If they had picked a good, conservative fund and just hung in there, these investors would have
gained back all their money and more. In fact, when the fund share price was down, it was a buying
opportunity to take advantage of dollar cost averaging.
If your strategy is to jump to another fund every time you have a bad year, then you are buying
high and selling low - great strategy!
However, if your fund really is a dud and you probably bought it for the wrong reasons, sell it
fast. Don't kid yourself that you are diversified if your money is in sector funds. This is a good
way to maximize your losses when an industry suddenly hits hard times.
But if you do have some sector fund investments, don't bury your head in the sand. Except with an
index fund, a buy and hold strategy is not buy and forget about it. You need to pay attention.
Mutual funds should be a long term investment. Buy a good one based on the advice you find here in
this book, then add money to it on a regular basis, and don't watch it day to day or even month to
month. A properly chosen fund will not disappoint you. It will make you rich.
Here are some examples of what happens when you jump to the “Hot Fund”
Van Wagoner Emerging Growth made 291% in 1999
It looks great, so you jump in - then
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Lose 12% in 2000
Lose 43% in 2001
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Nevis Fund made 286% in 1999, then
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Lost 24% in 2000
Lost 32% in 2001
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MAS Small-cap Growth made 313% in 1999, then
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Lost 24% in 2000
Lost 31% in 2001
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Warburg Pincus Japan made 330% in 1999, then
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Lost 63% in 2000
Lost 16% in 2001
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Munder NetNet made 98% in 1999, and 175% in 2000
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Then hundred’s of millions of dollars poured into the fund. Shocked Investors had lost over 50% by
mid 2001 when management made the wise decision to close the fund.
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I could give you many, many more examples.
Chasing one of last year’s best funds, is like choosing last week’s lotto numbers.
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Other Stock Market Basics Topics:
-
Mutual Fund Advantages
- History of Mutual Funds
- NAV
- Dollar Cost Averaging
- General advice about choosing a fund
- Mutual Fund Ratings
- Evaluating Mutual Fund Investment Risk
- Mutual Fund Share Classes
- Mutual Fund Fees
- The Mutual Fund Prospectus
- How important is the manager's length of experience?
- Why is the prospectus hard to understand?
- Mutual Fund Annual Report
- Comparing your fund to the competition
- Comparing funds on an after-tax basis
- Average Return on Investment
- How Not to Pick a Mutual Fund
- Cashing in Your Fund
- When to Sell Your Fund
- Mutual Funds and Asset Allocation
- When to get started with a mutual fund
- Types of Mutual Funds
- Value Stock Funds
- Growth Stock Funds
- Small and Micro-cap Stocks
- Mid Cap
- Large Cap Companies
- Income Stock Funds
- Mutual Fund Index
- Enhanced Index Funds
- Sector Mutual Funds
- Stock Market Sectors
- Defensive Stocks
- International Funds
- Real Estate Mutual Funds
- Socially Responsible Funds
- Balanced Funds
- Tax-Efficient Funds
- Bond Convertible Funds
- Junk Bond Funds
- Mixtures of stock types
- Closed End Funds
- Exchange Traded Funds (ETF’s)
- Stock Picking Strategy - Picking your own stocks?
- Fund names, and what they really invest in
- How to get started
- Where can I start investing with no money?
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