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By Kirk Kazanjian Kirk Kazanjian is a nationally recognized investment expert, stock and mutual fund analyst, best-selling author, and lifelong entrepreneur. His latest book, Wizards of Wall Street, features one-on-one interviews with some of the world’s top fund managers and is available at bookstores nationwide from Prentice Hall Press. He is also the author of the New York Institute of Finance Guide to Mutual Funds 2000 and Wall Street’s Picks for 2000, which includes an interview with Art Bonnel of the Bonnel Growth Fund. We are pleased to offer U.S. Global Investors shareholders the opportunity to purchase Mr. Kazanjian’s book, Wall Street Picks for 2000, at a 20% discount off the retail price of $20. To order, please call 1-877-242-4941 toll free and mention the code WSP2. Mr. Kazanjian is not affiliated with, or compensated by U.S. Global Investors. |
Buying Last Year’s Hot Performer Many investors falsely believe that buying the fund that did best during the previous year is a smart move. They figure the manager will continue to post the same incredible numbers and don’t want to miss the ride. However, time and time again, one year’s winner turns into next year’s dog. Among the many reasons for this reversal is that “star” managers tend to get inundated with new cash, which can disrupt the portfolio and hurt existing shareholders. Timing the Market This is clearly a loser’s game. I personally know many of the top names on Wall Street and can tell you that no one is able to consistently forecast the direction of the market. That’s why it pays to stick with your strategy and stay fully invested at all times. In fact, during the 1980s, the annual return on stocks in the S&P 500 index was 17.6%. However, if you missed the 30 biggest advancing sessions of the decade, your return plum-meted to just 6.5%. Blindly Following the Stars It’s easy to think that just buying funds with top ratings is the best way to go. While helpful, these numbers are based on past performance, which often has very little predictive value. As the president of Morningstar once told me, if you just buy a bunch of five-star funds, without doing additional homework, you could wind up with a pretty lousy portfolio. Purchasing Funds, Not Managers Looking at a fund’s track record alone is not enough. Some of the best-performing funds are those that have only been around for a few years, but are spearheaded by veteran managers with outstanding long-term records. New funds run by seasoned talent are some of my favorites. They start with a clean slate and are small enough to let the manager’s skills really shine. That’s why I was an early investor in the Bonnel Growth Fund when it was first introduced several years ago. Falling for the Media’s “Fund Darling of the Month” Members of the media are extremely short-term oriented. I should know. I used to be a television news reporter. The truth is, the mainstream press usually won’t feature a fund until it has already posted abnormally high returns, which are often unsustainable. Plus, have you ever noticed that each magazine’s “favorite” fund changes from month to month? Focusing on Quantity Instead of Quality Some investors think that by owning eight or 10 different funds, they are highly diversified. But they may not be diversified at all. The reason: funds with similar investment objectives often hold the same stocks. For example, if you own 10 aggressive growth funds, chances are your diversification is very limited because you’re only exposed to one area of the market. Without question, asset allocation decisions are a critical starting point for constructing a well-rounded portfolio. Taking Your Eye Off the Ball Investors often think they can buy a great fund and never look at it again. While that may be true for index funds, it’s not the case with actively managed portfolios. For instance, if your manager leaves the fund, consider whether you want to stick with his or her replacement. The industry is constantly changing, and you need to stay informed. |
