What nerve! No, I'm not talking about Gary B. Smith's
retort to my recent
column that took on technical analysis. I actually enjoy sparring with the Chartman. I mean instead the nerve we struck by debating the issue of charting mutual funds.
Charting Funds: Join the discussion on our
I got emails by the screenful -- many of which deserve a response.
Seems I went too far for reader
, who calls technical analysis for funds "silly," but adds, "It seems traditional fundamental analysis also is not much good for funds either. You can't even get current portfolio information." He goes on to say that once you research the track record of fund and manager and look at what type of funds will likely succeed best in the chosen time horizon, all that really matters is allocation of investing style.
No question, Ken. The fact that current portfolio info isn't available to shareholders on a timely basis (funds only have to reveal a list of holdings twice a year -- and many push that to the limit) is a pet peeve of mine. But that doesn't render fundamental analysis useless. Far from it. The homework you mention is, in fact, at the very heart of critical fund research.
Looking at a chart doesn't tell you anything about a manager's style or strategy; analysis of his or her track record often will. But I would add to the list of things to consider: price. You can't predict future performance with any certainty, but you can fairly forecast how much expenses will take a bite from the fund's bottom line. And cost is the biggest headwind that many managers face.
suggests that "riding the trend" is a good reason to follow the charts. "If an investor decides to put money into Bill Miller's fund on a regular basis, using technical analysis to operate a buy-the-dips strategy might be an excellent way to go."
Good luck. Miller's
Legg Mason Value Trust has been a magnet for money -- nearly $2.5 billion in net cash inflows in the first nine months of 1999 alone. But Legg Mason isn't interested in the traders. Although there's no redemption fee, the firm carefully watches trading activity and will bar investors who regularly try to jump in and out. Of course, it would be great to skip the dips. But say you had simply invested once and held on. A $10,000 investment at the beginning of 1995 would have grown to better than $40,000.
is a bit worried that those looking to avoid the dips are taking over from the buy-and-hold bunch: "Like you, I think charting a mutual fund is absurd. Yet if everyone succumbs to the folly, that herd consensus will make it market dogma. I wouldn't want to join the lemmings, but I wouldn't want to stand in their way, either."
I don't think enough people are swapping funds yet to make this a valid point. Sure, I hang out mainly with fund fundys, and I know some of you trade funds actively (the reason more and more fund firms are slapping on exit fees). But the average holding period for a mutual fund is still three years.
Maybe the following email best captures subscriber sentiment: "I haven't a clue whether one can accurately chart a fund or not. Please let's call it a draw and write on."
Not without letting the really smart ones weigh in.
What do you think?
Should you chart mutual funds?
Yes -- as Gary B. Smith makes clear, you can chart anything. Chartman rules!
No way -- Brenda shows that not only does it not make sense, it won't make you money.
Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner held no positions in any securities mentioned in this column, 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