Mutual Fund Wisdom: Quit Hanging On To Losers

Yesterday’s piece in MarketWatch titled “Quit hanging on to milquetoast funds” contained a lot of truth.

In an interview, Steve Goldberg of Tweddell Goldberg Investment Management said that “investors should look at their mutual funds as if they are buyers or sellers, rather than holding on to lukewarm performers hoping for improvement.”

He added that “most people hang on to a fund too long, hoping for a return to a break-even point or to a place where they can make an exit and say that they doubled their money, without regard to the length of time such growth involved.”

I my advisor practice, I have found that to be true as well. I still get calls from readers who are proudly reporting that they have now finally reached a break even point after hanging on to the same funds through the entire bear market of 2000-2003—and beyond.

Maybe it’s a good idea to heed Goldberg’s advice, who finished by saying that “if a fund is good enough to own, it’s good enough to buy more; and if it’s not, then why are you hanging on?”

I can only add that the reason most people hang on is that they don’t have a clearly defined exit strategy. If they had one, they would automatically get out of funds as performance (due to market conditions) deteriorates and triggers their sell stop points.

Are you still hanging on to a fund you bought some 7 years ago?

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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