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No Pot Luck Investing Will Help You With Great Returns

By Ed A. Bullins

The emerging accounts of thievery in the world of mutual funds confirm, for me at least, something I have suspected since the go-go 2000s the existence of an economic predator class.

I believe there is no way the counter-class made up of regulators, watchdogs and do-gooders and hack columnists can match wits with the predator class. Today’s piles of money are so huge, great fortunes can be amassed by swiping the tiniest of slices in the wiliest of ways long before picked pockets are discovered.

My guess is that financial historians will start the clock in this epoch with the big merger scandals of the 1980′s which includes Ivan Boesky, Michael Milken and scads of lesser cads. Next came the long running, now forgotten, S&L scandals. Then a lull (maybe), punctuated by the pretty picture of the tech boom. That delusional portrait was been redrawn when we learned of the rigged IPO’s, insider trading, completely corrupt “analysis” practices at the Wall Street giants and old-fashioned flimflam.

So, pension funds were raided, an entirely legal scandal. And now we’re learning about the mutual fund grifting rampage that may affect Main Street as much as prior fiascos: Putnam, Alger Management, Bank of America, Morgan Stanley, Strong Capital Management, PBHG Funds, Bank One Corp., Alliance Capital, Janus Capital Group are some of the implicated names.

This time, I don’t buy it. The predator class will not be exterminated by cease and desist orders, Senate hearings, independent boards of directors and the invisible hand. It’s a culture. And essentially, it’s our culture. Over the last several years, headlines in the business press proclaimed the coming demise of the mutual fund industry. The fees were too high, flexibility too low and shareholders had too little control over the tax consequences in traditional open-ended mutual funds. Exchange-traded funds (ETFs), hedge funds and separate accounts (which give investors direct access to money managers) were sounding the death knell for the 80-year-old mutual fund industry.

CPA/Financial Planners have a variety of analytical tools they can use to make mutual fund recommendations. These include software, Internet databases and other online research tools that make it easier to compare and contrast funds, determine risk and provide in-depth information on a prospective purchase.

As originally conceived, mutual funds had serious flaws, some of which are described here. The industry responded. Total shareholder costs on equity mutual funds declined 40% over the last two decades, funds now come in every size and flavor and management has worked diligently to reduce the annual bite for taxable investors by lowering portfolio turnover.

In addition to the efforts by fund management, CPAs are getting another boon in helping clients manage investment taxes. The SEC-mandated aftertax performance reporting will spread across the industry this year. CPAs will now be able to compare apples to apples because a fund is required to report as a return what the investor actually takes home after paying taxes, not what the fund manager generates.

For example, Fidelity gives investors access to 41 discrete industries. Some mutual fund companies also are responding to the exploding demand for the absolute return strategies of hedge funds and private equity funds that invest in pre-IPO equity and other nonpublic securities.

Glenda D. Kemple, CPA, CFP, principal and co-founder of Quest Capital Management, lauds Kunhardt’s work in keeping her and the firm’s other planners up-to-date on changes and new trends in mutual fund analysis. She emphasizes that these improvements haven’t varied the firm’s central focus. “We use quality fund families, look for consistent performance, long manager tenure and to minimize style drift,” she adds.

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Article Citation
MLA Style Citation:
Bullins, Ed A. "No Pot Luck Investing Will Help You With Great Returns." No Pot Luck Investing Will Help You With Great Returns. 24 Jul. 2012. 2 Aug 2014 <>.

APA Style Citation:
Bullins, E (2012, July 24). No Pot Luck Investing Will Help You With Great Returns. Retrieved August 2, 2014, from

Chicago Style Citation:
Bullins, Ed A. "No Pot Luck Investing Will Help You With Great Returns"

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