That Was The Week That Was-3rd Week June

 

KNOWING WHEN TO FOLD THEM or Reasons Why Investors Should Drop a Mutual Fund.

  Don’t get emotional about money. There are basic reasons why investors should consider dropping a fund no matter how long they’ve owned it:

• The chief portfolio manager leaves.
• The fund changes investment philosophy.
• The fund has a run on assets.
• The fund invests in an unpopular sector of the market.
• The fund doesn’t come close to matching it’s index return for many years.
• The fund’s risk (Beta) suddenly increases.
• The fund company decides to roll the assets into another fund.

The single biggest reason you should redeem a fund is that it turns into a poor performer. There are multiple reasons: It becomes either too big, it’s in the wrong investment sector or the the managers are clueless and can’t get a handle on what to do. The market seems to zig every time the managers zag, and vice versa. Common sense says: Nothing is going to make this a quick fix. In many cases a loyal customer that owns this fund will hold it for the longest time hoping things turnaround.

Mutual Fund Management is rather cruel in dealing with bad funds. Years ago I was a huge fan of Helen Young Hayes, a  world fund manager working with, at that time, the most popular domestic fund family that had 20% of all mutual fund investment assets under its management. Ms. Hayes was a stock picker extraordinaire. Then she left to raise a family. I remember telling investors that the fund she left would never be the same. I was right. It never recovered from her absence. The ensuing fund managers were not able to match Hayes’ expertise. They didn’t come close. There was a huge exodus of investor money. It became a sinking ship with outflows far outpacing inflows. It was a ‘everyone into the lifeboats’ situation. Years later the fund family pounded a wooden stake into the heart of the fund  and rolled the remaining assets into another fund with similar investment philosophy but with another name. Unless you want to dig deep you cannot find the original fund investment history since Ms. Hayes left. The history has been wiped clean from most public records.

This is what mutual fund families do to their bad funds. Fund names are changed. Funds are rolled into other similar funds. Investment philosophies changed. It’s taking the leafy branch and brushing away one’s footprints.

In the meantime loyal investors had shouldered losing season after season when they didn’t have to. Remember the basic rules about when to leave a poor performer. The rules are clear and loyalty is usually a one-way street.

 

Investors May Be Concerned About The Wrong Bubble! Howard Gold, writing for MarketWatch.com June 11th, said that Investment Bubbles are always obvious in ‘hindsight’. But when you are in the middle of one, it’s hard to fight the crowd. The Chinese Shanghai Composite Index topped 6,000 in 2007 only to fall 70% to 1,700. Now the Shanghai is over 5,000. The Central bank is cutting rates, the government is lifting restrictions on foreign investors and, on Tuesday last the Index provider MSCI is expected to include China A shares in its global benchmark. The Shangai is up 150% in the past 12 months!

• Margin debt is skyrocketed up five fold in one year.
• From 1-2014 through 5-2015 225 IPOs have come to market with an average 418% increase.
• China’s GDP slowed to 7%, the slowest since the Great Recession.

The smart money is bearish on China. Jonathan Garner, Morgan Stanley’s chief Asia and emerging markets strategist, downgraded China stocks for the first time in 7 years. BNP Paribas also turned bearish on Chinese stocks. So maybe we should look east for a market crash and not so close to home. MARETWATCH.COM 6/11/2015

 

Everyone Who Invests Wants Free Brokerage Services! Another article on CNBC.com criticizing brokerage fees. The facts are since I’ve been in the business wire house firms and mutual fund companies have slashed their commission structure by about half of where they were when I first started. Compare that to real estate commissions that haven’t changed since the first cave was sold. It’s still a standard 6% commission even as home prices have tripled. I went looking for costs of other items we buy and the average markup:

• Coffee cost .25 cents a cup. Starbucks charges $3.75 latte.
• Diamond jewelry markup 50%-200%
• Clothes 250%-350%.
• Eyeglasses 1000%
• Over the counter drugs 200%-3000%

Sources wikipedia and other online sources. I don’t see protests at Starbucks..

 

MONDAY MARKETS OFF TRIPLE DIGITS ON GREEK FEARS AND WONDERS WHAT THE FEDERAL RESERVE IS GOING TO DO. Markets closed off their lows with the DJIA –107.67, Naz –21 and S&P 500 negative 9.68.

 

Rate Hikes are Coming. Rates have been too low-too long. Rising rates don’t kill bull markets. MarketWatch.com 6/15/2015

Made me smile?

 

Great Chart for Nervous Investors or those that think the end is near.

U.S. stocks closed higher Tuesday despite Greece fears. Dow +113. Worries about possible Greece no-deal and economic contagion to U.S. markets ignored as it was all about focusing in on the Fed message. We’ll know more Wednesday. CNBC speculated that 92% in the CNBC Fed Survey expect the Fed to begin raising rates this year with a consensus of 54 basis points, or the result of 2 quarter point hikes. CNBC.COM 6/16/2015

The Fed Speaks…Expect a rate hike this year. Maybe two rate hikes. The combination total shouldn’t impress anyone as the Fed Chief reminded everyone that rates would remain low for a very long time. The end result of all the analysis of what Jant Yellen said on Wednesday was that the Fed  is likely to do a lot less than whatever it is they say they will.

 

BARRONS reports major investors prepare for stocks to Plummet. Here we go with the hyperbole. Reporters and editors love words like crash, plummet decimate, as they describe carnage. The fact that we’re looking for a good old fashioned 5%-10% correction and nothing more and not a major stock market collapse. But Steven Sears in the Barrons.com ‘Striking Price’, June 17, 2015, loves to paint with a broad brush.

 

Speaking of Plummet!   China shares fell 3.7%, as the Shanhai Composite closed down Tuesday with no known catalyst for the selling. The ChiNext index, which tracks small startup stocks, had a 6.3% drop, the 3rd worst trading day in its history but had tripled in value in just the past year. WSJ 6/18/2015 Yes, the WSJ, used Plummet in its headline!

SOME BITS AND PIECES TO CLOSE THE WEEK…

Reuters Reported U.S. consumer prices increased the most in May in more than 2 years. This with lower oil prices. Inflation is heating up. 6/18/2015

Greek Banks May Not Open Monday as Talks Fail.Bank withdrawals accelerating. Contagion May Certainly Pour Over to U.S. Markets. Continued Volatility With The Greece as focus. Multiple sources WSJ 6/18/2015.

Markets Ignored Everything Thursday with DJIA +180 and the Nasdaq hitting a new record high +68 to close at 5132.95.

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

SECURITIES OFFERED THROUGH WESTMINSTER FINANCIAL SECURITIES, INC. MEMBER FINRA/SIPC.