Can a bunch of 350 pound runners really keep up with Olympic athletes?
The answer to that question, of course, is “no”–not if each group is relying on their own two feet. But in the mysterious world of finance the answer to that is clearly, “maybe”.
I asked readers to select the metaphorical Olympic runners. And you’ve done a fine job. You’ve selected 10 actively managed mutual funds with fabulous track records, and I’ll roll them together in a single $500,000 “virtual” portfolio: $50,000 allocated to each fund.
I also asked readers to select the 350 pound runners: 30 individual U.S. stocks that you figured were “lousy”. I asked, initially, that those stocks traded above $15 a share, but as long as they aren’t penny stocks, I think we can relax the rule.
Of course, what one person deems a “lousy” stock, another person might see as an “opportunity”, but that’s normal. In the stock market, there are always two sides to everything—explaining why there’s a buyer for every seller, and vice versa (always). The bottom line is that my readers selected stocks that they thought were crummy—not stocks that they thought would do well. Fantastic!
The Actively Managed Mutual Funds
Three of the selected actively managed mutual funds carry front end loads of 5.75%. They include the American Funds New World A, the American Century Heritage and the American Funds American Mutual A. This is akin to lumping a 40 pound sack of potatoes on an Olympic marathon runner, and insisting that she carry it for the first 5km of the marathon. She’s going to fall behind right away. But will her speed eventually allow her to catch up? When I track this collection of funds, I’m going to make this as real as possible. Investors will have to pay fees to buy three of these funds, so I’ll be deducting 5.75% from each of the fee charging funds before they exit the starting gate.
The “lousy” stocks
Each stock will carry a commission of $9.99—a competitive rate for a discount brokerage account. As such, this portfolio will carry the total burden of $299.70 for the 30 purchase orders an investor would need to make to buy these stocks.
Will the “lousy” stocks or the actively managed funds have the lead from the beginning?
- Starting with $500,000, the “lousy stock” portfolio will need to shell out $299.70 in commission fees.
- Starting with $500,000, the great actively managed mutual fund collection will shell out $8,625 in commission fees.
It doesn’t take Nostradamus to predict that the “lousy stock” portfolio will take more than an $8000 lead in the first day—thanks to the burden of commission sales fees on just three of the selected funds.
Here are the 15 actively managed funds selected by contributors to the challenge. It’s a complete list, so we don’t need to add any more funds.
1. American Funds New World A
2. American Century Heritage Inst
3. American Funds American Mutual A
4. FMI Large Cap
5. Sound Shore Fund
6. T. Rowe Price Equity Fund (PRFDX).
7. Dodge and Cox Stock Fund
8. Fidelity Puritan
9. Fidelity Select Energy.
10. Legg Mason Value Trust
Here are the first 15 below, and I’m looking for 15 more before I can make this race official: 10 great actively managed mutual funds vs. 30 “lousy” stocks.
1. AIG
2. Juniper Networks
3. Banco Santander
4. Eli Lilly and Alcoa
5. Alcoa
6. Kimco Realty Corp. (KIM)
7. NutriSystem Inc. (NTRI)
8. Gamestop (GME)
9. Zions Bancorp (Zion)
10. Lucent
11. Citibank
12. Sun Microsystem
13. AOL-Time Warner
14. Ciena (US:CIEN)
15. ATC Technology Corp (US:ATAC-Q)
However we do need 15 more stock suggestions.
It’s said that Nostradamus could foretell disasters…
Can you pick a loser?
