. (was more than tripple that a few months back) Well, I think it's a great buy at that price. The P/E ratio is about 11, so it's real cheap. And I don't think that Gateway is going to disappear anytime soon. I'd bet they're in the black again within 3 quarters minimum.

[BRVB]

I don't think many 'buy' your views on mutual funds. Lots of 'page views' to your post---but not alot of comments<?>

There's enough long-term, sucessfull mutual fund investors out there to argue your crazy claims against mutual funds---period.

Bruce

[mairving]

The main advantage to Mutual funds is that you don't have to do as much research. Of course, that is only an opinion. Some 401K's do not offer the option to buy stocks only mutual funds so you are sometimes limited.

With the NASDAQ falling so low it is a good time to buy a lot of stocks. I wouldn't buy Gateway stock because I don't really like their computers. That is the way that I invest. First I see if a stock is sound and a good buy usually in the $10-20 range. Then I research the company. If it is a tech stock, I am usually familar with their products. If I like their product and it is a good value, I buy.

[troysvihl]

>>There's enough long-term, sucessfull mutual fund investors out there to argue your crazy claims against mutual funds---period.<<

and for every one of them, there are 3 that support my arguement. And no good way for investors to tell them apart. period.

[SARGE]

Bio-Tech

[BRVB]

troysvihl...

No sense arguing with some folks...your one of them. Some things you just have to let go, and let reality and the facts speak for themselves...

To anyone that posts a topic like "mutual funds suck', I should have known better than to challenge--there's no hope....

Bruce

[troysvihl]

exactly what facts do I have incorrect?

well you stay with your mutual funds and i'll stick to my index funds. in 30 years we'll compare returns

[BRVB]

You got a deal...your on....I'll keep both my index, and 'managed' mutual funds, and 'call' you anytime along the way...Quarter End/Year End 2000--and any year after...You name it--honest 12 month loss/gain % results posted right here.

My 'managed' funds have great fundamentals, are well researched, & managed by some of the best stock-pickers around--on any given year, if one style's not shining, another holds it up. Which I think is the idea.

See you here 12/31/00??

For you individual stock fans out there following along---Gateway is 'cheap' for a good reason, and I don't think its a 'value' stock either. Just my opinion. If your gonna take a chance and buy ANY 'box-maker' go with Dell. Why buy less than the world's largest direct computer systems company?

[troysvihl]

12 months? I don't think I'd take that stacked deck. I'm talking long-haul performance, not just a year or two. Sure, the idexes are getting beat around pretty badly so far this year, but over the long-haul, they will outpermorm 75% of the mutual funds out there.

[BRVB]

Stacked deck?? If your so sure about this, lets compare as we go...

Times change---Its a new market...I don't read to much in to 'history'. I'm removing doubt by investing in both investment vehicles--Passive and managed---when my index funds are down or sagging, and I understand those times will be more often than in the past, I'm bettin' my managed funds won't be--and it sure bumps my odds.

"-the idexes are getting beat around pretty badly so far this year, but over the long-haul, they will outpermorm 75% of the mutual funds out there"

Amusing!! Says who?....who's crystal ball shows this?? Who picked 75% for this year?? Gonna kill the average, isn't it? Following 2000, it'll take 10 years for this percentage have merit again, if ever! I've read that 'book' too, but I'd spare faith in the above statement from the past, with this new enconomy ahead. Large-cap weighted index funds will lag; I predict they will also under-perform the past by far, and talented/quality 'hand-picking' stock fund managers will reign. Only the best in their styles will survive.

Just the same, I'll index along with my managed funds--and beat you doing it.

[troysvihl]

please stop with the "new economy" tripe. That clique is so overused. There is no new economy. The laws of economics don't change, and I think the past few months have proven that pretty effectivly.

[mbossman2]

Mutual Funds offer something that a normal investor does not have and that is diversification.

Selecting a single stock (or even 3 or 4) increases the risk to your principle investment. Mutual funds offer a wide range of stocks from multiple sectors (if it is run right) so if one particular sector (ie technology) takes a beating the other sectors ameliorate some of that loss.

Index funds are mutual funds as well...they are just not managed by an invidual or team of investment professionals.
I have to agree that in the last several years, index funds have outperformed managed funds.

BTW, Gateway on the surface appears to be a good buy but on what do you base your statement that they will turn it around in 2-4 Q's? I remember when Compaq plummeted and everyone said that they were a good buy then, since then they have shown no real upward momentum, they have hovered around the 25-30 range.

As to the "new economy" mantra: you have to remember that the technology sector has only been running amok for the last 3-5 years, when compared to the greater market than is only a statistical anomoly. Also remember that when the economy turns south, people and companies will look at their IT infrastructure and sya "it works fine now, and we don't need the latest and greatest <insert tech device here> and we don't have the corporate profits to purchase it any way".

With an economic downturn, people will still need things like food, soap, toothpaste etc (basic life needs). I would safely invest in those areas.

All in all this is, of course, IMHO


[Edited by mbossman2 on 12-04-2000 at 10:05 AM]

[troysvihl]

>>Index funds are mutual funds as well...they are just not managed by an invidual or team of investment professionals.
I have to agree that in the last several years, index funds have outperformed managed funds.<<

That's the great thing about index funds. No worthless managers to skim off your profit. I subscribe heavily to the efficient market theory that states all relevant information has already been discounted into the commoditie's price. Therefore, there is no point in paying some yahoo to do research that literally tens of thousands of other analysts have already done. Anything worth gleaning from that information has already been incorporated into the price.




>>BTW, Gateway on the surface appears to be a good buy but on what do you base your statement that they will turn it around in 2-4 Q's? I remember when Compaq plummeted and everyone said that they were a good buy then, since then they have shown no real upward momentum, they have hovered around the 25-30 range.<<

Well, I think they are the best mass computer producer on the market right now. As long as I can remember, they've always outpriced any other computer manufacturere and they always get the new technology into their computers before any of the other manufacturers.

Their P/E ratio is real good right now, and the big hit they took on earnings this quarter is due to a loss in tech stock investment. I don't think the tech market will decline much further than it already has, so I think Gateway's losses will slow from their investment capital.

Of course all this is already discounted into their stock prices. In fact I doubt there is a single piece of information that I could get my hands on that would give me any advantage in picking this stock. There are thousands of analysts whose only job it is, is to watch Gateway stock for years and analyse everything relevant in excruitiating detail.

So take my advice with whatever weight you want. It's worth what you paid for.

[SARGE]

50% of homes now have pc's. Getting to that # enriched many pc makers. Now that things have stabilized a bit, that is seen in the sales of pc's. Of course, most of us will be buying again, but the first wave of buyers have settled in.

My company matches 80% of everything I put into savings plan. What they contribute goes strictly into company stock. I can select from various directions for my part - company stock, guaranteed interest fund, global market, bonds, diversified equity portfolio. I chose the latter and returns average 28% yearly.

I've given my kids $ to invest (I'm the holder) and we discuss where and how much they invest. They get a kick out of watching "their" stock daily. Of course, we've chosen non-volatile stocks, like Wal-Mart, etc.

If I was going the other route, I'd pick index funds. Different strokes for different folks.

[BRVB]

...summarizing my thoughts, ...don't get me wrong here. I like index funds. But, when you've got superstar fund managers available too, you'd be doing yourself a disservice to ignore them. Its easy to make money in index funds when the market is going up. But during those tougher times, its comforting to have somebody with past experience and discipline working for you. It always comes back to sticking with managers who show time-tested results.



Bruce

[troysvihl]

and there lies the rub: How do you know which fund managers will "manage" the funds better? Attempting to pick mutual funds on the basis that the fund manager has performed well in the past is a bad idea. (>90% of funds that have outperformed index funds for three or more years, will loose money over the coming years)


BTW, I put very little stock in the diversity arguement. There are just as many flavors of index funds out there that are as there are mutual funds. Hell, even if you just take an index fund based on the S&P 500, you're pretty well diversified.

[Edited by troysvihl on 12-05-2000 at 04:12 AM]

[SARGE]

Mutual funds-

Large-cap funds costs about 2.20 percent a year. Comparable cost of an index fund is 0.23 percent.

Small-cap funds and foreign funds costs about 4 percent a year. A comparable index fund is 0.60 percent.

Index funds don't take as much from you and in so-called downturn years, your costs could eat your lunch.

[BRVB]

Sarge...

I don't have any funds with expenses anywhere near numbers you put up here....not close!...What funds are you looking at? Not average funds, I assure you...I've never seen a no-load large cap fund anywhere near 2.2% expense ratio..or small-cap funds at 4%.....<???!!??> where did you get these numbers?

My whole portfolio-- average of all my funds, not counting my Schwab 1000 Index fund, is 1.07%..Including large-cap, small, value,& world-stock...

You've put up some numbers to explain here...!


Bruce

[SARGE]

Large-cap: the average has expense ratio of 1.30, pays commissions equal to 0.30 percent of net value, a bid-ask spread cost consumes another 0.30 percent and an impact cost taking another 0.30.

Small-cap: expense ratio averaging 1.60 percent. Commission expenses at 0.50. Additional 1 percent by bid-ask spread and impact costs.

Your mileage may vary, but not by much.

[BRVB]

"Mileage may vary, But not By Much??!!"...Bull!! No one needs to pay that kind of Expense Ratio!

I have no idea where your imformation comes from("bid-ask spread cost???"what the hell is this???)but your locating some rare funds, if they even exist. But even if they're out there, who'd buy 'em?! I mentioned my average fund E/R above,(1.07% avg, in 10 mutual funds) and frankly, I think your facts are whacky...I'll never believe the average large-cap fund avgs 2.2% in total expenses--4% for a small-cap??.......none I've studied, and I've done my homework on hundreds of funds.

There are many excellent 'no-load' funds out, at or very near 1%. Many!

Sorry....don't buy any of it...

Bruce

[troysvihl]

but even a management fee of 1% really adds up over a decade or so. if you're paying it over a lifespan, say about 40 or 50 years of investing, it's going to take about a third of the value of your portfollio. so even an expense of only 1% really hurts.

[SARGE]

Well, troy, you've got no hope (according to earlier posts) and I'm whacky. Ho-hum :o

[BRVB]

Right, Troy...That's the price you pay to 'beat the index'. Maybe 50 or so basis points over an index fund. And with carefull selection, I do it. I'd gladly pay the extra expenses, little difference that there is, for a better chance at a stronger return. Much of the 'statistics' you hear regarding managed and passive funds is over-stated to a degree, I feel. Many managed funds are just plain poorly managed, & lacking ability, like any business could be, giving others a bad name. Good fund fundamentals, and especially one where the manager owns/invests in his own fund(I watch for this)--one with talent, and good management can beat the index more often than you think. (Especially true in the 'small-cap', & International area)Im not expecting it all the time...or every year...but in the long run, a combination of BOTH funds is more often than not, going to beat your index funds alone.



Bruce

[troysvihl]

well bruce, each to his own i guess. maybe you have a crystal ball that helps you pick mutual funds that will beat the S&P

but historically this statement hasn't been true at all:

>>but in the long run, a combination of BOTH funds is more often than not, going to beat your index funds alone<<

for this to be true, the mutual fund portion must outperform the index fund portion. and since over 75% of the mutual funds out there will not beat the index funds, then this statement will be true less than 25% of the time.

[Edited by troysvihl on 12-06-2000 at 11:34 PM]

[SARGE]

Efficient FrontierThe Online Asset Allocator



Edited by William J. Bernstein




What the Investment Industry
Doesn't Want You to Know


It's a fact: your investment performance is determined almost entirely by
only one factor -- your allocation of assets among broad asset classes.
Stock/mutual fund picking and market timing -- the things traditionally
thought to be critical to investment success -- turn out to be almost
irrelevant. How can this be?

Over 10 years ago, Gary Brinson, a noted finance academic and money manager,
studied a group of pension fund managers. He found that he could explain
over 90% of the differences in performance among these investment
professionals simply by classifying them according to how much of their
assets they placed in stocks, bonds, or cash. Stock picking or market timing
skill? Try as though he might, he found no evidence of either among these
investors practicing their craft at the apex of the profession. The
significance of this for small investors is profound; find the "right" mix
of foreign and domestic stocks and bonds, and your choice of individual
securities becomes almost irrelevant in the long run.

How the investor arrives at the "right" mix is called "portfolio theory,"
and until recently small investors have had precious little guidance in this
vitally important area. How difficult is it to find this "right" mix?
Surprisingly easy. Consider: If over the past 10 or 20 years you had simply
held a portoflio consisting of one quarter each of indexes of large US
stocks, small US stocks, foreign stocks and high quality US bonds, you would
have beaten over 90% of all professional money managers, and with
considerably less risk. The amazing truth is that over a long enough time
period almost any reasonably balanced indexed strategy will best the
overwhelming majority of "professional" managers.

[BRVB]

Heard it before, Sarge...but this time its "90%" of the time....the index's are gaining ground on managed funds...

I'm still trying to find large and small cap funds that peddle their talents for 2+%, and 4% of their take, respectively...

No disrespect meant--you guys keep it fun...

[LawyerRon]

Hey guys,
My portfolio's down about 20% right. Think I care?
I don't because my fund managers are snapping up good bargains right now. What's driving all this volitility in the market right now are the day traders. I don't even consider them "investors". They're gamblers. They trade on margin and when the market drops and the margin calls come, they've got to sell, sell, sell. Then the smart guys step in and snap up all the good deals. I've seen it happen too many times. I'm in it for the long haul. I'm looking 20 years down the road. I just want to average my nice little 12-16% returns and let you other guys deal with all the b.s.

[Carl Price]

Originally posted by LawyerRon
What's driving all this volitility in the market right now are the day traders. I don't even consider them "investors". They're gamblers. They trade on margin and when the market drops and the margin calls come, they've got to sell, sell, sell.

Excuse me Ron but that's b.s. By defination a daytrader takes no position home with him any day. Very few true daytraders ever get a margin call. (I would say no true daytrader ever gets a margin call but there is always an exception) True we are gamblers but with the tools are our disposal it not much of a gamble if you follow the rules.

First NEVER take a position home at the end of the day!
Second never buy at the open! See which way the market runs.
You can always sell short if it runs that way.
Third don't get greedy. 1/8 of a point on 5000 shares is $625. I can take that every day.

There are other rules but those three are the most important.

Daytraders are not what the funds and regular brokers say they are. True they provide volitility but they also provide liquidity.

You should care that the portfolio is down 20%. Most fund managers are not that much better than I am at predicting which way a stock will go long term.

[LawyerRon]

Carl,
I agree with your daytrading rules. I should have qualified my statement as I really meant the daytraders that don't know what they're doing, ie, the unsophisticated ones that want to jump in the game and don't have a clue what they're doing. I realize many daytraders are pros and make a great income by this method.

[troysvihl]

no one can time the market, and anyone who says they can is just a warning case waiting to happen.

[BRVB]

>>the mutual fund portion must outperform the index fund portion. and since over 75% of the mutual funds out there will not beat the index funds, then this statement will be true less than 25% of the time<<

Ok...but even if I 'give you that'..the 75% stuff, and my managed fund beats the index by say a return of +5%, for example, 25% of the time, I can afford to have a 'draw' or even a couple percent-point deficit for several years(maybe even the 3-out-of-4 yrs. that you come out ahead, as you say) and still be on top, with a good performing managed fund, that beats the index by 5+%!!--Having BOTH, puts you in the position to possibly beat the Index/Market--or with Index Funds only, you resolve to taking market-return *less* your meager expenses, which anyway you slice it, is less than market returns---I think I like the idea of bumping the odds and topping the market, long term...And I will...

If I had bookooo bucks to invest, this wouldn't be the case--market returns would be fine with indexing(or 'bonds' for that matter!)----Like most, I need more total-return than that, with what I have, and add to my investments--and herein lies the difference as to why I add managed funds, to accumulate more for retirement.

As you've heard predicted lately(what do 'they' know, right?) *market returns* aren't gonna be what they've been the last 10yrs.,going forward--but I guess you can live with that...I'cant...

[SARGE]

Beaucoup. None of us will be what we've been past 10 years. In some cases, that's good. The market is sport and amusement for some, an addiction for others, but mostly a gamble. Different strokes for different folks.

[troysvihl]

i don't know the statistics of how many mutual funds consistently outperform the indexes by 5%, but I would assume that it's a pretty damn small number considering how steep the curve is to even get a positive return with a mutual fund yet alone beat the indexes at all.

if you had bookoo bucks, you wouldn't have to worry about risk at all and could invest based just on a straight net present value analysis. then all this talk of past returns becomes moot and your only interested in projected returns. that's why rich people can usually get a much better return than people who just invest in financial markets. They don't have to worry if their investment tanks since they have tons of discretionary income, therefore, they can go for the juicier plums. The person with the bookoo bucks is going to take as many of the higher risk investments as he can rather than many of the smaller risk ones, b/c thanks to the law of averages, he's going to come out ahead even though he looses his shirt three times out of four. (notice the law of averages creeping in again. that's the same law that enables some mutual funds to beat the indexes)

[SARGE]

Yep, and when I'm forking over $500 a month to invest, I take the better odds. Thinking of just putting it all into a guaranteed interest fund. Cheaper returns, but no gamble.

[LawyerRon]

And the Lawyer said "AMEN".

[SARGE]

:D :D