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Thursday, March 20, 2003
Get Rich Quick If you can trade mutual funds in your 401(k) without transaction fees or loads, here is an article that you might want to read. It deals with arbitrage, i.e., riskless trading, in foreign - especially European - mutual funds. The documented loop hole stems from the way that net asset value (NAV) is calculated. Actually, it is not so much a case of how but rather when NAV is calculated. You would have to be both extremely aggressive and very much in tune with the markets to employ this strategy as an individual investor. Still, the results mentioned in the article make it an extremely attractive strategy. The SEC is aware of the issue but has thus far taken a fairly laissez-faire approach to the problem. Since I have no limits to trading in my old Merrill 401(k), I think I'll go read some prospectuses to see if any of my fund options aggressively try to combat this style of trading. I guess it would be fairly simple to construct a spreadsheet and graph of fund performance versus the previous day's S&P performance to evaluate the (past performance) effectiveness of the strategy. I guess I could do that if I can find an easy way to import the history into a spreadsheet. |
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