July 29, 1996

Dear Barron's:

In a recent article (July 22) about the best of the best mutual fund managers you state that, "As for your basic stock fund, though, a significant portion of the credit - or blame - for long-term performance should be heaped on the portfolio manager. He or she is the one who must decide whether to stay in the market or move into cash, whether to hunt for bargains or wait for the dust to settle."

First, in my 12 years of investing in mutual funds I have never seen a mutual fund manager or mutual fund company accept responsibility for the bad performance of their "basic stock funds" when the market (generally the S&P 500) performed badly. They always used the poor performance of the market as an excuse for their funds bad performance. This is not to say that once in a great while someone does not accept responsibility, but to say that it rarely happens. Maybe the author of the article was simply saying they should accept responsibility which is fine. I just wanted to let your readers know that for the most part they don't (accept responsibility).

Second, "He or she is the one who must decide whether to stay in the market or move into cash [as for your basic stock fund]." Wrong! Granted, there are statements in the prospectuses that say the fund may have X amount in cash etc., but stock funds are stock funds. People buy stock funds to be in stocks. If investors want an asset allocation fund they will buy an asset allocation fund. And like I said I'm not saying that the "basic stock funds" are doing anything illegally, but I do think that stock funds are for stocks, in general.

I used to try and keep track of my asset allocation: how much I had in stocks, cash, bonds, foreign stocks, etc. It was almost impossible because the MF managers of stock funds were buying bonds, foreign stocks, cash, etc. After awhile I just gave up and estimated because the managers were changing the allocation so much. When all the talk was going around about the old manager of Fidelity Magellan buying government bonds I would say to myself, "Magellan is a stock fund, why are they in bonds?" Again, if the investors wanted to be in bonds they would buy bond funds, it's not like Fidelity doesn't have any bond funds.

Third, since mutual fund managers and companies seem to treat their "basic stock funds" more as asset allocation funds are you and others sure that the recent market drop was caused by the average investor on the street redeeming shares in their stock mutual funds? From by point of view I think the recent drop was started by the high valuation of certain stocks, these high valuations of certain stocks starting getting the so-called professionals on Wall Street a little nervous and some of them started to sell. Then the "bandwagon affect" started. That is, mutual fund managers started selling everything (since they can legally do that, raise their cash position, not sell because of redemptions, but selling because they are scared and they have the option). High PEs, low PEs, tech. stocks, and non-tech. stocks. It didn't matter to them, research, analysis, and common sense went out the door.

I know several investors of mutual funds. Not one investor changed their asset allocation or redeemed shares. Most of them didn't even know that NASDAQ was down over a 150 points in just the last few weeks, yes, they knew the "market" was down, but they were long-term investors who did not worry about the short-term swings in the market (in fact they were still suppose to be buying stocks because they were dollar cost averaging though payroll deductions even during the last few weeks). The only reason why I knew the specifics was because I am an option buyer, as far as my retirement stock mutual funds go, I side with my friends and colleagues: I am a long-term investor and don't really care about the short-term swings in the market.

Politicians talk about what Americans want and Wall Street talks about what investors want. Well, I don't know what everyone else wants, but I do know what I want. I want financial publications such as Barron's to publish more informational stories based on good research then I do want stories that only try and predict what's going to happen (market timing has been proved over and over again as being a foolish way to invest).

I would love to read stories that would research out what did happen to the markets in the past few weeks. Did investors redeem a lot of their stock mutual funds or was there actually still a positive amount of money coming into stock mutual funds the last few weeks (401Ks, etc.) and what really happened was that a lot of stock mutual funds increased their cash position because of a bunch of inexperienced and scared fund managers?