Newsflash: If a financial advisor or fund manager brags to you about “beating the market”, it’s NOT what you want to be hearing right now!  In this episode, I debunk the popular myth that you should be trying to “beat the market” when times are good.  I also lay out the questions you must ask instead when evaluating a mutual fund or investment manager.  Don’t get caught chasing high-beta strategies after one of the longest bull markets in history has already unfolded.  Investing and trading are contests of endurance, not of raw speed.

 

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(CC image by trailersoftheeastcoast on Flickr)

 


Section 1: Today’s Market in Historical Context

  • There are bull markets, bear markets, and range-bound markets
  • Long-term chart of the S&P 500


Section 2: The Unpleasant Truth: How Mutual Funds and Managers Beat their Benchmarks

  • Cherry-picking returns
  • Sketchy math
  • “Marking the close” – see Resources section below
  • Leverage
  • High-beta stocks
  • Illiquid portfolios
  • Lack of diversification
  • Asymmetric risk profiles
  • Very few: superior management
  • Focus on how they did during the more challenging years in the market
  • Size of fund: rapid growth can limit future opportunities

Section 3: The Questions to Ask Instead


Section 4: The Real Way to Beat the Market Over the Long-Term


Resources

Study: Mutual Fund Managers “Mark the Close” to Manipulate Quoted Returns

Mutual Funds & Performance Manipulation

 

Intro music and mid-program music by audionautix.com

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