Tuesday, February 6, 1996
The 20-Minute Investor
by MF Buck

A news items caught my eye recently, one that I'd like to hold up for a bit of Foolish reflection. It seems that individual investors' interest in no load mutual funds is waning. Mind you, not *all* mutual funds are losing their appeal to investors---just the no-load funds, the ones that don't charge fees.

Huh? Does this make sense? Why in the world would mutual funds that don't charge a sales commission be losing out to those that do? Well, there are actually two pretty good reasons: FEAR and COMPLICATIONS.

Get this. The number of American households that have at least $1 million to invest has more than tripled since 1989. And as that number has grown, so has something else---anxiety. In fact, the richer some people get, the more fearful they become of making mistakes with their vast sums. (It kind of makes you wonder how they got their million in the first place, but that's a subject for another time.) In order to calm their anxieties, the very rich (and not-so-very rich, too) often seek help from professional financial advisors and stock brokers. Some of these pros really know what they're doing, but that's not the point. The point is that many individual investors are just so AFRAID they'll make bad decisions on their own that they rely on "experts" to help make decisions for them. Often, that means being steered into mutual funds that charge a sales commission, part of which may go into the advisor's pocket. And rightly so in my book.

What about COMPLICATIONS? An often quoted statistic is that there are more mutual funds on the market than there are stocks on the New York Stock Exchange. It's understandable that people who want to invest in mutual funds are often unwilling to venture into this immense maze of choices by themselves. Instead, they prefer to have their hands held by advisors who walk them through the labyrinth until they get safely out the other side. Of course, after getting there they look into their wallets to find that they've paid a sales charge for the hand holding. Again, rightly so in my book.

But does investing have to be so complicated, so fearful, so laden with sales charges?

Nope. What would it be like if all those folks who pay professionals to invest their money in mutual funds turned instead to "Beating the Dow," the investment approach outlined by Michael O'Higgins in the book of the same name?

Things wouldn't be nearly so complex, fearful or expensive. The Beating the Dow approach only takes about 20 minutes a year. Add it up. BTD investors might spend, oh, maybe 2 minutes in the Beating the Dow area of the Motley Fool to find the top four or five Dow stocks. They might spend another 5 minutes or so placing orders with a deep-discount broker. (And since a five-stock BTD portfolio requires only ten buy-and-sell trades a year---at $18 apiece---it's highly affordable for a millionaire, don't you think?)

So 5 plus 2 = 7 minutes. Where do the other 13 minutes go? Well, it takes about that long to savor the fact that the whole process is truly, elegantly simple. That it's almost indecently inexpensive. And that (ta da!) it won't have to be done again for another whole year. Oh sure, the really compulsive investor will add an extra five minutes or so thinking about how Beating the Dow has more than doubled the market over time, while 75% of all the mutual funds he might have bought actually lose ground to the S&P 500. And a few *really* compulsive types might even ponder this profound insight awhile longer. Oh heck. Round it up and call it a full half hour!

Either that or give those folks the last five minutes to book airplane tickets to a resort overlooking some pristine mountain lake where such Foolish reflection can be done in zen-like serenity. What they'll have saved instead of shelling out sales fees to mutual funds and advisors might more than pay for the plane tickets---and maybe the stay at the resort, too.

[Editor's Note: the above Fribble is taken from a post by MF Buck in the "Teens & Their Money" America Online folder in the Fool's School. Go there, even if you're not a teenager, and ask him about that mountain resort. In addition, more information on Beating the Dow can be found in "Fool's School" area as well.]