Stock Chart Reading


As an investor you will want to checkout any equity before you buy it. Many investorsgo to Morningstar which is one of the largestproviders of mutual fund information in the world. It is assumed that their information is correct. After all that is what you are paying for.

Recently the SEC (Securities andExchange Commission) called them on the carpet fornot correcting an error within a reasonable time(whatever that is according to the SEC). Everyonemakes errors and this was no big deal.

It seems that when you went to theirsite and drew up a chart or asked for statisticson Rock Canyon Top Flight mutual fund it failed tonotify the potential buyer that the fund hadissued a very large dividend of approximately 25%and the NAV (Net Asset Value) dropped from $15 to$11 to reflect the $4.00 dividend.

When you ask for a chart of this fundon MarketWatch, Yahoo, TheStreet or Bloomberg theyonly post the NAV and do not make any adjustmentfor the dividend or capital gains distributions. Looking at the chart it appears the fund fell outof bed. Because I look at so many charts I knewimmediately that this was a distribution and notsome calamity. It is best to call the fund toverify this.

Most funds that make dividend and capital gainsdistributions usually do so in December, some inNovember and very few at other times during theyear.

Some nitpicker called the SEC and madea complaint about Morningstar. Not that I am a bigfan of them (in fact I think their reports areworthless) they get their price information fromother sources such as the above. If you are notfamiliar with the requirement of mutual funds todisburse their profit before year end you might befooled when you see the price suddenly drop.

This is important for potentialinvestors. I caution everyone to get a chart onthe Internet of at least a one year performance ofany mutual fund before buying. It is better to goback to year 2000 to see if the fund manager wasable to keep from losing money during the last 4years. Almost none of them could so they bamboozleabout how they did better than the S&P500 Indexwhich had a huge loss of 50% and remains down 25%from those highs at this time. Don't fall for thatone.

Once again I caution that any purchaseshould have an exit plan. One of the basic rulesof investing is never to lose a lot if you arewrong. Small losses will not ruin your portfolio, but big losses can ruin your retirement. Set yourloss limit (5%, 10% or ?) and stick with it.

Charts can help you withbuying/selling decisions, but check out theiraccuracy as charting is not an exact science.


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