Here's a concern with which I'm intensely sympathetic. I've tried delegating our monthly "funds in registration" piece to bright folks who are not obsessive about investing. There's a simple template and easy direction on where, in an SEC filing, to find the info. We've never been able to make the system work. Why? Because even the summary prospectuses describe the fund's investment plans in often impenetrable language and even the question "am I eligible to invest" is mired in discussions of "certain financial intermediaries."
The SEC is returning, once again, to the Herculean task of encouraging clarity according to an article in Financial Planning. They're trying to reason with the industry about it, though I'm not hopeful of the outcome of any discussion between marketers, bureaucrats and lawyers.
A funny footnote that might baffle younger readers: the SEC admits that some of their fund information is still written for DOS.
David

In this months commentary there is a piece entitled "Feeding the Beast," written by Edward Studzinski. I believe it to be one of the finest financial articles I have ever read. I implore all to read it (I have already read it twice), print it out and reread it often. Bravo Edward!

The problem with Siegel is his promotion of and financial tie to WisdomTree. He abandoned unbiased research in my opinion, and is unqualifiedly bullish no matter what. He sold both his name and reputation.

Hi rjb112,
Definitions matter every bit as much as costs matter when making investment decisions.
I appreciate that you are a careful researcher, so this observation is likely to be totally unnecessary. However, when consulting any financial article, be sure to understand the precise definition of whatever statistic is being quoted.
The Price to Earnings ratio is one such statistic that has plenty of special definitions that could be misleading or misinterpreted if not properly recognized. Is the Price component based on current closing price or the monthly average? Is the Earnings component based on current level or is it a trailing 12 month average? Most importantly, are those Earnings the historical values or are they future projections?
I say most importantly because an estimate of future earnings is simply a forecast prone to error. My position on forecasts has been consistent: I am basically skeptical of most financial forecasts and generally distrust them. As you correctly inferred in your post, the likely explanation for the disparity in P/Es reported is that they were generated from the various sources that you cited.
When using the P/E ratio as part of the investment decision, it is hazardous to use future estimates. These estimates are often based on optimistic guesstimates, false assumptions, and/or behavioral biases. I believe it is a far safer approach to use the historical P/E ratio.
Nobel laureate Robert Shiller recently introduced the 10-year average of real (inflation-adjusted) earnings as the Earnings denominator. That’s his Cyclically Adjusted Price to Earnings Ratio (CAPE) formulation. That smoothing operation helps to tame the wild oscillations caused by point data anomalies. That too is a good concept.
Again historically, the current levels, like those exhibited by the S&P 500 Index, are a bit on the high side of the long-term trendline, but the trendline itself has been slowly increasing over time. Nothing is constant; the constituent makeup of the S&P 500 units slowly morphs.
As always, you alone get to interpret these data in your investment decision making.
I would caution you not to get too upset about rather small disparities in reported financial statistics. Given the dynamic nature of the marketplace, these are all subject to rapid changes anyway. As other MFOers have offered, don’t be frozen into paralysis by hyper analyses.
Good luck and Best Wishes.

@rjb112 Here is a GMO "white paper" on quality. If you can't open it (I have a registration at GMO.com) try googling 'Profits for the Long Run: Affirming the Case for Quality' by Chuck Joyce and Kimball Mayer. They lean towards corporate profitability, which they claim is predictable and safe. You could probably throw in cash flow and ROE as good proxy measures.

We believe, and have to date demonstrated, that the best ex-ante indicator of low forward absolute risk is found not by studying historical market price data, but through the study of corporate profits. This harks back to the way in which Ben Graham talked of risk. He argued that real risk was “the danger of a loss of quality and earnings power through economic changes or deterioration in management.”
Following this logic would argue for a portfolio constructed of companies with high and stable profits, which should, by controlling “real risk,” result in low and stable “price risk.” Hence one needs a framework for identifying future corporate profitability.
...
Standard orthodoxy such as the positive relationship between leverage and profitability is demonstrably backwards. Contrary to modern corporate finance theory, higher returns to corporations and equity holders result from unassailable corporate moats, not from corporate leverage. This is the world as described by Warren Buffett, not Modigliani-Miller.
At the end of the day, the returns (or lack thereof) earned by stock investors are entirely a function of the underlying corporate profits of the stocks held in a portfolio. The exchanges offer no more than a pass-through of earnings to investors. In the absence of earnings, there will eventually be abysmal returns and no dividends. If there are earnings, any price volatility will ultimately net out, delivering those earnings to investors with a long-term time horizon.
This argues strongly for a risk and investing framework focused on the survivability of corporate profits under any scenario. Companies with high and stable profits do not go bankrupt. Companies with exceptional profitability generate exceptional returns. Likewise, those with low profits will fare poorly

To take this back to the SCV discussion, because it wraps up the distinctions in the positions very neatly, compare this quote with MJG's last post:

Small size often makes the company more vulnerable to unexpected perturbations. Typically their product line is more focused and not as diverse as a Large firm. Another risk factor is that growing businesses are often not geography dispersed. Their marketing is regional, not international, so localized disturbances more directly impact their sales.
The accessible funding line for these smaller outfits is more fragile with lower reserves and less access to loans and at higher interest rates when they can be secured. Large companies have survived their growing phase and are more stable; smaller firms are more subject to business model failures and exogenous disruptions (a new competitor or invention) with bankruptcy a higher probability.

See how these two theories of outperformance are saying exactly opposite things?
VISVX has outperformed VFINX since inception. But small caps haven't over longer time frames (1979-present), and especially in the period from 1984-1999. They also fell much harder in 2008. I'm agnostic to why, but there is another side to this from what the financial orthodoxy says that is very compelling.
As to "quality" funds, I would suspect that the usual suspects are in play: VIG, MOAT, USMV, SPLV, VDIGX, SEQUX, PRBLX (I own), LEXCX, and BRK.B. I think some of the smart-beta folks might be coming up with "quality" oriented small cap funds. There are some small cap OEFs that seem to try to do this as well, like VVPSX, MSCFX, and Walthausen.
Thanks for the chance to ramble in this thread. I enjoyed it. Now back to Series 7 land.

@Ted: Thanks for posting. I often get "locked out" when I try to access WSJ articles. The secret is finding the correct URL that allows access!
@kanmani: I subscribed to Hulbert's Financial Digest for many years, and followed the performance of a bunch of newsletters for a long period, including the one you are interested in.
NoLoad FundX was one of THE VERY best performers "forever". It was always on Hulbert's list of "The Best Performers" over 1 year, 3 years, 5 years, 10 years, 20 years, etc. It could do no wrong.
Then, as I posted above, the writers of the newsletter, Janet Brown 'and company', decided to carry out their strategy in a mutual fund, FUNDX....and I posted that FUNDX has lagged the S&P 500 over the past 10 years, 5 years, 3 years, 1 year!!
Success is fickle! You said you are "considering jumping into this."
You CANNOT know in advance if this newsletter is going to outperform or underperform the market. Repeat: You CANNOT know in advance........
That's the bottom line. The newsletter has enjoyed long periods of outperformance and long periods of underperformance. You might as well toss a coin........
I wouldn't bet the farm on this, unless you enjoy betting.
But the same can be said about any active mutual fund: You cannot know in advance if it will outperform or underperform the market.
What you CAN know is that a properly run index fund will come very close to the market return. Examples include VTSMX, VTI (the exchange traded counterpart), VXUS, Vanguard Total Intl Stock Index Inv VGTSX.
The WSJ article stated that "each of the three winners lagged behind the S&P 500 in more than half of the five-year periods since 1980."
So examine in advance what you would do if you went with the newsletter and invested according to it, and then went the next 5 years lagging behind the S&P 500. Most people would not have the 'faith' to continue with the newsletter and strategy. Most mere mortals would throw in the towel and find another investing methodology.
By the way, another of the 3 winning newsletters mentioned by Hulbert was the Prudent Speculator, edited by John Buckingham. He also has 2 mutual funds, VALUX and VALDX.
I see that while I have been typing, Charles has posted to this thread.
Have no idea what he said. I'm just going to hit "Post Comment" and find out afterwards.

FYI: Copy & Paste 6/25/14: Gail Marks Jarvis: Chicago Tribune
Regards,
Ted
Pricey stocks, bonds have experts guessing too
You are agonizing over where to invest your money, you aren't alone.
The pros are there with you — nervous about stocks and bonds as clear opportunities become fuzzy in both. As the best and brightest fund managers talked at Morningstar's three-day conference in Chicago last week, they repeatedly expressed reservations.
They see Treasury bonds vulnerable to the inevitable climb of interest rates, and corporate and high-yield bonds paying so little interest that there isn't enough insulation to protect investors if the economy suddenly weakens or if investors get cold feet. After the unrelenting climb of stocks since 2009, the pros see a stock market so pricey that stocks appear vulnerable to any bad news for the economy or companies.
But the difference between you and professionals who run mutual funds is that fund managers are hired to do something with clients' money, no matter what. While sitting on cash rather than stocks or bonds might provide security in an iffy environment, cash earns no interest thanks to a Federal Reserve policy designed to get people to choose riskier options. Even though many pros say they are flummoxed by a market in which everything from stocks and bonds to currencies and commodities have all become pricey because of the trillions of dollars worth of stimulus poured into the markets by the Federal Reserve and counterparts in Europe and Japan, fund managers are doing what they think they must: deploying money where they can make a case for satisfactory results even though they expect high prices to hold back future gains.
They are emboldened by the fact that prices are high — but not outrageously high.
After all, even though pros have worried about bonds and pricey stocks for months, the Standard & Poor's 500 stock market index has managed to bestow gains of 5.5 percent this year while bonds haven't incurred the losses that pros thought were a sure thing earlier this year. There hasn't even been a correction (a short-term downturn of 10 percent in the stock market) for 32 months. Such a long stretch without a sizable dip in the markets has happened only four other times, according to Gluskin Sheff economist David Rosenberg.
Still, bond fund managers Mark Egan, of Scout Investments, and Bill Eigen, of JPMorgan Asset Management, told a Morningstar audience of financial advisers that they are so concerned about the lack of opportunity in bonds that they have parked about 60 percent of their clients' money temporarily in cash. Pimco's Mohit Mittal has about 28 percent of his portfolio in cash.
Cash will hold back bond fund gains if bonds continue to do well. But Eigen figures interest rates will eventually rise, investors will panic and try to bail out of bonds so quickly that bonds will suffer sharp losses. Then he plans to buy bargains.
Fund managers typically avoid holding more than 5 percent cash because waiting for deals can take longer than expected, and investors get impatient when their mutual funds are earning less than other more daring funds.
Considering the high prices of stocks, some fund managers who specialize in stocks also are holding substantially more cash than usual. Even those scouring the world for investments are having difficulty finding stocks cheap enough to buy.
While some have suggested buying cheaper stocks in European markets, Ben Inker, director of asset allocation for GMO, is cautious about Europe.
"You can find some cheap companies, but all of them have hair on them," he told the Morningstar audience of over 1,000 financial advisers. "Some places that aren't even cheap have hair on them."
Since money managers must find something to buy, Treasury bonds that mature in five to seven years "are not a wonderful place to be, but are OK," he said.
Meanwhile, Dennis Stattman, who heads BlackRock's asset allocation team, said stocks of large Japanese companies that sell to the world are significantly cheaper than U.S. companies. He's trimmed some exposure to U.S. stocks because they've become so pricey and added Japanese companies.
While some investors have been interested in European financial companies that appear cheap, Stattman said "in many cases they are overlevered and in possession of bad assets."
European stocks have climbed significantly simply because the "European Central Bank took off the table the fear of banks failing." But "governments have promised too much and taxed too little."
Meanwhile, Michael Hasenstab, chief investment officer for Franklin Templeton global bonds, says two of his favorite markets for bonds have been Poland and Hungary, and he's comforted that the continuation of stimulus from the U.S. Federal Reserve and counterparts in Europe, Japan and China will power many emerging markets.

bee, not sure what you mean by "but they perform in the relative space." Looks like VHCOX is a large cap growth fund per M*, with only 1% of its assets in small cap value. POAGX looks to be a midcap growth fund, and also has only 1% of its assets in small cap value, but does have 26% of its assets in the small cap growth space.
Wrt "keep in mind that successful SCV funds pretty quickly become categorized as MCV funds." This can certainly happen, especially if a fund, by virtue of its success, has a large increase in asset base, making it difficult for the fund to stay in the small cap space. My guess is this may have happened with Fidelity Low-Priced Stock FLPSX, which is now a midcap fund, although I don't have data from when the fund started out.
I think one can probably rest assured that a SCV index fund will stay true to its SCV space.
One SCV fund that caught my attention is Bridgeway Small-Cap Value BRSVX, which has an average market cap of 1,149 million and has been around since 2003. Interesting that the P/E ratio is only 15, and low P/B, showing its value nature. Bridgeway has some interesting funds. They also have a fund, Bridgeway Blue Chip 35 Index BRLIX, with a 174 billion dollar average market capitalization!
They have another even more interesting SCV fund, Bridgeway Omni Small-Cap Value N BOSVX, with an average market cap of only 662 million, and a P/E of 14. I'd be most interested in that one, but it looks like it is only open to financial advisors and their clients.
@bee, appreciate if you can look at your PM

Hi rjb112,
Yes indeed, a Small Cap Value mutual fund is a valuable holding within a portfolio. It adds robustness to the portfolio with its diversification attribute and its incremental excess returns (something like 2%) above large cap equity holdings.
This is not a new finding. Folks have been exploiting its benefits for two decades. The original research that identified its benefits was generated in 1992 by the Fama-French University of Chicago academic team. Their model is called the Fama-French Three Factor model.
The signal paper is titled “The Cross-Section of Expected Stock Returns”. It was published in the Journal of Finance. The 3-factor model includes Bill Sharpe’s market Beta term, but was expanded to incorporate a small cap component and a low price-to-book ratio value component. It represented the first perceived shortcoming in Bill Sharpe’s CAPM model.
Here’s a Link to a reasonable summary of the Fama-French work:
http://www.forbes.com/sites/frankarmstrong/2013/05/23/fama-french-three-factor-model/
As the article stated, Fama-French is a better mouse trap (but still imperfect). That discovery shocked some nonscientists. That’s an overreaction. Models are simplifications that incorporate assumptions and constraints; consequently, they are almost never perfect. That’s especially true for disciplines like economics and finance which are strongly influenced by behavioral biases and emotions which are dynamically sensitive to a host of factors.
Paul Farrell’s 8 Lazy Portfolios have practically implemented the Fama-French research in their Index heavy portfolios. Just scan these 8 portfolios, all assembled by acknowledged financial wizards, to judge its near universal acceptance. Here is the Link to Farrell’s frequently referenced scorecard:
http://www.marketwatch.com/lazyportfolio
I have been using the Fama-French work for two decades using a mix of both actively managed and passive Index mutual fund products. The obvious Index choices are Vanguard entries: Vanguard Total Stock Market Index Fund (VTSMX) and Vanguard Small-Cap Value Index Fund (VISVX).
The total stock market fund includes a fair share of small cap components, but adding the focused small cap value holding adds weight to keep portfolio returns high while slightly reducing its overall standard deviation.
The longer term (since 2000) correlation coefficient between the two Vanguard indices is 0.93; a shorter term (dating from 2012) correlation coefficient is 0.95. This minor correlation coefficient disparity between these two funds doesn’t significantly impact portfolio standard deviation, but the historical excess returns is worth pursuing.
By the way, Fama and French are currently pushing an improved 5-factor model. And so research continues……. So you have assigned yourself a never ending task. Good luck and good hunting.
Best Regards.

Journalists and the like get paid to write articles and thats the only thing we can predict for sure. In term of the market no one can predict what the market will do next. Its easy to predict the market will go south after a long run up but it may just surprise us and keep climbing. However, beware of the eternal optimist of a financial advisor who makes his money selling you funds but will be no where to be found if things do go bad.
My advice? Diversify. Don't sell your bonds. Bonds have done very well long term and besides they are in your portfolio to cushion the blow of a downturn. Don't let greed ever make you forget that.
Guido

Professor Jeremy Siegel [author, Stocks For the Long Run] made an important point with respect to the bear market from October 2007-March 9, 2009, when the US stock market went down 57%. He said something to the effect of, iirc, 'there are only two asset classes, stocks and US Treasuries.'
In that bear market/financial crisis, it didn't matter if you had large cap, small cap, mid cap, REITs, US stocks, foreign stocks, value, growth......they all got clobbered. But one asset class did great: US Treasuries. There is a 'flight to safety' in US Treasuries. So that does provide important diversification. Check out the total return of US Treasury bond funds in 2008 and you will see they did great, and provided great diversification.
However, DGoodrow mentioned "In light of pending problems for bonds going forward".
That is a duration issue, which only comes up if rates rise. If rates rise say 1% in one year, and if you are in a total US bond market index fund, which has a duration of 5.6 years, then your bond fund will likely lose approx. 5.6% in net asset value, which does not include the yield which is currently 2.1%, so the one year total return would be roughly -3.5%. Of course, there are many who believe that rates will rise significantly over an extended period, hurting bond holders a lot more, which may be what DGoodrow is alluding to.
So one solution for someone who is concerned about bonds going forward is to put some fixed income money into online FDIC insured banks. You can get .95% in a demand type savings account [with no minimum deposit], or more in certificates of deposit.
Another option for diversification is a gold fund, like GLD or IAU.
Personally I don't feel comfortable doing that, as I would rather wait for a much more attractive gold price.
Just some thoughts.

@DGoodrow,
To me, being diversified is more than LC/MC/SC intl and emerging markets. Within these categories I also have sector funds and etfs such as biotech, pharma, utilities, reits and consumer staples, an allocation fund and 20 stocks across many sectors of the US economy. Not all of them will be up in any given year, and some will weather the climate better than others in a downturn.Nothing is fullproof and in a true market crash there is no where to hide except cash. I am not one to run to cash every time we have market tops afraid that the market will go down or go to cash in a crash. I am not a financial advisor, just a student of Mr Market like many of us. There are some very wise and experienced people at MFO along with some I don't agree with but I pay attention to all of them and choose which ones I feel help me the most. And yes, I eat a small portion of my portfolio seed as you call it and don't worry about it since I retired.

Yes, my entire liquid net worth is normally 100% in one fund. But I use a tight trailing stop of around 1% to 1.25%. Remember I am into tight rising channels and at this point in my financial life bond funds. Look back at 2012 and PONDX or last year in HFRZX, and this year in NHMRX (present holding) When some of these bond funds get into a rhythm, it is very persistent with nary a drawdown along the way. Normally, when funds in such a tight pattern bring that rhythm to the downside it is indicative of more decline on the way. In the 90s used the same methodology but with equity funds in tight rising channels and a larger % trailing stop.
Junk bond funds are notorious for their trend persistency and lack of drawdown along the way. I learned that in real time back in early 91 when I made my first foray into them. Although they were not my primary trading tool in the 90s they have become such over time. A friend of mine who also trades junk bond funds looked at some timing models using a trailing stop of 1% to 1.50% as an exit and then the same percentages as a reentry off any subsequent lows. Really impressive long term results.

>> [[DG]] diversified asset allocation offered little or no protection against the types of extraordinary losses my portfolio suffered via the tech bubble, 911 or the real estate financial crisis.
Huh? How do you figure? When I chart, say, GLRBX and FPACX against, say, FCNTX, I see significant protection in, and smoothing out of, each one of those dips you cite. Just as diversification is supposed to do.
Now, if you really cannot afford a 3-4 years (often less) to recover within a given bucket, then yeah, low equities for you would be best. Ditto some dividends, given your seed corn philosophy (some of us newly retired eat ours regularly).

slick,
Spoken like a true Financial Advisor. However, diversified asset allocation offered little or no protection against the types of extra ordinary losses my portfolio suffered via the tech bubble, 911 or the real estate financial crisis. Market meltdowns were correlated across all asset classes and global regions. But here is my point: If your retirement portfolio is going to be used as an income generation machine to support your retirement, at our age you don't have as much time to recover from events outside that of normal market cycles. The last thing you want to do is to eat your seed corn to support retirement. Thus, in my opinion, as you approach retirement portfolio risk must take on additional consideration (especially when markets are at all time highs). That is why the topic of this discussion ("New highs doesn't mean you should sell" is of interest to me. Just my two cents, which I'm hoping won't be degraded by half if and when we are confronted with the next potential Black Swan event.

FYI: Copy & Paste 6/21/14:
Regards,
Ted
A well-thought-out exit strategy is vital to the success of a mission, as the recent events in Iraq demonstrate quite dramatically.
Given that unfortunate example, it might be well that the Federal Reserve appears to be thinking about the consequences of the end -- and eventual reversal -- of its massive experiment in monetary stimulation. Last week, the Financial Times reported that the central bank is mulling exit fees on bond mutual funds to prevent a potential run when interest rates rise, which, given the ineluctable mathematics of bond investing, means prices fall. Quoting "people familiar with the matter," the FT said that senior-level discussions had taken place, but no formal policy had been developed.
Those senior folks apparently didn't include Fed Chair Janet Yellen. Asked about it at her news conference on Wednesday, she professed to be unaware of any discussion of bond-fund exit fees, adding that it was her understanding that the matter "is under the purview" of the Securities and Exchange Commission.
That nondenial denial leaves open the possibility that some entity in the U.S. financial regulatory apparatus is indeed mulling bond-fund exit fees. The Financial Stability Oversight Council established by the Dodd-Frank legislation oversees so-called systemically important financial institutions, or SIFIs, which include nonbank entities. And, indeed, the FSOC has considered designating asset managers as SIFIs, as Barron's has noted previously ("Why Fund Firms Aren't Too Big to Fail," June 2).
To Dan Fuss, the longtime chief investment officer at Loomis Sayles, the exit-fee story seemed like a "trial balloon." But, he added, "from a practical point of view, I don't think it has a snowball's chance in hell, given the resistance from the retail distributors of mutual funds."
Still, he continued, "it won't make me very popular -- but I think it's a good idea." That's from someone whom I would call the Buffett of bonds. Like his fellow octogenarian in Omaha, Fuss has lived through more than a few market paroxysms and has been able to take advantage by putting money to work opportunistically during panics. Unlike the head of Berkshire Hathaway, Fuss also has had to contend with outflows from his flagship Loomis Sayles Bond fund and the firm's other corporate-bond funds, as happened during the 2008 financial crisis. For staying the course during those dark days, Fuss was named Morningstar's Fixed-Income Manager of the Year in 2009.
The latter vantage point no doubt informs his endorsement of the concept of exit fees for bond funds. As the FT quoted former Fed Governor Jeremy Stein, bond funds give investors "a liquid claim on illiquid assets." That is most acute for open-end, high-yield bond funds, Fuss says, and extends to exchange-traded funds "in less liquid areas," which would apply to junk-bond and bank-loan ETFs.
It is a fact of financial life that most bonds are relatively illiquid, in part owing to their bespoke nature; every bond has its own unique coupon rate and maturity, plus possible features such as call options, seniority, and security, even among the same issuer. In contrast, every common share of most companies is identical (with exceptions for stocks with multiple share classes). Multiple buyers and sellers of the same item is economists' definition of a perfect market, as with a commodity such as wheat. Big, listed stocks come close; bonds, given their granular nature, don't.
The problem of liquid claims on illiquid assets is etched into American culture in the Christmas-time classic film, It's a Wonderful Life. Faced with a run on his savings-and-loan, Jimmy Stewart pleads with his depositors that there's little cash in the till because the money is invested in the townfolks' mortgages and businesses. The practical solutions to this conundrum: deposit insurance and having central banks act as lenders of last resort.
Those facilities don't apply to bond funds now, and didn't to money-market funds in 2008. Following the Lehman bankruptcy, the Reserve Fund "broke the buck," with its net asset value falling below $1 a share. The resulting run on that money fund and others exacerbated the crisis as this source of funds to the money market dried up.
Officials fear that bond funds could represent "shadow banks," the FT writes, intermediaries subject to runs but without resort to the backstops available to banks. Yet, the irony is that the rush into bond funds is a result of the Fed's own policies of pinning interest rates to the floor, which spurred investors to seek income wherever they could find it. As a result, bond funds have ballooned to $3.5 trillion -- with a T -- according to the most recent data from the Investment Company Institute. That's close to the Fed's securities holdings, which total $4.1 trillion.
Statistical evidence of that reach for yield comes from a research paper from Bank of Canada economists Sermin Gungor and Jesus Sierra (which was passed along by Torsten Slok, chief international economist at Deutsche Bank Securities).
Not surprisingly, low rates spurred bond funds to increase the credit risk in their portfolios to boost returns. Canadians, it's safe to assume, are no less desirous of maintaining investment income than are their neighbors to the south.
But with investors having stampeded into bond funds, would exit fees be effective at keeping them from stampeding for the exits at the first sign of higher yields and lower prices? Research suggests otherwise. And, ironically, it comes from within the Fed itself.
According to a New York Fed staff paper by Marco Cipriani, Antoine Martin, Patrick McCabe, and Bruno M. Parigi (and surfaced by Zerohedge.com), impediments to redemptions could actually spur bond-fund investors to sell first and ask questions later. In other words, exit fees or "gates" to discourage redemptions could backfire.
In Sartre's No Exit, hell is famously defined as "other people." The crisis that might ultimately await bond-fund investors is the prospect of being stuck with their fellow shareholders as yields rise and prices fall, rather than paying a ransom to escape. The existential choice facing bond-fund investors is whether to stay and face that prospect, or exit while they can -- if they are not prepared for a long-term commitment.
THE SUMMER SOLSTICE just arrived in the Northern Hemisphere, putting the sun highest in the sky. And, appropriately, the major stock-market averages closed the week at records, notably the Standard & Poor's 500 and the Dow Jones Industrial Average, which approached another round-number milestone: 17,000.
The latest liftoff came after Fed Chair Janet Yellen made clear that neither rising inflation nor soaring asset prices would deter the central bank from monetary tightening. She called the uptick in the consumer-price index, which is running above the Fed's 2% inflation target (admittedly using a different gauge, the personal consumption deflator), "noisy." But it's hurting Americans' budgets more than their ears.
In essence, Yellen endorsed the view espoused by hedge fund mogul David Tepper a couple of years ago, that the course of monetary policy "depends" on the economy. If growth is sluggish, policy will remain accommodative, which is bullish for risk assets. Interest-rate hikes won't come until there is strong growth, which also is bullish. And as long as the monetary authorities have their back, investors have little reason to worry. So, volatility premiums collapsed in the options market; if the Fed is offering free insurance, why pay for it with hedges?
This benign environment is spurring investors to vote with their portfolios. Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, notes a big, $13 billion inflow into equity mutual funds in the latest week and the first outflows from bond funds, totaling $2.3 billion, in 15 weeks.
Have fund investors finally been infused with animal spirits? Hard to say, given that the equities data showed a record influx into utilities, some $1.2 billion, which Hartnett suggests indicates some chasing of that group's torrid past performance, up some 16% in 2014. Utility stocks are viewed as first cousins to bonds; income is their primary allure, but with the prospect of dividend growth, that should trump fixed coupons.
Still, public participation in the stock market has yet to evince irrational exuberance, notes David Rosenberg of Gluskin-Sheff. In other words, the market has yet to violate rule No. 5 of Bob Farrell, the legendary market analyst at Merrill Lynch -- that the public buys most at the peak and least at the lows.
Tops, Rosenberg explains, typically show a melt-up of a heady 11% over 30 days, which represents a first peak. A pullback lures neophytes and momentum chasers "hook, line, and sinker," to form twin peaks. That pattern was apparent in November 1980; August-October 1987; June-July 1990; April-September 2000; and July-October 2007, he points out.
To quote every parent of young kids, we're not there yet. But, Rosenberg relates, there also is Farrell's rule No. 7: Markets are strongest when they are broad and weakest when they narrow to a handful of blue chips.
Another veteran market maven, John Mendelson of International Strategy & Investment Group, last week pointed to the declining number of New York Stock Exchange stocks trading below their 200-day moving averages, a sign of waning momentum in the broad market that he says represents a "negative divergence." That is especially so with the major averages notching records.
So, easy money continues to float Wall Street's yachts. Belatedly, the gold market also has noticed, with the metal surging 3% on the week, and mining stocks leading the advance. Gold may be sending the true signal, above the supposed noise from the inflation indexes.

"I find it somewhat puzzling why a few MFO members are so short-tempered and even hostile towards Morningstar’s limitations, errors, and costs.".

Here's the thing: I'm not particularly upset by any of M*'s issues. I look at things like S & P analyst reports, M* reports and other things as sources of information that I can take a little bit from here, a little bit from there and make a larger decision.
I do think that people (not saying towards anyone here) are giving a little too much slack towards companies whose products decrease in quality and/or quality. I think - in some ways - people are a little too forgiving. I think people also are moving away from quality if it means convenience in some things (photography, music, etc) but that's another story.
When the product deals with people's money - such as investment research - people are going to be harsh critics. It shouldn't be surprising when there's money at stake.
"It is far too easy to be a constant critic. The bad is overemphasized while the good is swept away without acknowledgment. If the Morningstar presentations are too dull or too inept, the answer is simple enough: abandon the ship."
It's also far too easy to be a pollyanna and then have the convenient "whocouldaknown?" excuse when things go wrong. There is a happy medium, although finding that medium may take a great deal of trial and error.
"I’m not advocating the elimination of skepticism. At some point, it detracts from permitting a timely decision from being made."
Sometimes skepticism does save people from making rash decisions that they regret later. After the financial crisis, I think people aren't skeptical enough - everyone just wanted things to be rebooted back to a few years prior without the unpleasantness of actually trying to make it so something similar wouldn't happen again. History is bound to repeat itself because having to learn from mistakes is no fun.
If Madoff was out of prison tomorrow and started a fund again, I bet he'd have willing investors. It's the second "Wall Street" movie. The Gekkos of the world go in front of an audience of those just willing to believe and they listen and clap and don't ask questions. 2008 happens and a few years later, they're sitting, clapping and hanging on every word yet again.
Is there a problem with being too cynical, skeptical? Sure. I also remain that a far more widespread problem is people who are firmly at the other end of the spectrum.
"At that event, Ken Fisher made a presentation that seems to be a mirror image of Gross’s misstep"
I don't know how people can listen to Fisher, who is so aggressively promotional, with those smarmy ads. Odd that I never see Fisher on financial media, it's always as banner ads on financial websites and the like.
As for Gross, I think the issue with Pimco is that you had two people who were the "face" of Pimco and El-Erian was always the far better public speaker. Yet, Gross was always interesting with his knowledge and experience. Now Gross is starting to seem to falter and there's no one that has been kind of groomed to be the next public face of Pimco (although I have said I thought Tony Crescenzi should be the next CNBC face of Pimco.)
I've stopped selling what I have left in Pimco funds, but would like to see a little clarity about the company getting its house in order before adding anything to Pimco offerings. Bill Gross comparing himself to Justin Bieber and Kim Kardashian is not exactly a confidence builder.

Hi Professor David and MFOers,
With apologies to its author Elbert Hubbard, thank you for your Message to MFOers ( originally to Garcia). Your messages, in almost real time, of what’s what at the annual Morningstar Conference should permit us to take the investment initiative. So far that hasn’t happened. That’s not your fault. It’s like we are seated in the conference rooms with you.
It’s really not surprising that a fair review of the proceedings is almost always a mixed bag. Are the insights gleaned from the presentations worth the time and effort? Typically, these conferences generate a jumble of rubbish and a few gems. The wheat must be separated from the chaff.
For years (like 15), both my wife and I have been attending and even occasionally participating in the annual Las Vegas MoneyShow. Each year we question if the learning is worth the price. Yet each year we return with an optimistic mind-frame. Hope springs eternal. Fortunately we usually return home with a few nuggets of wisdom. So I suppose my answer is “yes”. Although the promises and expectations far exceed what is ultimately delivered, it is still a worthwhile time investment.
The Morningstar agenda at this conference is clearly directed at financial professionals. That suggests that the presentation bar should be set a bit higher given the likely sophistication of the audience.
Based on your summary reporting, the bar standard is unacceptably too low, or perhaps, the presentations are so generic or fuzzy, that the bar height can not even be accurately defined. That too is bad, but it is not a shock either. If the presenter actually had a special forecasting insight or investment preference, he/she is not likely to freely reveal it to a non-subscribing audience. If I were the presenter, I would reserve this gem for my paying clients.
I find it somewhat puzzling why a few MFO members are so short-tempered and even hostile towards Morningstar’s limitations, errors, and costs. Research and data collecting costs money. Folks are imperfect and blunders are made despite the best organizational, structural, and double-checking safeguards. Accepting that reality, I adopt a more forgiving posture. Even my Toyota was delivered with several minor flaws which the manufacturer quickly corrected.
I’m not advocating the elimination of skepticism. A skeptical attitude is needed when making all investment decisions. However, it has a limit to its usefulness. It has the usual diminishing returns characteristic. At some point, it detracts from permitting a timely decision from being made.
Morningstar is one of the preeminent mutual fund data sources available to us individual investors. Overall, it has served us well. How do I know this?
It has a growing legion of loyal customers who trust its services. It attracted a huge number of professionals at this session who were willing to invest time and to pony-up 795 dollars to attend these sessions. Its sponsor and exhibitor lists are impressive. It has a history that dates back to when Peter Lynch managed the Magellan fund. Morningstar must be doing something of service to the investing public.
Since it is a successful enterprise, it must be a win/win scenario for both the buyer and the seller. Otherwise money would not change hands. Morningstar is prosperous and expanding; it continuously tries to improve its products. Certainly not all of these experiments are successful or equally useful for its disparate customer base.
Early in its history, Morningstar was very weak on analytical talent. Originally they hired professionally trained writers while passing on market analytical/investment types. Eventually, Morningstar recognized that shortcoming and integrated Ibbotson into their team. As an elite provider of investment data and analyses, Morningstar is committed to keeping its edge. Sometimes their efforts work; sometimes these efforts fail. It is up to their users to assess the merits of these exploratory projects for their special circumstances.
It is far too easy to be a constant critic. The bad is overemphasized while the good is swept away without acknowledgment. If the Morningstar presentations are too dull or too inept, the answer is simple enough: abandon the ship.
As usual, Warren Buffett had a succinct and wise way of putting it: “ Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
Regardless of its shortcomings, I plan to continue using Morningstar as a primary mutual fund data resource. In the end, it is my responsibility to critically examine that data to judge its reliability prior to making a decision.
Your description of Bill Gross’s weird behavior is reminiscent of a like event at the recent Las Vegas MoneyShow. At that event, Ken Fisher made a presentation that seems to be a mirror image of Gross’s misstep. It was totally not decipherable and made no sense whatsoever. To be generous, everybody has a bad day. Perhaps it was caused by the Chicago air compared to the Newport Beach air? Nope, these guys are just being human.
We are often Fooled by a Random Success. I capitalized the phrase because I coupled a Nassim Taleb saying with a contribution from an old friend. Even tossing 10 consecutive heads doesn’t mean we’re in control. Luck is always an investment component. For what it’s worth, we each have a 1 in 1024 probability of tossing 10 straight heads. Not likely, but doable.
Professor, please keep the report flow coming. I wish I were there with you.
Best Regards.

Not all that long ago I considered Mr. Gross one of the brightest minds in the financial world. This story along with all the others that have floated out there does make me wonder what happened to him? He is 70 years old so it could be possible that a medical condition is evolving in him though I don't wish anything of the sort.
Perhaps it is time for him to enjoy life while he can.

@Maurice - In the FireFox Preferences, under 'Privacy':
• check the Accept cookies from sites box.
• do not check the Accept third-party cookies box
• set Keep until: to ask me every time.
It's likely that you already have a long list of cookies with various settings, in your case probably mostly 'blocked'. Click on Exceptions to see that list. You can now do one of two things: if you know what cookies that you would like to permit, you can comb through that list and change the settings. That can be a real pain, though, so it might be easier to just eliminate all of those cookie settings and start all over.
If you do that, with the settings as given above your browser should now automatically reject all of the third-party cookies, which are the advertising, tracking and other junk stuff that you really don't want.
Now each time you go to a new site you will of course be assaulted with a flurry of new cookie requests. Here's a suggestion on how to handle those:
First, accept cookies only from those sites that you want to allow. These may be either Session Only or may have an expiration date, typically rather far in the future.
Second, you may visit sites that you want to take a look at, but not allow cookies if you can help it. The problem there is that many times some operational feature of a site will not function properly without those cookies. So here's a compromise that usually works-
• Allow at least one, typically the first one, for Session Only
* Deny all of the rest, especially any cookie that has an expiration date other than Session Only.
You will wind up with cookies on your browser, but hopefully only from sites that you have approved. If you frequently use your browser for checking bank balances, financial holdings, or other similar operations this is about the best compromise that I've been able to work out.
If you do inadvertently allow cookies that you want to delete, you can go back through the preferences to that list, and block them there.
Hope this helps a little.
OJ