Lies, Damn Lies And Mutual Fund Returns

How many times has this happened to you? You're at a social function and the conversation turns to investing. Pretty soon, people are comparing how well their investments are doing. As you might imagine, being an investment advisor this happens to me a lot. However, I recently had an experience with it that startled me. Bob, one of the guys I was chatting with at a party, asked what kind of returns I had made for my clients with my methodical no load mutual fund strategy during the past year. I replied that they had unrealized gains of slightly over %, after management fees, for the months that we were invested. Bob countered with a smirk that he had made a % return. I raised my eyebrows and told him that was darn goodand suggested that maybe he ought to be managing my money. At that point we were interrupted and, as the evening went on, I began to wonder exactly how Bob had gotten his great return. I cornered him a little later on and, upon digging a little deeper, the story looked somewhat different. Yes, he had made a % return on a mutual fund he had some money invested in, however, we were comparing apples and bananas. He had a total portfolio of $k. Being cautious, he had invested only $k into a mutual fund, from which he profited $k after he sold it. The balance of his portfolio ($k) was sitting in a money market fund earning some .% per year. So, while he had made % on % of his investment, he had only made .% on his whole portfolio. My methodology was also focused on protecting my clients' investments and it had increased their entire portfolio % (unrealized). That would be an apple to apple comparison when measuring my returns against his. Bob's one fund realized % return. However, had I approached it the same way Bob had, I could have described one of the funds I used that had realized over % for the same period. Actually, Bob's not-so-good-news story didn't stop there. Bob admitted to having followed the losing Buy and Hope strategy through the bear market of and had finally sold out at a % loss a year ago, before committing $k to a mutual fund investment. I was pleased to be able to tell him that my methodology had gotten my clients out of the market before the bear took his big bite, and they suffered only minimal losses before finding safety in money markets accounts. And when my trend tracking figures directed us to move back into the market, they still had most of their money poised to start earning for them againwhich it did and very nicely, thank you. The moral of the story is to look past the surface and dont take any numbers thrown at you at face value. Remember, most people returning from a weekend in Las Vegas will shout about their winnings and mumble about their losses.