MUTUAL FUND ARTICLES BY ULLI G. NIEMANN
Articles for Free publication in your Newsletter or on your
How to beat the mutual fund companies
at their own game
By Ulli G. Niemann
You'd have had to be living on a desert island with no
TV, newspaper or internet connection to have missed hearing
about the great mutual fund scandal of 2003.
The issue was that some mutual fund companies allowed certain
hedge funds to engage in after-hours trading, sometimes incorrectly
referred to as market timing. Unfortunately, some companies
have used the confusion about the term "market timing" to
further their own cause. How?
They have used this issue to pretty much ban all forms of
trading their funds, and some companies are imposing hefty
short-term redemption fees-penalties for all intents and
purposes-in the name of avoiding impropriety. But the real
idea behind it all is: Buy our fund and never sell it!
These companies advocate a stubborn Buy & Hold philosophy
despite the devastating effects that approach had on investors' portfolios
during the recent bear market. Performance is immaterial
to them-they want your money in their fund whether it's going
up or down.
With all of the negative press over the months you'd think
that mutual fund companies would have cleaned up their act
and started giving more consideration to the individual investor.
This was brought home to me when a fund manager of an $800
million mutual fund called me to see what my plans were in
respect to holding our positions with his fund (about $2
I explained my trend tracking methodology and he got very
angry when he heard I would protect my clients' accumulated
profits by selling his fund if it were to drop 7% off its
His blustering made it quite clear that he did not like
anyone managing for the benefit of their clients; he only
cared about what was best for him and his company.
So, what can you do to prevent being taken advantage of?
For one thing, do what your mutual fund company does - not
what they tell you to do. Adopt a strategy for following
trends, such as I do, and use the mutual fund manger's superior
stock picking ability to your advantage by buying and holding only
as long as the fund is performing well.
Remember, the fund manager has one big disadvantage over
you: He always "has to" be invested so that the public can
purchase shares in his fund. You don't!
If market conditions dictate that you are better off in
the safety of a money market account because we are in a
severe downtrend, then you can take your money and run for
cover. He can't. He is constantly trying to adjust his portfolio
to ever-changing economic conditions so that his potential
losses are minimized. At the same time you are being told
that his fund is the investment for all seasons. Don't fall
You as an individual investor are really in the driver's
seat. Unfortunately, you have probably been conditioned to
think that Buy & Hope is a good investment strategy,
when in fact it is a losing proposition.
Bottom line is, use a well performing mutual fund during
strong up trends and get over to the sidelines during trend
reversals. (That's exactly what I did for my clients in October,
2001, and we retained the lion's share of their profits while
Buy & Holders kept insisting the emperor was wearing
new clothes.) Pretty soon you will feel that you are in charge
of your financial destiny and any chosen mutual fund is merely
a tool to bring you closer to your goals of maximizing your
gain and minimizing your losses.