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Littlechap,

I will put this up front because I doubt anyone wants to read through your rant again to pick out my answers. You seem to be unable to follow me so let me tell you what I argue.

(1) I argue that buying a broad index fund ensures that one gets market average returns and that for long term investors that is usually pretty good.

(2) I argue that trying to beat the market average by chasing after performance (whether it is the hot stock, hot mutual fund, or hot sector) usually produces below average performance.

(3) I argue that trying to time the market is a losing proposition for most investors.

(4) I argue that expenses matter and my index funds have the lowest expenses in the industry.

You argue that trading mutual funds using technical analysis will produce superior performance. Good luck. I see little difference between this and day trading in stocks other than an increased time scale. You are 'week trading' in mutual funds.

Now on to your rant and my answers:

How hard is it to create a screen of the top 10% performers in any sector, or any investing style, or whatever, and then do a little analysis?

Not hard at all. And using such techniques led TMF to tout the Foolish Four (and then back away in shame). Do the words "past performance is no indication ..." mean anything to you?

I have done just that, and picked out several funds that not only got top ratings from two different services, but which also have demonstrated a high reward-to-risk ratio using statistical features including Sharpe ratio, etc. Then look at some charts.

I submitted a 3-year chart in my earlier message for anyone's examination. You can manipulate it all you want. It shows, plain as day, that if a person starting last January had looked at the PAST performance of WMCVX for the calendar year 2000, and invested in that fund with expectations of a good future, he/she would indeed have been rewarded by a similar yield in 2001.

The chart also showed that, over a three-year period, the S&P index fund appears to have netted virtually NO increase at all in NAV.

Those are facts. Will these phenomena repeat themselves? I do not know.


And you make my point. Anyone can look back at historical data and come up with a scheme that would have made money. No one has found any such scheme that has legs.

When this strategy fails you will tell us that we should have used some other scheme. The problem will be that you will give us the advice too late to do us any good because you will have discovered the new strategy using historical data.

Managers CAN -- and DO -- find such "oversold" companies, and buy their stocks for fund portfolios at a bargain price. When such a stock finally rises to its true worth, the fund's NAV increases. This is the very foundation of "value" investing, and it is the most successful style right now. Why do you think I used a value fund as my illustration before? After all, many/most "growth" funds are way down this year.

Most active mutual fund managers have a track record of failing to outperform the market averages over any reasonable period. That's the foundation of your advice to trade funds rather than buy and hold, right? It is also the foundation of my belief that getting the market average with a low cost index mutual fund is pretty good.

You used a value fund because value funds are hot right now. A few years ago you would have used a growth fund and you would have missed out on buying that value fund. Did you tout value investing when it was out of style last decade? Did you buy up a lot of low cost value funds? Did you tout bond funds in time to avoid the big market down turn?

Neither do you. But you argue as if you do.

No, let me tell you what I argue.

(1) I argue that buying a broad index fund ensures that one gets market average returns and that for long term investors that is usually pretty good.

(2) I argue that trying to beat the market average by chasing after performance (whether it is the hot stock, hot mutual fund, or hot sector) usually produces below average performance.

(3) I argue that trying to time the market is a losing proposition for most investors.

(4) I argue that expenses matter and my index funds have the lowest expenses in the industry.

You argue that trading mutual funds using technical analysis will produce superior performance. Good luck. I see little difference between this and day trading in stocks other than an increased time scale. You are 'week trading' in mutual funds.

Every trade costs in transaction fees. I can see why Bogle and Vanguard upset you so much. They charge fees to keep traders like you away from most of their funds.

Meanwhile, your whole premise seems to be that you know the future, too. Like, the past record of stock indexes predicts their future success.

My point is that one can lose money if one follows that advice without caution. The S&P is down right now. Anybody who bought an S&P index fund one month ago has lost eight percent.

And it did not take a rocket scientist to predict something like that! Anybody reading the paper would have seen the Q2 earnings bloodbath, the unemployment figures, confusion in the energy markets (a key part of the CPI) and other downward influences on stock prices.


Hold it! Are you telling us that you predicted that the S&P index would lose eight percent in one month? Not that exact amount, huh? How close was your prediction? I seriously doubt that you can predict if the S&P will be up or down in any given month IN ADVANCE. It is your claims that "it did not take a rocket scientist to predict something like that" that are laugable.

The question then becomes opportunity cost. How does one maximize the return with the least risk? The Fed has made CDs and money markets so cheap they barely beat inflation. But well-managed mutual funds are an answer to this problem.

As for your question, I've already pointed out one good fund. You can track it if you want. I've also given easy instructions for anybody to pick other good ones.


One closed value fund that was hot earlier this year, right? And when it goes cold you will tell me that you would have switched funds before it went cold, right? This is really silly, Littlechap.

Meanwhile, for the sake and safety of any investor, let me repeat my expectation that many of this year's successful managed funds will be overtaken (in terms of performance) by index funds whenever the stock market has staged a strong, sustained comeback. But the timing of THAT is unpredictable, too!

And again you make the point that most investors are better off buying broad index funds rather than trying to time the "comeback". It is not in the best interest of most investors to sell their index funds today and wait for some magic moment to buy them back. Is that what you suggest?

In the meantime, a smart investor can make money in no-load, low-expense managed funds, and I have proven that to my own satisfaction this year. If you only own index funds, I've done better than you. But my comments here are not trying to put down anybody's opinion (except perhaps the official index-only religion of TMF). I'm just trying to help other investors. Are you?

Here is the fundamental difference between us. You worry about doing better than me over the past year. I do not care who is winning the week to week, month to month performance race. I care about achieving my long term goals. I also do not care to spend a significant part of my life testing the latest mechanical strategy trying to find a market beating scheme.

The TMF boards do not have an index-only religion. There are too many different opinions around here for a single religion. If you are talking about the official fool line then you should take that up with them and not me. Last I checked, they encourage people to become stock pickers.

I am not trying to help other investors by pointing out how expensive it is to chase performance. How are you helping them?

Prometheuss
(Come on over to the index fund board for some old time index-only religion!)
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