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August, 2013


The past decade has been a poor one for equities, with the benchmark Standard and Poors 500 Index returning 105.15%, for an annualized gain of only 7.45%. The typical investor who manages his or her own purchases and sales has done even worse, getting proceeds of only about half that S&P 500 Index record!

In the same period, however, a select group of value mutual funds, though as a group less volatile than the overall market, has averaged returns of 11.24% a year. A hypothetical $3000 each invested in them on August 1, 2003 (if protected from taxes in trusts, IRAs, 457 plans, or 401Ks, with no withdrawals and the capital gains plus dividends reinvested), would have had a combined worth of $87,042 as of July 31, 2013. In a 30-year career, even with no further investments, such an initial outlay, if left untouched, would at that rate grow to $732,760.

Here are those funds:

Mutual FundMinimum
[$1000 IRA]
Consulting Group Small Value Equity$100TSVUX$14.69zero0.99%12.29%
[$1000 IRA]
Fidelity Contrafund$2500FCNTX$89.48zero0.74%10.15%
Fidelity Low-Priced Stock$2500FLPSX$47.65zero0.88%11.32%
Hotchkis and Wiley Mid-Cap Value, Class A$2500HWMAX$37.485.25%1.35%11.23%
ING Corporate Leaders Trust$1000LEXCX$28.87zero0.59%11.18%
Nicholas Equity Income Fund I$1000NSEIX$18.40zero0.76%11.23%
Skyline Special Equities$3000
[$1000 IRA]
Vanguard Selected Value$3000VASVX$26.29zero0.38%11.08%

Contrary to what one regularly hears, the best mutual funds are frequently not those which have performed head and shoulders above the pack in the past 12 months or even the past three years or so, but instead ones with a superior record of a decade or longer.

There is of course no guarantee these assets will continue to do better than the market averages, and each investor is advised to do his or her own research and/or to rely of a trusted financial consultant, yet these choices each have at least three of the following factors in their favor, increasing the odds of persistently higher performance:

  • Excellent fund management

  • A focus on stocks with lower price to their value than most securities possess

  • Low or no commissions

  • Competitive fees

  • An emphasis on the purchase of shares in profitable businesses with relatively low levels of debt and/or high reserves of cash.

Most savers and investors do not have expertise or time for picking their own individual stocks for purchase or, having done so, lack a better than average talent for choosing when it is best to sell them.

Even if they use mutual funds, they are tempted to sell when the market is down, and they fear it will go down further, and not to buy again till the market is up, and they expect it to continue a positive trend, yet do so just as the wind is about to go out of a market's bullish sails, to mix metaphors. Thus, they succumb to a common formula for investment failure: buy high and sell low.

Investing in mutual funds with good long-term track records may not assure better than average results, yet if such assets give the investor enough confidence not to try timing the market him- or herself, they will have already given the client a powerful edge over the competition, likely assuring at least superior performance relative to those who attempt to trade in and out based on how they feel at different stages of the market cycle.

Best of luck with your own strategy. If this one does not suit, why not find one with which you are comfortable, then stick with it, and let the long-term magic of compounded returns work in your favor?


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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