The mutual fund industry requires customers that buy their funds
and never sell them. So naturally, they disseminate a lot of
editorial decrying any trading, market-timing or re-allocating
that includes selling their mutual funds. This non-selling
concept gets more ridiculous and hypocritical every year as
scandals continue to trickle into the news regarding brokerage
firm and mutual fund behavior. It turns out that the
professionals running the mutual funds do a lot of trading,
market-timing and re-allocating everyday, but somehow if you do
this on your own, you'll ruin your portfolio.
Since an unfortunate vestige of mutual fund sales material is:
"you need to invest for the long-term." and "That it is OK if
your investments are going down because these are long-term
investments." These phrases and beliefs destroy portfolios and
compounded returns.
To me, investing is simply day-trading in slow motion. In my
view, when people don't have an investing plan they use the
excuse, "I'm investing for the long-term." But, I find that all
the successful trading rules that apply to a professional
currency trader with a leveraged $250 million position also
apply to someone with $25 in a mutual fund. If the mutual fund
owner calls it investing, he thinks he is immune from all the
decision-making required of all ownership; ignoring the fact
that every structure require maintenance.
Let's take a closer look at maintenance; look at a home -
everything but the dirt needs to be maintained. Time, weather,
and events take their toll on the floors, appliances, roof,
windows, landscaping, etc. The same rules apply to owning a
rental home. And the same rules apply to owning a strip mall, or
an airport or manufacturing plant. The same rules actually apply
to every business; the building, the equipment, the employees,
the vehicles, the marketing plan, the product design, and the
websites. Now if investing or trading is a business (or you are
trading or investing in businesses) what makes you think your
portfolio doesn't need to be maintained just like everything
else? I am here to tell you that it does need to be maintained.
In spite of long-term investing theories and cautions from your
stockbroker or magazine headlines, most of the time you spend on
investing would be considered maintenance. More reference
material for this article is available at
http://investing.real-solution-center.com.
How I define maintenance is continued review, evaluation, and
action in alignment with your investing goals. Now the
maintenance that they need is continual review. Is it meeting
your expectations? Maintenance means information review: changes
to your market view, interest rates, inflation, recession, the
industry, a new federal law, an inter-country trade dispute,
etc. Maintenance also means portfolio review. For example, , if
a run up in real estate has unbalanced your portfolio, you may
want to sell off weaker real estate holdings or, instead, sell
off the strongest real estate holdings if the market prices are
starting to fall back. Maintenance is also the mechanics of
setting up alerts if a stock has fallen too far and you want to
place a stop-loss order to get out, or an alert for a profit
target that is about to be reached. Maintenance could simply be
a monthly review to evaluate whether the stock is still above
its 200-day moving average price.
Whatever the manner you want to address investment and portfolio
maintenance, you need to start building your own trading rules,
checklists for what to do before you enter a trade, and what
could possibly trigger your exit of a position. Keep a journal
to see how your rules are growing your account to notice which
of them needs to be changed, eliminated, or updated. All of this
is the maintenance required for the $25 mutual fund investment -
so that it doesn't become a $0.25 investment from neglect.
To the axiom: "A fool and his money are soon parted", I would
add this corollary: "An amateur investor and his long-term
investments are soon parted." Amateur investors that are not
willing to perform the ongoing duties required to grow their
investments rarely perform well. While a professional trader who
carefully analyzes and executes his trading rules can count on
the continued successful growth of their portfolio.
About the author:
Francis Kier has an MBA in finance and shares his two decades of
experience with investing and personal finance. More of his
articles are available at
http://investing.real-solution-center.com.
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