Tuesday, January 5, 1999

Why Not a Foolish Fund?


Here's another sign that Wisdom has its follies: Mutual fund managers work long hours. It's been pointed out many times on this site that they don't consistently meet market averages, but what is intriguing is that it takes them all day to be less than mediocre.

Now, I'm certainly not opposed to hard work, or long hours. I do think, though, that you should always measure your investments (time, money, emotion, whatever) by the rewards they provide. Presumably, at least some of a mutual fund manager's time is spent concocting bogey men (sorry, bogey people) and horror stories to scare the lay person. Time spent that way probably has a pretty good return (as far as their commissions go).

The real question is, why haven't some semi-Foolish people set up a Foolish Four mutual fund? (Note that it could only be semi-Foolish, of course. They still would be charging commissions for so little work that true Fools would be offended, and they would still be encouraging their customers not to think for themselves.) From the fund manager's point of view, if people are willing to pay you that kind of money for 20 minutes of work each year, isn't it pretty Foolish of you to let them?

The reason they can't do that, of course, is it bursts the bubble. The clients who go with mutual funds want to be told that stock selection has to be complex. They want to hear that they shouldn't think of doing it themselves. In fact, a low return on investment seems worth it to many people, because it means they don't have to face their fears of money management. It means they can tell themselves, "Even this CPA/MBA endorsed professional can only get me 10%! Imagine how poorly I would have done."

If fund managers set up a Foolish Fund, they'd have to spend even more time scaring their customers. Since we all know that's the toughest part of their job already, why should they make any changes? Spending less time to get better returns just makes their real job harder.

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