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Chuck Jaffe

How to avoid becoming a myopic fund investor

6/24/12 9:01 AM ET (MarketWatch)Print

BOSTON (MarketWatch)--For most people, the start of summer turns their thoughts to barbecues, beaches and vacations.

For me, however, it's about mutual funds, managers and expense ratios. My summer hasn't started without a trip to Chicago for the Morningstar Investor Conference for the past 16 years.

This year was different, as unforeseen circumstances forced me to miss the Morningstar event--considered by many to be the year's best gathering of fund managers and investors--for the first time since 1995.

Oh, I heard plenty about the goings on, and missed chatting with the sharp minds there, but being absent from what I have for years considered a must-see and must-do event had its advantages. It made me think about how easy it is to become myopic, swallowed up by things that seem so important to fund investors without really adding much to the bottom line.

In fact, missing the Morningstar Investor Conference reinforced a few lessons that I would have overlooked had I been there.

If you're an average investor, the kind who will probably never go to a three-day summit on investing styles and strategies, you'll be better served by keeping these ideas in mind, rather than trying to act and invest like the sharpies who attend these meetings.

Most of the time, even a "big day" for the market is a forgettable event: Thursday, as the stock market was having its second-worst day of the year amid reports that credit ratings for financial stocks were taking a beating, the temptation was to do exactly what happens when any herd of savvy investors gather, namely trying to find meaning in "what just happened."

I talked Thursday night to one fund manager at Morningstar and he said the day's market action had everyone talking "but it's not like they'll be here next year saying, 'Wow, remember that big day from last year and how it changed everything.'"

There are very few days in market history that truly are memorable. What matters, what you'll remember as you look back over time, is the long-term trend, and whether or not you were able to capture it and ride it through the daily volatility in order to reach your goals.

If you miss out on every new investment theme or strategy while it's new, you're not really missing out: The Morningstar conference is a place where pros get together to talk mostly about what's working, and how to make it work better. Alas, that's a moving target, and there are countless examples of hot money managers and interesting strategies that made a splash one year and were never really heard from again.

There aren't really any new ideas left under the investment sun, just different ways to execute existing strategies. While everyone loves the idea of "new and improved," it's also another way of saying "green and unproven."

If you wait a little bit, you'll find out if the strategy can be described as "tried and true." It doesn't reach that status until it's being talked up at events like Morningstar for several years in a row.

You never know how a fund company is spending your money if you don't look for it: Go to virtually any investment conference and you'll find lots of goodies in the exhibit hall, from fancy pens to stuffed animals, T-shirts, hats, chances to win big prizes and more.

You, the fund shareholder, pay for that junk; you just don't know it.

I like to compare the things being given away in the exhibit hall to a fund's expense ratio and performance. If a firm gives away fancy freebies while charging above-average fees, it's more interested in making a good impression on the next customer than it is on serving its current shareholders.

If you don't go looking for the excesses--so readily visible at big investment shows--you won't have a clear picture of how the fund is spending your money.

There has yet to be an investment strategy the average investor can't live without: Had I been in Chicago, I might have listened to discussions on managed futures, or "modern portfolio theory in a non-normal world," or listened to fund managers talk about whether it's a good time for technology, emerging markets, bonds and more. Those are like financial crack to a fund junkie like me.

The average person, however, is not high on funds, and simply wants to get from now to their goals. While they might benefit from knowing more about the subjects talked about at these events, they will benefit more from knowing themselves, their risk tolerances and their ability to implement and stick with a plan.

Sure, you can get tips at an investment conference, but whether you are getting advice from some meeting with pros or from the guy in the next chair at the barber shop, it's important to remember that good plans are built for the long haul, and they don't need to be altered just to be in keeping with the topic of the day.