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Mutual Fund Maniac #2 – The Search for the Grail

And what about our hero on the eternal quest for the Holy Grail – the “best mutual fund”…how does this Mutual Fund Maniac get started?

It’s simple…every day he sees another article in another financial magazine talking about the latest hot fund. He hears his neighbor or his golfing buddy talking about how much he made with his hot mutual fund last year. Then he looks at his latest mutual fund statement…and the mutual fund he’s been hearing about is NOT a fund that he owns. And it makes him feel bad.

So out comes the Morningstar reports, out come the spreadsheets, out come the stacks of magazines from years past. How could he have missed it? How did he end up with his lousy funds after all the hard work he put in? By gosh, this WILL NOT happen again! So he studies, and he analyzes, and he reads, and he subscribes to another newsletter…and it goes on, and on, and on, and on.

Frequently, he gets so flustered with all of the information and the intense desire to not to miss out again…that he freezes up and doesn’t take action at all. And guess what happens next? The next time he sees another article in another financial magazine or hears his neighbor or his golfing buddy talking about how much he made with his hot mutual fund last year…he FEELS BAD AGAIN BECAUSE HE DIDN’T BUY THAT FUND.

So either way, he ends up feeling bad (and, yes, I’m saying “he” because it’s mostly MEN that do this. Women will tend to either go ahead and make a decision and then live with it, or let someone else make the decision and then live with it. Much saner, don’t you think?).

What’s the lesson to be learned from our hero on his search for the Grail? Again, just like Mutual Fund Maniac #1 – The Silly Shopper, there are several lessons to learn:

  • There ain’t no such thing as the “best mutual fund” – There are funds that do better than others based on this parameter or that parameter, but there is no such thing as the absolute, one-and-only ‘best mutual fund.’ As discussed in another post, there is “best in breed’ but you won’t find ‘best in show’ consistently (if ever!).
  • If it makes you feel bad, don’t do it. Life is too short. Far too many people let money run their lives rather than using money as a tool so that they can enjoy life and be comfortable. And that includes feeling good when you can. So if you feel bad when you look at your mutual fund statements, you’ve got to figure out what steps you need to take in order to at least “be OK” with your approach. That means either change your attitude or change your approach.
  • The best this year is rarely the best next year. Let’s say you finally discovered the Grail and when your buddies were talking about their hot mutual fund, it’s a fund that you bought. Guess what they’re likely to be talking about next year? Probably NOT that fund anymore. Be realistic and realize that if you can minimize your losses and stay somewhere close to market gains during the “up” years, that you’ll be WAY ahead of more than 90% of other investors. And that includes all those fancy-pants mutual fund managers that can’t even stay even with the index they are supposed to be beating.

Learn these lessons and you’ll not only feel better about your investing, but you’ll beat most of the other mutual fund guys anyway