Friday, April 07, 2006

Blog Website Review of FundAlram.com

A link I have over to the right is to fundalaram.com. I think this is a great website for people who own mutual funds. While I dont have any money in mutual funds (other than a position in CEF which is a closed-end non-stock precious metal fund) I like this site a lot, here's why:

As you know, simply put, you pick a fund in hopes that the people running the fund will do better than you could in picking investments. What's the easiest why to pick investments: buy all the stocks or all the stocks of a certain category. So what you want is a fund manager that can pick the above average stocks for any deifned category.

What fundalaram.com does is provide an easy way to see how your fund or a fund is doing on a 1, 3, 5 year basis as coimpared to the no-brainer investment, all the stocks.

Here is an example:

All mutual funds describe themselves and the type of stocks they invest in and why("blue-chip fund" "energy fund" etc)

lets say a fund manager (lets call him slick willie) wants to invest in stocks with a market cap of $500 mil or less...lets call it the slick willie small cap fund.

Well somewhere out there someone is tracking all the stocks that meet the criteria of market cap less than $500 million...thats called the index or benchmark...lets say there is 1,000 companies in the index...

so if you bought all the stocks in an index you would do no better or no worse than all stocks in that index...this is the no-brainer way to do it...if the index does 10% you get 10%...if it does less you get less...etc..thats why it is a no-brainer

but it is not really practicle to buy all the stocks in this index...and you actualy want to do better than the benchmark...you think your money and someone else brain can do better...

well slick willie comes along does some analysis and picks the 100 best stocks to buy in that index for the slick willie small cap fund...and you send your money to slick willie because you think he has some ability to make a difference...you are hoping that if the index does 10% slick willie can find the 100 best companies that will do 15%...

well now this is where fundalarm.com comes in....

Fund Alaram has a simple test/question on how your fund is doing: since we are paying slick willie to do better than the index benchmark, has slick willie done better over a 1, 3, 5 year period compared to the index.

To put it another way (as Munger says invert, invert) has slick willie added any value or would we have been better off just buying the whole damm index in the first place?

well false alarm uses a cute and easy color coded system to answer that quesiton...if your fund beats the index for the relevant period it gets a green block if it does not it goes red...if a fund goes all red (meaning it is underperforming the index the last 1, 3, 5, years) it is called a "three alarm fund" (get it three alarm fire--three alarm fund...lol)

now Fund alarm does not say you should sell a three alarm fund...but just gives you food for thought..that if you are paying someone like slick willie to do better than the no-brainer way (buying the whole index) and he cant beat the index not just the last 1 year or last three three years but for all 3 periods 1, 3, ,5...why pay him at all..

or to invert it if the index makes 10% and slick willie makes 6%..why would you pay a guy who's actual brain does worse than no-brain...this actually is best expalined by Munger and Buffett when they talk about Pascal and that the hardest thing to do is nothing...if slick willie cant beat the index in 1, 3, 5 years why cant he just say screw it and buy the whole index and do nothing...

so why we might laugh at slick willie cuz he is to stupid to beat the index...I would say that at least slick willie is paid to be sub average and that if you keep sending him the money..the true quesiton is why are you so actually foolish for doing so...

So Fund Alarm is a great way to check up on your fund or any fund to see how it is doing for the last 1, 3, 5 years against its benchmark...it is updated the first of every month...and if your fund is a three alarm fund...maybe its time to find a better place to put your money...

another great thing is that the guy running the website also updates manager changes at funds..and other relevant news related to funds...

So go check it out...type in your favortie fund and see how your own slick willie is doing...or actually see how YOU are doing cuz its your money.