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Apprenticed Investor: Don't Speak, Part 2

In September 2002, Bill Gross' (PTTAX) bond fund passed the (VFINX) fund to become the biggest fund in the world. That was an example of investors piling into a "hot" sector and nailing the top of the bond market; it was also a month away from the bottom for equities.

Avoiding funds that did great last year should not be confused with funds that did great "last decade." Good money managers consistently post good results, with low drawdowns and lowered volatility. These managers don't have the aberrational years when they are up and then down huge.

Funds such as these are good places to put your managed money.

8. 'I'm a bull.' (or 'I'm a bear.')

I never understood these dogmatic declarations; investing is not college -- you don't have to declare a major.

Hypothetical question: Your get into your car to run some errands. Are you a "green" or a "red"? Do you make up your mind and simply drive through the next red signal, just because you are a green? Do you come to a dead stop -- regardless of the color of the signal -- because you're a "red"?

It's a ridiculous question. You look at the color of the light and either step on the gas or the brake. The market is the same way -- when market sentiment, valuations and monetary policy are in your favor, you get long. When they are not, your portfolio should be more defensive.

9. 'I don't want to take a loss.'

A variation of "I'm waiting for the stock to come back to break-even," but with a new added factor: self-delusion.

Brace yourself for the bad news: You've already taken the loss. Just because you haven't yet sold, the position is irrelevant.

A key to successful investing is being honest with yourself. By saying they don't want to take a loss, investors are not admitting two things. First, that they made a mistake; they bought something and it went down. Fess up to it.
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