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August 24, 2009


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Great comic! Actually, this is how it works to some extent in the mutual fund industry. Maybe they don't start with that objective, but by eliminating the funds that are losing money they accomplish the same thing.

This is how Mutual Fund Companies start new funds. They run them internally for 3, 5, or 10 years and keep the ones with good or the best track records.

I thought that this was going to be a comic of a monkey throwing darts at a dartboard with stock symbols on it. :)

Hahah, hilarious!

Um, perhaps there is some truth to it. If memory serves me (and it probably doesn't), mutual fund managers are required by law to have at least 20 positions (or no more than 5% during purchase). This is to prevent them from taking too much risk and to ensure diversification.

Well, according to Warren Buffett anyway, most fund managers have maybe 6 or 7 good stock picks. But because of the diversification rules, they have to make some mediocre picks to fill out the portfolio. This is particularly true as the account grows larger and larger, and more money is at stake.

And then you have someone like Morningstar come along to track the performance of mutual funds in the industry. A lot of individual investors would then look at the star ratings and based on that, assume that some mutual funds are better because it has more stars.

I find it amazing that people are still putting money into mutual funds after the appalling performance. Until 2 years ago, you could have made a better return with credit union money market accounts. It is difficult to understand why investors trust these mutual funds at all.

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