I've had my portfolio reviewed by Fido a few times for suggestions/recommendations.  Seems that they consistently recommend adding LCG funds (either theirs or one of their recommended NTF network funds).  When I analyze my portfolio through the M* analyzer, it shows that I'm am equal between value and growth.  I do own FCNTX.

Have you had similar experience with Fidelity?  Any clue as to why they would make such a recommendation?

 Charles

Don't take it personally - it's just the way their computers are programmed.  I' ve even had rec to sell some of my funds to buy comparable Fido/NTF funds, when my analysis showed the funds involved were very much the same (perhaps a 1/10 percent difference in expense).  It's not that the computers are generally "wrong" - it's just that they may not be "right" in some particular - after all, they are only computers... you've got a better one on top of your neck.

Dear Sir/Ms:

My 401K is with Fidelity, what is a LCG fund.

Avinash 

 

Most of Fidelity's funds are growth funds... they have been "pushing" growth ever since the early Magellan days.  That doesn't mean that you have to listen... they also have value funds, though I generally prefer the non-Fido value funds in the supermarket.  Fortunately, the manager turnover hasn't been quite as bad in their value funds.

Fidelity believes that young investors should buy mostly growth funds and older investors should buy mostly value funds... I see no reason why young people have to be "stupid."  (too strong of a word, but I couldn't think of the right one)

FCNTX is one of the few LCG funds that I would own... it somehow seems to avoid the land mines that are common when you buy big, over-priced stocks.  Otherwise, value outperforms growth by a large margin most of the time. 

Most real growth stocks are SC or MC... huge market cap companies will disappoint eventually because they are priced for perfection... and there is not that much room left for additional appreciation.  When the growth of a companies price (half of market cap formula) far outstrips the growth of revenue and earnings, it is time to be wary... when a company is valued like one of the biggest companies in the country, but has a mediocre profit, it is time to be wary.  When you buy a growth stock (and this seems like it should be obvious), buy stocks that are really growing their business with increasing revenue and profits... and beware of cyclicals mascarading as growth stocks.  Tech has always been cyclical...

erryl

Brokerages in general tend to push growth funds and growth investing.  I would even go so far as to say that the entire Wall Street mentality revolves around growth.  Maybe even human nature is responsible. 

Just think about it, the stocks you hear about all the time are those who are expected to achieve massive growth.  Google is probably one of the most recent examples.  People think that growth equals great investment returns, but they don't realize that price is just as much, if not arguably more important. 

If everyone thinks a company is going to grow gangbusters for the next decade, then it will be priced for that possibility.  The more optimistic the outlook, the pricier the stock will be, and frankly the less likely the chance that the projections will turn out to be true (think about the dot bombs of the late 90s). 

We also see this focus on emerging markets which are growing faster, and as such people think that is the place to be (think of China which was massively overpriced and still is pricey).  The truth is the best place to find the values are where people are not looking.  If it's cheap enough, a completely boring, and utterly mediocre company, can be the best investment. 

Part of the advice of Bejamin Graham is that there is no such thing as a good stock or a bad stock, there are only cheap stocks and expensive ones.  Everything can be a good investment if the price is right.  Value investing goes against the grain of what is popular which is why it is successful.  Growth, for the most part, follows whatever the conventional wisdom of the time happens to be.  That isn't to say there aren't some good growth funds, but in general the value philosophy is a better starting point. 

Well said above...

There are really many different ways to invest.  I think that M* came up with a great tool when they "invented" the style box.  Unfortunately, it has many limitations and I think that recently those limitations have been magnified... to the point where I don't think that the columns have much value.

Ben Graham had it right when he said that there are 2 kinds of stocks... cheap ones and over-priced ones.  Growth has value... they are not opposites.  Any stock has an intrinsic value and you should buy it if it is cheap enough and sell it if it is over-priced.  The same stock at different points in time may have been cheap or expensive.  It isn't what stocks a fund owns that defines it, but rather what price it paid for those stocks vs their current and future value.

You don't need to avoid funds that buy companies that are growing... what you need to avoid is stocks that aren't really growing as much as being hyped and stocks where you are over-paying for that growth (especially where the growth isn't being measured in profits).  

You really need to know and understand how a fund's manager(s) invest yourmoney.  It is hard... but there is no statistic that makes it unnecessary.  

There has been a large outflow from equity mutual funds recently.  I am sure that part of it is the weak market... part of it is hard-up savers that may be financially over-extended... but I think that part of it is mediocre mutual fund performance and I think that mutual funds are losing customers to (often discount) brokerage services... where the investor buys ETF's, CEF's, common stocks, and other securities themselves.  Investors are getting more knowledgable and doing more of the investing themselves.  The internet has been a huge enabler in this transition.

One thing that really confuses me and that is hedge funds.  I don't see how hedge funds can attract money with their obscene fee structures, but they do... and a lot of money... and sophisticated investors like pension funds and insurance companies.  If hedge funds can syphon off that much money in fees and still attract money, then what is wrong with mutual fund managers????  Why aren't they doing a better job for us?

erryl

 

[quote user="Avinash"]

Dear Sir/Ms:

My 401K is with Fidelity, what is a LCG fund.

Avinash 

 [/quote]

 

LCG = Large Cap Growth