Mish: Mutual Funds – And Buy And Hold – Don’t Work In Secular Bear Markets

July 20, 2009 at 10:42 am  ·  Category: Mutual Funds, The Investment Advice Business

I used a fee-only financial planner to evaluate our portfolio of mutual funds using a Monte Carlo analysis tool to estimate how much we needed to save annually to hit our retirement “number.”

I’ve been a premium Morningstar member for years and I’ve tried to assemble the best group of boutique funds to cover every area of the investment landscape.  I used a matrix with 3 columns for Growth, Blend, and Value with 5 rows for Large Cap, Mid, Small, Micro, and International funds.

We held 15 funds including all the best Morningstar performers for many years like Primecap (VPMCX), Dodge & Cox (DODFX), Longleaf (LLSCX), Artisan (ARTVX), etc.

All of those funds performed better than the market, but not by much after all taxes and fees are subtracted.  To be perfectly frank, it pisses me off that I meticulously chose and invested in the absolute best mutual funds on the planet and the BEST that they could do in 2008 is lose 35% instead of the 38.5% the S&P 500 lost!

It’s amazing how limited they are by not shorting, being hesitant to hold large amounts of cash, and having to sell at the wrong times due to redemptions.  Let’s face it, I truly gave it my best shot and it just wasn’t good enough.

It was an interesting exercise, but all I did was outperform the S&P 500 by a few points over a 14 year period.

– Steve, quoted by Mish in “Another Nail In Buy And Hold’s Coffin”

I’ve said it a million times: traditional investment advice, the kind that is the foundation of the entire industry, is bankrupt.  It’s all based on buy and hold which is based on the efficient market hypothesis.  The efficient market hypothesis is bunk and even if it were true, buy and hold would only make sense if the market always went up in the long term.  Traditional investment advice will only make you money during good times.  It is totally dependent on the market going up over the long term.

For more on the bankruptcy of the investment advice business see my “The End Of Personal Finance: Decades Of Advice Turn Out To Be So Much Garbage”, Top Gun FP, May 5 and the links at the end to the posts I’ve written on this subject over the years.

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