From what I understand mutual fund is only good during boom periods where the fund manager can excersise full control to purchase stocks that he thinks can generate the most income.

The bad thing about mutual fund is all the charges incurred, 6.5% during purchase means you already lose 6.5% before anything happens plus another 1.5% management fee means you lose another 1.5% every year if there is no income. Not sure what other charges for selling etc.

During boom time, lets say there is $100million of investor fund, the fund will continue to increase as prices continue to go up and this will attract more investors. The fund manager will then have better control and funds to buy good stocks.

However during recession, this is what happens :-

1. Panic selling, the fund manager is forced to sell good value blue chip stocks because customers want to cash out. He does not have a choice eventhough he may have a phd in finance because Ali, Ah Kau and Ramasamy who are the average joe panic and want to take their money back.
2. $100 million fund may end up only $10million fund left, while recession is the best time to buy cheap undervalue blue chip stocks, the fund manager lose all ability to buy the stocks because he has little or no more funds left, which means the fund will fail to gain from the recession oppurtunity.
3. It will take a long time for investors to invest again especially during recession, this will then make the turnaround to positive growth to be slow as well.

This post has been edited by DannyOP: Nov 13 2008, 01:32 AM