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The New Growth Fund
Success in mutual fund investing has had different definitions in recent
years. Had you bet on value in the late nineties, you would have been wrong.
Had you continued that stance into the year 2000, you would have found
yourself rewarded for your patience. Value style funds seek to find
investments that are beaten down and offer low risk and steady returns on
companies that fly beneath the radar. These fund managers are often
discredited for this particular style, especially when growth was making its
play towards the stratosphere. But that all changed as the carriage turned in
to a pumpkin for the majority of growth oriented investors.
But that doesn't mean that the bottom has been hit and we are suddenly headed
north to the land of unbridled risk. But the market has headed as far south
as I think it will go, and I look forward to the separate styles of these tow
investments to merge into one another in the coming months.
Many of you have written over the last year wondering why I continue to take a
growth oriented stance while growth investing took the hardest hit. I saw it
as a buying opportunity. I saw all of us in a position to buy up shares of
solid mutual funds with good managers, low fees and excellent long term
returns. I believe in dollar cost averaging and continue to think that if you
have picked a fund for the reasons above, you will do fine in the long term.
Perhaps I should say that long term is considerably longer than two years.
We are about to enter into a period of low company earnings brought on by many
a company's bad business practices. Those that were able to run good, upfront
operations have the greatest chance for growth. these are the same companies
that would have been identified and categorized as value type investing.
This has created a small "g" growth strategy that allows fund managers to bail
on companies that stop their growth. Many of these companies are reporting
earnings on lowered estimates which is like saying that it will be cold this
winter without saying whether their will be snow or ice.
There was a mass exodus from investing, in spite of what I proposed, into
money market funds, that have seen returns that reflect much lower profits
that the last time such an exodus during a recession occurred. In 1982, money
market accounts were a safe haven of double digit returns. Now they barely
sit at 3%. This money will not sit idly by for long.
If you have left the growth investment arena over the last two years, now is
as good a time as any to get back in. Year end has never been considered the
optimum time for getting into a fund as managers take capital gains
distributions which last year added to the calamity of a southerly stock
market. In trying to save something from the move into bear territory, they
sold many stocks that had been in portfolios for years, taking profits, and in
doing so, taking the tax consequences. This added to the rampant selling
which added to the profound losses that sent most scurrying for safer, higher ground.
Many funds have a cache of realized losses that will go against any of the
year end tax burden and may actually provide some sort of a hedge against
future tax gains.
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