Bad Mutual Funds - Avoid Them!
Unfortunately in the world of investing there are many bad mutual funds. I tend to class bad mutual funds as funds that don't even keep up the major stock indices like the Dow Jones Industrial Average and the S&P 500.
It would be unfair to say a mutual fund is performing poorly if it only break even, if the main indices were down over 20%. It's all relatively.
Also, when trying to assess how a fund is performing it is important use as long a time period as possible. A few months may not be enough time to get an accurate picture. One year is the minimum time period I would use, preferably longer.
One of the worst fund managers I have come across is Barry Ziskin. He runs the fund Z Seven (ZSEVX). In 2009 he managed to lose 31.37% of his investors money. In 2009 the S&P 500 rose by 26.46%. This is certainly the definition of a bad mutual fund. This manager clearly made some atrocious decisions. I'm certainly glad he is not managing my money, though I do feel for those individuals whose money he lost.
I have personally invested in mutual funds, I timed it badly and chose a bad fund manager. This is in fact what prompted me to learn how to trade stocks for myself.
However, there are some good fund managers out there who have performed consistently well in the long term, but they are few and far between and quite often a little digging is required to find them.
One good place to start your search is the yahoo mutual fund screener. These work very similar to standard stock screeners, but obviously screener mutual funds rather than stocks.
When looking at mutual funds, I often find it useful to assess their correlation to the main index. Alternatively, if the fund is targeted to an individual sector, such as energy, see how it compares to a related index such as the Dow Jones U.S. Oil & Gas Index (^DJUSEN).
In conclusion, I will just say that it is often wise to do a considerable amount of research when deciding on a fund to invest in, this can substantially reduce the risk of investing in a bad mutual fund. You definitely don't want to invest in the next Barry Zishkin fund.