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The Alchemist (11/18/2009)
By Al Thomas

GET PAID FOR PERFORMANCE

When you work your boss pays you to produce. If you donít you will be paid less or possibly get fired. Sales people who work on commission know exactly how that works.

When you give your money to an investment counselor such as a financial planner or mutual fund manager you expect to have your money make money.

Last year we saw about 98% of mutual funds lose money for their investors yet fund managers continued to take down huge salaries.

It is a sad fact that fund managers are paid on the amount of money they are able to attract to their fund and not on how much they make for their investors. There is no performance incentive. If the SEC wanted to do something to protect investors they might set either a minimum salary or none at all for any fund manager that does not make a profit for his customers. Donít hold your breath.

One of the advantages of a hedge fund (just for rich folks) is they are allowed to pay the manager a percentage of the overall profits he can generate for his clients. The SEC will not allow this for regular mutual funds. It is my contention they should.

Instead of seeing funds fall 60, 70, 80% as they did in 2008 the fund manager might have limited losses to 10 or 15%. Then when the manager starts doing his job he can participate in the profits once the fund exceeds it previous high. Yes, nothing until he exceeds his previous high.

There are about 8,000 mutual funds and I have said for years there are not 800 (not a misprint) good fund managers. Fire the losers and give the money to the winners.

In the December 2009 issue of Kiplinger magazine they recommend a whole group of mutual funds. Almost every one of them lost 40 to 50% or more last year. Sure, they have all had a recent rally. Any monkey with a dart board could have done that.

What is not mentioned is what happens to customersí money during the next market crash. These fund managers obviously do not understand risk management.

Their clients should require them not to be paid until they get their money back. OK, give them something, but not the average $300,000 to lose your money.

Hey investors, how about some strong letters to the SEC (Securities and Exchange Commission). It is your money they are flushing down the commode.

Let the authorities hear about it for a change. Ask that fund managers be compensated for performance.

The more the manager makes is fine with any investor because it means he made a pile for them, but NOT when he loses. What is minimum wage for a fund manager?

Every investor should get hot when he sees his money disappear. Donít pay for incompetence. Pay for performance!

Personal and business bartering are growing and here to stay.

Al Thomasí book, ďIf It Doesnít Go Up, Donít Buy It!Ē has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why heís the man that Wall Street does not want you to know. Copyright 2009 Williamsburg

Investment Co. All rights reserved.

 

 

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