The Herd Never Changes its Spots

On Tuesday, I attended an investment conference sponsored by Fidelity Investments intended specifically for financial advisors and money managers. There were several good presentations, including one from the very smart guys at Pimco. But the real takeaway for me from this conference wasn’t any single good idea. Rather, it was the chorus of trite bromides I heard from a panel of three mutual fund company representatives.

 

I am not going to name the companies here. The reason why is that nearly all mutual fund companies have the same basic philosophy — and that philosophy is that whatever takes place in the market, investors should just buy and hold, while waiting for the market inevitably to move higher.

 

I was so disappointed with this advice that I just had to comment on it for Alert readers. You see, all three of these mutual fund reps admitted that they thought the market was in for a struggle over the next several months and beyond. All three agreed that the economy was slowing down, and that it was important for their fund managers to select the right stocks in a difficult market environment. Up until then, I agreed with them. Then they each rolled out the same old expired prescription for individual investors.

 

That prescription, of course, is to just buy and hold. Their thesis was that in three to five years, everything would be okay. Huh? I put that kind of inane advice along the same lines as telling someone that he should buy low and sell high.

 

The fact is that a lot can happen in this market in three to five hours, let alone three to five years. Over the past month, we’ve watched the S&P 500 dive nearly 9%, and year to date the broad market index is down nearly 6%. I don’t know about you, but just sitting back and watching the value of my portfolio drop isn’t my idea of smart money management.

 

What was perhaps even more disappointing was the failure by this panel to address the potential of a new bear market. What if we were to fall into bear territory and stay there for a protracted period? Should investors just watch the value of their holdings evaporate, or should they go to cash or go short? Their answers were conspicuously absent.

 

This panel discussion just confirmed for me what I’ve always known. The mutual fund herd never changes its spots. It also confirmed for me what I’ve said in the past, and that’s that I will never buy another mutual fund again. The way I see it, mutual funds are investments that you need to steer clear of unless, of course, they are the only option available to you in your 401(k)-type account. These days, there are just too many other good options for your money, and these are the options that we use each day in our investment advisory services.

 

If you’d like to find out more about how to beat the market without mutual funds, I invite you to check out my Successful Investing advisory service today.