2.27.09

2.27.09

         It was another bad week for the market with the four major indices all being down. The Dow, Nasdaq, S&P500 were all down a little over four percent. The Russell 2000 was down over five percent. Friday was the last trading day for the market for Feb. and we now have two months of the year behind us. The Dow is down almost 20% YTD. The Nasdaq is -12.6%, the S&p500 is -18.6%, and the R2K is -22.1%.

         If you watch CNBC or Bloomberg you have been hearing some of the Wall Street “Gurus” telling you that now’s the time to be getting back into the market. Wait a minute, these are the same guys who forgot to tell you to get out of the market back in late August. They are the same ones who tell you that “market timing” doesn’t work. For years they have been espousing “buy and hold”.  Following that advise would have lost you almost 50% of you money over the last six months.

         Let’s examine that advice to understand why they do what they do. First and foremost, they have a vested interest in making money even if you are not. There is an internal management fee inside of every mutual fund. The pro-rata share is taken out each and every day from the fund value. It reflects in the NAV (net asset value) of the share price. It never shows up as a fee, therefore you wouldn’t see it anywhere. The percentage that is charged is indeed a small amount. For A money market fund it may be as little as ¼ of a percent per year. For a stock fund it would be in the range of 1½ % per year.

         Not a large amount of money you say! Let’s figure it on a $10,000 account. We gave a signal to go to CASH on August 28, 2008 and have now been there for 6 months. Cash in this case means money markets, and the fund would have made about $12.50 in internal fees during that time. You would have made interest of about $100. Had you followed their advice and stayed in the Equity Fund, they would have made $75 and you would have lost close to $5,000. Let’s say that the fund you were in was a $100 million size fund. You now get the picture of the self-serving interest of telling you not to “market time”. Those figures now read: Money market fees $125,000. Equity Fund fees $1,500,000. It’s easy to understand why they prefer you to place your money where they are able to make 12X as much as they would if you moved it to a safer place.

Many Mutual Funds have assets in the billions of dollars. It is not a “chump change” kind of business. Call your Mutual Fund Company and ask them to send you a copy of their “Statement of Additional Information.” It will enlighten you.

 Remember “Knowledge is power”.

         We, of course are remaining 100% in CASH. The week ahead is a light one as far as reports go. The important one will be Friday’s Unemployment report for Feb.