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Year End Fund Trading

The end of the year is a tough time for fund investors. December is when most fund companies make large taxable distributions. December is particularly punishing after a few good years of stock market returns, which can lead to gains on the fund’s books that have to be distributed. These distributions are not good things. Unfortunately, year-end distributions are hard to avoid completely.

Sixth Annual Mutual Fund Turkey Awards

11/23/06 -

Gobble gobble. It’s that time of year again: Time for MAXfunds to nominate funds for our sixth annual fund turkey awards. With this series we’ve developed a nice track record identifying lousy funds before they get wiped off the map by forced extinctions or mergers – or just sued into oblivion by limousine-chasing lawyers – and we aim to keep up the good work. (Our methodology helps identify great funds, too - which is why our MAXadvisor Powerfund Portfolios continue to post market-beating numbers)

This year is full of fund turkeys that are plump, juicy, and full of trans fats.

The MAXfunds Turkey Awards: Suitable for framing or “Exhibit A” in shareholder class-action lawsuits.

The “Losing Real Money” Award
Winner: Oppenheimer Real Asset A (QRAAX)

Money always piles into a fund right before the music stops. You can’t really blame the fund company. Oppenheimer Real Asset launched in 1997 – and immediately tanked about 50%.

Investors shied away from commodity investments for a few years. After a big run in commodities in recent years, they piled back in -- just in time to lose money. Oppenheimer Real Asset is up pretty big in recent years, but investors have lost a few hundred million dollars in the fund nonetheless.

November 2006 Trade Alert!

The conservative portfolio was up 1.14% in October. While the bond funds did well on generally lower interest rates, the real action was in stocks, particularly larger-caps, internationals, and telecoms. SSgA International Growth Opportunities (SINGX) was up 3.48%, Vanguard U.S. Value up 2.61%, and Vanguard Telecom Services ETF (VOX) was up 3.77%.

The Glass Ceiling

The big story lately is the incredible earnings growth of corporate America. As earnings are the core to long-term stock market returns, this is good news – certainly a better foundation of investment than boundless revenue growth or market share growth or user growth or even that “potential future maybe revenue growth” that was driving stocks a few years ago. 

Free Fund Trading?

10/19/06 -

It was bound to happen sooner or later. With Google buying startup YouTube from a couple of twenty-somethings for almost two billion smackers, other dot-com era ideas had to be in the pipeline.

On Wednesday Bank of America announced free trading for their Banc of America brokerage customers. The stocks of competitors like E*Trade (ET), TD Ameritrade (AMTD), and Charles Schwab (SCHW) fell sharply on the news. Is a price war brewing?

This bold, dot-com era move (it’s been tried before) is noteworthy to mutual fund investors because today there are so many other ETF (exchange traded fund) choices. ETFs trade on exchanges like stocks, and therefore, the same zero-commission offer would apply.

September 2006 performance review

Small cap stocks are now noticeably lagging these larger-cap-weighted indexes. The Russell 2000 index of smaller cap stocks gained just 0.83% in September, and is up just 0.44% over the last three months. Foreign stocks have been flat recently as well.

Beware (investing) Truths that are self-evident

Now that the stock market is past record highs again we are seeing resurgence in investor enthusiasm. Investors appear to be subscribing to the same pattern of investment idea generation that got the major indexes so ridiculously overpriced in the first place: letting backward-looking information and scenarios guide your current investment decisions. Call it what-ifs, woulda-coulda-shoulda strategies, or just investment soul searching.

The 'F' Word: Foreclosure

09/29/06 -

After years of steady double-digit gains in prices, real estate seems like a can't-lose way to get rich. Unlike tech stocks (which seemed like a can't-lose way to get rich six years ago), home prices seem like they don't go down. Better still, you can buy in with somebody else's money, and keep all the gains for yourself.

Besides the history of positive returns, another reassuring factor some home buyers consider is that, worst-case scenario, they'll just give the keys to the bank and walk away. Heads, I win (home prices go up); tails, you lose (home prices go down).

I've heard this “logic” from home buyers entering the market at prices they know are a little stretched, I've read it in the paper, and I've heard it from economists and other experts. Even the doomsayers — warning of rising interest rates leading to banks taking over properties from adjustable-rate-mortgage-fueled home buyers — seem to think the worst-case scenario is handing over the keys to the bank. If only that were so.

Ask MAX: Should I Listen to my Neighbor?

09/22/06 -

Robin from Vermont asks:

'My neighbor's son is going into his second year of college. She told me that the best way they saved up for tuition [was] by concentrating on a single stock or sector. Do you think that's the right way to go? Or should I build a diverse portfolio with a stock/bond mix?'

Your neighbor is dispensing some pretty lousy advice. If you had a neighbor who didn't save for their son's college tuition, but had a very lucky weekend in Las Vegas (where they parlayed $1,000 into room and board for a four-year private college), would you listen to them if they said the best way to save up for college was to get lucky at gambling?

While you have a shot at bigger winnings the more concentrated your investment — one stock being at the far extreme of concentrated portfolios — you have an equally good shot of having no money at all for school.

While Warren Buffet, the great investor, pokes fun at diversification, the drag of diversification also leads to more predictable returns.