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Thursday, May 20, 2004
Your Worst Enemy to Successful Investing---the Media
by Ulli G Niemann
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 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." Usually both of them won't be right (if either of them is). So, where's the value in this for you? Beats me.
Two Places At One Time
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. Guess what then 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? The best method is a trend tracking methodology, which identifies long-term trends in various markets. Research funds for stability and reliability as well as current performance. Then, when trend indicator signals a Buy, select the 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 a head start and sometimes, weeks after a fund has been purchased, it will be seen written up in financial papers as being one of the best performers.
Number One Fund?
Does this approach always put us in the number one fund? Maybe not. However, using the methods described above should almost always place you in funds that are doing very, very well.
In At Bottom? Out At Top?
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, and following the sell signal we got in October, 2000, and were safely invested in solid money markets when the stock market crashed and burned.
How Much of a Rush Are You Looking For?
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 Niemann is a Registered Investment Advisor specializing in money management and mutual fund trend analysis. He has written about systematic approaches to investing for over 10 years.
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