A lot of people have noticed that the two teams playing in the World Series have one very important thing in common: They both lost a lot of games this year.
Oh sure, there’s the whole New York-New York thing going on. However, the Yankees and the Mets combined to lose nearly 150 games this year.
If you are an investor looking at funds that had that many losing days this year, you might be thinking how you could do just as well by moving your money, picking a different team or doing all the investing on your own.
But just as a baseball team that loses what seems like a lot of games can be on the brink of winning a championship, a fund with short-term losing streaks can turn out to be a long-term winner.
And that’s the lesson fund investors can take out of the national pastime’s most ballyhooed series in decades.
On your way to reaching your goals and having winning investments, you’re going to have plenty of losses.
During those down times — and they’re around for most funds right now, with the Dow hovering around 10,000 and the market acting mighty nervous — the key thing to do is to keep a cool head, try to diagnose whether a fund’s problems are driven by the market or the manager and then re-examine your strategy.
That calm view is particularly necessary if you look at your funds like today’s average fund investor, checking net asset values daily or weekly and looking regularly at the daily winners and losers highlighted on financial networks.
Judging from a lot of the mail I get, right now many fund investors feel the same disdain and disgust for their funds that a fan calling a sports-talk radio station feels for his team after its suffers five straight losses.
They want the manager to change strategy, to change the lineup. They’re ready to give up on the entire season when there are still many games left to play.
But the truth is that funds are very much like baseball teams. They have slumps and hot streaks, determined mostly by the assets they buy and how the market feels about those issues.
To produce a good record and provide consistently good seasons, they need to win around 60 percent of their games. Fund managers may go on television sounding confident that every pick they make is right, but they know it’s possible to be enormously successful if two out of three selections go their way.
Even if that’s not enough to take them all the way to the very top of the heap in terms of performance, it’s sufficient to keep them in the race all year long.
Just as baseball teams that change managers after short losing streaks seldom turn things around to win championships right away, investors who get scared out of funds also tend to wind up making things worse.
“Short-term information often suggests that you have to do something if performance goes south,” says Michelle Smith, managing director of the Mutual Fund Education Alliance. “But if you’re a long-term focused investor, you should recognize that performance does change and that there are factors at work here that are not as simple as winning and losing. Making decisions on a simple shifting of the winds can be deadly.”
If your fund goes on a losing streak, look at what’s wrong. If it is simply following the market, bailing out makes little sense unless you simply can’t stomach market risk.
Odds are, however, that your reasons for owning the fund have not changed, meaning the fund still fits nicely into your asset allocation plan.
Also check to see how bad the losses are relative to peers. There are plenty of funds with losses for 2000 that are beating the Standard & Poor’s 500 or other relevant market indices, because those market measures have been in a funk, too.
Losing 70-plus games in a baseball season still gives you a shot at the playoffs. Losing 100, consistently, doesn’t.
But don’t let a few short-term losses scare you out of your fund. Small setbacks shouldn’t affect your long-range thinking unless the fund, your goals and/or risk tolerances have changed.
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Chuck Jaffe is mutual funds columnist at The Boston Globe. He can be reached by e-mail at jaffe@globe.com or at The Boston Globe, Box 2378, Boston, Mass. 02107-2378.
