Wednesday, February 17, 1999

Call In the Guru

by Pat Gaskill

As a relatively new Foolish investor, I regretted the agreement to meet with a customer of mine who is an agent for Mass Mutual. She looked at my overall financial strategy and was a bit concerned that I thought that I could retire with over $1 million in less than 10 years at age 44. What concerned her was that I would need to make 22% per year to accomplish my goal. She felt that I was taking a "risky" strategy and called in the "investment guru" for our follow-up meeting.

Originally the only reason that I had for wanting to talk to her was to find out some things about long-term health care for my (hopefully) inevitable old age. Now I was about to sit down with the Wise. After introducing himself with a barrage of credentials and important sounding connections, my newfound disdain for mutual funds became an issue.

After listening to him for some time explain to me the advantages of "actively managed" funds he asked me a question that he felt would finally get some form of agreement from me. He asked me if I would agree that the idea is to "buy low and sell high." I told him that I thought that I should buy the right company and not have to sell.

The fund that he was pitching to me, you see, "rebalanced" every month and therefore would have to sell stocks that had risen and buy those that had not. Therefore "guaranteeing" that they would always be "selling high" and "buying low." I told him that it was unwise to sell winners. And my experience in foolishly selling Amazon has been my biggest investment debacle. You see, when I bought Amazon, I did so foolishly (small f) last August. My main reason for buying the stock was because it was in the Fool Port, now the Rule Breaker portfolio (ouch). So when the stock rose so quickly I felt that it really was "overvalued" (ouch again) and sold it at a split-adjusted $14 per share. I made a terrific return but did not understand the company that I was investing in so I missed out. A very Foolish lesson learned. I do not blindly follow the Fools -- I did not buy Amgen, I did buy @Home and Starbucks and still feel very comfortable with those decisions.

I wonder now if all "actively managed" funds underperform because they are "buying low and selling high." That old axiom means nothing to a Fool now, except that they are selling their winners every month and buying more of their losers!

I'll call that guy in 10 years. He told me that "anyone who can get 22% over 10 years will be a billionaire because of the advice he could sell." I won't be a billionaire -- don't need to be, just want to spend time with my family and play golf. Maybe volunteer for the First Tee program for kids -- and gloat a little about beating the Wise.

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