***OFF TOPIC***Secrets of Technical Analysis Revealed!!! Confessions by closet technicians such as *GM* (names undisclosed to protect the innocent and guilty alike) and others!!!!!
Read how Wall Street is controlled by special powers!!!!!
Disclaimer---the following article is on mutual fund investing, but I thought a nice come-on would help to generate reader interest.....<G>
Further disclaimer---The writer says if the average person uses three percent of his brain, he can beat the Wall Street experts. This is a quote from Peter Lynch, a Wall Street superhero (used to manage the Fidelity Magellan fund).
I think that is a slight exaggeration. Especially coming from a columnist who is supposed to be a Ph.D in psychology.
Also, the "fact" that over 90 percent of all fund managers cannot beat the indexes is not proof that the average investor can easily beat the experts, as the article seems to imply. What it shows is just how hard it is to beat the market averages. And that is the reason for the popularity of index funds.
Separately, the columnist is not only a Ph.D in psychology, but he was also executive vice president of Financial News Network. Didn't Financial News Network go bankrupt several years back? So is that a positive or negative recommendation for this guy's opinions: that he has business experience as executive vice president, which sounds like an important title, but the guy's company went busted?
But in spite of my petty criticisms, there is a sound case to be made for owning a mutual funds.
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For Personal Use Only
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cbs.marketwatch.com
CBS MarketWatch
Dr. Paul B. Farrell's SuperStar Funds
Growth vs. value: An 'X-Files' conspiracy?
Here are 10 funds that work -- no matter what
By Dr. Paul B. Farrell, CBS MarketWatch
Last Update: 12:54 PM ET Nov 10, 1998
LOS ANGELES (CBS.MW) -- Did you watch the season premiere of
"The X-Files," that weird series about government conspiracies out to
control the American people?
You know, the idea of aliens aiming to conquer our world using biological
killers. (Hey, maybe this isn't the flu I've got!)
You think I'm talking about the Fox television drama with Mulder and
Scully? Not quite. And I'm also not talking about the one with Clinton and
Gingrich, though that's enough to convince you that some kind of
government conspiracy must exist. But that one's more a comedy than a
drama. People apparently hate politicians so much they're electing wrestlers
as governors, and now Hulk Hogan says he's running for president.
Conspiracy theories are popular today for a reason. "Trust no one" is the
warning "The X-Files" gives us. "We're not paranoid," to paraphrase Freud,
"sometimes 'they' are out to get us." X-Files-style fear of a government
conspiracy echoes throughout our culture: HMOs, drugs, militias, hate
crimes, gangs, tobacco, terrorists -- and even the investment community.
The American people feel manipulated by powerful forces. Fortunately, a
rebellion is under way, and Hulk Hogan just might get elected in the
backlash. We've had an entertainer as president before, and that worked.
Market cycles impact returns more than experts do
The American investor is in the midst of a revolution, thanks to the
Internet. And it's affecting the so-called advice you get from the
pros. Consider this: You have 10,000 mutual funds to pick from. Feeling
threatened, fund managers, financial planners, investment advisers and Wall
Street brokers want you to believe you cannot manage your own portfolio.
Yet research (including an examination of the recent correction) proves that
market cycles have more to do with the success or failure of your portfolio
than does the "expert advice" you get from the so-called
professionals. Peter Lynch reminds us that "any normal person using the
customary 3 percent of the brain can pick stocks [and funds] just as well, if
not better, than the average Wall Street expert." And the fact that over 90
percent of all fund managers cannot beat the indexes is further proof.
Of course, you can protect yourself against the so-called experts simply by
avoiding them -- and becoming a do-it-yourself investor. But how does the
do-it-yourself investor protect against market swings? Here again, the
"experts" have been telling us for a long time that diversification is the
solution to the problem. Spread your risk among different classes of
securities, they say.
Is 'portfolio diversification' a conspiracy theory?
In developing a diversified mutual fund portfolio, investors are told they
need both "growth" and "value" funds. Maybe that's not true. Maybe that
level of diversification benefits the investment community more than the
individual investor. Here's how William O'Neil, publisher of Investor's
Business Daily, summarized the issue recently:
"If you're a mutual fund investor, you can buy either a growth fund or a
value-oriented fund. In the long run, as far as funds are concerned, it
won't make much difference because performance records are about
the same. ... The real key is to own a sound domestic stock fund (not an
industry or international fund). You should keep it forever. The real money
in funds is made through compounding -- letting the money build on itself --
not by jumping in and out of funds trying to time market conditions."
Notice that, in the long run, there is no difference in performance between
growth and value funds. None. So are Wall Street and the fund industry
engaged in a conspiracy designed to make investment seem much more
complex than it is?
Let's face it, prior to 1994 and the Internet, Wall Street had an absolute
monopoly on financial information. Today it's a public utility, a commodity
available to any investor on Main Street, virtually for free. So Wall Street
and the fund industry are fighting to recapture their edge, in a subtle
conspiracy.
Ten top growth and value funds
Meanwhile, Main Street investors are educating themselves and making
choices independent of this conspiracy to keep them in the dark. Here's a
list of a few of our SuperStar growth and value funds that prove William
O'Neil's point, most with three-year returns over 20 percent, having
weathered the recent correction with flying colors:
Growth stock funds
Founders Growth (FRGRX)
Gabelli Growth (GABGX)
Harbor Capital Appreciation (HACAX)
Westwood Equity Retail (WESWX)
White Oak Growth Stock (WOGSX)
Value-oriented stock funds
First Eagle Fund of America (FEAFX)
Fidelity Equity-Income (FEQIX)
Oakmark (OAKMX)
Torray (TORYX)
Vanguard Growth & Income (VQNPX)
In case you're not sure about the technical distinction between growth and
value investment strategies, here's O'Neil's summary:
"Growth stock investors seek companies that show consistent earnings and
sales growth, usually 20 percent or more each year for the past three to five
years. Companies such as Schering-Plough (SGP), Paychex (PAYX),
Cisco Systems (CSCO) and Microsoft (MSFT) could be considered recent
growth stocks.
"Value investors, on the other hand, search for stocks they believe are
undervalued pricewise. These investors evaluate a company's balance sheet
and profit-and-loss statement for signs of hidden value [large cash,
undervalued property carried at book, etc]. They are looking for a bargain
and like to buy stocks with a low P/E ratio or low price-to-book value. ...
Usually they have to wait a longer time for the marketplace to hopefully
recognize their stock's value."
Ignore the conspiracy drama and go it alone
Bottom line: The investment conspiracy can't hurt you if you're a
do-it-yourself investor. It's just another virtual soap opera. Mulder and
Scully. Clinton and Gingrich. Jesse Ventura and Hulk Hogan. Merrill Lynch
and Charles Schwab. Fidelity and Vanguard. Let them play out the drama.
Ignore the noise. You can build your own portfolio. Remember that, as
Peter Lynch says, "any normal person using the customary 3 percent of the
brain can pick stocks [and funds] just as well, if not better, than the average
Wall Street expert."
Dr. Paul B. Farrell, mutual funds editor of CBS MarketWatch, is
author of "Mutual Funds on the Net" and was executive vice president
of Financial News Network. Farrell has a Ph.D. in psychology and a
juris doctor degree.
© 1998 MarketWatch.com
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