Frequently Asked questions about buy and hold as an investment strategy

Q: Why can it be better to invest with a hedge fund or group that trades daily verses just putting my money in a mutual fund?

A: A mutual fund does not trade in and out of stocks often so they tend to move with the market. In the last part of the 20th century is was reasonable to expect a 10 or 11 percent average return over one’s working lifetime if they invested in the market. That’s not the case now. The post WWII boom is over. I left college in 1997 to embark on a career and like a money-wise girl, began to invest in a retirement fund. If you look at a chart the S&P 500 has gone nowhere since then.

Q: Isn’t a mutual fund cheaper than a hedge fund?

A: Yes a mutual fund is cheaper from the standpoint of fees associated with owning shares in the fund. Hedge funds usually charge a percentage of the capital earned. But because mutual funds do not trade options they tend only to made money when the market goes up.

Q: You mentioned funds only making money when the market goes up. Where do you see the market going in the next 20 years or so?

A: I am bullish on the US economy but globalization has made the runaway profits that we have seen in the past all but a thing of the past. In fact I think with each passing year the Dow and S&P are becoming less relevant as benchmark because of the influence of global competitors. A company that does not think globally is doomed. From an investors standpoint that means research is that much more difficult.

Q: What makes My Rich Uncle or groups like yours think that they can trade better than the average, fairly educated, person?

A: That’s a great question. Some of the world’s best traders did not go to Ivy League schools. Many do not hold masters degrees and some never finished college, or didn’t even attend. What it takes to be successful, besides understanding how the market works (which anyone can learn), is that “X” factor. That, in my opinion cannot be taught. It takes focus, experience and an extremely cool demeanor. In options trading for instance, fortunes can be lost and gained in seconds. Not everyone can function under that pressure.

Q: Lets say someone is watching now and they are saying to themselves, “I have that “X” factor. I’m smarter than those guys.” What would you say to that individual?

A: I’d say they might be right. But My Rich Uncle and groups like it exist because there is no way that a person who works for a living can trade options because unlike stocks, options can only be traded during the day. I suppose you could hide in your cube and try it but HR might not be too happy with you if they catch you logged onto Etrade when you are supposed to be working. LOL…. Then there is the problem with capital. The average person often does not have access to the capital required to invest and make reasonable gains. As part of a group you have the benefit of a larger pool of capital.

-Stacy