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Mix-Ansicht- Funds in the Hole Are Throwing Good Money After Bad - Der letzte Grund, 15.03.2001, 10:47
Funds in the Hole Are Throwing Good Money After Bad
Originally posted at 2:07 PM ET 3/13/01 on RealMoney.com
In a tech bear market we have built failure into the mutual fund business. We have done so because bear markets are characterized by constant, incessant attempts to catch the next rally and find the next bottom.
Each time the futures rally and the techs look like they are going to hold, these managers commit capital, not take it off. They have to. They won't lose their jobs if they are down 28% when everyone else is down 28%. They will lose their jobs, though, if they miss the great tech rally. That's one of the reasons I keep harping on these funds. If I know my subject, they are all over this little rally, letting you know that this is real deal, telling you, hey, we have reached the level. They have to say this stuff because they have no ability to call an audible.
There was another time when portfolio managers would balance funds and try to avoid giant losses. But everybody who played it that way in the past four years at the big fund stores pretty much was put out to pasture or was fired. The survivors were the people who bought every dip, because that worked.
Now these people are buying every rally because they can't possibly afford to miss it. They are too much in the hole. They sell the rally, and if it continues, they get fired. If they buy the rally and it fails, well, so what, everybody else is losing, too. It is as if we took the worst traits of bad gamblers and married them with a reward/punishment scheme that only rewards capital appreciation and never punishes loss!
I can't believe it devolved into this. I can't believe more people aren't talking about it or speaking about it or writing about it. Did I miss the class that taught"Thou shalt not criticize mutual funds?" Are the guys in my ad sales department just too scared of me and won't let me know that I am hurting their efforts? To me, this one is so glaring, I would think everybody would be talking about it.
It gets worse. We have developed a cycle of mediocrity on television that is truly appalling. We have managers who have cost you literally billions of dollars and they keep coming on TV and getting these free passes to recommend and rerecommend the same trash that they keep framing as blue-chip. Once they get on the bookers' Rolodexes, they never get off. They just keep getting back on.
At the gym today, one of the guys suggested a new rule: You have to be right once in the past two years to be able to go on television and speak about stocks and bonds. If you aren't, you get your license to hawk your fund or your firm revoked.
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