Most of our clients don’t own any stocks. Peter Lynch argues that people can figure out things on their own and make money in stocks. Sure, it’s possible if you have the interest. But what do you want to do with your time? If you’re a doctor and you know a lot about microminiaturization of robotics for heart catheters, great. Maybe you’ll find a company that does that that’s a great investment. But most people aren’t that interested, and they’re not going to take the time to do a thorough analysis of a company. For those people, no-load mutual funds are the way to go.
Our job is to find great funds. What makes a great fund? The bottom line, how they doit’s historical returns and consistency of returns. For us, it also means funds with experienced managers who’ve made money in up markets, made money in down markets, who have a strong investment style from which they’re not going to deviate. You should find a few great funds and stick with them. We’ve held Harbor International continuously since the late 1980s, and we’ve used some of the PIMCO bond funds since we started out in 1985. There was a time when it was difficult to seek out the best funds, because it was much more efficient and convenient to go to one fund family. Some people still use fund families, and if you’re going to pick a fund family, you’d want to pick one of the bigger ones that has a range of options. But now you have programs like Charles Schwab’s OneSource program where you can buy funds from any family all in the same account, so you don’t really need to choose a fund family. Other examples of the kinds of funds we like are Brandywine or Harbor Capital Appeciation–great, reliable growth funds that you don’t have to think about too much. Look at Selected American Shares, run by Shelby Davis, who’s been managing money since 1969. He’s got a great growth record going back 27 years. I’m comfortable that he’s not going to start buying Ukrainian oil stocks or suddenly change what he’s doing if we hit a bear market.
Yes. If you’re saving for a teenager’s college tuition or for a down payment on a house you’re going to buy in a few years–something we call “specific-event investing”– then you need to use less risky investments like intermediate- and short-term bond funds and CDs. When you’re investing for these expenses, you can’t risk losing money, and the upside is so low that you’re not leaving much money on the table. But when it comes to retirement or other long-term goals, most people’s problem is that they think too short term. Take a 43-year-old healthy married couple. There’s a great chance that one of them will still be around at 85, so their time horizon is 40-plus years. Can they afford to be 100 percent in growth mutual funds? Damn right they can. And as the U.S. markets keep going up and up, it pays to look overseas. Most of our clients have 20 to 50 percent of their money in international funds. With a long time horizon, you’ll also have to take a real hard look at emerging markets, since those economies are growing much faster than our own. Too many people invest their money with a focus on how many years they have until they’re 65 and retired. But when you turn 65, you’re not going to spend all of your money and commit hara-kiri. A long-term focus is important no matter what your goal, because in order to invest successfully you have to be an optimist. You have to believe the U.S. and world economies are moving ahead, and that Armageddon is not around the corner. If the market declines, you have to be ready to ride it through. There’s only one thing we have on the wall of our conference room: the headline STOCK MARKET FALLS 508 POINTS, from Oct. 19, 1987. We try to remind people that those things do happen, and life goes on.
