As mentioned above, one group of activists has social rather than primarily financial agendas for U.S. companies. In the view of these activists, U.S. companies should help achieve social goals such as saving animals, protecting wilderness or alleviating poverty. Let’s consider whether these social goals are appropriate for most mutual funds and then for the subset of funds specifically geared to socially responsible investing.
Social activists who attempt to change corporate policies or challenge corporate practices take many different tacks in pursuit of their goals, but all are motivated by one fundamental principle: corporations shouldn’t be solely profit-maximizing entities; rather, they have an obligation to take into account their impact on social issues. Activists seek to influence companies through a variety of means—including litigation, picketing and public relations offensives—in an effort to encourage a company to alter its social policies in some fashion. Read the rest of this entry »
D. Operational and Logistical Challenges to Exercising Shareholder Rights
In addition to the substantive disadvantages that U.S. shareholders often face overseas, a variety of operational challenges can frustrate the exercise of shareholder rights abroad.’ For example, in the United States, most institutional shareholders are able to submit their proxy votes electronically through a system called Proxy Edge. Outside the United States, by contrast, there currently exists no method for voting shares electronically. Rather, U.S. institutional investors Read the rest of this entry »
As we noted, angry investors sometimes lack a specific target and disperse their anger over the market in general. They rant about the market’s cruelty and indifference, and it is like ranting about fate. Many times, though, investors focus their anger on a specific person, group, or event. In some instances, this target is worthy of their ire—a CEO made a bad decision that negatively affected the stock price. In other instances, however, investors made mistakes and set up targets as scapegoats—they blame others for their oversights and lack of due diligence. Understanding what the common targets are and how they trigger our anger gives us a weapon to defend ourselves against it. Keep the following targets in mind the next time you find yourself furious at them for an investing loss: Read the rest of this entry »
It may be that as you look at the previous section and clearly identify yourself as a greedy rather than as a realistic investor, your response is, “So what?” You may rationalize this investing behavior as crucial to your success. You are aggressive, confident, and willing to take risks; you made a significant amount of money in the market in the past, and you intend to do so in the future, and the only way you know how to do so is by thinking big and investing like a big-time player.
In fact, big-time investors are big-time precisely because they aren’t greedy. They are highly successful because they understand the way the market works, do their homework, analyze their options carefully, and then make decisions with both short-term and long-term results in mind. The greedy investor, on the other hand, gets into all sorts of financial trouble because his greed is based on an unrealistic view of the market. Read the rest of this entry »
As you’re reading this, you may think to yourself, “I’m never going to commit this sin.” Everyone thinks this thought. When you’re reading about other people, their lustful investing behavior seems completely irrational. In the heat of investment decision-making, however, lust can hit you when you least expect it. Certain situations present themselves and rational thought takes a back seat to the moment’s infatuation. It pays, therefore, to be alert for the following situations where you’re most vulnerable to lustful investing:
There are all sorts of direct and indirect messages that make you feel your company stock is going to perform better than any other stock. You observe that your organization is extremely well-managed, that the company has great products and services and that its leaders are inspirational and honest. As our WorldCom example illustrated, it is not unusual for people to invest their entire retirement funds in their own company stock. You may receive stock options and other incentives to buy the company stock, and your boss or some other executive may assure you that it’s the best investment you could possibly make. In some cases, management may apply pressure for you to invest in the company and they may monitor your equity holdings. For some people, it feels disloyal to invest in any other company’s stock.
If this describes your investing, I don’t want to suggest that you’ve been brainwashed, but you certainly have been smitten. Why else would you entrust your livelihood and your life savings to one company? As great as your company’s management may be, people change companies. As wonderful as your company’s products are, new products with new technologies render established products obsolete. Read the rest of this entry »
The good news about this investing sin is that you have a number of ways to reduce its negative impact. Here are some steps you can take to reduce your gluttony and find a more healthy balance between active trading and watchful waiting:
A. Reserve 5 to 10 percent of your portfolio for aggressive trading.
Just as a diet isn’t designed to eliminate all food—or even all junky food—a good regimen for the investing glutton isn’t to cut trading entirely. For whatever reason, you enjoy and need the action of buying and selling. What you don’t need is for this need to eat away at your portfolio. Therefore, reserve a small percentage to feed this habit. If you only actively trade 100 shares instead of 1,000, you probably won’t do much damage.
Remember, though, that this 10 percent high-end percentage is absolute! Invariably, a time will come when the actively traded 10 percent will be performing well, and the inner glutton’s voice will say, “Don’t be a sucker; you’re a much better investor now than before; up the percentage to 20 percent?’ Do not heed this voice. It is the same voice the dieter hears after losing ten pounds, the voice that says, “Another slice of chocolate cake won’t hurt you? Read the rest of this entry »
Some of you may have picked up this article because of some shock to your investing system. You were going along fine for a while, but some event caused you to lose a lot of money in the market and you vowed to make a change. Others may have heard about a friend or colleague who suffered a major loss, and you want to prevent the same thing from happening to you. Without experiencing these shocks or seeing how they affect someone you know, it’s easy to continue investing based on strong emotional states. If you haven’t suffered a shock yet, you are bound to experience one if you lack a disciplined, long-term strategy. Read the rest of this entry »
Valuation
The value of a mutual fund depends on the prices or values of the underlying securities and other assets held by the fund. The manager must carry out regular valuations of the fund’s property, so that the prices at Which shares or units may be bought and sold can be calculated. Regulations usually prescribe how often Valuations must be performed. In the UK, for example, the required minimum frequency is twice each month The majority of funds are valued on a daily basis, but some managers prefer a weekly valuation, and some carry out more than one each day. Read the rest of this entry »
Establishment
Establishing a mutual fund follows a similar procedure in all countries. First, a management company determines the investment opportunity for a fund with a particular investment objective and policy, then decides its appropriate type or construction, either the corporate type, as an investment company, or the contractual type, as a unit or investment trust. It is worth noting that, in law, only the corporate type has a’legal personality’.
Usually in conjunction with an independent custodian, depositary or trustee, the fund’s constitutional documents are prepared and executed as legally binding instruments. The officers and agents, such as the investment manager, transfer agent, selling agent, administrator, auditor, are identified and then the terms and conditions upon which the fund will be offered and operated are settled and the charges and tees of the various parties agreed. Application for authorisation is then made to the relevant authority. Read the rest of this entry »
For regulatory purposes, there are two essential scheme documents:
- the instrument of incorporation (if a company) or the trust deed (if a trust‘;
- the prospectus or offering document, also known in some jurisdictions as scheme particulars.
It is the instrument of incorporation that establishes the mutual fund, and a fund established as a company may well have a certificate of incorporation before it applies for authorisation. However, it cannot be offered to the public until it has an order of authorisation. Read the rest of this entry »
Each mutual fund has one or more investment objectives. For example, to provide an above-average and increasing income and a yield about 50% higher than the relevant index. It is the investment manager’s task to achieve these objectives, by pursuing a stated investment policy. Each investment management company will adopt an appropriate policy for each of its funds hut will tend to have an overall ‘house style’ or strategy. Two contrasting approaches are:
- Bottom up’. Known as stock-picking. The manager looks for outstanding individual companies. They can be identified from research reports or from personal knowledge of their products, services and management.
- Top<down’. Starts with asset allocation. The manager reviews world or national economy trends first, determines his asset allocation model in terms of geographic and industrial spread, then examines industries in detail and finally selects companies that will benefit from the trends.
Another contrast in styles between different houses is between passive and active management. passive management occurs when portfolio changes are made cannot be breached by the investment manager, Regulations usually will specify also that the investment objectives and policy as set out in scheme documents cannot be changed materially without approval by vote of the share- or unit holders. Read the rest of this entry »
Shares in mutual funds can be sold directly by the fund or by its management company to investors, or through agents employed by the fund or management company as sales agents or representatives in a sales force. Managers may also sell funds through independent intermediaries acting either as agents for their clients or simply as selling agents who employ consultants to provide advice and support but selling directly to the public.
In the US, mutual funds typically sell their shares through a separate organisation known as a principal underwriter or distributor, and only in a few instances will the fund sell its own shares. The independent intermediaries are usually firms set up as broker-dealers. Read the rest of this entry »
