Truth of Mutual Funds

::: Transcribed from personal myspace blog account:::

Okay, so let me break it down for you, whoever is reading this. Mutual Funds Suck. Yeah, and the buy and hold strategy is shit too. Why do you ask? Brokers are trained to say day trading isn't good. Even if you miss 1 up month out of 2 years of day trading, your returns will be much less than a buy and hold strategy. You know what, if you want to hear all the rhetoric, just go talk to Michael Hanson from Wells Fargo Investments. He is full of shit. So, why do these people say such things if it is stupid? Well, a buy and hold strategy is merely a marketing plan that was put in place to make the mutual fund company money. In fact, I truly believe it is risk free business, and it is one of the best businesses to start - hence all of the hedge funds that have come about.

Okay, back to mutual funds - So, you buy in, they charge... you hold, as they say to do, and they charge... So, let's look at it on the flip side of things... If you are to have a mutual fund company and merely try and gain assets, you charge, let's say a modest 3% to get into the fund - Right then and there, that is great money. Then, every year, based on this proliferation of information saying to buy and hold, you will then charge 1% a year... That means that every year, you will be making money off of the amount of money brought into that fund. So, then, the sales charge gives you the commission to your sales people and the rest is just gravy...

Okay, so let's use a real life example. Let's take Dreyfus Technology fund (DTGRX). Just to buy it, you are paying 5.75% - Then, to hold it, you are paying 1.42% PER YEAR - Let's say you hold it just for 3 years - You need to make 2.875% to break even. To keep up with inflation, you need to get almost 6%. And that's just to start making money - Still, after taxes, you are going to lose. But, let's flip it around again. DTGRX has a total of $267,350,000 invested. So, just to buy in, the mutual fund company has made $15,372,625 and keeps making $2,673,500. per year for doing nothing more than managing money...

Okay, so they need to make money by managing it, understandable... But, what does managing mean? Well, depends on if it is Tactically managed (Which most funds are NOT), or strategically managed. What does that mean? Tactically simply means that they do what is needed when is needed to manage the portfolio. Strategically sounds really cool, but it means they have a strategy put in place that is set by default. Meaning that they choose to do a punt, but the situation arises that they could do a fake punt pass - they won't, because they have planned to take the punt... In other words, they are set to principles that are preplanned.

Okay, so it doesn't seem too bad. They rebalance the portfolios 4 times a year, usually quarterly. But, what do they do in the mean time? Well, they're making huge profits... Okay, so for the lay person, mutual funds are good... They allow the ignorant to invest with minimal hands on and, afterall, you tip your waitress 20% - this is just 1.5% - Well, maybe I should open up a mutual fund company...

::: Transcribed from personal myspace blog account:::

All things have an inherent value that fluctuates with many variables. For example, a fast food place that is working has an inherent value – it is nearly never at 100% efficiency resulting in a 100% possible value. The resulting problem lies in the fact that the value is reliant upon those efficiencies. The risks involved are the employee problem, the structure problem, the services problem and the problems that limits efficiency for example the infrastructure problem. In the problem with the employee, it is linked to the fact that employees more often times than not have different agenda’s than that of management, where the structure problem is the management that is implemented have problems. The services problem is that the utililties used by and for the employees isn’t stream lined nor is it possible to stream line it. The infrastructure problem is simply the problem that is caused by the infrastructure being mismanaged and leading to huge inefficiencies that run down the entire leghnth of the management. This leads to greater efficiency problems and can only be fixed from the top down.

Because of this, all businesses have an intrinsic value. Depending on the industry, market conditions, and other external forces – a business is only worth so much. But, within the same industry, there are internal problems that make the businesses worth more or less based on certain aspects of what is spoken of from above. Analyzing the corporate structure and how these inefficiencies are managed can result in an arbitrage situation where you are able to restructure management and cause an increase in it’s intrinsic value.