FYI: Mad Money host Jim Cramer, best known for offering stock tips on cable TV, is quickly becoming famous for taking what would seem for him a contrarian viewpoint — that investors should avoid stock-picking mutual funds like the plague.
Actively-managed funds are in one business and one business only, Cramer argues. They must grow their client base to maximize their own fee income, regardless of performance
Regards,
Ted
http://www.marketwatch.com/story/mutual-fund-investors-are-hosed-jim-cramer-2015-02-12/print
Comments
He of all people should recognize the importance of mutual Fund Purchases in the Stock Market...they (managers) control stock market prices Daily, suck up to them buddy, you might get a few Price Tips to pump on air....Jimmy Boy.....just thinking...tb
Okay, perhaps he didn't actually admit to that last part, but the record is painfully clear.
David
but we all know those investors looking for "Free information" to make them money actually do.....thus their downfall
I would venture to say that in the long run, the average person investing in a low fee index fund would trounce the average return of the folks taking Cramer's trade recommendations though.
There's no silver bullet to investing. To an extent, we are blinded by the times in which we invest. I'll listen to just about anyone. Doesn't mean I have to follow their advice.
In terms of making sense of investing ... Pick up 2 or 3% here; 10% there; and another 25% somewhere else. Isn't that really how we learn?
I find Cramer a likable sort, although full of bluster. Perhaps he's misplaced in the role of financial commentator. Can you imagine him in the role of TV Weatherman?
I've done less lately from the standpoint of wanting to put a cap on the number of positions and just focus on what I have, but the overall thing is that you have to have some degree of love/interest in it because - as everyone on this board knows - it takes work and research.
The only thing that he can manage is the Action Alerts Plus (cheesy name, I know) portfolio. His subscribers get (you guessed it) alerts when he buys/sells, I believe. I think there's also rules in regards to how he mentions things he's invested in on the show.
I don't believe he's been allowed to invest for himself or manage money for others since he started on CNBC.
Just buying an S&P 500 index fund, you would have performed 36% better than enacting every single buy and sell of the Action Alerts PLUS portfolio, which is a paid service so you can constantly check your emails and make all the buys and sells.........so you can drastically underperform the market, and pay much higher taxes from all your buying and selling, versus say the Vanguard S&P 500 Index fund where you will only pay taxes on qualified dividends, as there has not been a capital gains distribution in more than 10 years.
Thanks for this very vigorous MFO discussion exchange. The divergent perspectives are well reasoned and themselves sometimes complex. But I do not find the issue to be especially difficult. While I can not control investment outcomes, I have absolute control of my personal investment process. And process matters most.
Individual investors always have the option to make investing as complex or as simple as they choose. Choosing the complex route requires a commitment to study, to constant research, and most importantly to time demands. I sincerely hope there is a measurable payoff to this arduous and uncertain selection.
I emphasize uncertain because the accumulated data suggests that the odds of a positive Alpha (excess returns) are small, and diminish over time, even for a Herculean effort.
Although individual investors may indeed be smart and talented folks, it is highly likely that professional Mutual Fund and Hedge Fund mangers are still more smart and more talented. They certainly enjoy the advantages of their full time commitment that is supported by a well trained professional research staff.
Yet this exceptional group has deep rooted difficulties in outdistancing their benchmarks. Please see Barry Ritholz’s “The Most Fascinating Investing Paradox” article posted on MFO earlier. Here is the Link to revisit that article;
http://www.bloombergview.com/articles/2015-02-12/hedge-funds-underperform-as-investors-give-them-more-money
I recommend that you consider visiting a Vanguard Group 2010 study that was referenced in the article and provided data for Ritholz’s interpretation. It’s consistently a good policy to examine original sources. Here is a direct Link to the Vanguard work:
https://pressroom.vanguard.com/content/nonindexed/Do_hedge_funds_hedge_the_experience_of_the_great_recession.pdf
The Hedge Funds are prime illustrations of just how difficult it is to outscore the marketplace. These Hedge Funds are superb examples of complex investment strategy users. Their payoffs are dubious at best. Can individual investors do better? A few will, but the vast majority will not, regardless of dedicated effort. The market interactions are overwhelmingly complex.
So why not default to the simplest options? One or two Balanced mutual funds (like from Vanguard and/or from Dodge and Cox) might be a wise choice. If further diversification is deemed necessary, the Paul Farrell’s Lazy-man portfolios are convenient low cost options. Here is another repeat Link to his table of lazy-man portfolios generated by stellar investment wizards:
http://www.marketwatch.com/lazyportfolio
As always, the decision rests with the preferences of the individual investor. In a way, that’s too bad given his dismal track record.
According to CXO Advisory Group, Jim Cramer had an accuracy score that hovered just below 50% for the entire time of that extended study. Dice be a lady tonight.
Best Wishes.
Cramer is just another voice imho. I try and get a variety of opinions before making an investment decision. I prefer funds & etf's to individual equities due to their being less volatile compared to individual securities, but a small handful of individual securities are long term holds in my portfolio.
N - Nothing
B - But
C - Cramer
God bless!
the Pudd
What?
Gary Gensler (ironically, the brother of a prominent T. Rowe Price fund manager of the day) co-authored "The Great Mutual Fund Trap" in 2002 urging investors to eschew actively managed mutual funds in favor of index funds and ETFs for reasons similar to what Cramer is stating. The book was well received by the public.
The topic receives frequent attention on this board in various ways. When we talk about "bloated" funds that fail and blame management for putting AUM above long-term performance, we touch on the issue.
The proposition Cramer, Gensler and many others put forth sounds logical. And where there's logic, there's usually a great deal of truth. You probably can't completely eliminate the motivation fund management has to grow their funds, thereby increasing AUM and profits. It's an aspect of our capitalist system. However, if like me, you choose to invest in actively managed funds, there are some things you can do to help reduce the pain.
- Look at fees (especially the fund's "expense ratio") and select funds with relatively low ones. "A penny saved is a penny earned" might well apply here - especially when compounding is taken into consideration.)
- Never pay front loads or commissions,
- Consider the reputation of the fund firm. Some appear to value long-term fudiciary-client relationships more highly than others and are therefore more inclined to build and manage funds that work over the long term.
- Favor diversified "Steady Eddy" funds over the "Flash-in-the-Pan" hot performers. Fees are usually lower because they trade less. And, there's less "skimming" of profits by hot money moving in and out. These funds often represent the Crown Jewels of the firm and so they have great incentive to retain great managers and limit asset growth.
Added Note: While not too impressed with how well the M* X-Ray discects portfolio holdings for me (It's about as reliable as their attempts to put funds into straight-jacket categories), I do appreciate that it calculates the average ER paid on all of your funds. That feature alone makes it worth using.
Link to Gensler's book on Amazon: http://www.amazon.com/The-Great-Mutual-Fund-Trap/dp/0767910710