Investment Warrior Report Archive Article

"The "Market Timing" Scandal -  The Straight Truth - Bill Lussenheide 

Recent fraudulent activities by mutual funds and others have mislabeled some forms of market timing as fraudulent. Market Timing, done legally, is neither fraudulent nor unethical. In fact, the very movement of the market is a function of investors and speculators trying to buy low and sell high - the very definition of market timing. 

Actually, the scandal is really about a practice that is called "Late Trading", not so much about  market timing. Unfortunately, in the confusion, some in the public are not aware of the differences.  Late trading is where  certain fund companies have given preferential treatment to some investors by providing them information and allowing them trading privileges not available to all shareholders. We at Lussenheide Capital Management Inc. find such activity to be fraudulent and immoral.  In fact, it is illegal, and has prompted this current investigation by the SEC. 

Lussenheide Capital Management Inc. uses many of the mutual funds from  Rydex Investments for management of our client funds. Rydex Funds are not under investigation for illegal activity in this scandal. They are dedicated to providing flexibility for our management provided  for clients— including unlimited trading privileges at  most of their funds. They do not permit managers, such as ourselves,  to initiate trades after a fund's pricing time. On the subject of market timing, the Rydex Funds’ stated policy has always been to permit unlimited trading privileges, with no exchange fees, to all managers—not a selected few.  Rydex Funds’ portfolios are well positioned to manage  frequent trading and large cash flows. The Funds invest each day’s cash flow on a real time basis and strive to remain fully invested at all times in highly liquid securities. Rydex Funds were specifically designed to provide an array of investment tools for actively managed portfolios such as ours,  and have successfully accommodated these  investment strategies for over ten years.

We are following the current  situation closely—including monitoring releases from regulators and news sources, as well as Congressional hearings. We will continue our  practices and procedures that  ensure that  the flexibility, that is important to our clients,  will always remain in compliance with  regulatory standards.  We value the trust of our clients and readers of The Investment Warrior Report and will always continue to operate in a manner that does not put that trust in jeopardy .



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