Sound Advice

Always Look at Underlying Fund Holdings It seems easy enough to look at the name of a mutual fund or exchange-traded fund and assume what kinds of stocks are held by the fund.  But in more than a few cases, that assumption could prove costly.  A common example of this would be mutual funds that are labeled “aggressive”.  That’s a label that one would think suggests the likelihood of above average potential for gains.  More likely, however, it means the fund holds stocks that are highly volatile.  In weak markets, they will probably fall farther; in strong markets, they might rise faster.  But the greater likelihood is that the label is a marketing gimmick for underlying holdings that are relatively benign. There is another wrinkle of greater concern.  That’s the tendency of some investors to buy a number of large, well-known funds to provide what they believe will be diversification.  At first glance, that would seem to make sense.  The problem, however, is that as fund assets grow

“ . . . the daily machinations of the stock market are like a tale told by an idiot, full of sound and fury, signifying nothing.”                                                                                                                  John Bogle, founder of Vanguard   One can only be mystified by the ongoing torrent of verbiage about the stock market’s dramatic movements from day to day, much less moment by moment, and how those who would consider themselves investors pay any attention.   Yet with straight faces the “experts” maintain nonstop development and regurgitation of essentially useless explanations for whatever is happening on Wall Street at any given time. Indeed, the latest report on changes in the Consumer Price Index (CPI) was preceded by the usual variety of baseless forecasts including one from the esteemed folks at JPMorgan, who let it be known that the Standard & Poor’s 500 Index would drop 2.5% if that index of inflation came in between 6.4% and 6.5%.  Sur

Buys, Holds, and Sells One of the fascinating things about the world of investing is the proliferation of stock recommendations.   Most come from brokerage firms, but more than a few come from the print and broadcast media.   Rarely does a day go by without seeing “10 Stocks To Buy Now” or “Five Funds To Hold Forever.”   My sympathies to those who take this stuff seriously. In the good old days when stock commissions were hefty, as in $150 or more per ticket, big pay days were earned by institutional stock analysts who generated massive tomes of commentary and data about companies they considered outstanding investments.   That was prior to May 1, 1975, when the Securities & Exchange Commission ruled that brokerage firms had to negotiate commissions.   Before then, those reports often ran to dozens of pages in support of the thesis.   In most cases, their best use was as kindling in a fireplace. Most of the recommendations were Buys and there were usually a few Holds from ana

  Alphabet Soup When I began as an investment adviser, I was disappointed to learn how uninformed most folks were about financial matters and financial advisers.  One example was a gentleman who had difficulty understanding the difference between an investment manager and a stockbroker.  My response?  The investment manager is the architect of the portfolio; the stockbroker is the builder of the portfolio.  That concept is easy enough to grasp, but given the multiplicity of letters that may follow one’s name, the situation appears to get much more complex.  A few of the designations require considerable effort and time to acquire.  And then there are those that can be obtained by a modest charge on one’s credit card and no time spent learning about anything. One tipoff is when there are numerous cryptic designations following one’s name.  More often than not, a series of this sort will strongly suggest that the value is what our British brethren call rubbish. For investment adv