The Online Investing AI Blog

A recent article by the Wall Street Journal details how Bill Miller’s Value Trust Mutual fund lost most of its value. This year, the fund went down 58%. How is it possible that a successful mutual fund manager can do well for 15 years and then lose most of the funds money in a short time?

The answer is risk. As you can see from the chart, when the market was going up the fund made money. In fact, the went up more than the market. The problem, at least for Bill, is that when the market went down, his fund went down even more!

The challenge is that most people have no concept of risk. They believe that something is risky, and never try it. In this case, they actually have no idea and never find out.

Conversely, often people will try something once and it will work. They quickly conclude that there is no risk involved. Perhaps, since Bill was successful for 15 years, he decided that there was no risk.

So what? What does this mean to you, trying to figure out how to invest or what is going to happen with the market? It means that a track record, of even 15 years, does not negate risk. It means that even though many mutual funds make money after a year or a few years, they are still risky. It means that if you believe what mutual funds and investment industry tells you, there is a high element of risk.

What’s the solution? The solution is a way to measure risk. But not in a university statistics class, that nobody understands and has no practical value in your financial life. The solution is to find a way to measure risk, and create a way for people to invest while measuring and minimizing that risk.

Related posts:

1. Automated Trading Compared to Mutual Funds
2. Buy and Hold Investing vs. Hedge Funds
3. Why Mutual Funds are one of the Worst Possible Investments
4. New Investment System 1.0 – Part 3
5. Is Buy and Hold Terrible Financial Advice?

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