[Don’t Let the Stars Get in Your Eyes]
Jeff Benjamin wrote an interesting article in the April 11, 2011 edition of Investment News (www.InvestmentNews.com). Entitled, “Guess What? Buy-and-hold works”, the article focused on money that moved in and out of mutual funds based on changes in the “star rating” issued by Morningstar. In summary, money moved out when a fund lost a star or two and money moved in when a fund gained a star or two. A follow-up study by Baird research discovered that over the three years following the rating change, those who lost “stars” outperformed those who gained “stars”.
The folly of this hit me. It is a variation of market timing and forecasting the future. Benjamin tries to make the point that investors should stay with the manager and forget about star rating-in effect he is supporting what he calls buy and hold. But the average mutual fund manager does not buy and hold. His/Her average turnover ratio hovers around 100% according to Morningstar. That means the stock holdings in the portfolio on December 31 are different from the stocks held on the previous Jan 1. Everything was sold and new stocks were purchased.
Too many investors are looking to beat the market when they should be concentrating on adhering to a system that that achieves market returns. If you think about it, most successful endeavors revolve around a system. Think McDonalds. Think Fed-X. Think Starbucks. Benjamin’s article makes it clear that chasing stars is not a successful system.
Contact me if you want to know “Why” you can’t time the market, “Why” you can’t be a successful stock picker, “Why” you can’t rely on track record investing.
Mullennium Finance LLC is a registered investment advisory firm in the state of Utah. The information provided herein is for informational purposes only and does not constitute individual financial, investment, tax, insurance, accounting or legal advice. The information contained does not constitute a distribution, an offer to sell, or the solicitation of an offer to buy securities. Investment Advisory Services Offered Through Mullennium Finance LLC A Utah Licensed Investment Advisor
Bill Mullen CFP, MBA
Investor Coach
4315 Hidden Cove Rd
Park City UT 84098
435-655-0508
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bmullen@catapulsion.net
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