While a "buy and hold" strategy should certainly be at the core of most investors' approaches, in reality, people do at times make changes or seek input on where to invest new money, including where to allocate or re-allocate their 401k or IRA contributions.
We happen to believe that there are times when some investments are either so extremely attractive (or unattractive) that anyone who seriously wants better than middle of the road investment performance should consider taking notice. And we believe that these opportunities, while not guaranteed, are capable of being spotted and acted upon with favorable results.
But unfortunately, due to the usually lengthy time it takes for these opportunities to truly blossom, unlike the results for traders who either see a quick result or try to get out right away, you will frequently not be able to see for quite a while whether acting on the suggestion was worth it or not. (Isn't that part of the nature of long-term investing?)
Our newsletter currently only has a track record of a little more than one year. However, during this time, the majority of our suggestions, even though they may have run contrary to what the average investor was doing, have, thus far at least, turned out to be good ones. And we continue to make available on our website, the performance statistics for our long-term mutual fund strategies and picks first presented in various of our previous newsletters.
Many of our long-term fund investments, almost all of which we still hold today, were for long periods of up to a dozen or more years during which time we usually equalled or some cases bettered the market averages, resulting in outstanding increases from our original costs for these investments. (See Letter 26 (June 18, 2000) for details.)
As investors sailed through the recent period of almost constantly rising stock prices, many did fairly well by just following the flow of money into the latest "hot" fund. However, we believe that for this economic cycle at least, the easy money has been made. I think we are ALL going to have to work harder now that an ever-continuing bull market is no longer going to just keep handing us money.
It is during the more trying periods for the markets, when the previous high fliers no longer rule the roost, that a truer test of investor success will occur. Specifically, it will be interesting to see how the average investor who spends little time examining the overriding fundamentals does, as compared to investors who follow our type of approach which makes use of the data provided by an analysis of economic trends as well as the psychology of investment behavior.
We have been suggesting in our newsletters for quite some time that people need to be investigating categories of funds that may not have performed so well in the recent past, but due to good fundamentals, appear to be good alternatives to the now "former high fliers" for at least some of your investment assets. It now appears that some of these oft maligned categories of funds are starting to come out on their own, either outperforming the former high fliers or at least helping to balance an otherwise volatile portfolio.
Two funds that we recently recommended are now showing positive performance over the last several months as compared to most other areas of the overall beaten down market. These are the Vanguard REIT Index (real estate stocks), and Vanguard Windsor which invests in hard-core value stocks. We think the trend will continue.
If you are just starting out, or have a portfolio focused almost exclusively in just a relatively narrow area of the market, such as in growth funds or in funds that invest heavily in the technology area, use our suggestions to help build a more diversified portfolio, adding a new fund on occasion as your resources permit.
Or, if you already have a portfolio of several funds and you think that you may be able to enhance your performance somewhat by seeking out categories of funds that our research suggests has a better than average chance of outperforming other current less attractive categories, then investigate and if appropriate to your situation, act on our suggestions.
(Remember that the particular funds we suggest are only representative funds from the particular category we are recommending as presented in our Newsletters. We have never claimed that ours are the best such funds, although we are putting our money where our mouth is, unlike other advisors who sometimes recommend specific funds because of some sort of commission or other monetary reward.)
If you fall into neither of these above two categories, then frankly, I'm not sure that you will get too much out of reading our Newsletter. (Let me know if there are other objectives you have and I'll try to address them.) If this is the case, perhaps you know of someone else who might better profit from our suggestions. If so, we would appreciate it, and I'm sure they would too, if you passed information about our Newsletter on to them.
Tom Madell, Ph.D