Mutual Funds for the Utterly Confused

How can you be sure of what you are seeing? Be it mutual funds or as I mention, in the photos of Olivo Barbieri, you can never be quite certain of what you are viewing is exactly what it is.

Mr. Barbieri shoots his famous photography from the air or a higher vantage point using a method called tilt-shift. This method is a Photoshop induced tweak of aerial shots that alters what you see making the resulting image appear as if it were a model. Blurring certain elements of the background and focusing on a small section of the photo, the eye is drawn to what appears to be a staged reproduction of what the eye would have seen under normal exposure, as a simple crisp shot.

Here is an example of some of Mr. Barbieri’s work and below, why this reference ended up in the book.

Las Vegas

Venice

Los Angeles

New York

Rome

This sort of sleight of sight is fascinating but less so when it comes to your mutual fund choices.  What happens, as I ask, when you are looking at fund that presents a conundrum of sorts and flies in the face of what we have been focusing on?  Suppose a fund has high turnover, above average expenses, and a huge tax bill.  Does this fund qualify as something we should invest in despite the odd against its success, even though it may have defied those odds and performed well over three or five or even ten years?

The short answer is no.  In the world of the average investor, each ding against our gains is important.  Overlooking one means less of a return on our investment.  Add two or three and the return we might expect is compromised.  While the fund might show out-sized gains, the true return will nothing more than an altered image of what could have been.

The bottom line: stay within your boundaries and invest where the gains are good as measured against the subtractions that might alter those gains published by the fund.