April 27, 2006
"Unfortunately, there is still no such thing as a free lunch."
-- Chuck Saletta, five minutes ago
That's exactly right, Chuck. And while fund investors pay a premium to own mutual funds, so too is there a premium for picking stocks. Choosing winning investments requires time, after all. Doesn't the time value of money at least equal what you'd spend in an expense ratio that maxes out at 1%? I'd say so.
Some people simply shouldn't own stocks
Moreover, there are plenty of people who shouldn't own stocks. Consider this classic commentary from master value investor and former Fool contributor Whitney Tilson. In it, he says that stock investors must have:
- realistic expectations,
- ample time,
- training in valuation techniques, and
- a calm temperament that allows for long-term ownership.
Now, how many of you have all four of these attributes? Oh please, put your hands down. Let's try another question: How many of you have stayed with a stock that dropped 20% on nothing? OK, that's better. Now, how many of you bought more when that occurred, as John Neff did as the manager of Vanguard Windsor (FUND: VWNDX ) ? That's what I thought.
Look who you're dealing with
Finally, let's not forget who it is we're talking about here. Fund managers, especially those of the championship variety, really are some of the world's best stock pickers. Their performance proves it. The actively managed funds that comprise Champion Funds' portfolio are beating their relevant benchmarks by an average of 12.5%. Take out the roughly 1% you'd pay in fees for the right to own these funds and you'd still be generating superior performance. Isn't that what matters most?
Think you're done with the Duel? You're not! Go back and read the other three arguments, and thenvote for a winner.
Fool contributorTim Beyersthinks the easiest way to become a master stock picker is to follow the moves of masters. That's why he likes funds so much. Tim owns shares of Akamai, a Rule Breakers pick, and the Julius Baer International Equity fund. You can find out what else is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.