Investment Club Update – 28 JAN 10

Investors:

I suppose a fried egg could brag about looking back one year ago and suggesting that they have made plenty of money in the markets during the past 12 months, while perhaps ignoring the money they lost the previous year (and not yet coming back to even).

After all, one year ago the markets were at extremely low levels, and the S&P 500 index has gained 29% since then, with the DOW gaining just slightly less.  You can see the S&P 500 below representing the blue line and the Dow Jones industrial index representing the red line.

CNN Money wrote an article in 2009, suggesting the best funds money can buy: …read more

The first large capitalization fund mentioned is American Funds American mutual A. …read more

Over the past year, it has lost to the S&P 500 index by roughly 4%, not including the 5.75% load fee that its investors would have needed to pay to buy the fund.  You can see the chart below.  The blue line represents the American Funds’ American mutual A and the red line represents the S&P 500 index.

Of course, one year charts are silly.  And the long term paints a better picture.  Below, you can see how the celebrated American Fund has compared to the S&P 500 index since 1997: Want more control over the chart? Try our Interactive Chart

And yes, this is the same fund that Money magazine touted as one of the best funds money can buy.  Again, the red line is the S&P 500 index, and the blue line is the coveted American Fund, before the 5.75% sales fee.  The “return”, as you can see, dates from 1997.

 A picture is worth a thousand words.

We’ve been fortunate enough for the long term results of our investment club to beat this coveted American Fund by a wide margin, and we’ve been lucky enough to further ourselves from the performance of the S&P 500 index as well. 

I think that beating the average mutual fund is something we can easily do. 

Beating the highly reputed mutual funds, I think is also easy—especially because nobody knows which ones will do well ahead of time, and what’s often “good” turns into what’s “bad” in a hurry in this industry as star funds fall from grace.

But beating the index over a lengthy period of time is something else.  Doing so requires a tremendous amount of luck, and we’ve obviously had plenty of horseshoes in the right places.

To see all the results of the Investment Club portfolio, login to the post immediately below.