In Search of the Perfect Investment

We added 155,000 jobs in December, apace with job growth over the past year. Unemployment is 7.8 percent, same as November. The biggest gains were in health care, food services, construction and manufacturing. Job losses in the government tapered off, the Labor Department said this morning. In short, nothing to be joyous about and nothing to skulk about.

As we think about investing in 2013. there are individual stocks. There are funds — expensive managed and cheaper index funds. Most mutual fund managers are awful, not exceeding their indexes, but charging like wounded bulls. Studies show that fees on managed funds more than eat up any remaining advantages they have. This piece from today’s Wall Street Journal caught my eye. Here’s an excerpt:

Investors Sour on Pro Stock Pickers

Investors are jumping out of mutual funds managed by professional stock pickers and shifting massive amounts of money into lower-cost funds that echo the broader market.

Through November, investors pulled $119.3 billion from so-called actively managed U.S. stock funds in 2012, the biggest yearly outflow since 2008, according to the latest data from research firm Morningstar Inc.

At the same time, they poured $30.4 billion into U.S. stock exchange-traded funds. When combined with bond ETFs, total inflows to such funds were $154 billion, the largest since 2008.

The move shows growing investor distaste for volatility, as the dot-com crash in the early 2000s, the financial crisis in 2008 and recent botched episodes such as last May’s Facebook Inc. initial public offering have shaken investor confidence.

It also reflects the fact that many money managers of stock funds, which charge fees but also dangle the prospect of higher returns, have underperformed the benchmark stock indexes. As a result, more investors are choosing simply to invest in funds tracking the indexes, which carry lower fees and are perceived as having less risk.

Mutual-fund experts and fund-firm executives said the trend likely accelerated in December. Inflows for ETFs in the U.S. totaled $28.1 billion for the month, up from $20.6 billion in November, according to Deborah Fuhr, a partner at London-based ETFGI LLP.

The ETF researcher calculates that ETF inflows set a record of $187 billion for all 2012, eclipsing the previous mark of $176 billion the firm recorded in 2008.

“ETFs have really won people over,” Ms. Fuhr said.

Erik Oliver, a 40-year-old patent attorney in Redwood City, Calif., is one. He recently pulled $40,000 out of actively managed funds and moved it into less-expensive index funds run by Vanguard Group Inc.

His decision turned on cost. “I thought about who was more likely to have lower fees 10 years down the road,” Mr. Oliver said.

The mission of stock pickers in a managed mutual fund is to outperform the overall market by actively trading individual stocks or bonds, with fund managers receiving higher fees for their effort. In an ETF, managers balance the share makeup of the fund so it accurately reflects the performance of its underlying index, charging lower fees.

U.S. mutual funds that invested in large growth stocks in 2012 returned an average of 15.3%, while the similar ETFs tracking the index returned 16.4%, according to Morningstar.

The firm says that when investors have put money in stock funds, they have chosen low-cost index funds and ETFs. Some index ETFs cost less than 0.1% of assets a year, while many actively managed stock funds charge 1% a year or more. …

Vanguard, the world’s largest provider of index mutual funds, pulled in a net $141 billion last year through December, according to the company.

F. William McNabb III, Vanguard’s chairman and chief executive, said the firm’s 2012 inflow eclipses the industry’s previous record of $129 billion set by J.P. Morgan Chase & Co. in 2008. “What you’re seeing is a recognition that our way of doing business and our way of investing is making more sense to more people,” Mr. McNabb said. …

Many investors say they are looking for a way to invest cheaply, with less risk.

Kevin Olson, a 26-year-old engineer who lives in Des Moines, Iowa, said he and his wife, Brittany, recently invested for the first time in Vanguard, placing $5,000 into Vanguard’s Total Stock Market Index Fund, which carries an expense ratio of just 0.18%, according to Morningstar.

“My wife and I are a few years out of college,” Mr. Olson said. “We’re kind of partial to low fees.”

You can read the full WSJ piece here.

Audit your online trading  service. My main one has been Fidelity’s Active Trader Pro running on Windows XP. I “upgraded” my computer to Windows 7. So far, so good. Then a few weeks ago,  Microsoft did something to Win 7. Since then Active Trader Pro has gone buggy, unreliable and inaccurate. (It works fine on the old Windows XP.) I’ve spent hours on the phone with Fidelity: The final upshot yesterday: “It’s your fault Mr. Newton. Our software works fine.” It’s a horrible customer-unfriendly attitude.

Conclusion: Don’t use Fidelity to trade your stocks.

Watch your credit cards. First rule: Don’t opt for paperless credit card statements. They get lost — in spam folders and in the ethernet. They don’t get delivered, etc. etc. Item:

I bought $122.90 of stuff from LLBean on August 16, 2012. They allegedly sent paperless statements. I never got them. By the time Visa called yesterday, my balance had skyrocketed to $259.04 with late charges and sundry fees. They agreed to waive the $153.33 in fees and I paid them the $122.90 via bank ACH. All solved.

Of course, they could have called earlier… but those late charges and sundry fees are so delicious. No wonder so many people are stuck in a credit bind. That $153.33 adds up to an annual interest rate of 333%. That is much better (for the bank) than a slap in the belly with a cold fish (Australian expression).

This painting sold for $120 million in May 2012, Contemporary art is enjoying a major boom. It ebbed after 2008, but didn’t bust. Now it continues on its parabolic way up, defying all expectations. It is more attractive to look than paperless stock “certificates.” So that’s a benefit. This Edward Munch’s #120 million The Scream. This is the closest I could get to it over Christmas at New York’s Museum of Modern Art.

. You can see it and other more interesting (and cheaper) paintings, like these:

Figure on spending at least four hours. MOMA has grown dramatically in recent years. In addition to their permanent exhibits they have fun ones, like this shadow thingee. You perform  in front of this “projector” which transforms your silhouette into wonderful shapes.

  

Nice apps from MOMA to see art in high-resolution on your iPad. Click here.

Running Microsoft’s Outlook? It’s a perfectly fine piece of software, except that searching for things (like emails and contacts) is agonizing. Solution: a beautiful piece of software called Lookeen. Pick up a trial copy here.

Harry Newton, who thinks Barnes and Noble (BKS) might, once again be a great short after news that its Nook tablet is not doing well. Click here.