The Alchemist: What Are You Waiting For?

Posted in Money Matters on December 19, 2003

The following is this week’s installment of The Alchemist, a column by Mensan Al Thomas, author of If It Doesn’t Go Up, Don’t Buy It. Click ‘Read More’ below for this week’s article, “What Are You Waiting For?”

The Alchemist: What Are You Waiting For?

by Al Thomas


Do you own any mutual funds? In an IRA or 401K or wherever.
Privately or at work.


Have you called your fund manager to find out what is going
on with your fund? Are they under investigation for late trading,
improper pricing, deviation from length of sales defined in the
prospectus or stale trading? Are my questions too hard?


Please don’t be confused. It seems that most fund owners
haven’t done anything. There is a serous bout of complacency going
around. Forget the flu; this is going to affect your pocketbook. Oh
well, it’s your money and if you don’t care if some crook in a suit with
a manicure is handling it then that is your loss.


Now we find out that even those foreign funds have bandits
for managers. The British mutual fund industry called unit investment
trusts has been doing almost the same thing as our home-grown thieves.
It seems the little investor has his wrists tied to his ankles all over
the world. The regulatory agencies such as the SEC (Securities and
Exchange Commission) have NOT been doing their job. If you have
questions about your funds you can call them in Washington at
202-942-8088. They must tell you as this is public information.


The late trading scandal hit first and has been misnamed as
market timing. Late trading is illegal whereas market timing is
legitimate. Late trading allows order entry at today’s price as long as
3 hours after the market has closed. During that 3 hours news of
financial importance regarding stocks in a particular fund could be
affected by legal decisions, profit pronouncements, etc.,etc. That news
could make the fund go up 2% to 5% the next day when the late trade is
then offset taking a disproportionate amount of profits from the regular
fund holders. That does not sound like much, but when you are dealing
with big numbers it is plenty. What is nice for the crook is there is
almost no risk.


In many funds there are classes such A, B, C and other
strange letters. These have to do with how much and when the commission
is charged. If you put in $25,000 or more you are supposed to get a
better price, but many funds have been charging more.


In the prospectus it may say you are required to hold a
fund for X numbers of days or pay an extra amount called a redemption
fee. Their friends, the big money folks, have not been so charged.


Stale trading is the new one. It seems the buy or sell
orders are not entered on the day they were placed, but done so at a
more favorable time to allow for a better profit.


These practices and ones not yet reported and those I have
not heard of are stealing money from your account. What are you waiting
for?


Copyright Albert W. Thomas. All rights reserved. Author of “If It Doesn’t Go Up, Don’t Buy It!” www.mutualfundmagic.com. Comments to al@mutualfundmagic.com.