Here are some of the key reasons why we succeed in outperforming the indexes.
If you subscribe and follow our recommendations, you will build a portfolio that provides consistent dividend income growth and avoids the costs associated with a mutual fund. Using CJS Research, you will build your portfolio at a much lower cost because you will save:
- the load charges of some mutual funds,
- the annual management fees charged by all mutual funds, and
- transaction costs associated with high security turnover in mutual funds.
Let's examine each of these:
- Mutual fund load charges. These are expenses some mutual funds charge in order to pay the stock broker to sell the fund. That money is gone the minute you send your money in. If you invested $100,000 your cost would be between $2000 and $5000 on day one. In other words, you don't really start out with $100,000 in your portfolio, you start with between $95,000 and $98,000. The impact of this cost can be seen by referring to a compound interest table and comparing what $95,000 earns at 9% over 10 years vs. what $100,000 earns when compounded at the same rate. (The answer is $13,000 --- of your money.) Of course, many mutual funds don't have a "load", so if you buy a no-load fund, you will not incur this cost. Building your own portfolio with CJS Research avoids any load fees.
- Annual management fees. According to Forbes Magazines’ Mutual Fund Guide, the average domestic equity fund charges fees of 1.5% per year, while the cost of subscribing to CJS Research, the newsletter for CJS Research (normally $395 per year) is only $195 per year for charter subscribers. You can follow our recommendations and keep this cost difference yourself. Since this money goes into your own pockets rather than those of the mutual fund managers, the return to you over the years becomes a meaningful amount.
As an example, assume that you have $100,000 invested with a mutual fund that is charging you 1.5% per year. In that case you are paying the fund managers $1500 in the first year for their advice, and these fees increase each year the fund is successful.
By following CJS Research advice at a cost of only $195 per year you can invest the original $1300 difference (plus the yearly difference, which should be increasing each year) in your own portfolio. Of course, if you have more than $100,000 invested, this advantage to you gets even larger! If your portfolio is worth $200,000, the yearly savings would be $2800! If your portfolio is worth $500,000, the yearly savings would be $4800!
It is extremely difficult for mutual fund investors to experience above average performance over a long period of time. Extensive academic research has shown that only 20% of managed funds were able to outperform the market averages over a period of time. A recent study by Stefan Sharkansy of the 10 year track record of Larger Cap U.S. funds relative to the S&P 500 Index for the period from December 1991 through December 2001 showed that, on an after tax basis, only 14% of the funds beat the S&P 500, while 86% underperformed.** (See Mutual Fund Costs: Risk Without Reward for the full report.)
We find that a truly incredible statistic; more than eight out of ten professionally managed mutual funds failed to beat the market as a whole! A key reason behind the funds underperforming is the amount of fees paid to the managers. Those fees are paid to those fund managers by investors each year, regardless of their performance. In 1998, for instance, 85 percent of all mutual funds failed to beat the S&P 500, but the fund managers collected their hefty fees nonetheless.
Because of research such as this, so called index funds were developed to track the key market indexes. Index funds were set up to attempt to insure stock investors that they will not do worse than the overall market performance; the bad news is that they won’t do better either. These funds have become popular with sophisticated institutional investors, and now total over $1 trillion.
Unlike managers of funds based on stock trading systems, the manager of a stock index fund doesn't have to worry about which stocks to buy or sell, he or she only has to buy the stocks that are included in the fund's chosen index. Because of this, a stock index fund eliminates the need for a team of highly-paid stock analysts who pick stocks for the fund's portfolio, and it typically passes on the lower management costs to investors. The good news is index funds do charge much lower fees than those of managed funds.
- Transaction costs. These are the commissions that the fund manager pays brokers for the execution of trades done within the mutual fund. The Wharton School did a study in 1999 that concluded that the average mutual fund has a 30% turnover rate (the percentage of the portfolio that is bought and sold each year) and incurs transaction costs of approximately .78% annually. If you invested $100,000, that amounts to another $780 a year, every year, tacked on to the other costs. Our turnover rates are much lower than almost all mutual funds, so there is a savings in transaction costs. Mutual funds do larger trades and can negotiate lower commissions than an individual. Because of the difference in commission costs, there is not a direct correlation, but it is likely that you will save money on transaction costs by following CJS Research strategy versus investing in a mutual fund, because we trade infrequently.
There is a better way. A study by Standard & Poor's found that in the 17 years from 1986 to 2003, a basket of U.S. stocks with the best history of boosting dividends and profits had an annual compounded return of 12.3% vs. 10.8% for the S&P 500 over the same period.** From this, it is apparent to us that a growth dividend income approach (the strategy of CJS Research) delivers for investors who are looking to build wealth steadily rather than take a high risk approach and try to get rich quickly from trading the market. Further, historically it has been a superior strategy to investing in index funds.
Since history strongly suggests that few fund managers can outperform the major indexes over the long term, why give your hard earned money to those managers? Managed funds, even low cost index funds, simply cannot overcome our advantage to you in cost structure. Our cost to you (which is the equivalent of management fees) is even lower than those of an index fund, and our performance has historically been better. It is extremely difficult for a fund manager to achieve the same record you will realize by following CJS Research advice, strictly because he or she must overcome the difference in costs in addition to equaling our performance. (To see a graph of our performance vs. the DJIA, the S&P 500, and NASDAQ, click on Performance).
**Past performance is no guarantee of future results. The results of our portfolio are calculated based on the performance of the entire recommended portfolio (in terms of both total number of holdings and the percentage of the portfolio's assets invested in each stock). If the investment composition of an investor's portfolio were different from the recommended portfolio, the results would be different.
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