Mutual Fund Research Newsletter
July 8, 2004 (#85)

Here are some interesting statistics on how my moderate risk Model Portfolio
has been doing since the start of 2004.

Our stock recommendations, for the 6 mos. thru 6-30-04, are up 4.0% when 
allocated using the percentages suggested in our beginning of the quarter 
Newsletters. This compares with a gain of 3.4% had one invested their 
stock allocation solely in the Vanguard 500 Index. So far in 2004, 6 out 
of 7 of our currently recommended stock funds for moderate risk investors 
are outperforming the S&P 500 Index thru June 30th.

Our bond funds, using the above guidelines for the last 6 mos., were up
0.6 vs. 0.2% had one invested their bond allocation solely
in the Vanguard Total Bond Index. So far in 2004, 3 out of 5 of our currently
recommended bond funds for moderate risk investors are outperforming the above 
benchmark.

But more significantly since I am seeking to gain outperformance over
periods of at least a year or two:

On June 30, 2003, regular readers of our articles were provided a list of 7 
recommended stock funds. As of June 30, 2004, the 1 yr. return on these funds 
was approximately 26%, over 7% ahead of the S&P 500 - every single fund beat 
the index everyone constantly hopes they can beat! The 1 yr. return on our 
list of 5 recommended bond funds, also provided on June 30, 2003, beat the 
return on the benchmark Vanguard Total Bond Market Index by over 4% - every 
single fund also beat this index!

We are sticking with our same fund, category, and allocation recommendations for 
the 3rd Qtr. as we gave you for the 2nd Qtr. (see 
http://funds-newsletter.home.att.net/2004_2.htm ). And 
in reality, our assessment of the overall picture for stocks vs. bonds has 
changed little since your received your June 2004 Newsletter in the mail. 
Therefore, little new commentary now appears necessary.

A reader was wondering whether a broker was needed to
implement our recommendations and whether the buying, selling, and 
potential taxes that might result from re-allocating your investments could 
significantly reduce the actual rate of return one might otherwise achieve. 

It is important to emphasize my position on this, since I suspect that many 
other potential subscribers to the Newsletter likely have the same concerns. 
That is, they perhaps think that my approach:
  
  a) will require more effort than they have time to make, 
  b) advocates that one needs to make EACH of the allocation changes that 
     I include in my Model Portfolio (untrue), and 
  c) will result in too many costs associated with veering from a strict 
     buy-and-hold approach. 

Anyone who believes any of these things and uses this belief to merely buy and 
hold can only settle for what the markets they are currently invested in 
"serve up". And we know that in the last 5+ years, that has amounted to a 
big zero, or worse, return in many stock fund categories. They can only hope 
that things significantly reverse during the 
next 5 years, something that many experts are clearly not expecting.

People continue to believe 
that there is nothing anyone can do about their mutual fund investments other 
than to wait and see what happens, a belief which is largely fostered by those 
in the industry who eschew "market timing". And after all, if people wanted 
more "hands on" investing, they wouldn't even be in mutual 
funds at all, but rather, in individual stocks. And market beating results? 
Well, again the experts tell us it can't even be done, so these are largely 
dismissed as mere chance.

I think I have addressed all these issues before in previous Newsletters. So 
until a few more people begin to think otherwise, I, and hopefully most of you, 
will likely still quietly continue to see our investments do better than most 
other people's in spite of what other people believe.

One of the most important things I have learned from psychology is that the 
majority of people are not nearly as free from paralyzing biases as one might 
expect: Only a relatively few are able to break away from majority opinions 
and utilize the unrecognized insights so gained for their own self-betterment. 

Thanks for your subscription!

Tom Madell