Click chart to enlargeWe feel like Andy Kaufman on the set of Saturday Night Live... "Do Latka, Do Latka!"
So here's your token chart of RBCN's breakout, complete with volume. Our guess is that as long as the market doesn't tank, RBCN will retrace a bit and then take off again.
But this post isn't about RBCN... it's about actual "professional" stock market performance.
The market has been flat over the past 10 years, trading at or about 10,450 in June 2000 and in June 2010. This makes it the perfect time frame to compare mutual fund performance, against an unchanged index. So here's what the "pros" have done with your money over the past decade...
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Vanguard Life Strategy Growth Fund
+ 1.48%
Vanguard Life Strategy Moderate Growth Fund
+2.75%
T. Rowe Price Growth Stock Fund
+.77%
T. Rowe Price Midcap Growth Fund
+5.94%
Fidelity Blue Chip Growth Fund
-1.84%
Goldman Sachs Capital Growth Fund
-2.20%
Goldman Sachs Strategic Growth Fund
-2.67%
Goldman Sachs Structured Large Cap Growth Fund
-5.29%
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So there you have it, a random sampling of growth fund performance over the past 10 years. Those burdened with the inclination of trusting the "professionals" to manage their money over the past 10 years have done exactly what the market has done, on average. These are the lucky ones. Others burdened with the same inclination found themselves invested with Bernie Madoff and similar cretins.
We don't have 10 year figures for our own performance, but using what we do have thusfar, we're up 17.9% over the past 2 years, for an average of approx 9% annually. If you believe it's not fair for us to compare our 2 year performance with their 10 year performance, you only need to look at what the market has done over the past two years. It's not flat as it was for their period. It's down about 17.5%.
So there you have it... the "pros" that haven't been caught are serving up flat returns and making huge fees for their "services". Those that have been caught are serving life.
Can anyone give us any good reason why someone would invest with the "pros"?
11 comments:
Goldman Sachs Small Cap Value (GSSIX) was at $14 in June 2000. It is at almost $36 now. That is a return of almost 10% annualized.
If you used just one simple timing system, the SPX 20W/50W cross, to time your entry and exit, your annual return on GSSIX would be roughly 12%.
My previous preferred 401K choice was KSCVX. It is up just shy of 8% annualized over the last decade. It is also up over 12% when using the simple long term timing signal.
Yes, certain funds outperform and others underperform. You could probably find one that even made 20% each year for the past 10 years. But for every one like that that you find, we could find 10 of them that underperformed the market. And there's no guarantee that small caps will continue to do well. It's still a game of dart throwing and it's only a matter of time before you invest with crooks like Madoff or GS.
Snot,two other important factors are after tax return and risk but I agree with selecting/managing my porfolio vs. fund investing, which are often market cap. weighted.
I would like to eventually get to 50-70% cash and patiently wait for a major correction/capitualtion. I don't know if I will be able to do this due to lack of patience but I believe this is the best way to get achieve gigantic returns.
One point verse your theory on diversification...I don't think you are hedging "company specific risk" at all if you only own 1 - 2 stocks in a portfolio! A restatement or any kind of fraud or product malfunction can really put a dent in you if you run that concentrated.
That's right, there's not much diversification here. Studies show, however, that the benefit of ading more than 5 stocks to one's portfolio does little to help reduce risk. The point we made about diversification is that you don't need 20 or 30 stocks to be diversified. 4 or 5 will do. We play a riskier game than that, that's for sure.
If you owned 4 or 5 LED stocks and asked Cramer if you were diversified, he would laugh. Even if you owned 4 or 5 ETFs -- but they were all in the same sector -- you would not really be diversified. Diversification is rule #1 for capital preservation.
Diversification may be the #1 rule for capital preservation, but it's not the #1 rule for capital appreciation.
True, true! Different styles of investing for different goals and different risk appetites.
Snot, how about aircraft manufacturers for a coming surge to buy into now? It isn't small cap like these tiny LED companies, so no 2 and 3 baggers, but is there potential here for a nice uptrend?
jets
Industrials:
2 month old article
Your comparisons of the indexes to mutual funds are not really fair unless you assume you are speaking to people who simply buy and hold forever. Money has been moved in and out of equities in mutual funds accounts, K-401s, and IRAs in a significant manner over the last two to three years, even by novice investors. Many people increased their bond holdings or put money in MMs when the market started going down. And if they put it back in equities even 2 or 3 months after the bottom, just a few adjustments like that and returns would be significantly higher. A mutual fund manager is usually locked into a strategy where 80%, 90% or more of the money in the fund MUST be invested in equities that conform to the nature of the fund. I know you know all of this, but your comparison was rigged because of this. If you want to have a proper comparison, then find out the returns in the PERSONAL portfolio of each of the managers of those mutual funds over the past 10 years.
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