Post of the Day
May 29, 1998

From our
Mutual Funds Board

[Note: This post is in response to our Dueling Fools feature on Mutual Funds.]


Subject: Re: Mutual Disrespect
Author: WadaPhooliam

Opposed writes:

"I am AMAZED that the majority of Fools agree with Munarriz that buying mutual funds make sense. You people better WAKE UP or give up.

RISK is letting someone you don't know manage your money. They will buy stocks without your permission, sell without your permission (which determines when you pay taxes and how much you pay), and take part of your money to pay for their foreign luxury cars. Don't worry that 91% of PROFESSIONAL (that means REALLY GOOD at what they DO) fund managers lose to the market."

I thought we voting on who made the best argument rather than indicating whether or not we agreed with that argument. Furthermore, what's wrong with doing some straight equity investments mixed in with a mutual fund or two? As an individual investor, I am just as capable of underperforming the S&P as any of the professional fund managers. At least if they do it, I have a scapegoat. If I do it, I have no one to blame but myself. ;^)

As Rick pointed out, that 91% figure includes bond funds as well as equity funds and there are mixed funds (e.g. Fidelity's Equity Income) that do a bit of both. I wouldn't expect a bond fund to beat the S&P and would expect a mixed fund to have a hard time even matching the S&P.
"The Motley Fool approach is biased toward growth, even aggressive growth. This is not a slam, just an observation."  

The Motley Fool approach is biased toward growth, even aggressive growth. This is not a slam, just an observation. Such a bias is hardly surprising, since both Dave and Tom are young enough to be MY sons and have a good 30 to 35 years to ride out market ups and downs. In fact, most of the Fool staff seems to be quite young. If I were a 20 or 30 something instead of a 50 something, I'd probably be less conservative than I have become. My 401K portfolio contains cash and bonds as well as equities.

I am in only one mutual fund (outside my 401K), White Oak Growth Stock (WOGSX), into which I invested $10,000 last fall. I picked it for the following reasons:

1. No-load, management fee of .98% ( < 1%).

2. Although a young fund (started in 1992), it had on average during its 5 year life, beaten the S&P even after deducting management expenses.

3. It was a small, nimble fund ($362 Mil. at the time) investing primarily in large cap consumer durables and large tech stocks (including 5% in AMAT, my employer - I also own 600 shares of AMAT outside of my 401K).

4. A low portfolio turnover of 8% annually, basically a buy and hold approach with minimal tax consequences. Contrast that to some of the Fidelity Select funds with > 100% turnover as well as (if memory serves) a 3% front end load (and I think there's a back end load as well) as well as horrendous management fees. I've forgotten what the minimum investment(s) were, but they were way too rich for my blood.

5. I did as much research as I could on WOGSX and competing funds. There were funds that had better 5 year records than WOGSX, but it was the only one that met my criteria of relative obscurity and nimbleness (small size), low fees, 5 year S&P beating returns, and a low portfolio turnover rate. For a growth oriented managed fund, it was about as Foolish as they come, even if a Foolish managed fund is an oxymoron.
  "Overall, I agree with the Motley Fool approach. I've just had to amend it somewhat to fit my situation better. After all, one of the tenets of Fooldom is not to put at risk money you can't afford to lose."

Oh yeah, there's one other thing. My wife's first husband piddled away their money playing the stock market (options trading mostly) so she's uncomfortable with direct stock investment, except that she's comfortable with owning some of my employer's stock. Maybe if she sees that I have no intention of becoming a day(dazed?) trader and we make some money, then I can buy some other stocks down the line.

One final thing. I bought WOGSX at 28.94/shr last October. I believe it closed at 34.44 (+6.50/shr) today. I also bought AMAT at 38 1/4 in October of last year. It closed today at 32 5/16. I have no intention of selling either within the foreseeable future.

Overall, I agree with the Motley Fool approach. I've just had to amend it somewhat to fit my situation better. After all, one of the tenets of Fooldom is not to put at risk money you can't afford to lose. My wife and I also pay off our credit cards every month and have a 6 month reserve fund. We may not be in some variant of the various Fool portfolios, but by and large, I'd say we're well within the boundaries of Foolishness.


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