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Thursday, September 17, 2009

Long Term Investment Management & Strategy - Does it always Succeed?

I came across a nice article on web which explains how long term investment strategy could fail in current sitution!! If you have invested in index benchmarked mutual funds or investment schemes with such mutual funds, it could fail in long term. This article is from USA based stock market research publication house, but since global economies are more or less integrated with each others and that a small event in big economies can prove trigger (positive or negative) for our markets, this is a good read.

How the mutual fund industry has sold you a bill of goods, how you can get your money back and make a fortune on top of it.
You’ve heard it all before: A serious-sounding actor on TV will tell you that the way to get rich and secure your retirement is to “invest in a well-diversified mutual fund and hold for the long term.” Sure, he has a nice suit and a trustworthy face, but the cold, hard fact is he is lying to you. If you invested in the S&P 500 14 years ago – back when I started in this business – you would have about the same amount of money you have now.

S&P 500: 14-Year Chart
Long Term Investment Management & Strategy - Does it always Succeed?
In fact, given the current suckers’ rally, I would hazard a guess that we haven’t seen the worst.

Why are mutual fund companies lying to you? It’s simple. They make money off of “cash under management.” It is in their best interest that you give them your money so they can hold onto it for decades.

Sure, there have been unique periods when stocks went up over long periods of time, such as the years following the Great Depression and World War II. But those days are over, and may never return in our lifetime. Right now, the U.S. market is analogous to what happened in Japan after its massive real estate bubble popped 20 years ago.

If you remember back in 1990, the “Japanese miracle” was on a roll. Japanese companies such as Toyota, Nintendo and Sony were invading the world. There was lots of hand-wringing because Japanese investors bought up Rockefeller Center in New York City.

At the time, real estate had gotten so expensive in Japan (due to crazy mortgage policies) that one square block in Tokyo was worth more than the
entire state of California!

Then, Japan’s real estate bubble broke. The Nikkei 225 index fell from almost 40,000 to 15,000, and has been bouncing like a ball down the stairs ever since.

Long Term Investment Management & Strategy - Does it always Succeed?
Japanese experts and politicians did what U.S. experts and politicians are doing now. They cut their interest rates to zero and started spending money.
They built bridges that no one used, and highways that went nowhere. They spent and spent.

According to numbers from Bloomberg, Japan’s debt-to-GDP will be 147% this year. It now must use 65% of its tax revenue just to make interest payments
on its staggering 20 trillion yen in public debt.

Does any of this sound familiar?
The U.S. is exactly one decade behind Japan in its path to self-destruction. And this is Japan we are talking about – a country full of smart, motivated people. These guys make the Lexus. If it can happen there it can happen here.

And it will… heck, it already is… According to John F. McManus in the New American:

Look at what America’s experts have done in response to our nation’s recession. In every detail, they did exactly what Japan has been doing for 17 years. They cut interest rates, launched public works programs, handed out business loans and bailouts, and created stimulus packages, while the Fed manufactured trillions out of thin air. The result: our nation remains mired in our own slowdown. What happened in Japan is being repeated here (in USA).
Source: Article sent to me in e-Mail by Taipan Publishing Group


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