Is It Time to Sell Mutual Funds?

By Al Thomas

Since 1998 I have been writing about mutual funds – until the last few years.

Now my main interest has changed to ETFs (Exchange Traded Funds) because of their lower costs and ease of entry and exit with ability to use stop loss orders.

Mutual funds do not allow stop loss orders to be placed. Many standard mutual funds carry a hidden 1% annual fee the client does not see.

The worst thing is the charter of most funds requires the manager to remain 90% invested at all times even when a donkey can see the market is in free fall. Go back any 10-year period and the market has had a 40% break some time. That is when the mutual fund investor should be in a money market fund or have his cash under his mattress.

Put in the symbol of any well know fund such as VEXMX (Vanguard Extended Market Index) and it is easily seen on the 10-year period how this fund dropped from 48 to 18 during the 2008 crash. More than 50% of customer funds disappeared. Can this happen again? You betcha sweet bibby it can.

When? I am not sure, but it is my opinion the market is getting close. Think about this. When do market break? When they look their best and every “expert” is telling investors to buy, buy, buy. Does that sound familiar?

Technical analysts (like me) sometimes (I said sometimes) are able to get advance warning of the next danger area. I think we are fast approaching it.

Why? Measure the depth of the V formation. It is about 30 points. Add 30 to the breakout to 45 + 30 = 75. It is now trading at 63. Time to start watching and looking for an exit.

This can be done with any mutual fund or ETF. They are not exact numbers, just guidelines. I don’t use it all the time for individual stocks as they are much more volatile.

These breaks cleanse the market of the weak issues. Some go broke; others merge into stronger companies.

The last few years the Fed’s Bernanke kept this from happening by pumping money into the economy. This has been like a band aid on a broken leg. The crash would have weeded out the weak companies and the economy would have had a more resilient recovery than the stagnation we are seeing now.

Always remember the secret of the stock market is not buying. It is selling.

Now is the time to protect your investments with a trailing stop loss order.

Al's new ebook (32 pages) is available on Amazon for 99 cents. It explains the Golden Cross and the Death Cross. These are well known methods of determining long term trends in the market. If you only learned one method of technical analysis this would have kept you out of the 2000 and 2008 crashes and will keep you out of the next one that is coming soon. Search by Never Lose Money In The Stock Market Again. Copyright Williamsburg Investment Co 2013