NOTE: Since this article was first published, some of the web pages mentioned for finding web tools have changed. If so, you should be able to find most of these tools either thru the site's main page or perhaps using a search engine to locate it or a similar tool.
During the last several years, we have come to rely on several websites for information to help in making investing decisions. The following lists these sites, explains the data we think are most useful, and summarizes what this data seem to be suggesting about the current state of the investment markets.
http://www.quicken.com/investments/charts
Use this site to show the long-term performance trend for any fund you own. Just type in the ticker symbol for that fund and a graph of the trend will be displayed.
Why is this useful, especially since we are constantly advised that "past performance is not indicative of future results"? While this statement is certainly true as an absolute statement of cause and effect (i.e good past performance does NOT NECESSARILY lead to good future performance), the statement is meant to serve as a caution to naive investors not to rely on past performance as the sole criterion in making decisions. But this Newsletter and most astute investors know that past trends are certainly HELPFUL (although not on any 1-to-1, cause-effect basis) in making investment decisions.
As we have suggested many times, trends tend to continue for years on end. Therefore, good or bad performance can persist far longer than many people expect. On the other hand, the extremely good performance of the large growth stocks throughout the '90s led us to believe that it would be most prudent NOT to expect the good performance to continue as it had advanced way beyond sensible expectations, as we stated throughout 2000 and into 2001.
What do some of these charts suggest now? If you enter the ticker symbol for the Vanguard Index 500 (VFINX) using the 5-Year Period, you will see that the trend of the S&P 500 index since the middle of 2000 has been steadily down. Until the trend line can clearly be seen to move up, we think that putting further money into such growth-oriented funds is more likely than not to be unproductive. What would make the trend start to go up? Mainly better news on the economy and a significant improvement in corporate earning.
What about if you enter the symbol for a fund that has done very well over the last 5 years, such as a good bond fund - e.g Vanguard Long Term Treasury (VUSTX)? Here you can see that although the trend had been up, especially starting in Jan. 2000, it has been moving down for over 6 months now. Why? Because long-term interest rates were at a very low level after Sept. 11 but the odds now favor that they will gradually move up hurting most long-term bonds.
It is suggested that you read Newsletter 62 for further information on how to use data on long-term trends to improve your investment results. We have just started using these charts to help us with our investment decisions, so further time needs to elapse to see exactly how useful they will prove to be. However, we have been using same type of information as depicted in tables rather than graphs (see the site listed just below) for quite a few years to our advantage.
Aided by this site's charts, we decided in early April that large cap, growth-oriented funds, including European large cap growth, were still not the place to be and so we switched some of our already invested funds in these categories into the value and emerging market categories instead, based on the greater potential we felt these charts supported. Since then, the downward trends we were seeing have only continued, making us pretty happy so far we made these moves. We continue to feel that Newsletter 62 is one of our potentially most useful, but, so far, not many people have read it.
http://news.morningstar.com/List_Pages/Fund_Category_Returns/?fsection=ListCatPerformance
Use this part of the morningstar.com site to get similar information to that provided above, only for all the major categories of funds in table form.
I suggest you focus on the one year and 5 yr columns. As described in Newsletter 62, our approach suggests that, contrary to what most other investors seek, what you should be looking for are categories that have BELOW average 5 yr performance. Why? Because a category should not remain below average indefinitely; after 5 years of below par performance, the odds favor better performance. At the same time, try to find categories that have been doing relatively well under the 1 yr column. Why? While you might see a big improvement in certain stocks for up to 6 months running (as between Oct '01 and March '02), unless a trend continues for at least 6 months, or better yet for at least a year, it probably isnt confirmed to the degree that makes it a relatively safe bet. And once such genuine long-term trends start, while not guaranteed, they can frequently continue for at least several years.
So which categories look good now? You can click on the 1 yr column head to list the categories in order of what has been doing relatively well over 1 year. Under Domestic Stocks, you will see that as we predicted going back several years, the best performing categories are real estate, and small blend, and small/mid cap value. Of these categories, the ones that appear to still be below their long-term potential are real estate and small blend. Small/mid cap value do not appear by these measures undervalued, although they were when we first started recommending them.
While most other stock categories do have BELOW average 5 yr performance, they show no long term signs of turning around within the last year or even during 2002 at all. If any show signs of recent improvement, it might be mid-cap blends and large value.
I suggest you also use the following link on the same morningstar.com site to view the specific performance returns for individual funds:
http://quicktake.morningstar.com/Fund/TotalReturns.asp?Country=USA&Symbol=XXXXX#anchor1
(Substitute your fund ticker symbol for "XXXXX" and look for "Trailing Total Returns").
For example, if you use VFINX for the Vanguard Index 500 Fund, you will see that although the fund has still performed well for a 10 yr period, there is little over any of the more recent periods to convince one that anything is going to go well based on any shorter-term data.
http://quote.bloomberg.com/tra/tra.cgi
Use this site to see how well your fund has done during any two exact dates.
Why is this useful? Other websites as those above only show how a fund has done going back an exact, previous period such as 1 yr or 5 years. But suppose you opened your fund account on a particular date and you want to know the total return through another particular date. Just enter the ticker and the start and end date. (You dont need to enter the other boxes.) You will see the total return (non-annualized) and the "annualized equivalent" as well as other information on your investment, including a graph of performance.
I have often used this type of information to indicate when to sell on the assumption that if your annualized return is greater than 15-20% over several years, the fund is probably ripe for a fall and a good candidate if you are thinking of selling.
Unfortunately, the data you can view often only goes back about 5 years. (If anyone knows a site that can calculate total return over greater than 5 years, please let me know.)
http://bigcharts.marketwatch.com/historical/
Use this site to tell you what the price of a fund was on any previous date. This is useful for perspective and the date you start with can go back many years.
For example, if you enter the ticker VFINX and a date of 1/11/85, you will see that on that date, Vanguard Index 500 was priced at 19.60 or about one-fifth of todays price.
http://www.vtoreport.com/other/sentiment.htm
This site might help you to decide whether stocks are ready to rebound or ripe for a fall, but I think the signals are probably mainly geared for short-term movements.
Generally, it is true that the greater the number of bullish investment advisors and the less the number of remaining bearish advisors, the more likely it is that stocks will FALL.
One need to look no further than back during the late 90s and early 2000 when everyone, including most advisors, were bullish. This again proves that when everything starts to look good to the majority, it is a contrary sign for investment performance ahead.
This site shows you percentages of bullish vs bearish advisors going back several years. You will currently see that greater degrees of positiveness in the last few years have consistently lead to lower stock prices, at least short-term.
Presently, until just last week, most advisors were steadily growing even more bullish even as stocks continued falling. But perhaps now they have turned slightly more bearish. The more bearish they become, the more chance that stocks will go up, at least for a while.
If you are strictly a buy and hold investor, as so many mutual fund investors profess to be, then your interest in monitoring the current state of "the best and worst investments" may be limited. Therefore, your interest in our Newsletter too may be sometimes limited by that same fact. Although we have discussed many topics of general interest, for example on financial and retirement planning, we do often discuss what we feel are emerging trends and the sometimes changing prospects for your mutual fund investments, something you may feel no one, or no data, can successfully anticipate.
If you truly are a buy and hold investor, then probably nothing anyone says may have recently affected your actions. If, for example, you bought say 3 or 4 funds, in the mid to late 90s, you may still have the same funds, and plan to hold them regardless of the ups and downs of the market, or what any columnist or newsletter might say warning of dangers, or advising you to move more money into, say, bonds. And if you invest in a 401(k), you may still have the exact same percentages going from your paycheck into the same funds that you picked during that same 90s time frame.
If the above describes you, or someone you know, you can certainly commend yourself or them for patience and unswerving adherence to one's beliefs. And if you can truly can stick to such a strategy for many years (perhaps another 10 to 15 usually requiring that you are no older than 50, since most people will usually start to cash out by their 60's), I think your patience will definitely ultimately be rewarded.
In spite of the recent poor returns, most investors who have stuck with their same investments over the last 10 to 15 years have still done quite well. Had you started investing in Vanguard's 500 Index in 1987, as I did, and maintained the investment, your average annual return as of recently would have still been over 12%.
But don't forget that these returns were above historical norms and that stocks can do poorly for periods of as many as 10 or more years as well. That's why for the last 5 years or so, a buy and hold investment in most large cap growth-oriented funds, the category of funds overwhelmingly held by mutual fund investors, has been a relatively mediocre investment; and there's no guarantee that the next 5 or even 10 years are going to necessarily turn things around, although the longer you wait it out, the better the chances.
I also consider myself largely a buy and hold investor. That is, I still own perhaps 80% of the investments I made beginning in the mid '80's and going forward. Up until the mid to late 90's, I felt little need to make many changes. But as the market averages went higher and higher, market history suggested that buying and holding the same investments didnt seem likely to produce the same results going forward. This was one of the reasons I started writing these Newsletters.
So if this is your discipline, and you can indeed "stay the course", please keep the faith and don't tinker with your investments! Our strategy, while putting a lot of faith in staying invested for the long run, is basically to use the knowledge that people (and markets) go to unsustainable extremes, to help capture some extra measure of returns when the extreme returns revert to normal. For those whose limited time available for investing, or current beliefs suggest to them that such effort is not warrented, we have no quarrel. Indeed, this happens to be the position of a vast majority of mutual fund investors.
But for those who understand the large potential financial rewards of earning even a few percentage points better in return over 10, 15, 20 years or more (as we have shown is possible over the last 3 years since our initial Newsletter), we think that our advice will continue to prove helpful. And we know of no other website or mutual fund articles that give you the type of information we provide; our different approach is unlike the "usual" advice you get from most other sources.
If you value the kind of articles we provide, and if you happen to know of any source that could help publicize, promote, or re-publish our kind of information so that more people can be exposed to it, I would very much appreciate any referrals of this nature.
Feedback on this issue should be sent to tom@funds-newsletter.com
Tom Madell, PhD