DHP Financial Post of the week: Investments to stay away from ?

[C hristian]

correct. all those full service financial companies are a scam. they get investments from the big companies, and then go out selling to you, the little fish. We know what happens to the little fish in a sea of sharks when they are unaware!

Gotta go with the discount brokerage firms, if any!

[julian_kelly]

Mutual funds definitely have their place in investing. Many people have been smart with them and made tons of cash. You can make money with funds over the long term, but you have to play a role in monitoring them. Buy, hold and pray isnt a strategy.

To have or not have funds depends on what youre trying to accomplish and how much you want to be active in managing your money. For some folk its a good thing, for some it isnt...kinda like apples and oranges.

My dislike of mutual funds is in relation to using them as the ONLY source of retirement (i.e, 401k), but I have no problems with them if they are used with other instruments suck as individual stocks, real estate, businesses, bonds, other money making ways, etc. to encompass a COMPLETE system for building wealth.

I dont care too much for mutual funds for several reasons:

1. You often get taxed on them unfavorably.

If a fund manager sells shares, the gains are passed down to the people who buy them and they are taxed...even if you dont sell your shares.

2. You often cant touch the money.

To really have success in a fund, you have to leave it in there and wait for it to grow. To me this is like watching paint dry.

Access to the money in mutual funds isnt flexible....you cant take it out or put it in something else without extreme fees and penalties.

3. Fund managers change too often.

The real way to pick a mutual fund is on the reputation of the fund manager and his team. Folk often follow a particular fund, name, company or past track record instead of the fund manager. For example, Stock fund A with 'superstar trader Mr. Jones' managing it may make 18% in one year, but on the low, Mr. Jones is consistently gettin more lucrative offers from other fund companies. Mr. Jones will go to 'greener pastures' and manage another fund without the the shareowners even knowing (unless you read the quarterly or annual report or keep up with businesss topics)

Stock fund A goes out and hires a new fund manager who isnt as good as Mr. Jones, but without knowing of this change, you still have a lot of money vested in this fund.

It similar to spending a lot of money buying a team with Jordan as your star player. He scores 30 for two years straight, but disappears and youre wonderin next year why the team isnt doint as good. The team brings in a player who only averages 15 a game (and you dont know it.) You have your money invested in the fund, but the key player is gone. Manager turnover in funds is often high in mutual funds.

4. Youre at the mercy of the fund manager.

What ever decisions he makes goes.

5. Many funds dont hold stocks as advertised.

A fund may be a 'telecom fund' but hold stocks that arent telecom stocks. People would be surprised to find out that sometimes many funds hold and trade the same popular stocks at one time or another. Fund mangers are under tremendous pressure to excel and meet returns for shareholders. If the stocks a manager picks arent up to snuff, the manager may dump tons of stock and buy 'whatever is hot' in order to meet strick demands - thus making the fund you invested in not really getting the flava you thought you were getting.

6. Many funds arent regulated or monitored much

....anybody can open up one....read the Wall Street Journal, Investors Business Daily and the busienss section of the papers from the past month or so. Mutual funds are coming under huge scrutiny.

7. Funds are tied to the market directly (in a sense) but offer little flexiblility in terms of taking advantage of the ups and downs of the market.

For example, if the Dow or S&P are up or down, most funds will be up or down (but there are exceptions.) Because of the nature of funds, its difficult to take advantage of the ups and downs of the market...if the market is up you make cash...if its down, you dont.

With individual stocks, if the market is down, you can short the market and make $$...if the market is up, you can go long and make $$. With options, you can make money whether the market goes up, down or sideways. You can make money in real estate if interest rates are up or down. You can make money in owning a business if the market is up or down. You can make residual income in concerns/businesses that pay royalties, copywrights, licensing, etc. whether the market is up or down.

You can buy mutual fund shares at a discount when the market is down as well as sell them and cut loses if you wish, but there arent too many other ways to take advantage of market volatility.

8. It's difficult to leverage mutual funds.

Leverage in building wealth is a key concept...it simply means achieving more with less....a lot with less....a lot with nothing.

For example, in business, you can do more work and make more money using the efforts of employees, independent contractors, advisors, etc., in addition to yourself. A buseinss that has a superior system can operate on its onwn. A boss of a true business can take off and still make money if he stops working....thats leverage.

In real estate, you can control real estate with no money...control $10 mill in property with $1million....control $100 of real estate with $10k or less...thats leverage.

With individual stocks, you can take advantage of margin and buy 1,2 times as much stock with the amount of funds you have if youre qualified enough and knowledgable to do so...thats leverage.

With options/commodities/derivatives, you can own hundreds of shares of derivatives with less money than the value.

The only people reeaaally utilizing leverage with mutual funds are the fund managers and fund owners. They are taking millions of folks money FOR FREE and making money off of it [img]graemlins/rofl.gif[/img] Now thats a true no money deal [img]graemlins/rofl.gif[/img]

9. Protecting against loses.

Most folk who have mutual funds (especially thru a 401k) buy and hold them and never sell to stop losses. Theres nothing wrong with protecting your principal investment and taking a loss to stop the bleeding. The media and 'financial planners' always harp that you should hold your investments, but the wealthy and educated have no problem with cuting losses (in a calculated manner) and getting in the game again; neverthelsess, most buy, hold and pray.

Therefore, when their funds in a 401k take a hit, they have to wait the downtime out. In a sense, mutual funds have no 'insurace' against loss.

You can buy options to protect stock losses. You can buy insurance to protect your real estate and businesses. If you lose your 401k...there isnt much protection (see Enron)

10. Mutual funds make you lazy.

Most folk who invest in funds do so blindly and dont know anything about the fund or managers. They 'trust' that somebody they dont know will make them rich and help with their retirement. Thats a crap shoot to me.

11. If your timing is bad, youre screwed.

Its hard to predict when the market will crash...WHEN (not if) the market crashes and your funds and/or 401k loose the majority of its value (if its one year before your retirement), you dont have another 30 years to wait for a redwood tree to grow again. We see stories on tv all the time about folk who lost all they had due to a market crash. I prefer instruments where you can make money when the market crashes.


12. Its hard to make money with mutual funds in the short term.

Say you need $5k to prevent foreclosure of your home in two months or you need $20k to send your kid to college in two years...or even a quick $1,000 in a week, investing in a mutual fund traditionally wont get you the money you need quick.


There are advantages to having funds, but I would only use them as ONE piece of a puzzle and NOT the entire puzzle. I would suggest devising a money making sytem that has more than one piece.

julian kelly

Originally posted by Gman:
</font><blockquote>quote:</font><hr />Originally posted by julian_kelly:
I maily stay away from mutual funds. I have two...dont really care for them, but I ususally stay away from them.
julian kelly

You prefer individual stocks or Mutual Funds don't make you enough money fast enough ?

-G </font>[/QUOTE]

[ November 20, 2003, 04:55 PM: Message edited by: julian_kelly ]

[imported_Gman]

Originally posted by julian_kelly:
Mutual funds definitely have their place in investing. Many people have been smart with them and made tons of cash. You can make money with funds over the long term, but you have to play a role in monitoring them. Buy, hold and pray isnt a strategy.

To have or not have funds depends on what youre trying to accomplish and how much you want to be active in managing your money. For some folk its a good thing, for some it isnt...kinda like apples and oranges.

My dislike of mutual funds is in relation to using them as the ONLY source of retirement (i.e, 401k), but I have no problems with them if they are used with other instruments suck as individual stocks, real estate, businesses, bonds, other money making ways, etc. to encompass a COMPLETE system for building wealth.

I dont care too much for mutual funds for several reasons:

1. You often get taxed on them unfavorably.

If a fund manager sells shares, the gains are passed down to the people who buy them and they are taxed...even if you dont sell your shares.

2. You often cant touch the money.

To really have success in a fund, you have to leave it in there and wait for it to grow. To me this is like watching paint dry.

Access to the money in mutual funds isnt flexible....you cant take it out or put it in something else without extreme fees and penalties.

3. Fund managers change too often.

The real way to pick a mutual fund is on the reputation of the fund manager and his team. Folk often follow a particular fund, name, company or past track record instead of the fund manager. For example, Stock fund A with 'superstar trader Mr. Jones' managing it may make 18% in one year, but on the low, Mr. Jones is consistently gettin more lucrative offers from other fund companies. Mr. Jones will go to 'greener pastures' and manage another fund without the the shareowners even knowing (unless you read the quarterly or annual report or keep up with businesss topics)

Stock fund A goes out and hires a new fund manager who isnt as good as Mr. Jones, but without knowing of this change, you still have a lot of money vested in this fund.

It similar to spending a lot of money buying a team with Jordan as your star player. He scores 30 for two years straight, but disappears and youre wonderin next year why the team isnt doint as good. The team brings in a player who only averages 15 a game (and you dont know it.) You have your money invested in the fund, but the key player is gone. Manager turnover in funds is often high in mutual funds.

4. Youre at the mercy of the fund manager.

What ever decisions he makes goes.

5. Many funds dont hold stocks as advertised.

A fund may be a 'telecom fund' but hold stocks that arent telecom stocks. People would be surprised to find out that sometimes many funds hold and trade the same popular stocks at one time or another. Fund mangers are under tremendous pressure to excel and meet returns for shareholders. If the stocks a manager picks arent up to snuff, the manager may dump tons of stock and buy 'whatever is hot' in order to meet strick demands - thus making the fund you invested in not really getting the flava you thought you were getting.

6. Many funds arent regulated or monitored much

....anybody can open up one....read the Wall Street Journal, Investors Business Daily and the busienss section of the papers from the past month or so. Mutual funds are coming under huge scrutiny.

7. Funds are tied to the market directly (in a sense) but offer little flexiblility in terms of taking advantage of the ups and downs of the market.

For example, if the Dow or S&P are up or down, most funds will be up or down (but there are exceptions.) Because of the nature of funds, its difficult to take advantage of the ups and downs of the market...if the market is up you make cash...if its down, you dont.

With individual stocks, if the market is down, you can short the market and make $$...if the market is up, you can go long and make $$. With options, you can make money whether the market goes up, down or sideways. You can make money in real estate if interest rates are up or down. You can make money in owning a business if the market is up or down. You can make residual income in concerns/businesses that pay royalties, copywrights, licensing, etc. whether the market is up or down.

You can buy mutual fund shares at a discount when the market is down as well as sell them and cut loses if you wish, but there arent too many other ways to take advantage of market volatility.

8. It's difficult to leverage mutual funds.

Leverage in building wealth is a key concept...it simply means achieving more with less....a lot with less....a lot with nothing.

For example, in business, you can do more work and make more money using the efforts of employees, independent contractors, advisors, etc., in addition to yourself. A buseinss that has a superior system can operate on its onwn. A boss of a true business can take off and still make money if he stops working....thats leverage.

In real estate, you can control real estate with no money...control $10 mill in property with $1million....control $100 of real estate with $10k or less...thats leverage.

With individual stocks, you can take advantage of margin and buy 1,2 times as much stock with the amount of funds you have if youre qualified enough and knowledgable to do so...thats leverage.

With options/commodities/derivatives, you can own hundreds of shares of derivatives with less money than the value.

The only people reeaaally utilizing leverage with mutual funds are the fund managers and fund owners. They are taking millions of folks money FOR FREE and making money off of it [img]graemlins/rofl.gif[/img] Now thats a true no money deal [img]graemlins/rofl.gif[/img]

9. Protecting against loses.

Most folk who have mutual funds (especially thru a 401k) buy and hold them and never sell to stop losses. Theres nothing wrong with protecting your principal investment and taking a loss to stop the bleeding. The media and 'financial planners' always harp that you should hold your investments, but the wealthy and educated have no problem with cuting losses (in a calculated manner) and getting in the game again; neverthelsess, most buy, hold and pray.

Therefore, when their funds in a 401k take a hit, they have to wait the downtime out. In a sense, mutual funds have no 'insurace' against loss.

You can buy options to protect stock losses. You can buy insurance to protect your real estate and businesses. If you lose your 401k...there isnt much protection (see Enron)

10. Mutual funds make you lazy.

Most folk who invest in funds do so blindly and dont know anything about the fund or managers. They 'trust' that somebody they dont know will make them rich and help with their retirement. Thats a crap shoot to me.

11. If your timing is bad, youre screwed.

Its hard to predict when the market will crash...WHEN (not if) the market crashes and your funds and/or 401k loose the majority of its value (if its one year before your retirement), you dont have another 30 years to wait for a redwood tree to grow again. We see stories on tv all the time about folk who lost all they had due to a market crash. I prefer instruments where you can make money when the market crashes.


12. Its hard to make money with mutual funds in the short term.

Say you need $5k to prevent foreclosure of your home in two months or you need $20k to send your kid to college in two years...or even a quick $1,000 in a week, investing in a mutual fund traditionally wont get you the money you need quick.


There are advantages to having funds, but I would only use them as ONE piece of a puzzle and NOT the entire puzzle. I would suggest devising a money making sytem that has more than one piece.

julian kelly

</font><blockquote>quote:</font><hr />Originally posted by Gman:
</font><blockquote>quote:</font><hr />Originally posted by julian_kelly:
I maily stay away from mutual funds. I have two...dont really care for them, but I ususally stay away from them.
julian kelly

You prefer individual stocks or Mutual Funds don't make you enough money fast enough ?

-G </font>[/QUOTE]</font>[/QUOTE]Gotta take my time and read the above slowly. Thanks !

-G

[mhd]

tight post julian, bottom line, don't fuck with that which you don't understand or control

[kelvy]

thanks Julian for providing your valuable input regarding mutual funds in the whole scheme of investing...i already copied it onto a document for my reference...this post should definetly go into the "best of"...matter of fact, there should be a "financial posts" section on this board, that would be a boon. [img]hail.gif[/img]

[the crackhouse]

Do not invest in :

- CELLULAR PHONES, a cheap one, no need to have a color screen, realplayer download, web access, email, camera and all... you can break it or get it stolen from you. Ask your company for one of these and use a cheap one for your personnal stuff, except if you need a special feature.

- CARS, cars are industrially made to break after a particular # of miles cruised. On some models, there are even special parts which are made to break (electric parts, engine ones or wheeling ones). You will see that some cars series have the same fragile or breaking parts after the same amount of miles. Don't buy a cheap car cause it will be a hole in your finances, but don't spend too much in a big car which is only more sophisticated, sometimes it's worth in matters of security if you drive a lot. Ask your company for one.

- HOUSE RENTING, perfer to buy your own house, even if it's a little place. When it'll be yours, you will invest your money in something else.

- FOOD, raise tomatoes, potatoes, leeks, radish on your balcony or somewhere in your house or appartment. It's easy and it'll cost you 50% of the price you buy them at the supermercado and they will have a better taste and 'll be bigger. You can be sure that they will not be full of pesticids also.
If you can't, drive some miles to the next farm and buy 20 kilos of potatoes for 1/3 of the price.

- CONDOMS, have babies, raise children !

- ALREADY COOKED FOOD, buy basic elements and cook ! You will spend more time but at least save 50% of the price and act against obesity and eat healthy...

[imported_Gman]

Originally posted by kelvy:
thanks Julian for providing your valuable input regarding mutual funds in the whole scheme of investing...i already copied it onto a document for my reference...this post should definetly go into the "best of"...matter of fact, there should be a "financial posts" section on this board, that would be a boon. [img]hail.gif[/img]

I was definitely planning on creating a section for all the DHP financial posts.

[Lincoln]

Also, stay away from buying records if it's not your lively hood. :(

[imported_Gman]

Originally posted by Lincoln:
Also, stay away from buying records if it's not your lively hood. :(

[img]graemlins/biglaugha.gif[/img]