Tag Archives: Investing

All Intelligent Investing Is Value Investing

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Today’s post is courtesy of Wealth Building Lessons.

This past year, the stock market has seen incredibly volatile swings. My non-retirement portfolio has been up 20% and then down to 0%. Twice. Of course, my portfolio doesn’t have a direct correlation with any of the indices but it just as vulnerable to the moods of the market.

Most people have a tendency to bail at the bottom of the market and buy at tops. They let their emotions take control of their investment strategies. The main reason for this is their lack of investing intelligence. They either do not have strong fundamental reasons to buy a stock. They usually buy it because its gone up in price and looks like it might go higher. That’s often a poor reason to buy a stock (as a long-term investment strategy. Although for short-term trading it might work).

According to Berkshire Hathaway’s (NYSE:BRK-A) (NYSE:BRK-B) Vice Chairman Charlie Munger:

If you are not investing based on fundamental valuation principles, you are not investing. You may think you are, but Ben Graham had another term for it: speculation.

So what is intelligent investing?

As Benjamin Graham stated in the book Security Analysis: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” Graham’s definition implies that a true investment is made only when you have the right data and reasoning, followed by a suitable price that ensures a margin of safety. Putting capital to work any other way is, by its nature, speculative.

Value investors don’t focus on their performance in a bull market, but on their perseverance during a bear market. In his 1961 partnership letter, Warren Buffett expressed this crucial point when he told his partners, “I would consider a year in which we decline 15% and the [Dow Jones] average 30% to be much superior to a year when both we and the average advanced 20%.” Most investors don’t fully grasp this investing approach, and the result is inferior long-term performance relative to the benchmarks.

Speaking of bear markets, in the 1960s, Warren Buffett invested more than 30% of his assets in one company, American Express (NYSE:AXP), during that company’s worst scandal. While everyone else was bailing, Buffett stood still, because he was confident in his data and reasoning.

Always remember that price is what you pay and value is what you get. According Fool.com, a fantastic business like Google (Nasdaq:GOOG ) is undervalued at one price, fairly valued at another, and overvalued at
yet another. At the current price, investors in Google are sacrificing a margin of safety and betting on the continuance of very high growth rates, which we know simply cannot go on forever. It’s one thing for a company like Google to double profits from $2 billion to $4 billion, but it’s much more difficult to go from $20 billion to $40 billion.

According to silver analyst Jerome Smith, who wrote in his book “Silver Profits in the Seventies”, more than 30 years ago “Truly outstanding investment opportunities occur only occasionally. In general, the better they are, the rarer they are. Such opportunities are normally long-term in their maturation and by careful study can be foreseen long before they come to the attention of most investors. … The very highest profit potentials occur whenever there is a convergence of two or more primary causes.”

Smith was referring to silver, but his words also characterize the qualities of superior investments that true value investors seek to exploit. Smith is right: Really good investment ideas are rare. So when you find one, bet big. If your thorough analysis is correct and the price is right, you should have no hesitation in investing heavily.

Consider Mohnish Pabrai of Pabrai Investment Funds. Pabrai currently manages about $600 million or so, up from $1 million in 1999. About 80% of that total is parked in just eight to 10 of Pabrai’s best investment ideas. The result is a 29% net annualized return since inception, meaning that a $100,000 investment back in 1999 is worth almost $800,000 today.

If your convictions won’t allow you to put 10% of your assets in one investment, you probably don’t need to have even 1% of your assets invested. But that’s why such obvious investments are so rare, and when your data and reasoning are correct, be sure to take advantage of the opportunity.

Buying good businesses at bargain prices allows the investor to ride out a storm relatively unscathed. But sound investing is not easy. The key is to train yourself to be unemotional about the market and maintain an unwavering level of discipline. History has shown that there will always be periods of prosperity followed by periods of economic contraction. That will never change. If you invest with the aim of keeping your capital, the upside will take care of itself.

Are Stocks Better Than Other Investments?

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There’s always someone at a party who’s claiming their investment asset of choices is the best. In 1999, it was stocks. In 2005, it was real estate. Right now, I’m claiming its Canadian Income Funds and commodities like gold. But is there an investment that’s actually better than something else?

Many proponents of the stock market have claimed that it is better than real estate. It’s more liquid and there’s never been a 10 year cycle where the S&P 500 had a down year. Of course, that’s rubbish. Ever try selling your stocks when the market is tanking? You’ll get taken to the cleaners. According to CNN Money, stocks follow a 16 year cycle. They go up for 16 years and then they’re roughly flat for the next 16 or so years.



Right now the Dow Jones Index is almost where it was back in early 2000. Adjusting for inflation, you’re still underwater. There’s also an often quoted comment about the stock market returning 11.5% a year over the long run. According to Ben Stein, this is factually incorrect. Over a rolling 20 year period since 1900, the stock market has on average returned just under 8%. Real estate also has had similar cycles. In Southern California, where I live, the market was down from 1991 to 1996, after booming for several years. Then in 1997 until 2005 it boomed again. Right now its falling again. Similarly in Salt Lake City, another market I follow and invest in, real estate boomed from 1991 until 1997 and then was stagnant until the end of 2004. Since 2005, its been in on the upswing again.NAR, the National Association of Real Estate, often cite the fact that nationwide, real estate has never gone down. That’s a useless fact unless you’re going to be buying a house in every major city in every state. Locally, real estate does follow periodic and somewhat predictable cycles. Between 2000 and 2005, when the stock market was tanking, real estate performed wonderfully.

And like stocks and real estate, commodities also have their own cycles. Chuck Butler , President of Everbank.com just sent me this email, “… the current Bull Market for commodities is at about 7 years and running… History shows us that (going back 200 years) that Bull Markets in Commodities have trends that last 17-22 years”. If you had bought gold in 1971 for $35/oz, you would’ve done extremely well by selling it in 1980-81 for nearly $800/oz. However, between 1982 and 2000 it languished and you might have given up and sold everything in 1999 after seeing the tremendous returns of the stock market. After all, nothing beats the stock market, right!

But $800/oz gold is here again. I’ve been investing since 2005 when it was around $500/oz. Gold has tripled since its lows of 2000 and is probably set to rally even further as the US Dollar continues its slide.

Even businesses are not free from cycles. There are times when businesses are cheap to buy (if you have the money) and are great money makers, and there are times when they are expensive (although easy with cheap money and easy liquidity) and tough to sustain at a profit.

So essentially there is no ideal investment. No single investment will yield substantial returns, year after year, for extended periods of time. Either you have to be on top of the economic factors that affect the various cycles, and keep switching in and out every few years or decades, or you need to diversify your assets so you have equal exposure to various different asset classes.

So unless you have exposure you US & foreign stocks and bonds, global real estate, currencies, commodities like oil & gas, precious metals, building materials like steel, lumber and copper, and even your own businesses, your investment portfolio is incomplete.

Claiming that one investment is better than another is just the result of ignorance. (Unless you decide to get a job as a day-trader, in which case trading indexed futures is probably the best vehicle, although the toughest to succeed at. But thats not an investment, its more like a job!)

The Weakening Dollar – II

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Now we’ve seen some reasons for the Dollar’s continued weakening, how do we profit from this knowledge? Here’s a compendium of worthwhile investments that I’ve been researching.

  • Invest in foreign currencies and foreign bonds

If your bank allows you to make foreign currency deposits, that may be the simplest solution. You should avoid the sterling, as Britain is already facing many of the same problems as the United States (a hyper-inflated real-estate market, and an over-abundance of financial services). European euros and Japanese yen are probably the best bets in individual currencies, although there’s also a case for Canadian dollars, which have eclipsed parity with U.S. currency thanks to Canada’s powerful natural resources sector.

One possible international-bond mutual fund is the no-load T. Rowe Price International Bond Fund (Nasdaq:RPIBX), which invests in high-quality, non-dollar-denominated bonds.Let us issue two warnings. First, don’t buy bond funds investing in foreign junk bonds (because you’ve then put yourself in the same position as the asleep-at-the-switch German banks that invested in subprime mortgages – you don’t know what you’re getting). Second, don’t buy an emerging-markets bond fund, because emerging-markets bond portfolios, unlike stock portfolios, tend to be dominated by the countries with the most debt, which are consequently are the countries most in danger of defaulting.

  • Invest in large-cap stocks with foreign exposure

The stocks will benefit from the weak dollar in three ways:

  • First, if they do business as local companies overseas, their assets and income in foreign countries will be worth more in dollars.
  • Second, if they export from the U.S., their income will go up relative to their costs – a wonderful position to be in.
  • And third, the falling dollar actually makes the price of their exported products go down in foreign-currency terms, which makes these U.S. wares more competitive in foreign markets and against rivaling products. That could boost sales outright.

There are lots of these companies. Three terrific choices would be The Coca Cola Co. (NYSE:KO), which does business all over the world, The Boeing Co. (NYSE:BA), which is the United States’ largest exporter, and restaurant-operator Yum! Brands Inc. (NYSE: YUM), which boasts such great brands as KFC, Pizza Hut and Taco Bell. Both Coke and Yum! are going great guns globally, and both boast excellent brand recognition in such key markets as China. Boeing will benefit from a huge upswing in air travel as global markets develop: It recently forecasted a need for $340 billion worth of commercial aircraft in China alone over the next 20 years. All three stocks are currently trading at Price/Earnings (P/E) ratios greater than 20, but the earnings should be strong.

  • Look at Eastern Europe

In Europe, the rising euro is likely to make Western Europe increasingly uncompetitive, by boosting its costs. In addition, several Western European countries – most notably, Britain, Spain and Ireland – have recently had housing bubbles even larger than the United States in relative terms, and as a result may suffer accordingly. A much better bet is the emerging growth area of Eastern Europe and Turkey, the latter benefiting from the improved political links and growing trade with the EU. Since Eastern Europe has much lower labor costs than the EU, as well as solid educational systems, the synergies are obvious. There are very few American Depository Receipts (ADRs) from the region, so the best bet for emerging Europe investors is the Spider Standard & Poor’s Emerging Europe ETF (AMEX:GUR), which invests in the share indexes of the Czech Republic, Hungary, Poland, Russia and Turkey. However, this ETF was founded only in March 2007, and currently has a market capitalization of only $29 million.

  • Invest in Brazil

At first glance, Latin America offers only modest potential to benefit from a declining dollar, because that region’s economies are so closely tied in with the United States and its currencies generally follow the dollar – albeit with a few crises all of its own. However, since non-U.S. growth is a powerful driver of global-natural-resource prices, it is desirable to take advantage of Latin America’s huge base of natural resources [although the populist tendencies of the local politicians can make this risky]. Currently, the most-economically-sound countries in that region are Brazil and Colombia, both of which have recently shown signs of better government and genuine economic growth. Therefore, it well worth considering either, or both, of two Brazilian ventures: Either mining company Companhia Vale do Rio Doce, sometimes referred to as CVRD (NYSE:RIO), or the oil company Petroleo Brasilero S.A (NYSE:PBR), more commonly referred to as Petrobras. Both companies are trading at reasonable earnings multiples (15 for CVRD and 13 for Petrobras), and each stands to benefit both from local economic and population growth, as well as from the insatiable-and-growing world demand for commodities and energy.

  • Invest in India

Asia is most certainly the world’s most dominant growth region – not only for the last five years, but also for the next 25. Unfortunately, both of the two fastest-growing Asian markets, China and India, are richly valued at present. Both countries are also dependent on exports to the United States, so would suffer margin erosion in the event of a very weak dollar. Indeed, China equities are somewhat pricey at the moment, but India is somewhat cheaper, with a P/E ratio of around 20, very reasonable given the Indian economy’s persistent 8% growth rate.Picking individual stocks is difficult, and there are not many with ADRs that U.S. individual investors can trade. Fortunately, there is an ETF that invests in the Indian portion of the Morgan Stanley Capital International share index – the iPath MSCI India Index fund (NYSE:INP), which is satisfactorily large at $366 million.

  • Invest In Japan

In Asia, take a look at the four most developed economies: Japan, South Korea, Taiwan and Singapore. All of these countries have living standards close to that the of the United States, while Korea, Taiwan and Singapore still boast exciting rates of economic and productivity growth. However, if your intention is to hedge your holdings against a declining dollar, Taiwan and Singapore may not be the best bets, because they are both relatively small domestic markets with high export dependence on the U.S. economy.Japan, on the other hand, is the world’s second-largest economy, and has only recently gotten back on the growth track after a decade of recession caused by its late-1980s speculative bubble. A weak-dollar strategy should focus on the smaller Japanese companies, since they would benefit from domestic Japanese growth, meaning their profits are not tied to exports. Hence my recommendation would be the streetTracks SmallCap Japan ETF (AMEX:JSC), an index fund devoted to smaller Japanese companies.

  • Invest in Korea

South Korea is a rapidly growing economy whose stocks are currently selling at a very attractive multiple of around 12 times earnings. And there are a number of waves to catch in that market, as the country is a major global player – if not an outright leader – in such areas as telecommunications and heavy manufacturing.There’s one other point that’s worth noting – and it’s a significant one. In late October, U.S. investing guru Warren Buffett, chairman of Berkshire Hathaway (NYSE: BRK.A, BRK.B), paid his first visit to South Korea, where the billionaire has invested in 20 of that countries companies, including a 4% stake in the country’s leading steelmaker, (NYSE: PKX). Buffett definitely sees Korea as a worthwhile market.

Two ways to invest in Korea is either through the Korea Fund (KF) or the iShares MSCI South Korea Index Fund ETF (EWY).

  • Buy Gold

After Gold’s recent surge to over $800/oz, you might think its run is over. But with the global liquidity crisis and all major currencies inflating the currencies, gold has become a safe haven for risk-averse investors. During the last gold-bull market in the early 80’s, gold peaked at $850/oz. Adjusted for inflation, that works out to $2,200/oz today. Gold still has a long way to run.

  • Buy Canadian Resource Companies

While the oil produced in Canada isn’t as cheap as that produced in Saudia Arabia ($30 vs $2), with oil hitting nearly $100/barrel, its still very profitable.

These are some of the multiple ways you can hedge your portfolio against the falling dollar. Remember, the worst thing to do is to ignore it and do nothing!

The 35th Carnival Of Money Stories

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Welcome to the 35th edition of the Carnival of Money Stories. This edition is pretty big with 50 entries, so pour yourself an extra-large cup of hot cocoa and sit down for some serious reading.

Debt

Reggie presents Why Money is Debt – Part 1 posted at Reggie, the black kid with good credit.

Millionaire Mommy Next Door presents What Would You Do? saying “Sleepless in Seattle” and her husband have acquired a substantial debt load and are considering whether or not to sell their home, pay off their debt and rent. They love their house, but they are tired of living on the edge financially. She asks, “what would you do?” .

Ted at Campus Grotto provides a Student Loan Consolidation FAQ saying I just recently consolidated my student loans. Here is what you need to know to ensure you don’t get scammed.
Eric at A Penny Closer laments Ahh, How I’ve Missed Consumerism…

James at Payday Loan Cheapskate presents How to Escape the Payday Loan Debt Cycle.

Linsey Knerl presents Confessions of a Former Payday Loan Junkie posted at Wise Bread.

Investing

Living Off Dividends presents Why Low Interest Rates Are Bad For You, while wondering If Its A Good Time To Invest In Milk!

Thomas Humes presents Simple Habits That Lead To Wealth posted at Wealth Building World saying Wealth creation is a combination of rules and habits. Here’s the number one rule, if you want to be wealthy, its not how much money you earn, its not how many cars you drive, it is how much you can save and invest and that’s the key.

The Dividend Guy presents 5 Things Dividend Investors Should Do To Make It Through Volatile Markets posted at The Dividend Guy Blog.

Matthew Paulson presents How to Plan for Retirement If You Don’t Get a 401(k) or a 403(b) at Work posted at American Consumer News.

Market Poetry presents Ode to All Struggling Value Investors posted at Market Poetry.

The Skilled Investor presents Where’s Waldo? – The illusion of superior professional mutual fund manager performance, saying The effort to find those few supposedly superior money managers willing to sell their services sufficiently cheaply is a costly, time consuming, and futile, “Where’s Waldo?,” searching exercise for the individual investor. Many money managers will claim to be superior and few or none actually will be. If such superior money managers did exist, then there should be dozens or hundreds of them who prove their superiority year after year after year. Unfortunately, the scientific finance literature indicates that this is not the case. This year’s star money manager tends to be next year’s average or laggard money manager.

Living Off Dividends wonders whether the fact that Even Supermodels Don’t Want Dollars is an indicator that The US’s Economic Strength Is In Permanent Decline?

Retirement

Phil presents I moved to Indianapolis for the money! posted at Queercents, saying One day, Phil and his partner went to Indianapolis to look at some properties and it dawned on them. Indy was a lot less expensive than Chicago. Could they live here? .

My Wealth Builder presents Our Journey To Financial Freedom #7 – How Luck Played A Role.

General

Christine presents GoogleAds, Keywords and Website Content: Making Money Online Using Web Content, Keywords and GoogleAds posted at Me, My Kid and Life: An American Single Mom Living in France.

Mr Credit Card presents Digital SLR Camera Shopping with Reward Points (Ask Mr Credit Card’s Blog) posted at Ask Mr Credit Card’s Blog.

Doris Chua presents Are Loans Good or Bad? posted at Home Office Women.

Kyle James presents Frugal or Cheap? – When To Spend The Extra Money posted at Rather-Be-Shopping.com Blog discussing the things in life that are worth spending a little extra money on in order to save money and time in the long run.

Wealthy_1 presents Bill Me Later posted at collectingmycash.

FIRE Finance presents FREE Land & Handsome Living Allowances! posted at FIRE Finance.

Pinyo presents I Just Saved A Bunch Of Money On My Insurance posted at Moolanomy explaining how he saved money on my home and car insurance by switching.

Paidtwice presents Experiments in Frugality: Disaster Number 2 posted at I’ve Paid For This Twice Already….

FMF presents Internships are Great for Your Career/Life posted at Free Money Finance.

Nivek presents FSA End Of The Year Spending Spree posted at Money Clipped.

Ashley presents Graduating Without a Full-time Job Lined Up posted at College of Cash.

Mark Runta presents Open A Door posted at Smart Investing & Money Management saying Switch off the TV, get off the couch and do it.

The BagLady presents My First Holiday with a Huge Family posted at the baglady.

Stephanie presents They’re Out to Sabotage My Plan posted at Stop the Ride!.

Glblguy presents 1 Year Ago Today – 10 things we’ve done to regain financial control posted at Gather Little By Little.

Cashmoneylife presents I Bought a New Car, and Why it Was Good Idea For Me posted at Cash Money Life.

Kevin at Satellite TV Guru presents How to Get Satellite TV if You Have Bad Credit.

The Digerati Life presents The Financial Task I Dread The Most.

Raymond at Money Blue Book warns about How I Got Scammed By a Seller On Alibaba.

The Happy Rock wonders when Do We Earn The Right Not To Budget?

Becoming & Staying Debt Free presents How to Become a Stress-Free Shopper, saying Have you ever gone into a store with the intention of only buying one (1) item and you walked out with several bags full of stuff? I can remember one time back in about 1990, I carried a cart load of groceries for a customer. Her husband and kids were waiting in the car. The first comment that was made when the door was opened was, “I was going to say, if you had to milk that cow.” It is a comment I have heard my own dad say when I was younger to. I knew instantly, that she had said she was just going to grab a gallon of milk. Instead she did her weekly grocery shopping.

Christine at Me, My Kid and Life presents Film vs TV, Why We Opted to Turn the TV Off, plus Frugal Tips for Movie Buffs, France on the Cheap: Traveling in France for less than $200 per day for Two – Traveling Cheap in Europe, and The Exchange Rate – The Euro vs The Dollar – The Declining Dollar.

The Dough Roller presents How To Find Healing From A Deep Financial Wound, saying Many of us have been hurt over money. Here’s my story and how I’ve coped for the past 30 years.

Jason at A Bankruptcy Lawyer’s Blog presents Five Top Alternatives To Personal Bankruptcy, saying If you are considering filing for personal bankruptcy, stop, think and consider the following.

Allen at Investing World Today presents Business Investment Strategies That Work Every Time : The secret to investment success is the consistent application of time-proven strategies, not the use of complex, hard-to-understand investment vehicles created by investment bankers out to take your money!

Madison at My Dollar Plan presents My Personal Story: Background, Taxes, First IRA : My introduction to money, working, taxes, and retirement accounts has all influenced where we are today and how I handle money.

Thomas at Wealth Building World presents Money Doesn’t Grow On Trees, saying How is your money flowing? How are you feeling about money? What do want in relation to money? Do you think about how much you have, or don’t have, often? What kind of statements were made about money while you were growing up? Why is it that people who have a lot of money can make it so easily and those who don’t have it, continue to go without?

Matt at How I Will Be Rich offers advice for increasing your pay at Make More Money at Your Day Job.

The Frugal Duchess presents How I’m Conquering My Bag Lady Fears: My 10-Step Program saying, What keeps me up late at night? In addition to worrying about past mistakes and my kids and my work, I worry about becoming a bag lady. And I have plenty of company; a lot of women (and I imagine some men also) have secret fears about living on the streets without money or sanity. Even Oprah and other successful women have ‘fessed up to bag lady fears.

Time To Invest In Milk?

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Here’s an interesting snippet from the International Herald Tribune about why milk prices have doubled in the past 2 years.

Driven by a combination of climate change, trade policies and competition for cattle feed from biofuel producers, global milk prices have doubled over the past two years. In parts of the United States, milk is more expensive than gasoline. There are reports of cows being stolen on Wisconsin dairy farms.

“There’s a world shortage of milk,” said Philip Goode, manager of international policy at Dairy Australia in Canberra.

But the biggest force driving up milk prices is the same one that has driven up prices for conventional commodities like iron ore and copper: a roaring global economy. Rising incomes, from China and India to Latin America and the Middle East, are lifting millions of people out of poverty and into the middle class.

It turns out that, along with zippy cars and flat-panel TVs, milk is the mark of new money, a significant source of protein that factors into much of any affluent person’s diet. Milk goes into infant formulas, chocolates, ice cream and cheese. Most baked goods contain butter, and coffee chains like Starbucks sell more milk than coffee.

Any idea on how to profit from this? Maybe buy shares of American Dairy Inc.

Goodbye TDAmeritrade, Hello Izone!

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I just closed down my account with TDAmeritrade. I transferred everything to Izone.com.

Funnily enough, Izone is owned by TDAmeritrade and offers EVERYTHING that my regular TDAmeritrade account offered. Infact, the user-interface is identical. Its so identical, that the new username and password I created at izone.com even works at tdameritrade.com!!!!

 So whats the difference? All the commissions are half-priced as compared to TDA.

But whats the catch? There’s no phone support and you need to have a couple of years online trading experience in order to open an account. Actually, I’m not sure about the ‘no phone support’ policy – I suspect that if you call up the customer support number for TDA and give them your izone username, it just might work. In any case, I usually asked my questions via email at TDA, so there’s no difference for me. And izone also has a live ‘customer support chat’ feature during normal business hours which has less wait time than the phone lines.

 I did an internal transfer since my old account was at TDA. It took place at 11:45 pm so my regular trading wasn’t affected at all! Now thats some decent service!

Let me know if you want to open an account and I’ll send you a referral email. I think we both get 10 free trades.

Time To Bail On PetroChina?

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I just sold half my stake in PetroChina(PTR).  Actually I put the order in over the weekend and forgot about it. When I bought PTR, the dividend yield was 4.85%, which is more than you get in most bank CD’s. Since the whopping 130%+ run-up in price, the dividend yield has dropped to a mediocre 2.30%.

My first and foremost goal, when it comes to investing, is to get a good dividend yield. Most of my portfolio consists of high-yielding Canadian income funds (Canroys) and is heavily weighted towards oil & gas and mining companies.
Since there’s a lot of excitement surrounding PTR’s Chinese IPO, there’s a good chance that it can rise even higher. However, if the dividend yield doesn’t keep up, it might be a signal that the valuation is becoming too rich. Of course, if the market considers it a growth stock instead of a value stock, it deserves a low yield ( and high PE ratio). However, PTR is already the world 2nd largest company. How much more can it grow?

Will it double from here and become the world first Trillion Dollar Company? I don’t know. But I don’t think so. I’d rather take my profits and invest them in a company which has a better chance of doubling.

Peter Schiff Recommends Bailing On The Dollar

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As I’ve been saying for a while, the US Dollar is headed for a slump. Peter Schiff thinks the dollar could lose 50% of its value.

He’s very pessimistic on the state of the economy and the housing market and recommends buying Gold, which he thinks could hit $2,500/Oz.

He also suggests buying foreign dividend-paying stocks, foreign commercial property stocks, foreign government & corporate bonds and investing in commodities.

Check out this short informative video:

Here’s an interesting link on how to profit from dollar devaluation and inflation.

Time To Invest In Mutual Funds?

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I was reading this article from the New York Times by Tim Gray called “Three Strategies That Kept Sizzling:

Ken Heebner, manager of CGM Focus, achieved a double distinction with his fund. He placed among the top performers for the most recent quarter and the five-year period. For the quarter, CGM Focus, which invests mainly in large-capitalization domestic stocks, returned 30.3 percent, while for the five years ended Sept. 30, it returned 32.9 percent, annualized.

Mr. Heebner’s offering isn’t for the faint-hearted. He shovels shareholders’ money into relatively few stocks  23 in late September and rapidly zips in and out of investments. When I buy a stock I say, What factors would cause me to change my view? he said.  If I see them, I immediately sell. And if I see something I like better, I immediately sell. If there?s an emerging opportunity, I don’t want to miss it.

As a result, his portfolio has a higher-than-average annual turnover rate 333 percent, versus 90 percent for the average stock mutual fund, according to Morningstar. His returns also zigzag more than those of other funds in his Morningstar peer group.

Mr. Heebner sniffs out trends economic, social or demographic and then tries to find well-run companies poised to benefit from them. Lately, that has meant loading up on energy shares. On June 30, the most recent date for which data is available, he held the American depositary receipts of Petroleo Brasileiro, the giant Brazilian oil company, and Cnooc, one of China’s big producers, as well as shares in several oil services outfits. Energy stocks accounted for a third of his portfolio.

If you can live with that sort of volatility, you might get some terrific gains. Note, however in 2002, the Fund was down 28%. But for 2007 its up a whopping 60%!!!! Makes my 18% return seem extremely pathetic in comparison!

I was also looking at buying TAVFX which buys undervalued companies. But its returns have been less than mine and they require a $10,000 minimum to invest in. But its a lot less volatile, but with it comes a lower return.