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Monday, December 22, 2014

Mutual Funds and those Pesky M.E.R.'s

Sometimes I think the whole mutual fund industry is based upon the premise that very few North Americans trust themselves to invest their own money. They'd rather hedge their bets with someone who has a few letters behind their name than do their own research and pick their own stocks.

Now the rage is all for ETF's which , in my mind, is the same thingy majiggy as mutual funds except with a facelift. It's those M.E.R.'s which annoy me. (management expense ratios)
The "professional" fund managers are permitted to take a cut of all the investment into the fund, whether or not the fund is performing well or not. Talk about a gurantee! But the guarantee operates in the best interests of the fund managers, not necessarily in yours or my best interests.

Those who buy mutual funds keep being sold the story of the "safety of buying the basket" instead of stock picking individual shares.

But what about picking stocs in a similar fashion to the institutions that you admire? If you admire the Provincial or state wide teacher's pension fund, then it's not going to be impossible for you to find out which shares they own. Yes, you can copy them....it's perfectly legal. You just might not get the same deals as they get because their huge chunks of buying power sometimes negotiate a better price for their cuts of stock, as opposed to an individual "retail" investor.

Warren Buffet has a stream of folks following his every stock purchase. I recently learned that many of his stock purchases are now hidden from the public for a certain period of time, just because there is such a huge following behind his every transaction. When someone's investing is considered an "institution" it is like they've graduated into playing the big leagues. That doesn't mean that you can't make money as an individual....is just that it's a pretty different game we play. Individual investors just don't have those economies of scale that institutional investors have.

Another thing to consider is that individual investors are often concerned about transaction/commission fees for their every stock sale/purchase. But institutional investors carry such large portfolios, that I would assume they are given a free ride when it comes to charges for commission fees and the like.

Don't be discouraged....just learn the rules for the game you want to play. Outsmart them, by being observant, teachable, well connected and persistent. Time is on your side.


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