Monday, October 13, 2008

What's Wrong with Mutual Fund ?

If these Fund Managers are so Expert, why in the world they do not withdraw from the market before the market crash ?

A well establish mutual fund company normally has a large invesment sum of money to invest with.  Sometimes one mutual fund company alone can have more than all the money traded in the stock market one day.  That also means, a fund manager can put ALL money into a crashing market and still make the market trends up that day.  Like wise, when a fund manager pull out all the money, the market literrally collapse into Nothing left.

So when the goverment grant the license to the mutual fund company, certain limits are imposed too.  In generally there is a limit a fund manager can dispose off their stocks in a day.
So, let's say the limit is $100,000 per day.  And the fund manager has $1 million to dispose off.  It will take 10 days or 2 weeks before that fund manager is totally out of the situation they are trying to stay away from.
But nothing happen overnight !  Whatever the problem is, a good fund manager should have insider news and know things well in advance !  ( well, if not insider news then through other methods, they should have known ... )  That is true, they do know in advance but ...

Your fund manager promised you something ( prospectus ), and that something is usually achieved by putting your money into the market.  So a fund manager cann't simply take out all your money just because he thinks he knows the future.  Says if a fund manager does take out all your money when he predicts a drop.  But then it goes up indeed and you see your fund doesn't perform the up trend, you must have more questions, don't you ?

If all a fund manager does is to put your money into FD ( very safe) and then charges you 5% service charge, does that sound appealing to you ?  

So a Fund Manager must put maximum money into the market as much as he can at any one time.

All these factors combined, these are what you can expect when you invest into a mutual fund :

1. Best Fund Manager : the Fund outperform the market when it goes up and lose less when the market is down.

2. Normal Fund Manager : the Fund goes up together with the market up trend and lose less in down trend.

3. Bad Fund Manager : A fund that does not follow market trends or no activity.


** OUT OF TRACK 思 想 出 軌 ** said...

Seems like you could be a good Fund Manager as these are all self-taught as a layman and able to withdraw before March. My good Fund Manager does comment that he agrees with 70% of your blog here except that he can still tell you are a layman with the theorization. It seems that u guys could have a lot to share in future as he is nagging that 'no one ever listen' to his predictions :))

>Says if a fund manager does take out all your >money when he predicts a drop. But then it goes >up indeed and you see your fund doesn't perform >the up trend, you must have more questions, >don't you ?

One should not question his Fund Manager until the fund drop lower to the promised break even(?!)

c0ok1e said...

How to find good fund manager and how to know which company he work in?

Michael Tsen said...

outoftrack: may I invite your fund manager to join post his recommendation and ideas in this blog too ?

cookie, usually the biz section in your national newspaper has one page listing all the mutual fund price for the past day. You can start analyze from there and call them as if you are hiring them.

Anonymous said...

Fund Managers are poor gamblers indeed. Try to imagine if you have a formula or some kind of practice that can help you win (sure win) in the market, will you share with others? Why bother to help people to earn more money if you know you are sure win. It's the fact that they don't have a way to win big in the market that they become a fund manager to spend all your money to gamble in the market. If they get lucky, then they can share the profit from your dime. If not, they just get off the chair and go away...... shit people, you know. If i've a son or daughter, i wont encourage them to engage in Finance/Investment cos this kind of work doesn't generate anything for the society. They just take something from your pocket and put it in their pocket. The whole world stays the same.....(same shit hole).

** OUT OF TRACK 思 想 出 軌 ** said...

he absolute agrees to ALL of your posts and your idea to set up this blog and everything else. He agrees to what you do and second to your ideas. But he is not interested to deal with "the world" after a whole day working for 'this shit' (his works&all).

Im killing him from his precious time and dragging him to read your posts each day :)) But he is happy to 'know' you and each time when i 'drag' him to read your blog, he is 'happy' to do so although he wont take initiative to do so. He does reject me to go to other sites that he is not interested. So u have one appearing fan and one invisible fan, thats all i can tell you :))

If there is any particular thing that u'd like to share/talk to him/ask him about, i think he will be happy to 'talk' to you too. It's jes that he is rather passive to comment on 'anything'.

Michael Tsen said...

anonymous: u r right to some extend that a fund manager is just a guy with a job. That is also why sometimes I would recommend a fund manager who also invest heavily into himself. ie. warren buffet style.

actually the formula to win in stock market is quite simple and straight forward. Everyone could have known it relatively easily. However, not everyone has the right chemistry to stick to that formula. for example, patient and persistency are 2 main factors that most don't have ...

so even with the right formula and the right personality, I still need money to start with. This is a money earn money game. The more money I have, the more I can earn. For example, normal stock fee is 0.7%, one can easily get 0.42% and then 0.11%. And when you have the 'volume', you could be charged at 0.08% only. Imagine you help people buy stocks at 0.42% and your cost is only 0.08%, that is a profit of 5X or 500% !!

So fund manager still need to gather a big fund in order to be able to exercise the formula to achieve the return we all want.

lastly I did write about finance world create something out of nothing. although most of the cases are bad ones in today's world, but money itself is created from nothing long time ago, and it stays for good. So afterall, there are some good stuff with finance too ...

very often its us the consumer who misunderstood finance and therefore step into the wrong shit hole and cause us much lost ... that's why this blog is started to share the fundamentals ...

Anonymous said...

Thanks for your sharing ... i'm going through your whole blog topic by topic... Your blog is what i'm searching for quite some time...P/S : I'm a beginner