Invest Like Bill Miller
Bill Miller is the manager of Legg Mason Value Trust Fund (LMVTX), which has outperformed S&P 500 for 15 consecutive years from 1991 to 2005. His winning strike recently got snapped as LMVTX lagged S&P 500 in 2006. However, Mr. Miller is still "widely regarded as one of the brightest minds on Wall Street." Yesterday, Morningstar has an article which suggests seven ways for small investors like us to invest like big names such as Bill Miller. Following are what the article has to offer and some of my own interpretations.
Stick with the Basics
Ignore day-to-day "noise" in the market and focus on fundamentals which reflect the real value of your investment. Instead of chasing hot sector or region, a better strategy to build a high-quality, low-maintenance portfolio is to invest in well diversified core mutual funds with low costs, solid management teams, and proven tracking record.
Investigate One-Stop Funds
Target fund, or lifecycle fund, may be ideal for you if you don't have a lot of time to do your own study in order to put together a right mix in your portfolio and adjust it over time. The managers of target funds will do all of this for you: the funds have the mix of stock, bond, and cash according to your investment time horizon and gradually shift to a more conservative asset allocation as the target, or maturity, date approaches.
Investing in index funds in another option to simply your investment life and accept what the market has to offer instead of trying to beat it. With index funds, you don't have to worry about manager changes (as the funds track their respective indexes), fees (as the funds don't require extensive research to pick the right stocks to invest), and tax consequences (as the funds have low turnover ratio, capital gain distributions, which are taxed at higher rates, are also low). These factors, however, concerns actively managed funds investors.
Take the Best and Leave the Rest
Got way too many investments to manage? If you are the leading investor (manager or decision maker) in your household, chances are you are the main force behind your own 401(k), your spouse's 401(k), your own IRA, your spouse's IRA, your children's 529, and any other portfolio you may have. There's nothing to treat each portfolio independently and build a diversified asset allocation for each of them. However, that requires tremendous amount of time and energy. To make your life easier, try to treat your accounts that share the same time horizon as a single portfolio and pick the best investments for it.
Jot Down Why You Own Each Investment
Write down why you invested in a particular fund and examine if it delivered what you have expected to make sure you make the right investment decision. If it didn't meet your expectations (staying with its original investment style while producing competitive long-term returns), you should be ready to cut it loose. Under other circumstances, such as when the fund hiked the fee or when the fund's asset grown to a level that its performance started to suffer, you may also want to sell your fund.
Consolidate Your Investments with a Single Firm or Supermarket
Unless you invest in funds from big companies like Fidelity, Vanguard, or T. R. Price, which offers a varity of funds for you to build a diversified portfolio, you may have to look to somewhere else for funds that meet your investment needs. In this case, there may be transaction fees involved. Investing with a single fund company or a fund supermarket firm can simplify your job, but you should keep the transaction fees, if there's any, in your mind.
Put Your Investments on Autopilot
Investment requires discipline. Instead of being lured by market uprun or intimated by prolong declines, always keep your long term investment goal in focus. Putting your investments on autopilot will let you ignore the short-term fluctuations of the market. When dollar-cost averaging (investing relatively small amounts on a regular basis), you're putting dollars to work no matter what's going on in the market.
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