Fidelity Replaces Magellan Fund Manager

Fidelity Magellan, once the world's largest mutual fund, ousted its Magellan fund manager Tuesday. After years of dismal performance, the now one star Morningstar rated fund is looking for better days ahead.

The famous fund, once managed by legendary stock picker Peter Lynch, had once reached nearly $110 billion dollars in pooled shareholder assets in 2000. Eleven years later, after fund redemptions and poor fund performance, Magellans's total assets have little over $19 billion.

After a six year stint, Henry Lange will be no longer in charge. Lange, who joined Fidelity in 1987 as a research manager became portfolio manager in 1992 after Lynch left. He later became the lead manager in 2005. Magellan's demise came about when it started to get way to big. At one point, Fidelity had to close the fund from taking in new investments.

Lange would place bets on stocks like Corning (down 28% YTD), Alpha Natural Resources (down 50% YTD), Lennar Corporation (down 28% YTD) and Brookdale Senior Living (down 30% YTD). If there is every anything such as cutting losses to prevent larger losses, there you go.

In Lange's tenure, the fund managed to perform below 90% of all large cap mutual funds.

How sucky is that? I mean, if you can't with all the MBA degrees and high IQ staff, figure out how to beat the S&P 500, your company shouldn't even be collecting management fees. And boy are they collecting.

Word has it that Jeff Feingold, who manages the Fidelity Trend Fund (FTRNX), will take over as lead manager. Feingold's track record equally sucks. He's been running the fund since 2007 and has managed to squeeze out a paultry 4.3% in that tenure.

Just how hard is it to run a mutual fund? Its as easy putting equal dollar amounts in all 500 Standard and Poor large caps to mirror it and collect crazy fees for doing absolutely nothing. If the index goes down, at least you can say you performed with the benchmark and toot your own horn.

Mutual funds performance suck and exist no more than pooled marketing scams that have been made legal.

Back in the days when I first started investing (1980's), the mutual fund concept (i.e. pyramid investing, pooled money) flourished. Fueled by the technology era, stocks benefited and their value rose. As pooled money was introduced to this new pyramid scheme, laws were introduced to allow citizens to pour their money into tax deferred retirement accounts - further increasing money inflows. Soon everybody and his dog contributed yearly without incurring any tax gains. Stocks soared lifted by more inflows. And as we all know, prices reached absurd levels and the Dot Com bubble hit with markets plummeting. And so did your mutual fund.

After the bust, we saw another trend starting in 2002. This one based on fear and war. During the Bush administration we saw 9/11 and the Iraq war. Oil prices soared. As stocks inched there way up through fear, so did mutual funds. But in 2007, the Financial Crisis hit and investors got their butt handed to them. In 2009, as Obama took over, markets moved strongly up on an economy floating on thin air and little substance. Call it a middle class bailout.

What to say of all of this?

Let's face it. The stock market is one big gambling casino. And the global economy is nothing more than orchestrated electronic computers all interconnected trading against one another. Mutual funds play no useful role other than a place to put your money in the hands of people who are supposed to know it all and give you returns better than the market. 80-90% of those mutual funds never outperform the market year over year.

Yes, its stupid to be in mutual funds. Especially since you don't have full 24/7 control over your money. There is also no such thing as investing in this environment. Its a gamble filled with news stores full of lies, fear mongering, scandals, and what not. Some say speculation. But in reality its about luck and timing. Greed and Fear. Its the very reason why stocks will go down one day on good news and on other days go up for no reason. Its the market and its not supposed to be logical. The markets have their own sense of direction irregardless of what you think.

Forget Mutual Funds. Buy ETFs

Back in November 2010, I wrote an article explaining why you should ignore stocks and buy ETFs. I gave five good reasons not to own stocks and invest with ETFs instead:

1. Risk
2. Cheaper to Trade
3. More Control Over Position
4. Better Leverage
5. Lower Taxes

Here is a perfect example of why mutual funds are a complete racket. Mutual fund companies are in the business of pooling money, taking on no risk whatsoever, and charging millions of dollars year after year in management fees. In the case of Fidelity Trend (FTRNX), this fund has $1.04 billion dollars in pooled assets. Imagine charging your customers $8,300,000 in management fees (expense ratio is 0.83%) every year for shoddy performance. All the while the manager and his team sit in cushy offices and get paid large sums of money.

With the Fidelity Magellan (FMAGX), the situation is even more ridiculous. Every year, $88 million in management fees are taken out from investors. And all for what? For a 10 year +0.54% gain.

Every year, less than 20% of the total number of mutual funds beat the S&P 500 benchmark. That's pretty sucky. And for many of these funds, they will just try to mirror it and cite they matched it whether it goes up, or whether it goes down and having an "out" just in case things go wrong.

Don't fall into that trap. The only thing that matters is your money growing over time. I would never invest in mutual funds again even though I did very well with them in my between 1980s to 1998. You're better off handing your money over to a competent hedge fund manager who has the skills to flip the markets both long or short. With mutual funds, you are leaning one way - long. And any person knows, markets don't just go up.

Then again, you can do all this by yourself. Buy the SPY ETF and charge yourself $9.95 each trade and live the consequences of your decision.

About Kerry Kobashi

Kerry is the founder of KerryOnWorld. He lives in Silicon Valley and has worked as an engineer and project manager. He owns Kobashi Computing a consulting company.