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FREQUENTLY ASKED QUESTIONS

Why are all of Morningstar's 5-star funds not listed on your web site?

Although our fund research does consider "star" and other rankings, we use several other criteria for fund selection. Recent fund performance is most important, and a 5-star fund may not be performing well at a particular time.

How can I open a brokerage account, and which ones do you recommend?

This is covered in Appendix C of the book Using Mutual Fund Trading Indexes, but the information there has been updated somewhat. Write and ask for the most recent recommendations. We recommend using a brokerage account having fixed fees totaling $75 or less for total transaction, and not those that charge a percentage of the amount of the transaction.

How can I open a mutual fund account?

We track mutual funds from Fidelity, T. Rowe Price, and Vanguard. Mutual fund accounts can be established by visiting each of their websites.

Is there a minimum amount of money I need to use this system?

The minimum depends on brokerage trading fees, primarily. I usually recommend that you trade an amount such that you do not sacrifice more than about 0.3% in trading fees for the complete transaction of selling one fund and buying another.

I traded funds last week and the fund I sold is now doing better than the one I bought. Why?

The FTI System is a trend following system. Most of the time a trade is into a stronger trend, but not always. Also, a week does not make a trend. Short term fluctuations can cause the fund sold to move ahead of one just bought. Don't worry about short term changes. Use the TIs faithfully, without emotion or second-guessing.

Can you manage my funds for me?

We provide you with a guided approach in our weekly reports, which tracks sample portfolios and recommends trades. We will not directly manage your funds at this time.

I'm excited about your system, but know very little about mutual funds or the stock market. I don't know where to get started. What do you advise?

You don't need to know much about funds or the markets to use the FTI System. If you have a mutual funds brokerage account and/or mutual fund accounts in one or more of the fund companies we track, and can follow our tutorial, this is all you need. However, my book has much basic information about mutual funds, and Appendix E of the book contains a brief list of other recommended books.

Why don't you use your system with stocks?

Individual stocks do not work well with the system, due to their high short-term volatility. We think that we can do well with mutual funds, with less time than would probably be required with stocks.

Will the system perform well in any market environment?

Back-testing covered all market environments, and the system beat most of the market indexes in any calendar year. The most unfriendly environment for the system is when all of the markets (fund styles) are generally trendless, or when all markets seem to be trending in parallel. When some fund styles, sectors, or regions "break away" or diverge from the rest, and remain trending differently for a few months at a time, the system returns better profits.

Can the FTI System be used with sector funds or the "bear" funds?

Our fund inventory includes some sector funds, if they meet our criteria. If their TIs rise to the top, the rules and procedures say to buy them, just as with any other fund. We do not now have separate "models" for such funds. Back-testing after the book was written showed that our selected sectors can improve returns. We don't recommend the "bear" funds in moderate and conservative portfolios, as they have proved to yield better returns only for short periods, and the risk of loss is high at other times.

How does your system compare to other systems that have used Fidelity funds?

Much better. Comparisons with three advisory newsletters are made in the book. You can study the details there. Briefly, the accumulated returns of the others have been comparable to those of the market indexes shown in the results section.

Can I use your system with my IRA funds?

Most mutual funds companies and brokerages will set up IRAs, and thus all funds available through the company are available in such an IRA. If you don't have a brokerage or mutual fund IRA, I suggest you move your IRA money to one, for best use of the FTI System.

Will the system work with only the ten funds available in my 401(k)?

Yes. Returns have been ahead of the market indexes using such small sets of funds, but not as high as those using a much larger universe of funds. A small number of choices does not allow our system to reach its potential. Also, your available funds must be some of the top performing funds or their TIs will not appear on our web site. We suggest you find another 401(k) with more fund choices, or "roll over" your 401(k) to an IRA if possible. We have considered having separate pages for 401k plans, if there is sufficient interest.

Can I use the system with annuity funds?

Yes, and no. Yes, if you find a fund on our list which is a "clone" of your annuity fund. We currently calculate separate TIs for the VALIC and Fidelity VIP funds. These are furnished to paid subscribers.

Why did the system have so much better results in 2001 using brokerage account choices as compared to only Fidelity funds?

Basically, it is related to the much larger universe of funds. It is more likely, based on statistical probabilities, to find the winners in a much larger population. Fidelity funds are excellent, but there are almost always many funds doing better than their best at any given time. Our system keeps you invested in those top funds.

Why didn't you research the eight years using the larger universe of funds, so as to prove how much better it would have done for more than just one year, and why didn't you back-test for more years?

Mainly because of time constraints, and the near impossibility of back-testing such a large universe of funds over such a long time period without making some mistakes. Back-testing in 2003, after the book was written, showed that there were data accuracy problems in going back too far in time. Also, so many new funds were added each year during the 1990s that going back too far in time does not give good indications of what is possible today, using all of the funds and fund styles now available.

Where do bond funds fit into the FTI System?

U.S. bond funds usually do not, although there are some periods where we do use them. Basically, their trends are usually too flat and short to be useful in this trading system, and their TIs hover around the zero line much of the time causing frequent buying and selling. Emerging market debt (bond funds) and high yield bonds are used, along with one "total bond" fund which essentially takes the place of money market as an "escape" when all of the equity markets are trending down.

Why did you change the trading signal from 0.20 as shown in the book to 0.30 difference in trading indexes?

Back-testing conducted in early 2003 showed that 0.30 worked better for the late 1990s and after. This is probably because volatility in the markets gradually increased.

Why do you recommend more conservative two-fund and three-fund strategies now, when the one-fund holding system seemed to work so well in the past?

The one-fund system is very aggressive in that you keep all money in one fund. That makes a lot of people nervous and there is more volatility in one's account. Holding more than one fund keeps the short-term risk and the volatility lower. Basically, the choices consider differences among investors regarding aversion to risk.

Why do I have to sell a fund on Monday and buy on Tuesday with a brokerage account?

The brokerage system has not evolved to the point where you can trade between funds in one day (except for exchanges between funds in the same fund family). They need to have the sale completed before you can purchase something else with that money.

Does your fund screening include "social" considerations?

We do not attempt to be other peoples' consciences. It is the responsibility of investors to look at fund profiles and prospectuses if this is a concern.

Where do you think the markets are headed this year?

We don't know. We don't have a crystal ball.

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