Like millions of Americans, I’ve succumbed to the allure of a wild bull market and plunged into mutual funds over the past 18 months. It wasn’t so long ago that I had no idea what a “mutual fund” was and found myself confounded by their promises to make me money. Now, I am familiar with arcana like the importance of a fund’s net asset value (“NAV” to those in the know). I’ve learned that while the fund’s “load” matters, more important in the long run are its annual expenses and its capitalgains tax liability. Having once been a religious reader of Sports Illustrated, I’m now addicted to finance-oriented publications like SmartMoney and Morningstar Investor.
What has all of this got me? At times, peace of mind. Reading about funds and fund managers whose sole mission is maximizing investment returns can be a welcome break from days mired in Washington’s petty political disputes. And thankfully, ideology seems to be all but absent from the fund world — though there’s an obvious undercurrent of conservatism. Everyone involved seems to want a capitalgains tax cut, Philip Morris is a recommended investment, and meritocracy reigns supreme. The only trace of liberalism I’ve discovered is a few “socially responsible” mutual funds that pledge not to invest in companies that are not “good corporate citizens.” Seeing as how liberalism is in retreat generally, it shouldn’t surprise that even during this sustained bull market these funds have generated meager returns.
Yet there are parallels between the fund world and the political world. As best I can tell, mutual funds tend to be managed by egocentric, publicity- hungry, money-grubbing white guys. And just like their brethren in politics, fund managers tend to splash their own faces across mutual-fund ads and to give their funds names weighty with purpose. Politicians have their solemnly labeled blue-ribbon commissions, fund managers their funds christened American Century Income Growth, Heartland Value, Pegasus Income, Strong Opportunity, Victory Growth, and my personal favorite, Rembrandt Value Trust.
Somehow I’ve resisted these funds, though maybe investing in them wouldn’t have been such a bad idea. Because even after conducting what I felt to be an enormous amount of research on the “best” funds for my portfolio and trying to stick with established companies like Vanguard and T. Rowe Price, I’ve still suffered. Last October, I invested in a turbo fund called PBHG Growth. Its returns were among the very highest in its category, and though its volatility rating was high, I figured I was in for the long haul and could manage the ups and downs.
In January, I received a statement informing me my initial investment had declined in value. I called the PBHGers to inform them this must be a mistake. “You bought the fund at its peak,” was the soothing reply. And now it’s worth even less, having dropped 10 percent just this year. That’s earned it a spot on the New York Times’s dreaded “Laggards” list. I’ve also been informed that the management of one of my other funds has been turned over to PBHG. As a result, I’ve stopped checking these funds’ returns each morning. It’s an awful way to start the day.
Nonetheless, I can tell this is a hobby I’m going to have for a while. How many other spare-time activities involve making money (or losing it) with so little effort? The importance of diversifying one’s portfolio means there’s almost no end to the different kinds of fund one can justify investing in. Out of realty to Michael Milken I recently dropped some money into a junkbond fund (yes, these supposedly evil tools are still around, and they’re thriving) . If the U.S. market shows signs of producing more PBHG Growth-like returns, I will look for international funds.
At some point, I’ll have to try my hand at trading commodities. While these can be extremely volatile, when Hillary Clinton was asked how she turned her $ 1,000 commodities investment into $ 100,000 almost overnight, she cited her reading of the Wall Street Journal. I read the Journal, and I even used to work there. No, I’m not married to the governor of a small southern state, and, no, I don’t have any friends with names like “Red Bone.” But that shouldn’t affect my returns, should it?
One of my fondest childhood memories is of opening the San Francisco Chronicle each morning and immediately turning to the sports section. I would scrutinize the box scores and get either a great thrill or a huge disappointment, depending on the performance of demigods like George Brett and Larry Bird. These days, I read papers that have no sports section or not much of one, and the statistics that provide my morning’s thrills — or disappointments — are not RBIs and rebounds but something decidedly less youthful: mutual-fund returns.
MATTHEW REES
