So I opened an IRA account in mid March, deposit some money there, but I have not bought any mutual fund until today (theoretically tomorrow).
Why? Two reasons:
1) The market has been hot lately, and I was waiting for a dip, that dip did not come until recently the Goldman scandal surfaced, and Greece (Europe) debt crisis deepened.
2) Picking a good mutual fund is hard. I did not realized it because in the past, I only bought mutual funds in 401k plan, which usually has 10 mutual funds. Now, it’s a big pond (or ocean).
I remember David Swansen (the Yale endowment investment chief) once said, individual investor usually “buy high, sell low” on mutual funds, what he meant was individual investors usually did not get the good results from “good performance” funds. I also remember Warren Buffett suggested individual investors stick to index fund. Because most mutual funds lagged behind index benchmarks. With that in mind, I am still pulling my head and try to find a fund that will outperform. The first source I can think of is the WealthTrack TV program (which I listen to via Podcast) in which the hostess interview many mutual fund or hedge fund managers. I googled “WealthTrack mutual fund” and foundthis program guide (PDF). I found “ron muhlenkamp” on the guest list, and looking at his fund web site, it looks ok. So I placed an after-hour order at my Scottrade IRA account.
But I noticed MorningStar gave only 2 stars rating. This is not deal killer, because I don’t trust MorningStar blindly. But this post at bogleheads made me really nervous. This plus Muhlenkamp mis-judgement on financial crisis (in 2006/7, he bought a lot Countrywide stocks, and in the Fall 2007 Wealthtrack interview he said it’s fall harvest season). The next day I called Scottrade early morning (8 AM) to cancel my existing order. My search continues…
I noticed Tocqueville Fund manager Robert Kleinschmidt has a better temperament from the same Weathtrack podcast. But his performance was just so so (about 5.5% in last 10 years). I decided to check out Kiplinger 25: I was a long time Kiplinger Personal Finance reader and I know they have a recommend list of mutual fund. From that table, I look at 10 year performance, there are 4 stock funds have 10%+ gain: the Fairhome fund looks too expensive now, so I take that off. T. Row Price Small Cap (PRSVX) looks very interesting, but when I tried to buy it from Scottrade, it says “fund closed to new investors). Same thing happened to CRIMX (CRM Mid cap, which I got to know from my previous employer’s 401k plan). Finally I decided to buy FPA Crescent (FPACX), I knew FPA (First Pacific Advisor) was run by a respected CEO (Robert L. Rodriguez), whom I also got to know from Wealthtrack. The FPA Crescent fund is a bit unique, in the sense, it’s not a pure stock fund, besides stocks, it invests in debt (convertible), preferred stocks, and at this time, hold 33% of cash. Its goal was to achieve market return (10%) with lower than market risk. I decided to buy some. There is $17 transaction fee for this fund at Scottrade. Buying mutual fund is different from stock in the sense, it takes a day to complete transaction (for instance, I placed order yesterday, and saw the fund in my account today).
I am not looking at this fund for excess return. One thing I am looking at is to see if this kind of hybrid fund generate a decent return with substantial lower risk, which is very important when I retire. This is a “hind-sight” lesson I learned from last two years. I think a lot seniors got scared and sold at panic. If they invested in Crescent, they may not went down as much as pure stock fund.
Just summarize some of my thoughts, I will talk more about IRA investing later. One question is: why not investing in ETF or “safe” stocks (BRK, GE, MSFT come to mind)?