How to Invest Differently Than a Mutual Fund

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Conventional wisdom holds that buying index (“passive”) mutual funds and exchange-traded funds (ETFs) is an effective way to beat actively managed funds. Index funds tracking broad-based indexes are difficult to beat over extended periods because of their low costs. For many investors, they are a good option but are not the only way to beat the returns of actively managed funds.

A second way would be to not invest like a mutual fund; rather, hold a truly diversified portfolio of stocks. Such a portfolio would not be just different in terms of which stocks it holds, but also different in the types of stocks it holds. It would also differ in size and even turnover.

A simple way to start would be to truly emphasize value; not just value in name but by holding true value stocks. Such stocks have price-to-book (P/B) ratios ranking in the lowest 40%, or even the lowest 20%. These stocks currently trade with price-to-book ratios below 1.5 and 1.0, respectively.

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AAII Sentiment Survey

Neutral sentiment jumped to its highest level in nearly six months. Plus, this week’s special question asked AAII members for their thoughts about the recent rebound in stock prices. More about this week’s results.

This week’s results:

  • Bullish: 31.8%, down 5.9 points
  • Neutral: 36.5%, up 6.5 points
  • Bearish: 31.8%, down 0.6 points

Historical averages:

  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

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The Week Ahead

Earnings season will remain in full stride, with nearly 100 members of the S&P 500 index scheduled to report. Included in this group is Dow Jones industrial average component Walt Disney Co. (DIS), which will report on Tuesday.

The week’s first economic report will be the November factory orders, released on Monday. Tuesday will feature the January Institute for Supply Management (ISM) non-manufacturing index. Fourth-quarter productivity will be released Wednesday. November international trade data, which was originally scheduled for January 7, is delayed until February 6 because of the government shutdown.

Three Federal Reserve officials will make public appearances this week: Cleveland president Loretta Mester on Monday; chairman Jerome Powell on Wednesday; and St. Louis president James Bullard on Thursday.

The Treasury Department will auction off $38 billion in three-year notes on Tuesday, $27 billion in 10-year notes on Wednesday and $19 billion in 30-year bonds Thursday.


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AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you!

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