Ken Kam's Best Ideas Blog

November was a topsy turvy month. With the subprime meltdown widening, fear and uncertainty causing a credit crunch, the Fed gave in and lowered the Fed Funds rate by 50 basis points (bps) in September. The market was betting that the Fed would lower rates another 50 bps at the end of October so when the Fed surprised the market by lowering the rate by only 25 bps, fears of recession caused the market to fall 9% through Thanksgiving and wipe out almost the entire year's return.

The Best Ideas Portfolio was down 9.3% in November leaving only a 3.7% return for the year.

Making a Course Correction

When you are losing money, do you stay the course or adjust your strategy?

The decision to change your strategy is always a difficult one. It means selling funds or stocks in industries you know well and investing in funds or industries you do not have as much experience in. Add to that the tax consequences of closing out a lot of positions, and it's easy to understand why it is easier to stay the course.

Deciding to stay the course is by far the easier choice. But when the reasons for the poor performance are not short-lived, it is the wrong choice -- whether for yourself or, in my case, for those who've invested in your fund.

Most funds are required by their prospectus to stay the course. If they are a financials fund or ETF and financials are falling - it is your responsibility (the investor) to get out because the fund manager can not or will not. They specialize in financials and even if they could change, you really don't want a financials specialist picking energy stocks for you.

We've organized Marketocracy's research process with a team approach which gives me more flexibility than any other investment firm to adapt to the market's changing opportunities. When necessary, we change the team so that you don't have to.

Prosperity Through Goodwill

With the market falling, it's easy to lose sight of what is going right in the world. Yet its the things going right that create the best investment opportunities.

For example, many people think that economic growth in China and India is bad for us. But, I think the fact that billions of people are now able to improve their standard of living by putting their effort into making things others want to buy is a change for the good in historic proportions.

Throughout history, the most common way for a group of people to improve their lot in life was by taking from others by force. Never before have so many people seen their standard of living improve through peaceful, productive means.

The world would be a more peaceful place if more people came to see that making things others want to buy is a better way to advance their economic self-interests than going to war.

Of course, improving the standard of living for billions of people is putting a tremendous strain on the world's natural resources. As a result, prices for just about every commodity oil, copper, gold, etc. -- are rising. It is no accident that many of the best performing mutual funds of the last 5 years focus on energy, natural resources, and precious metals. (see U.S. Global Investors below)

We are living at an exciting time. The standard of living is improving for more people today than at any other time in history. This single fact is the primary factor driving some of the best investment opportunities most of us will see in our lifetime.