Quote:
Originally Posted by rational1
There was a similar discussion a little while ago, as I recall started after a PBS documentary.
> On a managed account that doesn't follow one of the indices should do much better if it is managed properly and that would be a reason to pay a higher fee.
THIS is the real question...do you believe this or not? The average of all mutual funds is very likely to follow the market, less management fees. Do you believe you have picked the manager who is going to have a run of good luck? Or the manager who is smarter than all the other managers? This is the bet you make when you pick a managed fund.
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why would someone use managed funds instead of just striving to be average?
the answer is because you want to exploit that funds weighting or strategy at times and not marry the fund forever.
why is it when it comes to investing your money being average is okay to strive for .
does anyone want to see the average doctor or just an average lawyer?
the point is just being average is a poor choice to strive for.
you as the investor can do an awful lot to get better than average returns. while many fund managers are stuck by plan bylaws investing in only certain ways you are free to do anything and quite frankly not being average and getting better returns is easier than you think.
you exploit managers and their styles and use them when the big picture calls for that syle , you don't stick with the same fund when the big picture says differently.
when the dollar was weak fidelity export and multinational was the place to be. it was not the place to be when the dollar gained strength. you as the investor are free to switch ,the manager is not.
with biotech up 80% last year i would have moved on from a fund where the magager was still heavy in biotech.
an index like the s&p 500 can be very easy to beat. it is a poor index to be in as the more over valued a stock becomes the more of your money and weight in the index it takes.
the more a stock goes up the more money it grabs , the less a stock went up or the more undervalued the less money it gets. sounds the opposite of what it should be right?
it is market capitilization used at its worst.
want to know something ?
if you bought the companies in the fortune 500 instead which are rated by different criteria and not by over valued market capitalization you would easily have beaten the s&p 500 by 2 points almost every year.
that is an amazing difference, most fund managers would sell their kids to do that but by their funds bylaws they may not be able to buy stocks outside the focus area of the fund.
the point is managed funds can be great tools for getting alpha but you need to use them in a manner other then just riding them up and riding them down . very few by design are all weather funds you stick with forever.
you use them when their time is right and move on when it is not. you don't need a crystal ball to see the big picture changing.
i easily beat the s&p 500 over 26 years now with simple fund exchanges as the big picture changes. just like steering a big ship you nudge it back on course.
for the small investor who pays attention and has some basic knowledge striving to just be average is not a goal they should strive for . it is to easy to get superior returns when you are free to move anywhere unlike most fund managers.
the whole idea is to exploit those managed funds when their time is right and then move on.
even the best of funds like fidelity low priced stock fund or fidelity contra or growth co have seen their days come and go at times . low priced stock fund was a holding of mine for decades and the manager is one of the all time greats but when it was time to go elsewhere that fund was exchanged for a more suitable one for the times.
if you are not going to take the effort to do this then being average is right for you , you belong in index funds where you can never be better than average but will never be worse either.
being average is certainly easier than being above average so there is something to be said for just being average, it takes little effort with indexing . that isn't a bad thing.
there is a place for both types of funds depending on who you are. i have never been one to strive for average in anything i do..