7 Common Lies Told by Mutual Fund Managers and How to Avoid Them

mutual fund performanceIs your mutual fund advisor stringing you along with a lie? Are you getting the facts, or a skillfully staged show full of smoke, mirrors, and misdirection?

If you decide to invest in mutual funds, it’s very important to do your research and not blindly follow your advisor’s advice and claims.

Here are some of the most common myths and questionable practices surrounding mutual funds, and how you can combat them.

Mutual Fund Myths

1. “Mutual funds perform better than stocks since they are managed by experts.”

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Stock Market Timing Strategies – Do They Really Work?

market timing stock chartsSome analysts claim that they are able to time the stock market and only invest during bull markets. The premise is simple: Buy stocks when the aggregate market is climbing and sell at the onset of a bear market.

In theory, you can maximize gains and virtually eliminate losses.

But is this possible? Do such strategies exist?

An Example of Market Timing

The conglomeration of publicly traded companies is often represented by a smaller cross-section of stocks called an index. For our example, we will use the well-known Standard and Poor’s 500 index, or S&P 500. This index is focused on large American companies and is typically used to gauge the stock market in general.

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52-Week High Stocks – Is It Time to Buy or Sell?

stock price highWhen you see a stock heading towards a 52-week high, what is your initial reaction? Do you think that the stock is hitting powerful resistance and you should sell? Or is the stock about to rally with high momentum?

This is a difficult and highly debated issue with many theories and analysis supporting different views.

A 52-week high is simply the highest price at which shares have traded over the past year. Numerically, this reference point holds no special value, but on a psychological level, it has a profound impact on investors and can greatly influence the share price.

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How to Place a Trailing Stop-Loss Order – Example, Pros & Cons

trailing stop loss chartOne of the most difficult decisions investors have to make is when to take profits and when to cut losses short. Some traders will prematurely sell as a stock rises while others will hang onto their shares far too long as prices plummet.

How can you prevent from making the latter mistake? The trailing stop-loss order is one tool that can help you trade with discipline.

Let’s look at what the trailing stop-loss is, how it works, and the pros and cons of using it.

Trailing Stop-Loss Order

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6 Investment Risk Management Tips for Buying Stocks

risk management stocks cliffNot to knock the popular mutual fund screening filters, but it seems a little deceptive to suggest that one can simply check off boxes for “low risk” and “high performance” to find investment opportunities that will reliably beat the odds in the stock market with minimal risk.

If lowering risk and attaining high rewards were as simple as ticking two boxes, why wouldn’t everyone do it? What incentive would there be to pick high risk and low reward stocks? And who would need the investing genius of Warren Buffett, the Joseph Piotroski F-Score system that gained 138.8% in 2010, or the likes of William O’Neil with his high-growth CAN SLIM methodology?

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Free Cash Flow Definition & Calculation for Evaluating Stocks

cash flow faucetWith thousands of dividend-paying blue chip stocks in the market, how can you figure out which ones are wise investments? Do you know what to look for to judge whether or not a company can sustain dividends?

When it comes to high-growth companies that don’t pay dividends, can you determine if their growth strategy is exceeding their budgets?

One smart method for evaluating the health of a dividend-paying company or a growth stock is to analyze its free cash flow.

Importance of Cash Flow

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What Is a Covered Call Option Explained – Selling & Writing Strategies

covered call optionsDo you own shares of stock in a publicly traded company? You might think that your only trading options are to either buy or sell these shares, but when you factor in financial derivatives, the number of investing strategies available to you increases drastically.

One such strategy, known as the covered call option, allows you to create additional income, boost dividends, and hedge against a falling market.

What Are Call Options?

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How to Invest in Gold – Stocks, Funds & Bullion

invest in goldAmid government debt, economic uncertainty, and political unrest, you’re one of many investors aware of the frightening factors that can lead to heightened levels of inflation.

Given these concerns and the potential erosion of the value of paper currency, gold has become a more popular investment option than it ever was before.

But how do you include gold in your personal investment portfolio? Seven great tools are available to you.

7 Best Ways to Invest in Gold

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Fama and French Three Factor Model for Stock Investing

3 factor modelA logical investor might assume that the best performing stocks are massive, cash-rich companies that have been in existence for decades. A reasoning mind tells us that smaller companies (i.e. small and micro-cap stocks) present a higher risk with less padding to fall on during economic crises. Others might argue that small stocks might be a suitable investment, but only if they are high-growth companies that are aggressively increasing net profits annually. But most might agree that small companies with low growth potential that trade close to their intrinsic value do not present valuable investments.
But does historical and empirical data back up this intuitive response or does it lead us in another direction? The answer is somewhat surprising, and the research behind the answer brings us to the Three Factor Model.

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Dividend Payout Ratio Formula & Definition – Analyzing Blue Chip Stocks with High Dividends

dividend payout ratiosWhen it comes to picking the best blue chip dividend-paying stock, all that really matters is dividend size, right? Wrong!

As a blue chip investor, you know how important it is to do your research. And you also know how much data is available. Even well-trained investors can find it overwhelming.

If dividends are your priority, then you can’t just look at the size and frequency of a company’s recent payments. You also need to look at the dividend payout ratio when you’re analyzing stocks. Otherwise, you could end up buying shares of a sinking ship that is cleverly masked with unsustainable high-yield dividends.

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