How do you make your investment decisions and where do you get
your information? If you're like most of the people I know, you
look to the experts.
That's fine, however it's important to be aware that for every
expert, there's an opinion and for every opinion there's an
expert. I have a friend who says that opinions are like noses:
everyone has one but you wouldn't live in anyone else's nose!
Around the first of the year, along with the New Year's
resolutions, come the New Year predictions for what will be hot
and what will not. As if that isn't enough to produce a massive
case of information indigestion, now we have the cable financial
shows with pretty much the opinion of the hour.
What this is producing is a frenzy of buy and sell activity for
stocks in general, and now for mutual funds as well. I don't
think this approach serves either the investors in particular or
the funds in general.
The big problem with this for mutual fund investors is that all
the experts are recommending different funds. It might be one
thing if experts had a solid basis for their perspective. If they
did, then you would think their recommendations would line up and
they'd all be touting the same thing.
But they don't and they aren't. Oh sure, each one of them can
make a good case for their pick. But so can the next "expert."
And usually both of them won't be right (if either of them is).
So, where's the value in this for you? Beats me.
Another problem with this approach is that many experts recommend
different funds at different times, and, in an effort to be in
the hot fund, investors keep moving from fund to fund.
In the same breath, the experts are telling us to invest for the
long term. Well, I can't figure out how to do both: be in the
latest hot fund, and hold what I've got for the long haul.
The downside of all of this for the funds is that sometimes a
fund touted as the hot one to be in attracts so much investment
attention (i.e., money) that it grows beyond its original
intention. At that point, it loses its direction and the very
thing that made it strong is sacrificed. And guess what happens
to the performance?
So, in the midst of all the hawking and hype for this fund or
that, what's an investor to do to make intelligent choices?
For myself and my clients I use a trend tracking methodology,
which identifies long-term trends in various markets. I research
funds for stability and reliability as well as current
performance. Then, when our trend indicator signals a Buy, we
select our mutual funds based on momentum figures for various
time periods to arrive at the most promising fund(s) to use for
this cycle.
This gives us a head start and sometimes, weeks after we’ve
bought a fund, I see it written up in financial papers as being
one of the best performers.
Does this approach always put us in the number one fund? Maybe
not. But we are almost always in funds that are doing very, very
well. And do we get in at the bottom and out at the very top?
Again, maybe not.
However, I can tell you that, using this methodology, my clients
and I followed the sell signal we got in October, 2000, and were
safely invested in solid money markets when the stock market
crashed and burned.
Is this approach for you? It depends on how much adrenaline rush
you like when you watch your investments. Personally, I fulfill
my thrill quotient with other things in life and enjoy sleeping
at night when it comes to my investments.
© Ulli G. Niemann
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