Smart Value blog

Exchange Traded Funds (ETFs) have been growing in popularity and numbers over the past several years. Both individual and institutional investors have been flocking into these unmanaged index portfolios. They have been aggressively sold and marketed by Wall Street firms, financial exchanges, investment managers, and financial advisors.

Exchange Traded Funds (ETFs) – A true alternative? Or a mouse trap?

They have been sold offering the investor the following advantages:

1) They have lower expenses,

2) They have limited portfolio turnover,

3) They are tax efficient,

4) They track a basket of securities in a specific asset class, investment type/style, industry group, currency or country, Index, or market segment,

5) They are actively traded daily on designated exchanges,

6) You pay a commission to buy or sell them with no load or redemption charges,

7) They tend not to alter their list of holdings to save on trading costs,

8) They require no minimum investment, and

9) They are timely and flexible.

But never forget ETFs are not mutual funds. So if you look a little closer. Here is what you need to know about investing in ETFs. They have several disadvantages and traps:

1) They have greater market volatility and price fluctuation than mutual funds,

2) Most ETFs allow arbitrage, margin, derivatives, options, shorts, and futures to be taken, bought, or written against the underlying ETF that you are buying,

3) They are actively traded daily and will have much greater ETF price movement based on unconfirmed or unsubstantiated news, hot stories, and current events, market and trading houses/firms manipulating the markets direction, investor emotion, and excessive bulk trading and electronic trading at particular times during the day,

Exchange Traded Funds (ETFs) – What do I really own? A can of Worms?

4) You pay a commission to either buy or sell them—therefore fees become prohibitive for small ETF purchases of less than $10,000 at a time,

5) They are not designed for periodic automatic investments,

6) You need to rebalance your portfolio more frequently if you invest in a portfolio of ETFs,

7) With more than 1,000 ETFs in existence and loose to no regulation, the market is over saturated with many poor and risky ETFs,

8) The liquidity factor—you can buy them, but can you sell your ETF. The marketplace dictates your ability to buy and sell your ETF shares. With an over saturated ETF market and the factors of market supply and demand, you might not be able to sell your ETF if it is not in high demand or it is out-of-favor,

9) Many ETFs charge low annual expenses, which may appear to be a bargain, but after you pay a brokerage commission the charges are either the same or greater than investing in a no-load mutual fund with an average annual expense ratio,

10) ETFs are more often than not poorly diversified—therefore you must check the ETFs’ current holdings before you buy,

11) They have higher Betas and Standard Deviations, and

12) They are not actively managed by a qualified portfolio manager.

In anything you do in life, leadership is more important than any other personal factor. Great leaders have and convey all of these leadership qualities in everything they do.

1. 

   Some people dream of great accomplishments, while others stay awake and do them.

   A great leader must have moral courage. This is the most important quality. This is the willingness to stick to one’s beliefs and pursue a course of action in the face of overwhelming criticism, great adversity, and strong resistance from friends and allies. Courage cannot be short-lived; it must be shown over the long haul. This will produce the best results.
   ‘

2. A great leader must have good judgment. Moral courage without good judgment can be extremely dangerous. Good judgment is not solely linked to intelligence, high IQ. It is linked to the right balance of IQ and EQ, which relates to a person’s ability to mix with and learn from other people through the skill of asking questions and listening. Also, it is closely linked to a person’s many life experiences and situations where the person had to use good judgment to make decisions on issues that really matter.
   ‘
3. A great leader has a strong sense of priority. This allows him/her to handle countless problems and issues with different degrees of importance. This innate ability to sort through the truly big and small issues and see the “big picture” is essential to success.
   ‘
4. A great leader must be able to successfully allocate his/her time and concentration of effort to conserve energy.
   ‘
5. A great leader must have a good sense of humor.

For a great leader, who possesses all of the above qualities, to truly be successful he/she must be able to take action and get results. Successful people have many consistent practices and good habits.

1. 1. 

      A Leader is finished if he or she loses his or her credibility.

      They are industrious and proactive, that is:
      – Keep meticulous records of their work
      – Make contacts and meetings productive
      – Seek first to understand before taking action
      – Brainstorm
      – Prioritize
      – Plan
      ‘

   2. They are enthusiastic and opportunistic, that is:
      – Find meaning in fundamentals
      – Look at the big picture
      – Learn constantly no matter how they are doing
      – Use what they learn
      – Keep improving
      ‘
   3. They have the determination to pursue their goals, that is:
      – Set challenging goals
      – Do not confuse goals with wishes
      – Write down their goals
      – Review their goals
      – Ask questions that fill them with positive expectation
      ‘
   4. They are confident, that is:
      

      To Be Successful by Benjamin Franklin.

      – Believe that everything works out for the best
      – Use anchoring to inspire them at challenging times
      – Explore ideas
      – Find a kernel of success in failure
      ‘

1. They are competitive and want to win, that is:
   – View competition not as a threat; but as a catalyst for their talent, energy, and determination
   – Devote themselves to a purpose that reaches beyond them
   – Have loftier goals to achieve and secure