Yes, You Can Beat the Market

Manifesto

Buying an index fund because "most managers do not beat the market" is just an admission of defeat.

Pick a fund whose manager that is significantly beating the market at the current time, and stay with that fund so long as it is doing well

Believing and trusting in any fund manager is a mistake. Sometimes they are hot, and sometimes not.

Do not get emotionally involved with a fund, its philosophy, or its manager, no matter how good they sound on CNBC. Performance is all that matters.

Paying a load or a redemption fee for a fund is just plain stupid.

Need I say more?

Asset allocation is nonsense; bonds are almost never a good buy.

Some people say you should always have some money in bonds, and provide complex asset allocation models for you to follow. But consider this: When interest rates are going up, it is a mistake to buy bonds because you will lose some of your principal; when they are going down it is very likely that the equity market is going up at a faster rate than the bonds are appreciating; so the only time to be in bonds is when interest rates have peaked, and will stay at that level for some time.

Diversification is for wimps and weak minded idiots.

Some people recommend that you have a diversified portfolio: sector funds in most of the sectors, a large cap fund, a small cap fund, a mid-cap fund, a value fund, and a growth fund. Then you are supposed to judge the funds by their "peers". So this year (1999) you would be keeping the best of the "value" funds, which is, of course, doing worse than even a mediocre growth fund.

Listen to what the fund manager says - NOT!

True, sometimes this is instructive. But consider Robert Sanborn, manager of the Oakmark Fund. For the last 2 years the fund has been a real dog, or Donald Yactman whose 2 funds are down more than 20% this year. They say (according to an article in Investors Business Daily 12/9/99) that the problem is "short-term investors who don't grasp their funds investment methodology." Listen, dudes, I don't give a rat's ass about your investment methodology. I want to make money, and you are doing a bad job of that. So expect nothing from me. And maybe you should get a job more in line with your capabilities, like licking stamps.

Give the fund some time - NOT!

Again, from the same Investors Business Daily article, quoting Ed Foster: "I would only bash a fund if it underperformed its benchmark peer group in each of the 1-, 3-, and 5-year time periods." " It's not fair to dump on a fund manager just because he underperformed the market for a short period of time." Fat chance I would ever hold a fund for even 1 year if it were underperforming the market, much less its peer group.

There is a sucker born every minute, but it does not have to be you

There is a lot of really bad advice out there. For example, Gardner Brothers (Motley Fool) have this idiotic buy-and-hold mentality, and they recommend just buying an index fund. Many people will take that advice, and it will cost them money. But it does not have to be you. Paine Weber raised $2.1 billion for one of its funds because its brokers got extra-high commissions for selling it. But you did not even have to listen to those brokers. The guy who brought us the LTCM crisis has raised a bunch of new money. But that only proves that there is no fool like a "wealthy individual", or an institution.

Anyway:

Take a look at the systems at Fundbuster, and see what you think.

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