In Focus

The Mutual Fund Concert

I don't know if you've visited our Chicks Laying Nest Eggs Message Board lately, but I've been doing a little concert hopping. The Dixie Chicks (Country), The Moffatts (Rock), and Sarah Brightman (Classical) are three of the most recent acts I've been lucky enough to see. As big of a fan that I am, I do have those moments when my mind wanders. Did you ever slump down in your seat at the start of a song and whisper under your breath "Oh yeah, this song -- totally not my favorite. Maybe it's a good time to go to the bathroom. Dangit. could the band just hurry up and finish this song and get to the good ones?"

Before a show I always want to go back stage and declare, "Hey Super Music Stars, it's me Karin, your number one fan, and I had a brilliant idea. Why don't you play this list of songs I wrote down for you? I know you have a set line-up, but I really want to hear these twenty songs and only these twenty songs. None of the mish-mash stuff that you think is great." But somehow I never get back stage and I don't get to dictate their artistry. In a funny way (and wait until you see how far I'm going to stretch this one), the scenario reminds me of a Mutual Fund.

What exactly is a Mutual Fund and why don't I choose to put my money in them anymore? A mutual fund is a stocks account that can be compared to a concert. Pretend we were going out tonight to see Neil Diamond sing all of his tracks from Hot August Night. The individual songs are all contained in our Neil Diamond High Pitch Growth Fund. Below are the twenty-five stocks, I mean songs, contained in our mutual fund.

Now, if I were going to this concert, there are a few songs I would immediately take off the list. Then I'd beg Neil (who will of course let me back stage after reading this article) to play only my favorites. the top hits. I have no need to hear Crunchy Granola Suite, Dialogue, Soggy Pretzels, Stones or Cante Libra. (No offense, Neil.) I want to hear him sing, (Karin) You'll Be a Woman Soon and Red Red Wine. And. heck, I want him to throw in a few more of my favorites that aren't even on the album, like America and You Don't Bring Me Flowers. But Neil calls the shots; it's his show, his High Pitch Growth Mutual Fund.

Dealing with mutual funds it is very similar. The fund manager decides what stocks to put into the fund and by law; mutual funds have to have at least twenty different stocks in them. The fund manager uses his own strategy to come up with twenty or more that he thinks are going to be platinum record sellers. But it doesn't always work out that way. Over 90% of the mutual funds don't beat the S&P 500!! (The S&P 500 contains five hundred of the largest cap companies and you are able to buy a piece of all five hundred through an index fund. It would be like Kasey Kasems American Top 40. always guaranteed winners.) Many CD's have one or two great songs on them, and it's the strength of those hits that carries the whole CD. Similarly, mutual funds usually only contain a few market-beating stocks.

What we are able to do as individual investors is pick and choose the best companies in the world, buy their stocks and not have to own a mutual fund. If we want our portfolio to have a little Neil Diamond, a few Dixie Chicks, some Moffatts and Sarah Brightman, we can, but we don't have to sit through and listen to each of their entire concerts. We can just pick out the best songs and add them to our portfolio. For example, many funds hold Cisco.but some also own General Motors along with it. I personally don't want to own General Motors, but I would have to if I bought that fund. Instead, I bought Cisco individually.

So what I'm saying in the most round about way I can (you'd expect nothing less from me, right?), find your favorite individual stocks and sing them on to the Grammys. Don't settle for a 200 CD collection of "Hits from the 70's" when you really only wanted to listen to eight songs.

Gotta run, I'm having the Moffatts over for dinner. We are going to discuss their Canadian tour song list. If you can believe it, I have some pretty strong opinions about it!