“Knowledge is power.” It has been some 400 years since Sir Francis Bacon first set forth this simple aphorism. True as it was as a general principle when he set it down in 1597, it is equally valid today as a maxim for the intelligent investor. This chapter will discuss the different sources of knowledge that will serve you well in understanding particular mutual funds and will help you avoid some of the worst pitfalls of mutual fund investing.
I will review some of the major sources of information for selecting mutual funds, including fund prospectuses and annual reports and major statistical services—especially an extraordinary mutual fund manual called Morningstar Mutual Funds. I will then turn to the information provided by the financial press and mutual fund advisory services. At best, the latter two sources provide helpful information; at worst, they offer dangerous misinformation. This chapter will help investors tell the difference.
FUND PROSPECTUSES AND ANNUAL REPORTS
Fund prospectuses are largely tedious documents that tend to obscure some very important information by burying it amid technical matters of limited investment significance. But prospectuses do convey essential information that investors should thoughtfully appraise in assessing a mutual fund's suitability for their particular needs. The main categories of fund information are investment objectives, investment policies, risks, costs, ...