MUTUAL FUND ARTICLES BY ULLI G. NIEMANN
Articles for Free publication in your Newsletter or on your
Lies, Damn Lies and Mutual Fund Returns
By Ulli G. Niemann
How many times has this happened to you? You're at a social
function and the conversation turns to investing. Pretty
soon, people are comparing how well their investments are
doing. As you might imagine, being an investment advisor
this happens to me a lot. However, I recently had an experience
with it that startled me.
Bob, one of the guys I was chatting with at a party, asked
what kind of returns I had made for my clients with my methodical
no load mutual fund strategy during the past year. I replied
that they had unrealized gains of slightly over 29%, after
management fees, for the 8 months that we were invested.
Bob countered with a smirk that he had made a 40% return.
I raised my eyebrows and told him that was darn good-and
suggested that maybe he ought to be managing my money. At
that point we were interrupted and, as the evening went on,
I began to wonder exactly how Bob had gotten his great return.
I cornered him a little later on and, upon digging a little
deeper, the story looked somewhat different. Yes, he had
made a 40% return on a mutual fund he had some money invested
in, however, we were comparing apples and bananas.
He had a total portfolio of $100k. Being cautious, he had
invested only $10k into a mutual fund, from which he profited
$4k after he sold it. The balance of his portfolio ($90k)
was sitting in a money market fund earning some 0.35% per
So, while he had made 40% on 10% of his investment, he had
only made 4.35% on his whole portfolio. My methodology was
also focused on protecting my clients' investments and it
had increased their entire portfolio 29% (unrealized).
That would be an apple to apple comparison when measuring
my returns against his. Bob's one fund realized 40% return.
However, had I approached it the same way Bob had, I could
have described one of the funds I used that had realized
over 49% for the same period.
Actually, Bob's not-so-good-news story didn't stop there.
Bob admitted to having followed the losing Buy and Hope strategy
through the bear market of 2000 and had finally sold out
at a 50% loss a year ago, before committing $10k to a mutual
I was pleased to be able to tell him that my methodology
had gotten my clients out of the market before the
bear took his big bite, and they suffered only minimal losses
before finding safety in money markets accounts. And when
my trend tracking figures directed us to move back into the
market, they still had most of their money poised to start
earning for them again-which it did and very nicely, thank
The moral of the story is to look past the surface and don't
take any numbers thrown at you at face value. Remember, most
people returning from a weekend in Las Vegas will shout about
their winnings and mumble about their losses.