When to dump a Dog

[bearkeley]

Ok so I own two mutual funds which while they preformed OK for a short while (OAKLX and MSSFX) and they were rated fairly highly when I purchased them, they seem to have dropped to the bottom of their respective categories and lost quite a lot of value.

So the question is how do you decide when to dump a fund (any thoughts on these two funds would be helpful) when you know that just because it is performing badly today (last two years) the underlying stocks may begin to turn around tomorrow.

And once you dump them what do you buy to fill their repective place in a portfolio?

 

[REWahoo]

Oh. This thread is about selling under performing funds, not putting down a beloved pet. Whew!...

 

[Animorph]

I waited about 5 years to replace one active fund with a new one. I try to pick active funds with good long term records (10+ years) and hang onto them long enough to give them a long term chance.

I would think many on the board would go with a low-cost index fund, which shouldn't require replacement.

Replace it with something that keeps your AA in balance.

Dan

 

[LOL!]

You dump them for sure whenever they have a loss or whenever you can offset any gains in them with losses in other funds, so you don't pay any taxes. Or you just dump them.
You replace them with passively managed low-expense-ratio index funds in same asset class. These index funds will have the same stocks, so if a turnaround occurs you will participate.

 

[megacorp-firee]

First of all, many funds are doing badly right now, compared to last year.

Assuming you had a LOGICAL rationale when picking these funds (IMO, most don't ... other than BIL rec, top of it's class (which as you see is sometimes 'buying high')), ...etc., if the parameters have changed (new manager, change in fund make-up ...etc.), then it's time to change. If no changes, then perhaps you should hang on. This way you don't make the classical mistake of buying high and selling low only to repeat the same process. If on the other hand you had no LOGICAL rationale in picking these in the 1st place, then you could 'dump the dogs' as you say and start over. This time developing your plan on how to pick funds FIRST.

I am in the index fund or etf camp. So if it were me, and I was going to dump these, I would (as others have already suggested) put them into an index that matches the AA of your funds.

Good luck.

 

[SteveR]

I agree with the other advice provided. I would like to add something that I use to determine when to get out of any asset. Ask yourself "does the asset still meet the criteria you established for it when you bought it?" If no, then what has changed and are those changes likely to improve or worsen the asset's desirability.

Once a car has gone well past the warranty period and repairs equal car payments in a year it is time to get a new car. It is not an emotional decison...it a practical one.

 

[Delawaredave5]

You dump them for sure whenever they have a loss or whenever you can offset any gains in them with losses in other funds, so you don't pay any taxes. Or you just dump them.
You replace them with passively managed low-expense-ratio index funds in same asset class. These index funds will have the same stocks, so if a turnaround occurs you will participate.

This is what I've been doing - I've been moving from Individual stocks to Active mutual funds then to Index/ETFs

Good funds have gains I don't want to recognize - so I generally leave.

Dog funds have minimal tax implications, usually same "style", and lower fees -- dump them !

 

[megacorp-firee]

This is what I've been doing - I've been moving from Individual stocks to Active mutual funds then to Index/ETFs

DD5, curious, why are you making 2 moves (Indiv. Stks to Active mf to index/etfs)? It seems that that would just cost you more in transaction costs.

 

[LOL!]

I've said this before, but the one book that has really helped me with loss aversion, anchoring, framing and other behavioral finance traps is "Why Smart People Make Big Money Mistakes". If you read this book, I can practically guarantee that it will improve your decisions about your investing.

 

[Lsbcal]

Oh. This thread is about selling under performing funds, not putting down a beloved pet. Whew!...

I opened this thread because it might be about pets too but I'm OK with shooting your funds .

Regarding OAKLX I got out of OAKMX because it failed to beat it's category peers for a few years straight and I could replace it with a lower ER better performing fund (whether index or not). OAKLX had the same problem from 2003 to 2007. But note that it is now ahead of peer group (large core) for the last month by a wide margin as shown here: Oakmark Select I Report (OAKLX) | Total Returns . So if it were me I'd wait awhile to see if this outperformance continues. Also I'd try to identify what has changed at OAKLX.

 

[mickeyd]

So the question is how do you decide when to dump a fund

Well I guess that when your asset allocation (AA) changes, that may be the time to consider making a change if the change fits into your new AA.

To consider dumping a MF just because it is down a bit during this time, indicates that you do not have a clear idea about what your ideal AA should be. Most long term investors arrive on an AA that fits this particular situation and they tend to stay with that because it is structured to behave in a certain way over a 20+ years time horizon. A diverse allocation will be structured to withstand fluctuations in the various markets.

 

[Lsbcal]

Another comment on OAKLX. Nygren is suppose to be a savy investor. But two of the top holdings (14.4% of fund) are Washington Mutual and H&R Block. How could a guy miss the subprime fiasco so badly? I bank at WAMU and they are very good at that, but they were too involved in the subprime stuff. I used to own H&R Block stock but sold it in 2003 at what turns out to be a very good exit point. Even at that time I had been reading about their involvement in subprime loans. Buffet bought HRB too but has sold it since I believe.

 

[bearkeley]

Okay I am sorry about the title of the post. Just to let you know I am loyal to a fault to my dogs then tend to get better care then I do. In fact my little buddy now has three legs and a bad knee so we bought him a cart so he could still go on longs walks with us. No plans on dumping the old boy until his life is no longer fun (for him) which I hope is a long time away.

I bought the funds as a way to improve my asset allocation they came to my attention back in 2003 as a result of an article in Kiplingers and the recommendation of a friend who was a financial planner at the time. The funds did well for a short period but have been doing poorly for quite a while and are being beaten decisively by their class mates.

I didn't realize the Oakmark fund had improved that is good to know. Maybe I wait and see if it improves.

Can any on recommend a good domestic small cap EFT? It kinda stinks to pay high fees to someone so they can lose your money.

 

[free4now]

As a buy and holder, my answer is that the time to sell is when you realize you made a mistake in buying it and you have done better research this time to find a worthy replacement.

 

[Delawaredave5]

DD5, curious, why are you making 2 moves (Indiv. Stks to Active mf to index/etfs)? It seems that that would just cost you more in transaction costs.

I'm sorry, my "Indiv. Stks to Active mf to index/etfs" comment was just an overall, multi-decade trend in my portfolio.

I don't do 2 moves if I don't have to.

I kind of spent my first 10 investing years in individual stocks, then my next 10 years in managed mutual funds, and my next 10+ years will primarily be in index/ETFs.....

 

[LOL!]

....
Can any on recommend a good domestic small cap EFT? It kinda stinks to pay high fees to someone so they can lose your money.

Whenever I need to fill an asset class, I look first at the AltruistFA site. For example: Domestic Small-Cap Funds

 

[Midpack]

As a buy and holder, my answer is that the time to sell is when you realize you made a mistake in buying it and you have done better research this time to find a worthy replacement.

This would be my answer too, couldn't say it any better.