We aren’t accepting any new members, but where the information isn’t sensitive to individuals (their balances, full names etc) I’ll be posting periodic results and information.

First of all, thank you Allan for your deposit. I’ll be keeping it in cash for now, and if another member can add a few dollars, we can consider another purchase.

As you guys are aware, the markets have moved up a bit over the past couple of days. That’s a shame, of course, because we prefer lower prices. That said, we don’t want to fall in line with most active money managers—and lose to the indexes.

Here are some one year return comparisons that you might find interesting. All performance levels are comparing the the 12 month return from September 2, 2009 to September 2, 2010.

• Compared to Vanguard’s total international stock market index, we are ahead by 13.4%

• We’re ahead of the emerging markets index by 0.2%

• We’re ahead of the European stock index by 17.7%

• And we’re ahead of the energy index by 12%

• We’re ahead of the S&P 500 by 7.6%

We have built a very substantial lead over the S&P 500 index (which is our main, comparative benchmark). If we can remain ahead of the market by January, it will by our 9th year in a row of beating it–and extending our lead.

That said, those who try to beat the market every year, in my opinion, are silly. It’s just a statistical aberration that we have beaten the market for 8 consecutive 12 month periods.

Our goal is to beat the market as badly as possible, over a very long period of time. If our stocks underperform during one or two (or three!) 12 month periods, so be it. But overall, we care less for comparative volatility than we do overall, long term results.

Last night, my school had its parent/teacher evening where teachers met with groups of parents for 10 minutes to discuss their educational philosophies and the courses being taught.

At one point, during a break from the revolving door of parents into classrooms, I got a mild-mannered visitor. His son was in my English 9 class, and he saw that I wasn’t busy, so he came in to ask me some basic questions. His biggest one was, “How can I encourage my son to read?”

 We chatted for a few moments, and he told me that he gave his son a book by Michael Lewis, the author of Liar’s Poker and The Big Short: Inside the Doomsday Machine.

They’re fabulous books, spelling out the corruption and ineptitude of the financial service industry at the highest levels.

“What do you do?” I asked.
 
“I’m in high net worth management,” he said, “For clients with hundreds of millions of dollars”

“Oh,” I responded with a smile,”for clients who make their fortune somewhere else and then hand it over to you to manage it?”

“That’s it,” he smiled.

 Then I gave my 2 cents about money management.

Perhaps I shouldn’t have done it, but it was more out of fascination than anything.

“You know,” I said, “It’s such a funny industry—so laden with fees, and after fees, taxes and survivorship bias, hardly anyone has a chance of beating a diversified portfolio of stock and bond indexes. “

Did I blow it?  Did I ruin a potential friendship–albeit, a professional one?  It wouldn’t be the first time.

I once met a Singaporean guy named Sampson at the Berkshire Hathaway general meeting, and he came over to my place for lunch because we enjoyed the shared “geekdom” of finance talk.

 He ran a Hedge Fund in Singapore, and when he went on marvelously about how brilliant the “2 and 20 system” was, I asked, “How can you sleep at night with an arrangement like that?”

In case you didn’t know, most Hedge Funds charge 2% on assets every year, and a further 20% on any investor profits.  That’s why it’s called the “2 and 20”.

And according to a study done by Wharton professor, Jeremy Siegel, more than 70% of Hedge Funds disappear (due to lousy performance) within the first 10 years of their existence.

Well, after giving Sampson my views on his admiration for what I deemed to be an unfair system, he didn’t come over to play anymore.

This brings me back to the parent I met last night—the one working with high net worth individuals.  Did I blow that relationship too, when my comments could be interpreted as an insinuation that he didn’t add value to the people he served?

Thankfully, with a smile, he said, “That’s what I tell my close friends.  Keep costs low and diversify.”

We had a bit of a chuckle, and off he went.

If you were to guess where he had his money—where do you think it would be?

When I mentioned casually to another blogger that I had beaten the market over the past 10 years, he replied (with a great deal of wisdom, I’ll add)   “Yeah, Andrew, everyone online has beaten the market.”

I fully respected that, and I didn’t counter his insinuation that I could probably be trusted about as far as he could swing a 200lb hog.

When it comes to market beating promises through mutual fund sales, online gimmicks, newsletter and guru following, you’re best seeing most for what it is:  somebody out there trying to make a buck.

And to paraphrase what Fitzgerald’s character, Nick Carroway, said at the opening of The Great Gatsby, fundamental decencies weren’t handed out evenly at birth.

But for what it’s worth, I’ve come to think that it might be possible for mere mortals to beat the stock market indexes.

Sure, there are probably as many ways to beat the market as there are evasive strategies from a pack of hungry wild boars, but I think I’ve boiled down a few from my experience that might be worth sharing:

1.  Forget about gurus on television and forget about actively managed mutual funds.  Laden with smoke and mirrors for the former, and enough fees to anchor the latter to the oars of mediocrity, you’re better off going solo, if you have the temperament.

2.  Forget about trying to beat the market every year—don’t even think about trying.  In my view, no decision should be made on whether somebody thinks a stock is going to do well “this year” or “this quarter”.   Most of history’s best investors are/were value oriented, and they were patient.  Stocks you bought 3-5 years ago could be those rising to the front today.  Be patient.  The objective should be beating the market by the biggest long term margin—not trying to sliver it every year.

3.  Buy what isn’t popular.  If you want my tip de jour, find the studliest businesses you can in the ugliest industry.  What’s ugly now?  American residential home builders.  Oh, but don’t buy the homebuilders, check out their suppliers.  Find a handful of the best ones you can, fundamentally, and buy more and more of their stock if/when the economy worsens.  My pick:  Simpson Manufacturing (SSD)

4.  Do you remember the old “beer goggle” expression—relating to…well you remember, right?  Let’s just say that China and SE Asia have beer goggles on for certain Western name brand products that can do no wrong.  “What, just $25,000 for a set of Cartier diamonds.  I have to have them!”

Don’t think I’m kidding here.  SE Asians and the Chinese are getting wealthier by the year.  And they’re crazier about Western status brands than we were about The Beatles. 

Seek out the highest quality, highest status western brand names, and buy the best of those stocks you can.  You might want to check out Tiffany’s.  It could be one of the safest and most profitable ways to invest in China.

And while Estee Lauder isn’t a very good price for now—just wait for it.  Stick it on your radar and wait for a crash.  This stock should put most of the Asian ETFs to shame over the long haul.  And the reporting profit numbers coming out of this company?  Well…you can more or less trust them.

Members, do you recall me buying Wesco Financial this summer?  I mentioned that it was trading below book value–meaning that if you liquified its assets, paid off debts and divided the asset among all shareholders, each shareholder would receive more cash than their shares were worth.  The funny thing is that its assets are mostly liquid stocks.  They’re a huge shareholder of Proctor and Gamble, for instance.
 
I don’t normally watch short term stock prices, but somebody (with very deep pockets) has just figured out the same thing we did.
 
Check out this very unusual chart:

 

Over the past 3 years, I’ve spent thousands of dollars of my own money distributing books to teachers at Singapore American School, on the merits of indexed investing.

 The books were comprised of 15 different titles.  Call it a mission of a driven man, but I’ve been very surprised at the investment fees paid by local Singaporeans and expatriates—which is the only reason I’ve emptied my pockets to distribute free books on inexpensive, common sense investing.

When I first moved to Singapore, I searched for index investing alternatives for my expatriate and Singaporean friends.   I came across an article, ‘Buy Low Cost Index Funds‘,  by Mr. Tan Kin Liam (The Former Chief Executive at NTUC Income) but the indexed options he gave were still surprisingly pricey. 

It’s well known that investors stand the greatest statistical chance of stock market success when they buy index funds.  But a lack of financial education keeps many people buying their far more expensive cousins: actively managed mutual funds, also known as Unit Trusts.  What’s worse, is that many investment companies charge additional wrap fees on top of the excessive fees charged by unit trusts. 

When actively managed funds charge more than 1.5% annually, and then the investment service company takes a further 1.75% annually in advisor’s fees (See the Raymond James Freedom Account)  investors are giving away more than 3% annually.  If the stock market compounds at 9% annually, going forward, then investors are giving away 33% of their profits, when paying 3% in fees.  It shouldn’t be legal, but it is.

If the markets make 6% going forward (a rate of return many people would have been very happy with over the past decade) then investors paying 3% in fees are giving away 50% of their profits to fee-hungry firms.

What does this mean? 

Investors giving away 3% annually in fees are likely to make less than 1/3 of what they deserve over an investment lifetime, as you can see by the example below:

$10,000 at 6% annually =  $102,858.18

$10,000 at 9% annually = $314,094.20

Seemingly small fees make HUGE differences.

How about track records of indexed accounts?

In the U.S., more than 50% of pension funds are indexed.  Of the pension funds that aren’t indexed, nearly 90% have underperformed a combination of stock and bond indexes.

Investing with low cost, diversified indexes is a powerful strategy.  Most unit trusts/mutual funds are expensive.

And you don’t get what you pay for in the investment service industry.

It’s so bad in the U.S. that some companies are doing their best to educate their employees—trying to save them from paying excessive investment fees. Read More

While other people, like Yale University’s endowment fund manager, David Swenson, suggests that the systemic exploitation of individual investors (via unit trust/mutual fund fees) requires U.S. government action.  In his superb book, Unconventional Success: A Fundamental Approach to Personal Investment, he shows the industry for what it is:  a giant fleecing machine. 

If he saw what went on with offshore investment companies like Zurich, he’d rewrite the whole darn thing.  Massive early withdraw penalties with companies like Zurich ensure that you won’t move your money, even after you wise up to the drenching.

How about a comparison?

Over a short period of time, anything can happen with investments.  You might even have a high cost advisor who does well with your account over a short period of five years or so.  But over a lengthier period of time, an actively managed unit trust (mutual fund) account is like a swimmer wearing boots, while dragging a chunk of carpet through the water.  Eventually, the indexes are going to show him who’s boss.

Looking long term, if you had simply split $100 equally into 3 indexes (Canadian stock index, U.S. stock index, Canadian bond index) in 1976, it would be worth more than $3000 today, with no money added. Check it out here:  to see how this balanced portfolio of indexes would have weathered the 1987 market crash, the 2000-2003 crash and the 2008/2009 crash.

For Brits, Australians, New Zealanders and Singaporeans, you could create your own “home country bias”.   For example, instead of a Canadian bias (as with the indexed sample account above) you could have a home country bias with Singaporean, British, Australian or Kiwi indexes.

Historically, returns would have been similar to the Canadian example.

But how do you open an account and get started?

Those based in Singapore can open a brokerage account with DBS Vickers.  Instead of paying 3%+ as an annual investment fee, you could end up paying less than 0.3% while purchasing indexed products called exchange traded funds (ETFs)

The savings go to your bottom line.

In part II of this series, I’ll show you how to construct an account of inexpensive, diversified indexed ETFs through DBS Vickers. 

Donating to charity is great—but donating to the financial service industry is foolish.

If you’re considering re-locating overseas for the adventure or for the financial benefits, the odds are good that if you have children enrolling in an international school, they’re probably going to enjoy the experience. Read their comments .

But ensuring that they do, you’ll probably want to stay for more than a couple of years.  Children adapt well, but they also like to establish rooted friendships. 

To benefit financially, you’ll probably want to stay more than just a couple of years as well.

Canadians Overseas

Canadians who make an effort to cut their residential ties don’t have to worry about Revenue Canada knocking on their door at tax time.  Doing this isn’t for everyone because you’ll essentially be saying, “OK, I’m moving overseas, and I probably won’t be coming back”

Officially, it has to be a permanent move.  It doesn’t mean that you’ll never move back to Canada, but you’ll be making some significant long term changes to cut ties:  closing bank accounts, selling your investments, canceling medical coverage, canceling your driver’s license and probably selling your home.

Americans might look to expatriate Canadians with pity…until it’s tax time.

A couple I’ll call Jim and Betty live in a 12,000 person expatriate community in Saudi Arabia.  Betty goes for 20 kilometer runs within the compound, and Jim joins a group of cyclists who ride up to 80km within the boundaries of the gate.  There are no taxes to pay.  As non residents of Canada, they save well over $120,000 a year—as school teachers at Saudi Aramco. And they probably spend more money on “non-essentials” than you and three of your neighbors put together.

Given the magnitude of the facility, the company hires professionals from a variety of vocations.  And despite the eye-popping teacher salaries, teachers tend to be closer to the bottom of the pay pyramid, rather than the top.

During breaks, employees venture off into Europe, Africa, and cruise the Mediterranean.  It’s not an exaggeration to suggest that most of them are swimming in cash.

But it’s not without risks

Saudi Arabia doesn’t generally find itself in direct, violent altercations with its neighbors, but that’s what many people thought about Kuwait, before the first Gulf War.  A friend of mine was one of the last to leave “occupied” Kuwait.  At a sentry stop, a young Iraqi guard with a machine gun questioned him with a foam-caked, dehydrated look.  Passing the soldier a Pepsi from a 6 pack he had on the front seat of his car may have saved him from more than just a long wait.  My friend was leaving his post as the Kuwaiti National Team Swim Coach, and after news of his “Pepsi Escape” got out, he was a guest on Larry King Live.

On the overseas work circuit, you’ll hear your fair share of adrenaline-filled stories.

Expatriate disconnection

Of course, there are multiple overseas options for adventurous people—beyond just corralling yourself in the Middle East.  And many of them pay extraordinarily well.  Overseas Canadians generally pay much lower taxes, they enjoy higher standards of living, and can usually invest their money in accounts that rival RSP efficiency.  My investment accounts in Singapore, for example, are free from capital gains taxes.

But there are strange disconnections with many of the “business world” types.   It’s not uncommon for companies to pay for schooling, country club memberships, business class tickets home for holidays, housing allowances…and even car allowances.

Reality can get blurred for many.  One of my friends working for a company in Korea, making and distributing sunglasses, was going to give his 18 year old son $120,000 U.S. because his son earned a full university scholarship.

“He earned the scholarship,” he said.  “And I was going to spend that money on his education anyway.”

“It’s only $120,000,” he stated, with honesty that nearly knocked me off my chair.

Can working overseas be that intoxicating?

Or is it a level of drunkenness you’d welcome.

What about you?  Do you think my friend is delusional?  And has an overseas life ever enticed you?

 Coined, somewhat mockingly, “The millionaire club” by some of our fellow teachers, our arguably geeky goal was to pool our money, invest it in the stock market, and become rich.

More than a decade after we started, we’re still chasing the dream.

What started out as a dozen members adding $50 a month has morphed to more than 20—and our portfolio has ballooned to roughly half a million dollars.

So what’s so unique about what we’ve done?

Since we began keeping records with Bivio in October, 1999, members who have added a regular monthly contribution have seen their accounts compound in profits by 7% annually, as an average.

From 1982 until the year 2000, that wouldn’t have been anything to write home about.  A blindfolded monkey could have compounded money at more than 17% annually—thanks to the crazy, rip-roaring ascent the stock market took.

If you were investing money in the stock markets from 1982 until the year 2000, and if you didn’t make at least 17% annually on your stock market money, you better fire your advisor, if you have one.  That’s how quickly the tide rose.

But from 1999 until today, we’ve had a very different investment climate.  Say what you want to about the economic crisis—the poor returns from stocks since the year 2000 was destined to happen anyway.  After such a big run, and with stocks hitting silly price to earnings levels, the markets were destined for a long breather or a big drop.

As you can see below, the S&P 500 was at a higher level in 1999 than it is today:

We’re especially fortunate to have compounded money at 7% annually since 1999—considering what the markets have dished out since then.  And in 2008, Ian McGugan (the founding editor of MoneySense magazine) asked us to publicize the story, which we did with our MoneySense article: How We Beat the Market. 

What’s the secret of our success?

For us, we want to recognize what we’re good at and what we aren’t good at.  If a business is tough to understand or value, we won’t buy it.  Successful investing is probably more about avoiding mistakes than it is about brilliant moves.

We’re cautious about picking stocks, understanding that we can’t value a commodity based business, like an oil company.  Where prices of the products are unpredictable, we tread elsewhere.

How do we determine a price for a stock?

We try to analyze our stock purchase prices based on common sense, while allowing for a margin of safety.  You can see an example of a stock I bought for my personal account here, and the price analysis that accompanies it: The Easiest Business in the World To Value  

Beating the S&P 500 9 Years in a Row?

Over the past 12 months, we have gained +16% (August 18, 2009 to August 18^th, 2010) compared to an 11.3% gain for the S&P 500 (blue line below) and a 4% gain for the EAFE international index (the green line below).

If our 12 month return is still ahead of the S&P 500 by January, we will have beaten the index nine years in a row.

Recent Purchases:

For what it’s worth, our most recent purchase was 220 shares of Johnson and Johnson, at $58.49 per share.

We’re patient.  And we’re committed.

When we own a stock, and it goes down in value, we celebrate—and try to buy more.

I’m not sure whether we’ll keep beating the market, but we’ve seen enough to know that with patience, diligence and humility, it might be possible.

If she’s an academic high-flyer interested in pursuing the sciences, she might choose AP Biology.

If she’s keen to pursue Journalism or Communications, perhaps she’ll focus on AP Writing or Literature.

Arguably though, one of Linsey’s greatest advantages isn’t coming from her academic classes at Singapore American School —but from an exposure that, perhaps, only an international school setting can provide.

Linsey joins Stanford, Connecticut born Ava Mehta and more than a thousand other students in an educational adventure unlike anything offered in Canada or the U.S.

Ava gushes about living overseas in general: “How many kids can say they’ve spoken Spanish in Barcelona, debated in Taipei during a school competition and visited Cambodia for Spring Break?”

Ironically, Ava’s just hitting the tip of the iceberg.

Most of the larger international schools in SE Asia plan annual, exotic, cultural excursions to broaden the minds and perspectives of their students.  If you’re a parent of high-school age kids, and if you get transferred overseas, your kids may be in for the cultural experience of a lifetime.

Will we really meet the Dalai Lama?

At Singapore American School every February, all 1000 high school students disperse to foreign locales to broaden their experiences.  All of them. 

This year, my wife and I will be taking 20 students to Dharamsala, India– where our students (in the past) have met and spoken with the Dalai Lama. 

The trips are mandatory.  And as seniors this year, Ava Mehta and Linsey McMullen will have choices to take their 10 day trip to one of 30 different countries—with 50 different “course” destinations represented.  There’s a pecking order based on seniority, so seniors choose first.

Some of the choices include the following:

• Homebuilding in Cambodia
• Trekking in Tibet
• Living with the locals on the Riau islands of Indonesia
• Adventuring in the Everest area of Nepal
• French immersion in France… or Spanish immersion in Spain
• Exploring ruins in Turkey… or Jordan… or Egypt…

Singapore American School isn’t the only expatriate school offering such experiences.  Most of the top schools add their own flavor to these excursions with an educational twist.

Dr. Vicki  Rogers, who did her dissertation on Third Culture Kids (children who grow up in an alternate culture) shares some further benefits of growing up overseas.  She and her husband, Matt, both attended Singapore American school, and now that they’re in their 30s, they consider both Colorado and Singapore home.

Matt, currently based in Singapore, works for Aman Resorts, possibly the most luxurious resorts on Earth.  Among Matt’s marketable attributes are the contacts he established as an international student.  Third culture kids develop professional networks that typically surpass those of kids who grow up in traditional environments.

Drawbacks

Besides a global education, a future professional network, and the tolerance that comes with being a “colorblind” third culture kid, there are also a few drawbacks:

Seventeen year old Mexican born Rodrigo Gonzalez has lived in Mexico; Caracas, Venezuela; New York, and Singapore.  He doesn’t like the feeling of “looking like a local, but feeling like a tourist in Mexico.”

He echoes the struggles with a “home identity” that many third culture kids talk about:  not to mention missing important birthdays and celebrations of friends and families in other countries.

Third culture kids often seek an identity as a group, and they’ve been coming together online to voice that at Denizen. 

Having immersed myself in a culture of nomadic students, I’m often drawn to the question:

“Would you rather have stayed in the U.S. or Canada, instead of doing all (or some) of your schooling overseas?”  

 The response to that question is virtually unanimous.  But are they in favour of living internationally as kids, or not? 

What do you think they say?

And would you or wouldn’t you “do this to your kid?”

Kate rolls out of bed, and there’s a smell of fresh coffee in the air.

Walking down the hallway into her open living room, a warm breeze comes through the open patio area.  Unlike a North American or European home, there isn’t a wall separating her living room from her backyard.  A large, tastefully extended awning keeps the warm rain from spattering into her living space.

Kate’s maid provides coffee, freshly squeezed mango juice and banana pancakes—perfect fuel before Kate heads off to the office, driven by a gentleman who couples as her gardener.

No, there’s nothing steamy going on between Kate and her man-helper.  Kate’s love affair is with South East Asia.

Her children are just finishing their breakfast, and soon they’ll catch their bus to The International School of Bangkok,  located miles from the hustle and bustle of downtown.  With more than 50 different nationalities represented by the student body, socializing becomes an education in itself for the kids.

Working for Proctor & Gamble, Kate never imagined she’d be spending her entire career overseas.  But she prefers working in Thailand to the grind she had in the U.S.  Plus, Kate gets paid more; she pays fewer taxes; she doesn’t have to cook and clean; she has a personal masseuse, and she travels extensively every year to exotic places like Jordan, Fiji and Vietnam.

Thousands of people live like Kate:  thousands of miles from where they grew up.  They work for companies like Coca Cola, 3M, BP, Exxon Mobil, General Electric, Rolls Royce, Crocs, Bristol Myers, JP Morgan & Chase….the list is endless.  And everywhere foreigners reside in large numbers, there are schools to service them.  Singapore American School, where I teach high school English, has nearly 4000 attending students between Kindergarten and Grade 12.

Foreign cultures are like magnets for some people, and many expatriates wouldn’t dream of putting their kids in North American, European or Australian public schools.

That might sound bizarre.  As an international teacher, when I speak of the benefits of working overseas to friends in Canada, they often say, “I couldn’t do that to my kids.”

Yet—when I ask friends overseas if they want to go back to Canada or the U.S., they say, “That wouldn’t be fair to my kids.”

There are pros and cons to living overseas.  And I want to show you what they are.  In a 3 part series, I’ll profile some overseas professionals who have worked in a variety of different locations.  I’ll examine some of the benefits and difficulties associated with being a third culture kid,   and I’ll show you what some of the pros and cons are, socially and financially for re-locating expatriates.

Speaking of financial benefits, shall I whet your appetite?

I have friends who recreationally ride horses weekly; their kids are involved in soccer, ballet, and they live in an expatriate community of 12,000 people—thousands of miles from home.  Before leaving Canada, neither of them had ever made more than $60,000 a year.  This past year, his first pay check alone was $30,000 for the first month.  Granted, the business gave him a “settling in” allowance, but the couple figures they can easily save more than $100,000 U.S. a year—while travelling prolifically during their time off.  I said “SAVE” $100,000 a year.  And he does the same job that he did back in Canada—back when he and wife’s combined after tax salaries totalled about $80,000.

Where do they live?  What do they do?  I’ll reveal that, and more, in my next post.

So…what do you know about expat living?  And what would you like to know?

When the ball comes to you, hit it into the net. Or knock it out of bounds.

Ok—you’ll “mess up” the odd shot and it will land “in” on your opponent’s side, but don’t fret.

Your job is to let your opponent beat you badly.  Sound strange?  Sure it is—but play with me on this one.

After an hour of playing, the truth is revealed.  You’ve been playing different invisible players—ten of them, to be exact.  They’ve rotated through every seven minutes or so.

If these guys can fog a mirror, you’d imagine that they’ve all kicked your butt, right?

 How could they not?

But they haven’t beaten you by much.  Two of them, in fact, have produced scores very similar to yours.

These must be lousy players, you figure.  After all, you were trying to lose every point.

Let’s reveal the players.  The best ten players in the world. And they were trying their best. 

Not to embarrass them by name, but two of them played almost as badly as you did.  And you were trying your best to lose as badly as possible.

Is this scenario at all realistic? In tennis, it isn’t.

But in finance—it is.

In April of last year, I asked my readers to suggest the worst stocks they could think of:  stocks that they figured were heading downwards in a hurry.

I put those lousy stock selections into a portfolio that I was going to track.

At the same time, I asked my readers to come up with the ten best mutual funds they knew.  My readers were pretty resourceful.  Many of them admitted that they just googled what the most respected mutual funds would be for 2010, and they picked some top performers from the list.

Well, 4 months have passed.  Since April, 2010, the stock markets have dropped.  This is the kind of climate that suits mutual fund professionals, relatively speaking.  They’re supposed to be able to predict market drops, and keep money in cash so their entire portfolios don’t plunge with the market.

Those super mutual fund managers must have seen this coming, right?  Unfortunately, they didn’t.

As of today, the selected Superfunds are down 6.87%, as an agregate.

They’ve done slightly worse than the U.S. stock market index which has lost 6.62%. 

So much for the super mutual fund manager’s ability to protect you during a downturn. 

But that’s not the really interesting part.

If the Superfunds represent those top invisible tennis players, and if my readers’ selections of “lousy stocks” represent you—trying your best to miss every shot.  Then would any of these Superfunds have come close to my readers’ purposefully lousy performance?

 The answer is….yes.

To carry on with the thematic tennis analogy—-yes, two of the Superfunds would be going into “tiebreakers” with a bunch of stocks selected for their “junk” factor.

The “lousy stock” portfolio has fallen 9.83% since April. 

But remember, my readers picked stocks that they hoped would go down.

Two of the SuperFunds have performed nearly as badly:  The Great American Funds Mutual A and Bill Miller’s Legg Mason Value Trust. 

Miller, in case you’re curious, is one of history’s greatest mutual fund managers.  But like Federer (or more likely, Tiger Woods) he has fallen from the perch recently. 

In tennis, if you’re trying to lose against the top players in the world, you’ll lose. Badly. 

That’s a silly statement, but I want to juxtapose it with the financial one:

In Finance, you can try to lose as badly as possible, but you might still threaten the results of some of the best professionals in the business.

Stay tuned.  I’m going to stand by the original statement I made when I posted this ‘Biggest Losers’ contest in April, 2010. Worst Stocks vs best Mutual Funds  

Over a few years, I think the lousy stocks will actually beat the collection of super mutual funds.  The fees on the funds will pose a drag.  Kevin, at Investitwisely, describes it well here: How Mutual Funds Rip You Off with Extra Fees and Charges