Trading vs Investing

I often hear from people, “I don’t trade. I invest. I buy a mutual fund and I hold it”.
Mr. Investor, did you know you are trading on a regular basis? Are you aware that mutual fund managers are changing their positions by selling certain stocks and buying others?

Mutual funds must report quarterly what stocks
they are holding. You can get those reports if
you want them. I can’t see where it will do you
any good if you are going to blindly hang on to
the fund.

A few professional traders will request these
breakdowns only if a fund is greatly
outperforming the market. They will see what
stocks the fund manager has that is making this
fund do so well and may buy those stocks. Very
clever.

Did you notice that the investor is only
looking at the best funds and not at the
underperformers or the average performers? Now
check your portfolio. Is what you own in the top
most profitable funds for the past 3 or 6
months?

I know your broker told you that you have to
look at the returns for the past 5 or 10 years.
What nonsense. Do you care what the fund has
averaged for the past 5 or 10 years or do you
want to own one that is making money now?

Fund managers are constantly trading trying
to increase the return for their investors. It is a
shame most of them have not done a better job.
They are always comparing themselves to the
S&P500 index. When they do that well they think
it is wonderful and they never stop bragging.

The S&P500 index is an average of the market.
Mr. Fund Manager gets excited doing an average
job. Does your boss like it when you are
average?
He expects more from you. And you
should expect more than average from any
investment you make especially if it is
recommended by an “expert” broker or financial
planner.

If anyone does an average job he will be
employed until the boss finds someone who will
do a better job and then Mr. Average can find
the door. That should be the same way you
examine the stocks and funds you own.
The
nonperformers should be sold and new ones found
that will make money or go to cash. Don’t rely
on your broker. His company never wants you to
sell.

Investors who buy for “the long haul” are
long term traders. They are not knowledgeable
enough to sell when the market is going down as
it did in 2000. When there is nothing to invest
in then cash is the best position you can have.
Having your portfolio in cash in a one or two
percent money market account will many times
outperform owning stocks or mutual funds.

Everyone who invests is a trader. It is
only the time period that is different.

Copyright 2005Al Thomas' best selling book, "If It Doesn't
Go Up, Don't Buy It!" has helped thousands
of people make money and keep their profits with
his simple 2-step method. Read the first chapter
to receive his market letter for 3 months at
www.mutualfundmagic.com to discover why he's
the man that Wall Street does not want you to
know.

Al Thomas