I bought my first mutual fund in the summer of 1969. This was the end of the period called The Go-Go Years, and you can read about those years in the book of that name by John Brooks. If you know financial history, you might recognize that my timing was impressive. Small and Mid-cap stocks rose 103% during 1967-68 but fell 43% from the end of 1968 to the middle of 1970. The S and P 500 fell 27% from June 1969 to July 1970. Thus my first move into the market, like many other first time investors, was near the peak but towards the end of a roaring bull market.
People were making "easy money" investing in mutual funds run by fund managers who bought and sold with blinding speed and seemed to be all knowing. Not then, but years later, fund managers like this would be called momentum investors. In those days they were called "gunslingers" for their fast buying and selling in the market. I wanted to make easy money too and so I wanted a "gunslinger" to work for me. I bought American Investors Fund in August of 1969. As I recall it, my gunslinger was named George Chestnutt and he used computers to help play the market. Years later he would have been called a "quant" for the quantitative methods he used.
Let me step back to remind you what computers were like in those days. They were big (room size) and expensive and were programmed by using punch cards. As a side note, I suspect one reason I stayed in mathematics and did not stray far into computer science was that I hated to punch cards. I was not a very good typist and punch card machines were incredibly noisy as they banged holes in the cards, and neighbors in the public rooms could see the growing pile of discarded cards in your wastebasket. In 1969 personal computers and even hand calculators were still in the future.
I sold American Investors Fund in August 1970. In one year I had lost 48% of my money. American Investors Fund was not heard from again but I had learned a lesson: it is never as easy as it looks during a roaring bull market. Actually the lesson was a fairly cheap one since I had chosen American Investors Fund for its low minimum and no-load status. I only had time to invest $250 in the fund before the bull market was over. But when others were making easy money in Internet funds and other aggressive funds in the 90's, I was not tempted. I doubted my ability to get in and out of an aggressive fund as the market moved to a crescendo.
Unlike other naive investors burned in the market, I did not give up. I learned about mutual funds by spending my lunchtime in the Duke library reading the hardbound book Investment Companies by Arthur Wiesenberger and Co. I looked at periodicals like Fundscope and read the Forbes magazine Mutual Funds issue. I had bought 4 mutual funds during 1969. I held one for 10 years and sold it for a loss but with reinvested dividends, came out ahead. In fact of the four funds purchased in 1969, only one was sold for a gain.
In the 35 years I have been investing in mutual funds, I have bought more than 50 funds in taxable accounts and sold most of them. In retrospect I am somewhat embarrassed by that record of buying numerous funds. But I did hold some funds for 15 - 20 years and most times I had good reasons to sell. I obviously am not embarrassed that I sold American Investors Fund and buying it was a useful learning experience. As a former teacher I am a firm believer in "book learning" but certain lessons are learned best from actual experience. I like to think I have learned from my numerous mistakes.
Since I will talk in these "lessons" about my mistakes and what I learned from them, I probably should say something about what I think I have done right over the years.
I have always bought no-load (no sales fee) funds and have been careful to buy funds with reasonable expenses. When I first began buying funds, there were raging discussions about load and no-load funds and arguments were made that growth rates in some load funds justified their purchase. I was never confused. As a mathematician, I clearly understood the difference between certainty and probability. Fees and expenses are certain. Growth rates for the future are at best probable; there is nothing certain about them. In fact, my years of investing have taught me that the past is a very uncertain guide to the future.
I have been a patient, diversified, and except for American Investors Fund, a non-greedy investor. I understood that compounding was the key to success.
I have read widely about mutual funds and investing and have tried to learn from my mistakes. Perhaps you can learn from my mistakes.
Email comments or questions to me.