Curious as to some of your bad fund purchase regrets.
When I was a novice at this, I got sucked in by a convincing interview that a guy named Jim Crabbe did on Wall Street Week. So, I bought into Crabbe Huson Special. It went south pretty quickly.
I also got into Berger 100, just as Bill Berger retired and handed the reigns to Rod Linafelter. Linafelter had been groomed for several years, but when he took over, the fund was never the same.
Comments
Turns out I bought it at the top. Watched it drop for a year before selling. It has since been liquidated.
Regards,
Ted
Regards,
Ted
(AOD) IPO :http://www.marketwatch.com/Story/story/print?guid=BF44E959-E476-4B9F-9E44-C1D52F12FEE0
Still like the strategy.
But AQR Funds turned out to be genuinely disingenuous.
But I just checked it, and it hasn't done that badly over the past year (but not good enough I regret selling it). They've moved most of the fund assets to an "aggressive" risk parity fund I didn't know they offered -- apparently heavier in stocks.
"Genuinely disingenuous" sure rolls trippingly off the tongue ...
An interesting target date fund, at the least. Only 4% turnover noted, majority Eurozone and an interesting bond area.
Composition at Fido
Rod Linafelter, who did quite poorly here as well.
also Dessauer Global Equity, no longer in existence.....bought as an IPO as a closed end fund, and it later converted to an open ended fund. There is a long story about this fund, too boring for most to hear, but the fund was awful.
also Lindner Dividend fund and Lindner Growth fund, which both had storied histories and at one time great risk adjusted performance.....no longer in existence
The Markman Funds (conservative allocation fund, moderate allocation fund, aggressive allocation fund). These were 'fund of funds'. The manager, Robert Markman, made an ill timed bet on tech stocks........I became interested in Robert Markman after a glowing article in Barron's, and he was also featured in Louis Rukeyser's Mutual Funds, an investment newsletter
PURIX, the Purisima Total Return Fund, run by Ken Fisher, a Forbes columnist.
Since future returns are uncertain, it is almost a certainty that every investor has suffered the pains coupled to wealth erosion from bad investment decisions. You are definitely not alone in this common experience.
Regret is a ubiquitous emotional part of the investment cycle. Here is a Link to a bunch of Carl Richards cartoon-like napkin sketches that illustrate 27 emotional aspects of the roller-coaster ride that investors typically feel:
http://www.businessinsider.com/carl-richards-napkin-sketches-2013-9?op=1
These sketches nicely stress the behavioral pitfalls that investors frequently confront.
Even among financial professionals, being successful on two-thirds of their investment decisions would place them on the investor honor roll. Nowadays, since institutional investors dominate trading, whenever you place an order you are most likely matched against a seasoned and smart expert who has an opposite viewpoint.
Given that scenario Bill Sharpe offered the following question and observation: “Are you smarter than the average professional investor? Probably not.” When trading frequently, a private investor is at a distinct disadvantage. If you are especially susceptible to regret, one obvious answer is to trade less frequently.
An investor must learn to manage his emotions. He must develop a short memory for failures after learning from them. As Thomas Edison recommended: “Don’t call it a mistake, call it an education.”
To reduce exposure to regret, an investor must apply a technique that the military termed “situational awareness” for honing survival prospects. If fund management changes, it is a signal to increase situational awareness. Likely, one of the reasons that you purchased that particular fund has now been replaced. That’s a hard, actionable alert. When a roadway turns icy, a more cautious and focused driving discipline is the order of the day.
The good news is that we become better at assessing these situations with experience. I suspect that Malcolm Gladwell’s 10,000 hour rule (from his Outlier book) also applies to investing acumen. We slowly evolve from the novice to the expert class of investors as we persevere, accumulate both positive and negative experiences, and develop an instinct to accurately score our performance against a fair benchmark. Although nobody ever fully eliminates regret, major incidence frequency reductions are achievable over time.
Jesse Livermore remarked: Remember the clever speculator is always patient and has a reserve of cash. It’s always a prudent policy to have a Plan B prepared as protection if Plan A crashes and must be abandoned regardless of high hopes. Often high hopes do not translate into real profits. Flexibility to accept a disappointment and to change direction is a necessary investor attribute.
Yet another simple way to limit regret situations is to construct your portfolio from passive Index products instead of actively managed mutual funds. That option may seem dull, but it cuts away performance extremes.
Building a portfolio of successful actively managed mutual funds is great stuff when successfully executed, but it doesn’t work out that way all too often. Active fund managers generate very asymmetric outcomes. The losers far outweigh the winners in terms of numbers and excess returns. Taken over extended timeframes, the likelihood of regret is far more probable for an actively managed portfolio than it is for its passively managed equivalent. The more you or your manager trades, the more you expose yourself to potential regret.
A passive strategy has the added benefit of low costs. As Warren Buffett noted: “Beware of little expenses; a small leak can sink a large ship.”
Investment catastrophes happen. So you must cultivate a survivor’s attitude of mental toughness. Learn from the failures and move ahead; stay the course.
I recognize that I have not provided any specific examples of a decision that evoked regret. I decided to reply in more general terms that address techniques to reduce the regret quotient. I hope you found this generic forward-looking reply somewhat useful.
Best Regards.
Obviously you want to check out the fund in detail, try to see if the early outperformance was a fluke or not, but I've found this method to be a good starting point.
From all the funds I have owned, if there was ever one that I thought couldn't go so far south and stay there, it was this fund. How wrong I was!
Mona
Amerindo Fund did well then fell apart when the market fell apart, losing a small position before getting out. Then one of the principals was arrested. Not a good sign.
One bad choice that comes to mind was a Merriman Fund. It was a fund of funds market-timing fund. I was young and fey and didn't realize the impact of 2 sets of fees, nor true difficulty of timing the markets with mechanical systems.