Investing 102

[GregWeld]

So let me further explain my "disdain" for Funds.... The above mentioned fund has a "decent" performance. It almost mirrors the S&P500 --- almost exactly --- usually the S&P 500 is what fund managers are looking to "BEAT" --- otherwise they're just considered average and they get looking for work...


All a person has to do -- is to look at the holdings of this fund --- and duplicate it's top ten holdings (if you have that kind of funds to invest)... and you can do so with NO FEES of any kind... no minimums... it's open to anyone at any time - and you can choose to re-invest the dividends or just have them put as cash into your account... in other words -- you can build this same fund --- and have some control over what you want to do and how.... and there's no "expense" associated with it. So then - why just buy a "fund".


Here's their top ten holdings....



AAPL
Apple Inc
Computers & Peripherals


XOM
Exxon Mobil Corporation
Oil, Gas & Consumable Fuels

GOOG
Google, Inc. Class A
Internet Software & Services

MSFT
Microsoft Corporation
Software

GE
General Electric Co
Industrial Conglomerates

JNJ
Johnson & Johnson
Pharmaceuticals

CVX
Chevron Corp
Oil, Gas & Consumable Fuels

PG
Procter & Gamble Co
Household Products

JPM
JPMorgan Chase & Co
Diversified Financial Services

WFC
Wells Fargo & Co
Commercial Banks



So here's my point ---- they probably have 100 plus companies in this fund --- but my guess is that the top ten did all the heavy lifting (performance) and the bottom 20 pull their averages down... so why have the bottom 20 in your portfolio?? Most funds are just giant pools of "average". We strive to be better than average don't we??

So here's another "issue" I have with INVESTING 102 and funds... and that's the research and the details. Now -- I've been doing this a long time --- and I can sort thru lists and details and pick stuff apart in a nanosecond... but I'm not so sure a lot of you can do this and might get fooled by the big numbers and not parse out the larger details. So for example I just did a sort research via Schwab for all the MORNINGSTAR 4 star rated funds.. and then I sorted them by "returns since inception" ----- killer! I should get a list of the very best returns right? So the top one has a 20% "return since inception".... holy cow -- I want in that bad boy -- it's killing it. Well -- but it only started in 2009 --- right when the market turned UP -- and actually - 20% since then is pretty average performance. The "since inception date" is very small --- and how many would have picked up on that?

Then --- once you start to have money in 4 or 5 funds ---- what's your overlap?? How many are going to go look at what the fun is made up of. Microsoft can be in a TECH fund -- it can also be in an S&P Large Cap fund -- or a Large cap blend fund... so while you'd think you were "diversified" you may in fact have a bunch of duplication.

So for me --- funds are "fine" if that's all you have available to you -- and you just want to be investing thru work.... and you don't want to do a dang thing for yourself. But that's why we have 360 pages of posts here... it's about doing a minimum amount of work (which is actually fun -- it's really more like shopping) and building your own "mini fund".

[glassman]

And thats why its called "working smarter, not harder..."

[XLexusTech]

well let me put real time facts to my position on funds. in 10 years I am up 30+ on my funds.. includes deducting for expense fees.. (for which i keep my ratio below .10%)
this is not employee sponsored but post tax cash investment. ANYONE can do this.. the fund I quoted is an Admiral fund the same fund non Adminral VFINX has a 3K minimum investment and a slightly higher fee...all of my funds started at between 100-3K as NON admiral... and i moved them into admiral as they grew.

My point is that Funds can and should be part of a smart portfolio.

I have another pure stock account were i apply the principles here.. several DRIPS all smart names.. APPL, JNJ, KO, MCD XOM, CVX and so on... over the same period its up 17%.

then i have Gamblers... FB... for example which to date are doing real well for me.
My point here really is... in my opinion its a portfolio that has the principles of good funds+ individual stocks which are solid DRIPs and shooting star throw aways money looking for a good run.. is the way to go for me..

[GregWeld]

I don't want this to seem like an argument - which it isn't... as usual -- I must respond to EVERYONE that's reading these posts so that they can make sense of them for themselves. They're just merely "food for thought" rather than "YOU SHOULD BE DOING X" or "YOU'RE WRONG". Not my intent here at all.


Having said the above --- You bolstered what I said by posting your "other holdings" --- which closely DUPLICATE the holdings in the fund we were discussing. That's NOT diversification --- thats just duplication. And this is the point I was making about holding MUTUAL FUNDS without doing the underlying research to see what they're made up of.

Like most investments -- a few make up for the many. A couple good holdings in a basket of 10 plus -- will pull the wagon as far as "group" performance. If you had Five stocks - Apple being one of them - over the last 5 years - Apple would more than make up for two of the five being losers. The key to investing is to be on top of your investments enough to have fewer losers and have at least one or two winners -- and the middle being stuff that's "average" (generally the steady eddies).

But if you're duplicating investments - you're just generally going all in on just a few names. It's akin to buying all your rental property in one neighborhood.
That's where "THE WORK" comes in to the equation... people get lazy and don't stay abreast of what all makes up their funds etc... and then find themselves "stuck" five years down the road in investments that have just performed so so.

The fund you mentioned sole goal is to duplicate the S&P 500 index. If you want to just do what the S&P 500 index does --- just buy it! It trades as the SPY.... That way you'll be assured that you'll at least equal that index.

But there's not much reason to just buy the SPY and then go and duplicate many of what makes up that index - in individual names. Does this make sense??

Originally Posted by XLexusTech

well let me put real time facts to my position on funds. in 10 years I am up 30+ on my funds.. includes deducting for expense fees.. (for which i keep my ratio below .10%)
this is not employee sponsored but post tax cash investment. ANYONE can do this.. the fund I quoted is an Admiral fund the same fund non Adminral VFINX has a 3K minimum investment and a slightly higher fee...all of my funds started at between 100-3K as NON admiral... and i moved them into admiral as they grew.

My point is that Funds can and should be part of a smart portfolio.

I have another pure stock account were i apply the principles here.. several DRIPS all smart names.. APPL, JNJ, KO, MCD XOM, CVX and so on... over the same period its up 17%.

then i have Gamblers... FB... for example which to date are doing real well for me.
My point here really is... in my opinion its a portfolio that has the principles of good funds+ individual stocks which are solid DRIPs and shooting star throw aways money looking for a good run.. is the way to go for me..

[XLexusTech]

Discussion is never argument.

Here is why i go the route I do... the 100 other stocks in the fun offer me some risk mitigation , the fund allows me to "Set it and forget it" and never look at it..

The individual stock Drips allow me to trickle in directly thereby managing the total cost whilst providing me the ability to Punch out of the individual stock at any time and buy it back at any time.

Its that flexibility and risk limiting factor that for me supports the logic of owning an SP INDEX FUND and some of the same stocks in that INDEX individually

Think of this, I am applying both the "Lazy portfolio" Approach and the active trading approach at the same time... taking the benefits of each.

[GregWeld]

I have always said that everyone needs to do what makes THEM feel comfortable and that is style and choices of investments.... I'm never a guy that will say you should only do things my way....

I just wanted readers to understand WHY I was saying what I was saying.... not in a defensive way --- just as an explanation.

I had breakfast the other day with a retired accountant buddy - he was a managing partner at KPMG -- his wife is a retired CFO... both should understand investments and money and compounding... They're pretty well healed. Then he tells me his "money managers" have him in about 30% bonds which he tells me has just taken a huge hit... but that now he doesn't want to sell at a loss.... My question to him was why the hell does he think these people are worth what he's paying them? I sold my bonds months ago AHEAD of the impending interest rate rise and made a very handsome gain on them...

So much for "professional" money managers. And my buddy should just be embarrassed as hell to even mention that he's not smart enough to manage his own money -- or care enough is really what it boils down to. When I asked him if his money was UP 29 to 30% this year... he could only look down and say "well their strategy has me in pretty safe stuff" --- then I reminded him of his bonds and asked how safe those were??

UGH!!

Originally Posted by XLexusTech

Discussion is never argument.

Here is why i go the route I do... the 100 other stocks in the fun offer me some risk mitigation , the fund allows me to "Set it and forget it" and never look at it..

The individual stock Drips allow me to trickle in directly thereby managing the total cost whilst providing me the ability to Punch out of the individual stock at any time and buy it back at any time.

Its that flexibility and risk limiting factor that for me supports the logic of owning an SP INDEX FUND and some of the same stocks in that INDEX individually

Think of this, I am applying both the "Lazy portfolio" Approach and the active trading approach at the same time... taking the benefits of each.

[XLexusTech]

Yes anyone investing that doesn't correlate interest rates and Bonds is pretty far behind the curve.. knowing the rates have nowhere to go but up sitting on Bonds is pretty clear cut bad decision for the foreseeable future .. ....