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As stated in John Bogle’s speech of April 2002, “The End of Mutual Fund Dominance”,
Bogle references a study put out by the Forrester Research Organization. The study
predicts that: |
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"By 2006, large fund firms will emphasize separate accounts at the expense of mutual
funds. . . . By 2010, assets in separate accounts will exceed $2.6 trillion, at
least 30% of retail assets managed. And that's not all. The end of mutual fund dominance
will accelerate as fund families create their own separate account products, 401(k)
plans will jump on the bandwagon, and financial advisers will construct their own
client portfolios with stock baskets. Why will this happen? In Forrester's view,
simply because separate accounts deliver what investors want: customized money management.
The alleged benefits: higher tax efficiency; ability to structure investors' portfolios
around large individual holdings (e.g., company stock); real-time disclosure of
portfolio holdings; and the ability to avoid investments that have "moral or sentimental
importance to them.” |
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After building the largest equity mutual fund, John Bogle of Vanguard funds, who
acted on the concept of index funding, by implementing the first index fund in 1976,
explains that rising costs in managing funds, portfolio turnover, due to feeble
attempts to time the market, and operating costs, are/were the culprits that prevent
most experienced professional mutual fund managers from beating the major market
indices. With over 10,000 mutual funds today, 83 million investors, and 7 trillion
in the mutual fund industry, how can this juxtaposition from Bogle be reconciled? |
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An historical perspective and performance history
will reveal that this notion of professionals beating the indices was quelled by
Ben Graham, the investment guru of the past century. In the fourth revised edition
of his classic book, The Intelligent Investor (1973), Ben Graham states in the introduction
on page xvi, “Even the majority of the investment funds, with all their experienced
personnel, have not performed so well over the years as has the general market.” |
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After 32 years, Ben Graham’s insight has been manifest. Yet, the question remains,
why didn’t the majority of people understand/have insight into this fact? The
first sentence in the introduction of Graham’s book states: |
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“The purpose of this book is to supply, in a form suitable for laymen, guidance
in the adoption and execution of an investment policy.” |
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Through a concise; yet, thorough analysis of stock history performance, and similarly
for the mutual fund concept, one will be keenly aware and postured to realize, that,
of all investment vehicles, investing directly in stocks, should be the primary
means of investing for those who are investing for the long term (greater than 7
years, but the longer the investment time frame, the more apt one is to achieve
phenomenal results and reduce risk, by investing directly in stocks). |
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The concept of direct stock investing has always been prescribed, such as in the
book, Successful Investing, written by
the staff of Babson-United Investment Advisors. |
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The historical journey we are about to embark will reveal, that, what was construed
as a stock market decline from the late 60's up through the mid seventies was superceded
by the introduction of the law of 1981, that permitted
IRA’s. The IRA instrument induced a momentous mutual fund investment
paradigm shift, that now entails the promotion of mutual funds, as the primary means
of investing. |
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The concept of pooling money and instilling diversification is a sound approach
for the long term, but history has shown, and, has validated Graham’s premise, that
the primary emphasis on a mutual fund approach is not optimal. What option or new
paradigm awaits the lay investor today? The answer is the same of yesteryear and
that is through investing in stocks directly. |
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The reasons stated are as follows: In the last decade, before I had learned about
Ben Graham, I found myself asking, at first, what I thought were hypothetical questions,
such as: |
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1. Why does the NAV of mutual funds increase or decrease a lot less in comparison
to direct stock investing, when comparing the top ten stocks of a particular mutual
fund with the effects of investing directly in those stocks outside/separate from
a mutual fund? |
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2. Why do some stock indices change (up or down) at a slower rate than other
indices? |
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As a result of creating a systematic process called the Alchemy Intangible Transformation
Process (AITP™), which has been very successful in transforming
intangible, subjective inferences into objective, tangible, measurable and reliable
outputs directly correlated to a desired outcome, AITP™ can be used for evaluating
a number of choices or alternatives, i.e. a decision making instrument that results
in a model, which identifies the evaluation factors that correlate to the desired
outcome. |
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At the time, as a feasibility study, I applied the AITP™ to embarking on a journey
based on the desired outcome of investing for the long term in stocks, that perform
year in and year out over other stocks. With over 10,000 stocks and mutual funds
that contain stocks, this was a daunting and (on the surface) an impregnable task. |
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However, by applying AITP™, a one-of-a-kind stock model was created that is unprecedented
in investment history. The SpireStocks model, not only suggests which stocks to
buy, but provides the quantity, to include, automated electronic triggers that reveal
when to buy more shares of a company or sell. |
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In addition, the stock model has the means to make re-assessments of the portfolio,
when the reserve/witheld funds becomes too cash heavy and/or when the individual
is postured to invest more money in addition to the orginal amount allocated.
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S&P 500 |
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The S&P 500 history dates back to 1923, when Standard and Poor's introduced
an index covering 233 companies. The index, as it is known today, was introduced
in 1957, when the index was expanded to include 500 companies. The S&P
500 is not the 500 largest companies, but the the 500 companies that are most widely
held, chosen with respect to market size, liquidity, and industrial sector. |
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The S&P 500 Composite annualized performance from Jan 15 2004 through Jan 13,
2006 was only a mere 5%. |
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The following performance charts
reveal that SpireStocks not only has outperformed the major market indices (DJIA,
NASDAQ, composite, S&P 500 composite), but has performed at a
spectacular annualized return of: 34% utilizing the last three
year period starting from Jan 15, 2003. |
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If you click on the following link [SpireStocks
market performance compared to major market indices], you will see the graphical
comparison and an explicit description on how the returns are calculated.
Unlike most claims, SpireStocks explains in detail how we derive our performance
numbers and wants each and every individual investor to validate, independently,
these claims, by utilizing the dates we present and the associated, equivalent
index numbers. |
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In this case, the annualized return is calculated by taking the ratio consisting
of the value/share price on the indicated date and [dividing by] the adjusted basis/share
price of the beginning date and then raising to the power, the following:
(365.25 divided by the difference in the dates) and subtracting one, then multiplying
by 100 to put in percent form. Then, the geometric mean is calculated for each stock’s
annualized return.
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By taking advantage of information access & technology, applying
AITP™ to investing, while integrating
prudent investment principles, one can establish a stock portfolio that
consistently outperforms any mutual fund or major market index. This claim is not
unsubstantiated. SpireStocks has taken the
performance of the major market indices and compared that performance to the SpireStocks
portfolio. |
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Understanding the Major Market Indices |
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Dow Jones Industrial Average (DJIA) |
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The DJIA was first established in 1884 in an effort to gauge daily "market" performance.
When first established, the DJIA consisted of 11 stocks with 9 of the 11 representing
the railroad sector, which indicated, in the context of the times, the railroad
industry importance. |
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Twelve years later, major industrial companies changed the DJIA focus. Today
the 30 companies that make up the DJIA are quite different than at the end of the
nineteenth century. The DJIA is a price weighted index, which means that those
companies with the highest prices are weighted more than those companies at the
lower end of the price spectrum. |
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The DJIA significance, similiar to the other major market indices, is that these
indices tend to outperform most mutual funds. The DJIA annualized performance
from January 15, 2004 to January 13, 2006 was only a minuscule 2%,
compared to the SpireStocks annualized return of 47%! Although,
in the past, investing in the major market indices outperforms mutual funds in the
long-term, the performance of late, especially with the DJIA, has investors scratching
their head.
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Some will say that the majority of the DJIA stocks have seen their days, while others
will claim the proven past performance, niches, and DJIA dividends are the way to
go with stocks.
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At SpireStocks, we are not constrained by that mutually exclusive inference and
currently there are no DJIA stocks in the SpireStock Database.
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Subscribe now and
take advantage of SpireStock's unique approach and methodology and reap the
Subscriber Benefits.
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The DJIA companies:
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3 M
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Aluminum Co. of America
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Altria
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American Express
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American International Group
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AT&T
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Boeing
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Caterpillar
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Citigroup
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Coca Cola
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DuPont
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Exxon
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General Electric
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General Motors
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Hewlett-Packard
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Home Depot
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Honeywell
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IBM
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Intel
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Johnson & Johnson
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J.P. Morgan
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McDonalds
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Merck & Co.
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Microsoft
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Pfizer
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Procter & Gamble
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United Technologies
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Verizon
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Walmart
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Walt Disney
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And, as already depicted, the [SpireStocks
market performance compared to major market indices] is spectacular.
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NASDAQ Composite |
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The following performance charts
reveal that SpireStocks has not only outperformed the major market indices (DJIA,
NASDAQ composite, S&P 500 composite), but has performed
at a spectacular cumulative return of: 47%, utilizing the last
two year period starting from Jan 15, 2004 to Jan 13, 2006, compared to only
a 5% return of the NASDAQ Composite.
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NASDAQ (originally an
acronym for National Association of Securities Dealers Automated Quotations)
is a U.S. electronic
stock exchange. It was founded by the National Association of Securities
Dealers (NASD) who divested it in a series of sales in 2000 and 2001.
It is owned and operated by The Nasdaq Stock Market, Inc. (NASDAQ:
NDAQ), which was listed on its own stock exchange in 2002.
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When it began trading on February 8, 1971, it was the world's first electronic stock
market. NASDAQ is now the largest U.S. electronic stock market. With approximately
3,200 companies, it lists more companies and, on average, trades more shares per
day than any other U.S. market. It is home to companies that are leaders across
all areas of business including technology, retail, communications, financial services,
transportation, media and biotechnology. NASDAQ is the primary market for
trading NASDAQ-listed stocks. For more information about NASDAQ, visit the
NASDAQ Web site at http://www.nasdaq.com
or the NASDAQ Newsroom at
http://www.nasdaq.com/newsroom/. |
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If you click on the following link [SpireStocks
market performance compared to major market indices], there will be a comparison
between the major market indices and the SpireStock's with an explicit description
on how the returns are calculated. |
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Unlike most claims, SpireStocks explains in detail how we derive our performance
numbers and wants each and every individual investor to validate, independently,
these claims, by utilizing the actual dates/numbers we provide with each associated
index number. |
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In this case, the cumulative percent increase is calculated by taking the current
value of the portfolio and subtracting the adjusted basis, based on SpireStock's
methodology and then dividing by the adjusted basis based on ongoing suggested transactions
from SpireStocks. Then, the geometric mean is calculated for each stock’s return
to arrive at the percent gain/cumulative return of the portfolio based on the investment
time period. |
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By taking advantage of information access & technology, applying
AITP™ to investing, while integrating
prudent investment principles, one can establish a stock portfolio that
consistently outperforms any mutual fund or major market index. This claim is not
unsubstantiated. SpireStocks has taken the
performance of the major market indices and compared that performance to the SpireStocks
portfolio. |
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SpireStocks has had a 211% cumulative percent gain of $93,212.28
based on a $30000 investment from Jan 15, 2003 to Jan 13, 2006, compared to an extremely
disappointing 61.04% ($48,312) cumulative gain of the NASDAQ Composite major market
indices within the same time frame.
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