Investing

There’s no such thing as risk-free infesting.
My investment strategy is built on the three principals.

Performance—finding funds with g consistent long-term track records.
People—evaluating a fund’s managers to see who is running the fund and whether the person responsible for the fund’s good performance is still at the helm.
Process–evaluating a fund’s investment style to identify its operating strategy and par ticular area of expertise.
Our non-traditional approach of focused on tortoises will become increasingly popular in the 1990s, especially if this decade turn) out to be as treacherous as investment professionals forecast. By using the techniques lined below to screen out flash-in-the-pat performers, and by then focusing on the market management and investment style of the remaining funds, you’ll be launched upon an investment program that will enable you to invest without losing.
To successfully follow my investment plan you must be willing to forgo the fixation of seeing the mutual funds you see appear at the top of all those lists of runners that perennially appear in the  press.
we’ve found that the funds that are able to show consistent performance rarely, if ever move to the top of the lists. More typically, deliver median-plus performance and often found in the 35th to 50th percentile earning that 35% to 50% of similar funds in peer group outperform them.
These funds rarely sink to the bottom of the list. If they consistently wind up in  90th  percentile, we weed them out to pick the tortoises.
In order to qualify as a tortoise fund, it must have ranked in the top half of the universe in each of the last three years. ,three years is a long enough period to disproof a fund has staying power, but not so that it will knock out every candidate. Some criteria may seem very modest, but the his that they winnow out 90% to 95% of mutual funds from further consideration. Other than having to deal with a universe 100 or so funds, we usually work with 100  for our Fund Trust series of six different  fund portfolios.
We narrow our list of prospective investments even further by concentrating on the two.

People and Process. In looking people, we subscribe to the proposition the manager makes the fund, not vice t. We wholeheartedly believe in the star !
Who’s running the fund now, and how long has that person been there? (We particu­larly avoid funds that have a revolving door of top managers.)
Is the individual who’s responsible for the fund’s good performance still around?
Is that person supported by a good inter­nal research staff?
Are most of the investment ideas that eventually appear in the fund’s portfolio gen­erated by outside brokerage research? Evaluating process:
In our evaluating process, we focus on a fund’s investment style. This should not be confused with a fund’s objective. It’s wrong, for example, to say a fund’s investment style is one of “aggressive growth.” That’s its in­vestment goal.
A fund’s investment style should tell you how the fund intends to reach that goal. Does it plan to invest in emerging growth stocks, or in some other area, such as cyclicals, turn­around situations, small-cap stocks or high-tech stocks?
You want to know what techniques a fund manager employs to ferret out these invest­ment opportunities. Does the fund use earn­ings screens, dividend screens, stocks trading at a fraction or multiple of market ratios?
Goal: To own a variety of funds with a vari­ety of investment styles, so you’ll be better able to smooth out market cycles.
Not all styles work in all market environ­ments. Even tortoises will have bad quarters … and bad years. There will be times, for in­stance, when value stocks outperform growth stocks, and vice versa. By owning funds with both investment styles, you will have diversi­fied to the point where some part of your portfolio will always be working for you.
Once you’ve identified some potential funds that have passed the three Ps, run the following final acid test. Compare their 10 largest holdings—which typically account for 250/o–50% of a fund’s assets—against one an­other. The idea here is to only own funds with distinctive holdings, and to discard funds with significant overlaps.

An interesting challenge for individuals save their money work aggressively for n. And any investor who follows these 10 pie rules will be rewarded with security reasonable growth…
Have a sufficient cash reserve. Too many ple invest everything at once and then need $5,000 and have to sell something, and at an awkward time. Before starting, set aside a cash reserve of six months living expenses so that unexpected financial problems won’t force you to disturb your investments. This cushion is especially neces­given today’s uncertain job situation.
Think long-term. Don’t go after the hot mutual fund of the month. Always evaluate five- or 10-year record of a fund because it will encompass both up and down. While, historically, the best returns have been from the stock market, you must invest for a long period. There will be ups and downs, so don’t get rattled by every drop in market.markets corrections can offer great opportunities to pick up bargains that will make you money in the future. Consider what happened to investors who became discouraged by the 0 stock market when the Standard & Poor’s 500 lost 3.2%. For 1991, the S&P 500 up 24.25%. Those who pulled out of the market at the end of 1990 missed that big 1991 move.
Diversify between kinds of investments… and within investment categories. It’s elemen­tary—but never put too many eggs in one basket. When stocks did badly in 1990, bond­holders were happy because bonds did well. When domestic stocks are off, international stocks may be doing well.
Don’t concentrate your holdings in any one area, industry or company–even the com­pany for which you work.
Important: Count the company stock in your pension plan.
Strive for the right balance between cate­gories. This will shift according to what the economy is doing.
Right now, for a safe portfolio that will pre­serve principal and still offer growth without much downside risk, we’re recommending an asset distribution of 45% stocks (good quality individual growth stocks or mutual funds with good long-term records) 30% bonds (US government and top-quality corporates, not junk bonds, despite their high-sounding yields) 15% real estate (for long-term apprecia­tion only) and 10% cash or money-market funds.
You should also strive for balance within an individual stock portfolio. If you have $100,000, for example, divide it equally among eight different stocks. Some will perform better than others, and that helps to contain your downside risk.
Invest systematically: If you invest a fixed amount on a regular basis, you will come out ahead of the sporadic or impulse investor.
Reason: It’s impossible to consistently pre­dict, short-run, whether stock market prices will go up or down.
Thus, if you have $10,000 to invest, it’s much smarter to put it into the market in six equal installments over the next six months than to put it all in today and hope that the market isn’t topping out.
Again, looking at 1991, you might wish you had invested all $10,000 in January,
since the market went up for the first 10 months of the year.
But January was exactly the time when pes­simism was extreme. Chances are you would not have put any money in the stock market then unless you had a long-term systematic investment plan. Regular investment also al­lows you to dollar-average stock purchases, buying fewer shares when prices are high and more shares when prices are low. This re­duces your average cost over time.
Investigate before investing. An old wisdom, but I’m still surprised how many people will buy something from some stranger who calls up on the telephone. Even if it’s your long-time broker who calls to sell you a solid 10-year tax-free bond yielding 62%, it’s es­sential to investigate.
A client recently called to ask me to check just such a bond … it turned out that it was ac­tually a 30-year bond that was non callable for 10 years … hardly the same thing as a bond maturing in 10 years. Always know what you are buying.
Educate yourself. In most cases when people lose money on something, it’s because they didn’t ask the right questions. You won’t know the answers, but if you make an effort to inform yourself you’ll know what questions to ask and you’ll be a better investor.
Review investments regularly. Even if your portfolio has been invested for maxi­mum safety, you can’t just forget about it. Re­view all investments at least every six months, and preferably monthly.
Get professional advice. We spend all of our time keeping up with the fast-changing fi­nancial market. It is more than a full-time job in today’s complex financial world. You may not want to delegate full discretion to a finan­cial adviser, but now and then pay the fee to have a consultation and get some expert ideas.
Don’t procrastinate. Don’t wait until to­morrow to start saving money. If you start to­day with a serious investment program, you will be able to meet your financial goals … and that could include getting rich.

One government-only fund doesn’t declare daily dividend: The Treasury Bill Portfolio the Permanent Portfolio Family of Funds.
Instead, share prices increase in value investors pay little or no tax on the increase- Its 4.44% 30-day total return may seem low, but in terms of spendable money, the fund is more than competitive.

Advantages: Turning ordinary income into capital gains. When you redeem shares, the increase
in value is a capital gain that can be offset by capital losses.
Tax avoidance. Most of the money you withdraw is counted as a return of capita. You pay taxes only on the increase in value shares you redeem.
Tax deferral. You choose when to withdraw money and can put it off indefinitely, meanwhile piling up totally tax-free earnings. It’s actually a lot like an IRA account without the early-withdrawal penalty.
It’s legal form is a corporation and  account in meeting the distribution rule. As long as some investors withdraw  money to equal the required amount  are no taxable dividends.

Between 75% and 80% of all equity mutual funds fail to outperform either the Dow Jones Industrial Average or the S&P 500. Why pay for such mediocrity?
Alternative: Create and manage your own mutual fund by building an investment port­folio of common stocks from between five and eight different companies. That might not seem like a lot, but a five-stock portfolio re­duces risk by 77%, eight stocks decreases it by 86%. Surprising: Adding more companies to the mix reduces risk almost imperceptibly.
Simple steps:
• Choose your stocks. Buy shares only in high quality companies that are financially sound. That’s not as hard as it seems. Most people can name at least eight companies that have been around for decades and that make products they trust and provide services they value.
Example: When my daughter was 10, she invested $4,000 in eight companies she picked herself. Her choices: PepsiCo (she likes Pizza Hut, which PepsiCo owns), Chrysler (we owned a jeep), Xerox (she had used the copy­ing machine in my office), Duke Power (our local utility), BellSouth (our local phone com­pany), McDonald’s and Coca-Cola (she knows they’re good companies) and NationsBank (a rapidly growing, North Carolina-based bank). Good choices all.

While the size of a mutual fund usually represents its past success, small funds offer a -eater chance of future success.
Why: They can profit from investments in small, everging-growth companies that offer the best chance of gain. Federal law prohibits mutual fund from buying more than 10% of  stock of any one company, so an investment in a small but successful company  have almost no impact on a big fund’s portfolio. Thus in practice, the big mutual funds are restricted to investments in large, stature businesses with lower growth prospects.

When you own shares of the same stock bought at different times and prices, you can sell specific shares against these prices to minimize a taxable gain or maximize a de­ductible loss. However, for tax purposes, you must keep a record of which shares you sell.
If you can’t identify the price of specific shares, you must figure gain according to the average price of the shares.

Important: When you receive stock as a gift, find out what it cost the donor—that’s the cost from which your gain or loss will be computed. If you inherit stock, find out its estate-valuation price.
Trap: If you don’t know the cost of stock shares, IRS may treat them as having zero cost and tax the full sale price as taxable gain.

People who depend on the income from their investments to maintain their standard of living are now panicking over the low rates. What can they expect?
Interest rates are the lowest they have been since the 1970s—it’s important for income-oriented investors to put that into perspective. The inflation rate is way down, too. In the days when investors were getting double-digit rates on their Certificates of Deposit (CDs), the inflation rate was very high.
For your cash reserve—money that you might need over the next six months or a year—a money market fund or short-term CD is still your best choice no matter how un­happy you are with the low rate it pays. If you are in the 28% tax bracket or higher, you might consider one of the tax-free money market funds.
What do you recommend for longer-term investing?
We believe that rates will bottom out this year and start rising again—gradually.
Conservative investors who might be tempted to put their money into 10-year ma­turity bonds now for the extra yield may well find themselves whip lashed if they need the cash in five years or so and have to sell those bonds before maturity. If interest rates have gone up by then, they will suffer a loss on the value of their bonds.

Buy US Savings Bonds at the end of the month.

Reason: No matter when the bond is purchased, interest is credited from the first day of that month … so you get most of the month’s interest for free.

The  most successful no-load mutual funds are impossible for small investors to buy.
They require prohibitively high number investments—up to $500,000.

You are better of going through a discount brokerage with such funds, and often bypass the large minimum that would be imposed if you were to go directly through the fund.
though these funds require a large amount of money to open the account, most allow investors to deposit far smaller amounts of money after that.
Because many discount brokerages maintain  accounts with no-load mutual funds, new shareholders buying into the funds through a discount brokerage are treated as if their investments were subse­quent investments.
Example: The Gabelli Asset Fund, run by renowned stockpicker Mario Gabelli, has a $25,000 initial minimum.
Since subsequent investments can be as modest as $250, small investors can gain access fairly easily by going through a dis­count brokerage.
Even though the funds may not impose a minimum for subsequent investments, dis­count brokerages generally set their own min­imum transaction fees.
And of course you must pay the transaction fee on such trades, even though they involve no-load funds. Our transaction fee on trades of less than $50,000 is $20 plus .

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