Why The SEC Won’t Help

By Al Thomas

Everyone knows or at least been told so many times that it has become “true” that the Securities and Exchange Commission (SEC) is there to help protect the “little guy”.

Recently we have been told on the news that the SEC has been doing a lousy job. It seems the lawyers who read the documents and pass on their efficacy don’t understand them any more than Joe Sixpack.

In defense of the Dilberts in their cubicles in Washington the investment articles are a mixture of smoke and mirrors created by very sharp Wall Street securities attorneys. The Dilbert in Washington has not seen anything like it and cannot follow its true ramifications. Wall Street knows, but they aren’t telling.

Obfuscation is the name of the game.

But what every investor wants to know is why his 401K or other “managed account” lost so much money this past year. Is it that the fund managers are so stupid?

Actually it is one of the required regulations by the SEC in mutual fund documents. This one regulation will not allow a fund manager to protect investors’ money.

Mutual funds in their prospectus state they must be fully invested at all times. That means about 90% in some stock. Most funds are stock funds.

What can a fund manager do when the entire market heads south? He is not allowed to sell out of positions and go to cash. That would be a violation and he could be prosecuted for it. He is required to watch money go down the drain. Your money.

Some genius years ago came up with the “Buy and Hold” theory which has been proven does NOT work. To protect capital requires market timing which is considered impossible on Wall Street. Almost every fund manager believes it.

Market timing is especially easy for any well trained fund manager. As a former exchange member and floor trader I will attest to it. But the lie continues to be believed.

If the SEC would allow fund managers to go to cash when the market turns down it would have saved investors several trillion (yes, that’s a T) dollars of their retirement funds.

Is there any chance the SEC will set aside this requirement of being fully invested? It is doubtful. Why? Because it would mean fund managers could sell stock and the brokerage companies would not like that. Some brokerage companies make markets in stocks and it would mean they would have to take back stocks they could not unload on some other investor.

If the investor has a 401K he usually can tell his fund advisor to switch his funds into a money market account. Unfortunately, most brokers don’t know when to do it as they have not been trained to protect customer funds.

Since the SEC and your broker won’t help, YOU must learn how easy it is to time the market. Never take a big loss again. Many of my previous articles have given simple timing methods.

Learn to manage your money. Nobody else cares about it but you.

Copyright 2009 Albert W. Thomas All rights reserved. Author of “IF IT DOESN’T GO UP, DON’T BUY IT!”