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INM Jan '09 - John Templeton & The High Price of Low-Cost Investment Services
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


In 2009 we have a slew of low-cost options in the no-load mutual fund or ETF category, and a menu of fee-based advisors managing money who are collectively pricing their professional services at extremely low rates. Low enough rates that if their fees were doubled, it would be rather inconsequential relative to the overall performance for the past year. Somehow, I think the evidence would show that the great majority of these cut-rate advisors are showing their clients net losses of greater than 30% over the past year, making the "fees" portion of the total asset erosion rather incidental.

 

We are currently amidst the second pullback of greater than 50% for the S&P 500 Index in short of a decade, so these have been volatile times!  Times like these are when it is more important than ever for investors to focus on their bottom line.  Over the years, I have been grilled by many cost-conscious investors who would rather not put very much emphasis on just how their money would be managed, but they would scrutinize the commission schedule (or lack thereof).  I've been a bit put off by investors who carefully beat me up while speaking to me as if their biggest concern were the potential costs and how much might end up in Mr. Gruneisen's pocket at the end of the year for providing the full-service treatment.  Our actively managed accounts were in cash for the mostly part of 10 of the past 12 months, charging those clients no fees at all while that cash was parked in safe interest-bearing money market accounts.  Advisors who billed their usual quarterly fees did lots of damage all year long, while keeping on billing.   

 

Maybe one of the reasons that the market is in such poor shape today is because there are not enough good people around like Sir John Templeton.  John Templeton died at age 95 on July 8, 2008.  Although wikipedia.com says that he rejected technical analysis, it is a rather curious coincidence that the "grandfather of the mutual fund" passed away at a point when any chart reader might have likely noticed the benchmark S&P 500 Index was showing very poor vital signs.

 

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Templeton was probably right in his suggestion that for the mutual fund industry to have the most- positive effect on fund investors' net investment returns the single best change they could make is double the sales load.  Things have not gone John's way, obviously. Unpredictable inflows and outflows of capital are still creating a lot of havoc for fund managers, such that they are often hit with redemptions and forced to liquidate holdings at lows, or they are flooded with deposits and forced to buy at unattractive times.  His belief was that investors who paid a higher commission would stay invested for a longer period of time and end up netting better results by avoiding leaping in or out at ill-timed moments.  That notion seems very valid; however, please do not think for a minute that I am among the "always in" camp of long-term buy-and-hold mutual fund fanatics.  If he were alive and managing money today, my guess is that he would be actively buying now and in the year ahead to the extent that his investors' capital remained available for that use. Templeton was a "buy when there is blood in the streets" kind of tactician. But remember, John is gone!

 

One of the cheap online trading firms I see advertising on television today has a famous actor raising the point that investors “might be wondering if the advice you’re getting has been helping or hurting.” So true, for so many! Due to their over-diversified portfolios, most of those fee-based advisors have poor chances of making up their past year’s damages very quickly. Color me skeptical, but also a guy who understands the odds pretty well.  Concentrated in a small handful of carefully selected stocks at the time when the market (the M criteria) finally shows more cooperative conditions, investors stand the best chance of making up their lost ground.

I know it drives some investors a little crazy to not know how many transactions and fees will be involved in the management of their accounts.  Unfortunately, I cannot predict with any degree of certainty how it is going to go.  We can only do our best to follow the investment system’s rules and work with whatever the market gives us.  We can gladly discuss and custom tailor a specific fee structure for anyone who wants or requires one.

About Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program.  Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.

The recommendations made by CAN SLIM® certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil & Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil & Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.


Comments contained in the body of this report are technical opinions only and are not necessarily those of Gruneisen Growth Corp. The material herein has been obtained from sources believed to be reliable and accurate, however, its accuracy and completeness cannot be guaranteed. Our firm, employees, and customers may effect transactions, including transactions contrary to any recommendation herein, or have positions in the securities mentioned herein or options with respect thereto. Any recommendation contained in this report may not be suitable for all investors and it is not to be deemed an offer or solicitation on our part with respect to the purchase or sale of any securities.

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The recommendations made by CAN SLIM® Certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil + Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil + Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.

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