Dividend Value Builder Newsletter

Investment Funds & Advisors – The Intelligent Investor Book Review – Chapters 9 & 10

by | Value

This is Part 5 of our book review of  The Intelligent Investor, Revised Edition, Updated with New Commentary by Jason Zweig (affiliate link). Part 5 covers Chapters 9 & 10.

You may find the Introduction and relevant links at: The Intelligent Investor Book Review in 30 Minutes

Investment Funds & Advisors

Investment Funds & Advisors


Investing in Investment Funds – Chapter 9

The defensive investor may choose to invest in investment funds. These investment vehicles provide a convenient means for saving and investment, and possibly preventing individuals from making costly blunders.

However, the investor should expect no more than average results. It is important to be cognizant of high fees, excessive trading, and erratic fluctuations in performance. Check the performance for at least the last five years.

Be skeptical of any significant outperformance. Outperformance in rising markets may indicate speculative behavior on the part of the portfolio manager. Usually these funds end up with large losses.

The benefit of an investment fund is because it is a cost effective means to diversify your portfolio with little effort on your part. It is those investors that are not satisfied with average returns from their fund that subject themselves to undue risk through speculative behavior, or succumb to outright fraudulent schemes. In other words, the defensive investor should probably be satisfied with an index fund and/or closed-end fund selling at a discount.

Finding closed-end funds selling at discounts can be much more profitable than open-end funds (particularly when sales charges are included). Buying at a discount changes the return on investment calculations significantly.

The Investor and His Advisers – Chapter 10

Most investors are novices, prone to making mistakes. Large drawdowns, high fees and expense ratios, and lack of proper diversification are examples of mistakes that cause investors to endure long term returns that are below average.

Investors should look for advisors with the utmost highest character, who are conservative, guarded, and proficient in the investment field. Mr. Graham states “Much bad advice is given free”. How true is that!

Investors should expect to pay a fee. However, the advisor should be compensated in a way that does not incentivize speculative behavior or active trading. In the commentary, Mr. Zweig offers an absolute annual limit of 1% of your investment assets as advisory fees.

The most important objective of the advisor may be to save you from your own worst enemy, YOU. A good advisor will help you keep your emotions in control, especially at important moments. Instead of panic selling, are you going to be prepared to buy when prices have fallen? Instead of following the crowd, who might be buying at prices far above intrinsic value, are you going to look elsewhere for better values?

For most investors, an advisor is a worthwhile engagement. Be sure your advisor cares about their clients, understands the fundamentals of value investing, and has a satisfactory amount of education and experience in investing.

Continue to Part 6:

Investment Selection – The Intelligent Investor Book Review (Chapters 11, 12, & 13)

Minimize Large Portfolio Drawdowns

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While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.

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