February 1, 2012
What The Worst-Performing US Equity Fund Of 2011 Has In Common With Warren Buffett *writer’s commentary*

Original article on Fundsupermart here (link).

It’s not often that I get to talk about the type of maniac whizzbangery that goes on in my head when I write.

Most financial writing consists of staid, plain speaking articles that may be high in informational nutrient, but absolutely zero in literary taste. Actually a good amount of financial articles are zero information and even lower in taste.

So as a writer for a website that makes its money selling financial products, the challenge is to find an hook strong enough to keep the reader reading till the last word.

Enter the totem: Warren Buffett. Everyone knows him. Hell, Pixar practically modeled a cartoon character after him.

I watched ‘Up’ and I remember the crotchety old man as “Warren”. So sue me, I have a limited imagination.

Fact is, Berkshire Hathaway is one hell of an investment. But, like all investments, it has its ups and downs, and its ultimately its the long term that counts. So when an otherwise sound fund drops 18%, sometimes it helps to put that disastrous performance in context. 

Just to be clear, my article was not trying to defend the fund, neither did it argue that, “because Warren underperformed, so it’s okay if other US funds underperform.”

Investing is a zero sum game - every cent lost by one is a cent gained by another - so Warren’s losses was someone else’s gain, and collective underperformance is no excuse for individual underperformance.

The key takeaway is that it is reasonable to expect a fund (or any other investment) to post negative returns. And sometimes horribly negative returns. And it would be a mistake to ditch the fund just because it is in negative territory one in five years.

Of course, there’s the caveat that if the fund consistently fails to perform, then you should drop it like its hot, drop it like its hot. But if you couldn’t figure that out yourself…well, there’s always fixed deposits.