5/15/2013
Let me tell you a sobering fact about the mutual fund industry: Ninety-eight percent of all mutual funds have underperformed the S&P 500 over the last 10-years.
That’s right. Only two percent of all mutual funds have beaten the S&P 500 over the last 10-years.
So, out of the 10,000 mutual funds that invest in stocks, only 200 have beaten the S&P 500. That’s horrendous. So for you, the mutual fund customer, you are facing some horrible odds when trying to pick a good one.
Listen, you would have a better chance betting on sports or horses than you would trying to pick a mutual fund that will beat the S&P 500. So stop doing it!
Mutual funds are for the common sheep. Everyone in the hedge fund industry jokes that mutual fund are the “ McDonalds of Investment Products” — heavy on marketing, weak on quality and bad for your health.
How do I know this sobering statistics?
Several years back, I was paid by an investment management firm as a consultant, to do an extensive study, alongside a PHD from MIT. Our task: To see if we could build a model or ranking system that would predict which, if any, mutual funds could beat the S&P 500 over the next one, five or ten years.
We had over 30 years of data on 18,000 mutual funds to use in our study. My research partner and I ran over 1 million simulations/tests to see if there were any predictive characteristics, such as manager tenure, turnover or investment style, that would predict whether a mutual fund would outperform.
Guess what? We failed. We could not find any trait or characteristic that would predict mutual fund outperformance.
Why? Because they all buy the same stocks. They all have high fees. They all have rules, which will not allow them to buy certain securities. And the ones that try to be contrarian tend to ultimately blow up and have a horrible year, right after they show some outperformance.
Remember, I did this study with one of the smartest mathematicians in the world — a man with a PHD from MIT in Mathematics, and he worked for The Department of Defense in the 1970’s as a code breaker. Let me just say this, if he could not find a way to predict which mutual funds would beat the S&P 500, there is no way you can! Trust me!
If I were you, I would sell all of your mutual funds in your 401K, I don’t care if your company matches or not, it doesn’t matter. I promise you that you will never retire rich investing in mutual funds. There is not one mutual fund over the last 20-years that has returned more than 15% a year, not one.
Remember, not only have I told you that you should be returning 30% to 50% a year, but the world’s richest man, Warren Buffett, has told you the same thing. So if you don’t want to listen to me listen to mega billionaire Buffett.
So how do you return 30% to 50% a year? You invest differently than the masses. An easy way to achieve good, meaningful returns … you follow the world’s richest billionaire investors and hedge funds like I do.
Take David Tepper of Appaloosa Partners…
The media loves to squawk about how great he is, NOW. Ninety-nine percent of industry professionals didn’t even know who he was 18-months ago. I did. I’ve known his every move for well over a decade. Why? He has returned 40% a year over the past 20 years. Let me repeat that: David Tepper, a self made billionaire has returned 40% a year annualized over the last 20 years.
How did he achieve this 40% a year return every year for 20 years? Because he invested the exact opposite the way mutual funds and brokers do.
He buys stocks under $5. Mutual funds and brokers don’t. Plus they will tell you that stocks like that are “dangerous.” You know what’s dangerous, the guy telling you that.
On the other hand, Tepper (not a hack broker, but a Billionaire) buys stocks that are distressed and completely left for dead by Wall Street. And he does serious research before he invests. These are all things mutual funds and your brokers never do!
But I do.
In my service, The Billionaires Portfolio, some of our biggest winners were stocks that were left for dead by Wall Street, even though they may have had a multibillion dollar market cap.
Consider this: We bought a deeply undervalued ($3) stock that is now up more than 120%. And we followed two of the best billionaire investors in the world into these stocks.
Guess what? When a billionaire plows us much as 10-15% of his net worth into a stock, he’s not going to sit back and watch what happens. He’s going to make it happen. He will create value in a company. And in turn, he creates value for me and my customers.
That is what we do in our service, The Billionaires Portfolio. We follow the best. Join us: https://www.fxtraderprofessional.com/order/billionaireport/
Oh, and by the way. Guess how much of his own net worth your favorite mutual fund manager puts into the stocks he buys. Less than 5%! That’s right. The average mutual fund manager puts less than 5% of his net worth into his own mutual fund. And yet you put up to 100% of your net worth in these funds. Don’t do it.
Will Meade
wmeade@purealpharesearch.com