OK, so some of you think I'm old-fashioned because I'm not one to rock-and-roll with the daytraders. Nor do I yell "sell" the minute a fund takes a tumble or "buy" as it bounces back.
Yeah, I admit it: In Monday's mixed market, when the
was heading south frantically, I didn't jump out of my funds with a big stake in tech, such as
White Oak Growth. Neither did I pile into the "new" performers, those specializers in the much-maligned value stocks. And yesterday, when the Nasdaq made up for that selloff -- and then some -- I didn't decide to all of a sudden bet on the highfliers just because they were flying high once again.
Now this isn't to say that because I stick with some fundamental rules when investing in mutual funds, I'm an old fuddy-duddy. Sure, call me old-fashioned, but I like gambling as much as the next guy. My first job out of grad school was in Reno, Nev., and even though a $5.25-an-hour salary as a local TV reporter didn't put me in the high-roller category, I did learn how to get around a craps table.
So I do think gambling has its place -- but for fun, not for funds. And gambling is exactly what you're doing if you're making investment decisions based solely on the recent moves of the market.
Don't stop watching, of course. This has been an exciting week on Wall Street. But Monday, were you suddenly skittish? Was your finger on the mouse or your hand on the phone, ready to pitch those former performers from your portfolio? And Wednesday, were you just as anxious to change and rearrange your portfolio to keep pace with the fast and furious?
These are times when it's all the more important to remind ourselves that there are fundamentals in fund-buying.
Yep, fundamentals (for some at least) drive decisions about stocks: You watch for earnings, growth, debt problems. So, too, for funds. First, be sure you have the big picture: Know your savings goals, time horizon, risk tolerance, view of the future. Then, look for long-term performance. And don't just check out average returns; see how the fund performed year by year, even quarter by quarter, so you can see how it acted in different environments against its peers, how volatile it may be.
Next, check out costs. (Look in a fund's prospectus, where you'll find the price tag of your mutual fund -- the expense ratio and management fees.) You can't predict a fund's future returns, but one thing you can know with reasonable certainty is how much its fees will cut into your bottom line.
You'll also want to know the size of the fund. How quickly has it grown? Bigger isn't always better, especially for funds that say they specialize in small-caps.
Those A-B-Cs apply whenever you buy a fund, but the past few weeks have taught a couple of particular lessons we shouldn't ignore.
- Diversification isn't a dirty word. As late as last week, it might have seemed like the only way to go: Follow the funds that were following the large-cap market leaders. But those of you who didn't give up on small-caps or value might really be on the right track if we have more days like Monday.
You need to know what you own. When the bull was running hard, many funds, regardless of their stated philosophy, stocked up on those market-leading stocks. Maybe you discovered this week that the fund you bought to fill a particular niche in your portfolio had morphed into a large-cap lookalike. Up-to-date lists of top holdings aren't always easy to get; often fund companies only provide them in annual reports. But use the Web to get some clues. That's one thing you find here at
TSC. We try to get the latest on what managers are buying.
So, call me old-fashioned, out of date. I think the "boring" basics of investing still hold up. But they look more and more stylish in wild weeks such as this one.
Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner owned shares of the White Oak Growth fund, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While she cannot provide investment advice or recommendations, Buttner appreciates your feedback at