Investors are getting smarter, redeeming shares from underachieving stock funds and upgrading to superior selections. In fact, despite a 20% gain in gross mutual fund purchases in Q1 through Q2, brokerages and firms experienced a 40%, blues-singing drop in net sales.

What do these stats tell us? It means that shareholders aren’t satisfied with the shadowy gains of their lemons and that they are finally willing to dump sour-sack investments. (It also indicates that my message, “Demand Higher Returns,” is moving down and up the boulevard!)


But not everyone is happy. Between the latest “net loss” statistic and last summer’s bear scare, corporate heads have begun to squirm; specifically, brokerages and firms are fighting shareholder retreat by imposing ridiculous rules to keep your assets in the fund(s) of their choice, not yours!

Consider Fidelity Small Cap Stock (FSLCX). It’s a greenhorn in a pasture of some 11,000 choices, opening its doors in March of 1998. Several months later, it closed shop, only to reopen in November of 1998. Obviously, it doesn’t take a sophisticated journeyman to recognize that FSLCX got crushed in the summer shakedown — losing 33% of its asset base prior to its “welcome back” party.

Since Fidelity Small Cap Stock is up 18.5% this year (through August), many people ask, “Isn’t this a keeper?” No, but if you buy it, Fidelity’s going to KEEP YOU FOR 3 YEARS. They’ve implemented a 3% redemption fee for anyone unwilling to buy and hold for 36 months. That’s a pretty stiff penalty for an unproven investment that is up a paltry 3.9% since its 3/98 inception.

In truth, I am not entirely opposed to this fund’s small-cap growth orientation, its excessive turnover (approx. 300%) or even its performance thus far; in fact it is ranked near the top 25% of its peers. However, I am disturbed by any deliberate attempt by an American Century or a Fidelity to limit our right to invest as we see fit.

Advice? Don’t roll the dice on a fund that locks you into a long-term contract. And don’t stop redeeming shares of lemons that suck the punch right out of your portfolio.

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5. The AMF will stop sending suspected fraudulent e-mails
6. Top five reasons to ignore top ten lists
7. Investing Abroad: Risks and Rewards
8. World Stock Exchanges
9. Private equity funds
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