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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank
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To: Jenna who wrote (4389)12/18/1997 11:20:00 PM
From: LastShadow  Read Replies (1) of 120523
 
One Last Thought:

Fidelity and a few other big houses institued a policy of "Fair Value Pricing" of their mutual funds during the October market drop. The reason they did this was to prevent market timers from racking up profits at the long term expense of their shareholders. What would happen is that anyone with foreknowledge of what the, say asian markets were doing, could load up on the mutual funds and the n sell after the recovery. This worked well when the share prices were based on a composite of the funds stock prices. However, since that raised havoc with the long term fund holders, and to prevent this sort of scalping due to market tanking, some funds are looking for a way to prevent short term trading. Not very sporting if you ask me, but understandable (Funds do not have to price their shares on any measurable market value - see Buffet's Hathaway fund...). At any rate, what most funds will be doing now is some form of share pricing based on what they believe is the fair market value rather than the stock collection's trading prices. this will be better for the long term consumer and end up causing the market timers to possibly pay more for the stock andget less when they sell if if they get caught doing it on the day a fund decided to implement this method - which they could at any time. This will make it harder to get a true value of the fund at any given day (rather pointless anyway in most cases), but should make funds that use this method less volatile - something the bulk of the investors will like. I am not sure what affect it will have on the Modified Value Averaging method I use, but will run some simulations to find out - not much I suspect.

lastshadow
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