Sunday Musings: Stating The Obvious

MarketWatch featured and article titled “Choose fund managers who stay ahead of the curve,” in which the editor of the No-Load Fund Investor newsletter (Mark Salzinger) states that you should avoid managers who believe “the market is wrong and they are right.”

Here’s a snippet:

In a radio interview, Salzinger defined that type of manager as one who is unwilling to bend, losing objectivity about what is happening in the market, and falling in love with investments in their portfolio. Accordingly, Salzinger said he would sell Bill Miller’s Legg Mason Value Trust (LMVTX).

I can agree with that in general, since many investors in the past have fallen in love with their mutual funds or a certain fund manager and subsequently lost all objectivity as to the wisdom of that choice.

As far as LMVTX is concerned, maybe that was the case as this fund has hit the skids big time. Take a look at a 2-year chart:

It’s obvious that the trend reversed sharply late last year. My simple 7% sell stop rule would have gotten you out around September. Since then that fund has done far worse in this down market than the S&P; 500 by losing an astonishing 42% and 30% YTD.

While recommending that this fund should be sold now is stating the obvious, but it’s way too late. Huge losses have already occurred. A Buy and Hold investor now needs to make a gain of over 50% just to get back to even, which is not an easy task in this market environment.

The fact is that we are in a bear market, and those not paying attention will see this type of scenario repeated many times.

About Ulli Niemann

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