Lies, Damn Lies and Mutual Fund Returns

How many times has this happened to you? You're at a social function and the conversation turns to investing. Pretty soon, people are comparing how well their investments are doing. As you might imagine, being an investment advisor this happens to me a lot. However, I recently had an experience with it that startled me.

Bob, one of the guys I was chatting with at a party, asked what kind of returns I had made for my clients with my methodical no load mutual fund strategy during the past year. I replied that they had unrealized gains of slightly over 29%, after management fees, for the 8 months that we were invested.

Bob countered with a smirk that he had made a 40% return. I raised my eyebrows and told him that was darn good-and suggested that maybe he ought to be managing my money. At that point we were interrupted and, as the evening went on, I began to wonder exactly how Bob had gotten his great return.

I cornered him a little later on and, upon digging a little deeper, the story looked somewhat different. Yes, he had made a 40% return on a mutual fund he had some money invested in, however, we were comparing apples and bananas.

He had a total portfolio of $100k. Being cautious, he had invested only $10k into a mutual fund, from which he profited $4k after he sold it. The balance of his portfolio ($90k) was sitting in a money market fund earning some 0.35% per year.

So, while he had made 40% on 10% of his investment, he had only made 4.35% on his whole portfolio. My methodology was also focused on protecting my clients' investments and it had increased their entire portfolio 29% (unrealized). That would be an apple to apple comparison when measuring my returns against his. Bob's one fund realized 40% return. However, had I approached it the same way Bob had, I could have described one of the funds I used that had realized over 49% for the same period.

Actually, Bob's not-so-good-news story didn't stop there. Bob admitted to having followed the losing Buy and Hope strategy through the bear market of 2000 and had finally sold out at a 50% loss a year ago, before committing $10k to a mutual fund investment.

I was pleased to be able to tell him that my methodology had gotten my clients out of the market before the bear took his big bite, and they suffered only minimal losses before finding safety in money markets accounts. And when my trend tracking figures directed us to move back into the market, they still had most of their money poised to start earning for them again-which it did and very nicely, thank you.

The moral of the story is to look past the surface and don't take any numbers thrown at you at face value. Remember, most people returning from a weekend in Las Vegas will shout about their winnings and mumble about their losses.

About The Author

Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: www.successful-investment.com.

ulli@successful-investment.com

---

When?

When will the stock market stop going down and start... Read More

Jack and Jill

Jack and Jill went up the hill to fetch a... Read More

Shadow Bull

As one of my regular readers you know I have... Read More

What To Buy Now

I am sure that if you have a brokerage account... Read More

Swing Trading Strategies

Using Swing Trading Strategies and Technical Analysis when Trading Stocks... Read More

Is The Bear In The Cage?

For the last few weeks we have seen the stock... Read More

No Load Mutual Funds: Boost Your Portfolios Returns

Investors who exclusively use broadly diversified, no load mutual funds... Read More

The Inside Scoop on Mutual Fund Rip Offs

The bear market that showed up at the end of... Read More

Lies, Damn Lies and Mutual Fund Returns

How many times has this happened to you? You're at... Read More

The I Word is Coming to a Town Near You

Hello Inflation, it has been awhile, I see you on... Read More

Some Good News for A Change

Before we get into all the good news out there,... Read More

Defining a Long-Term Investment in the Stock Market

For some "long term" would mean holding a stock position... Read More

Trading Tips No 6: The High Cost of Low Cost Stock Market Information

It has been said that low cost or even free... Read More

Smart Day Trading Strategies to Help You Make Money in the Stock Market

Stock trading can be a very profitable activity. You can... Read More

A Stock Market Investment Plan that Never Lets You Down

The bulls and bears of the stock market are both... Read More

Evaluation I

An insane person cannot evaluate an insane evaluation system.As you... Read More

Robert Rodriguez Weathers the Stock Market

Robert Rodriguez likes to buy stocks at their lows. When... Read More

Bargain Basement - Finding Stocks That Go Up

Have you been listening to the talking heads on CNBC-TV?... Read More

Hedge Funds

You read and hear a lot about hedge funds. Unfortunately,... Read More

Finding A Good Stock

One of the things people are always asking me is... Read More

Dividend Reinvestment Plans: Investing on Automatic Pilot

If you're like many investors who squander those small dividend... Read More

Investing in Trash Company Stocks

Refuse is a serious issue in any society, about as... Read More

The Holy Grail (of Investment)

Every year I go to the Money Show in Orlando,... Read More

Prosperity

It has fallen upon the consumer to make our economy... Read More

Investment Discipline

One of the great "secrets" of successful people is discipline... Read More

Red, Green, Yellow - or - Stop, Go, Go Very Fast: Which Describes Your Online Trading?

Ever notice how behavior in one area of life can... Read More

Trade Stocks for Real

I read a comment by a forum member on another... Read More

Trading Tips No 2: The Big Lie in the Stock Market

It is commonly reported that the stock market averages about... Read More

Humpty Dumpty the Stock Market Falls Down

Humpty Dumpty had a great fall and all the King's... Read More

The Information Age

It is wonderful to be alive in the information age.... Read More

The Surgeon General

The Surgeon General of the United States says that smoking... Read More

A Stock Market Investment Strategy

I feel that an investment strategy in the stock market... Read More

Historical Briefing: Stocks, Finance and Money

The World Bank claims that some two billion of the... Read More