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The Hager Investment Strategy
And How It Beat The Average Mutual Fund
By More Than 300% Every Year Since 1986
We believe this information will be worth thousands of dollars to you if you consider the points seriously and act on them. The strategy is very important, but what is more important is the kinds of stocks you choose to buy. | Surely you are aware of the fact that the average mutual fund has lagged the market. A recent study revealed that even the index funds beat their average non-index brethren. Some of the best fund managers think it is an achievement if they beat the market averages by a couple of points.
Why do you think the mutual fund industry as a whole has such a poor record, and on average, the funds don’t beat the market?
And how is it that we can beat the average fund by more than 300% over fifteen years?
It really is very simple. The Funds don’t have it easy.
The mutual fund industry has to operate under difficult conditions with both hands tied behind its back.
These restrictions and limitations usually imposed by their charters vary widely, from the obvious restrictions of sector funds to specific sectors, to specific geography, minimum diversification, maximum percentage holding per security, minimum cash requirement, and so on. In addition, the race for short-term performance has affected many funds negatively. Moreover, in order to keep within their charter, which permits only a certain percentage position in any security, most funds are forced to cut down the positions of their big winners in order to stay within their limit for individual holdings. Of course, the ugly ducklings do not present a problem and can therefore be held. This is especially true for index funds.
Since there is no meaningful performance difference over a period of time between index funds and other mutual funds, lets look at index funds.
If you buy an index fund, you buy a whole universe of stocks. You buy the good the bad and the ugly.
Why, for heaven's sake, should you buy the bad and the ugly? In addition, you are buying the same amount of a bad stock as you are buying of a good stock. You are doing that with your hard-earned savings, and that to me seems to make no sense at all. Of course, you can’t blame the index funds - they are doing exactly what they promised. So why are there so many index funds? That also has a simple explanation: they can prove they do as well as the average mutual fund. The net effect is totally counter-productive.
While all the above points apply more or less to the non-index funds, the non-index funds with their greater turnover, larger commissions, higher expense ratio, etc. have an additional set of negatives affecting their performance, not the least of which is a higher tax liability created by the higher turnover.
The Seven Keys To Successful
Long-term Technology Investing:
Key One: Sector
We only concentrate on the computer technology sector, which is the fastest growing sector in the American economy. This gives me an unfair advantage. It also is the sector with which We are the most familiar.
Key Two: Selection
We concentrate on portfolio performance by picking only the securities we believe to be among the best of the best, la crème de la crème, for the long-term. Fred Hager, who worked in the computer industry for 20 years, and his staff of experts in technology investing concentrate only on technology.
We only pick stocks with which we are totally familiar; stocks that are market leaders or very special situations. We anticipate the earnings of stocks to grow at a rate of at least 25% per year for the next five years. Special situations are only considered if growth can be reasonably expected at a much higher rate, in order to increase our overall performance rate. Our target rate average for our two primary portfolios, A + B, is 35% per year, which has been exceeded for 15 years. (The severe drop in tech stocks in 2001 has reduced our average temporarily). It is, however, important to keep in mind that the past record in no way assures success in the future.
Key Three: Minimum Turnover
We trade infrequently in the model portfolios in order to minimize tax consequences for investors. We believe the more an investor trades, the more chances they have to make mistakes.
For all of 1998, we did not make a single trade. In spite of that, our portfolios were up 100%, and no taxes were applicable.
Key Four: Concentration
We will not have more than five to ten stocks in the core, flagship portfolios. We have averaged over 30% per year since 1986 by doing it this way, and we have no reason to change now.
Key Five: Never Try To Time The Market
Nobody can time the market. There are no timing gurus that have a long-term record of being right. The more arrogant they get, the harder they fall when the law of averages catches up with them. Just look at the awful records of "so-called" former greats like Granville and Garzarelli.
Key Six: Don’t Let Anyone Chase You Out
Of A Good Stock When It Hiccups
As long as the long-term outlook is still excellent, there is no reason to dump a stock because of a short-term setback.
Key Seven: Don’t Panic During A Bear Market
If the stocks you own are real growth stocks, they will come back as sure as day follows night.
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