FYI: Copy & Paste Barron's 3/25/14: Teresa Rivas
Regards,
Ted
The JPMorgan Value Advantage Select Fund (ticker: JVASX) has outperformed Warren Buffett since its inception nearly nine years ago, a streak that portfolio manager Jonathan Simon would very much like to keep alive.
Though Simon has not been in the game quite as long as the Oracle, he's got more than a quarter of a century of stock-picking under his belt. He has displayed a conservative bent and a penchant for companies with quality management teams focused on growing underlying value. The Value Advantage Select Fund earns a five-star rating from Morningstar and falls into the highest and second-highest percentile of its category for the past five- and seven-year periods, respectively, as well as since its 2005 inception. While the rising tide has lifted all boats over the past five years, Simon's stock-picking has added significant value: The fund has returned an annualized 28.5%, compared with a 23.8% gain for the Standard & Poor's 500, and a 22.4% average return for its pee
.
Today, Simon has some contrarian picks among retailers and a space once anathema to value investo
Simon: There is one particular area of the portfolio that's been doing really badly recently and is quite contrarian: the specialty retailers. On the one hand, it's the area causing me the most pain because that's where we've suffered the biggest losses recently. But on the other hand, it could be the biggest opportunity. The holiday season was not great for anybody, except for maybe Michael Kors (KORS), and there were fewer shopping days between Thanksgiving and Christmas than there were the year before. The weather was probably a factor, and I suspect we are in for some more bad news there. But that's fine; we'll recover from that. A really disappointing one has been Bed Bath & Beyond (BBBY), but it is a company that has always proven itself long term. They've had a temporary setback, but they'll figure out how to [improve] themselves. They have a very strong entrenched real-estate position, with cash flow on the balance sheet and merchandising expertise, so Bed Bath & Beyond is probably going to be fine over the long run.
Q: There are a number of large health-care names in your top 10 holdings.
A: A few years ago Pfizer (PFE) became a big holding because the management team really started to understand that they had to simplify the businesses, focus their research and development on really promising pharmaceutical development — as opposed to just spending lots of money — and spin off peripheral businesses. So Pfizer has been a big holding because management has focused the company, and they've spun off the animal health business, Zoetis (ZTS), in a very tax-efficient way. Now Merck (MRK) is going down a similar path; its management team is going to use very similar strategy and there is opportunity there. Finally Johnson & Johnson (JNJ), on the pharmaceutical side has one of the more promising pipelines of new products. With J&J there is more diversification, with the medical technology business and the consumer business. So really those three names are almost sort of core of the health-care weighting in the portfolio: We probably have 6% or 7% of the portfolio in those three names. All obviously have good dividend yields, they trade at low- to mid-teens earnings multiples, and we think that the management teams are doing a great
.
Q: The fund has a lot of financial exposure, and names like Capital One Financial (COF) and Wells Fargo (WFC) are among your top holdings.
A: Wells Fargo has been doing what it is supposed to, which is to be the big, high-quality blue chip of the banking sector. I still think Wells Fargo has significant earnings power over the next three years, particularly as interest rates normalize. There has been concern about all the money they made on mortgage originations when there was the massive [refinancing] boom, as that is not happening anymore. But I think there are enough other levers in the Wells Fargo arsenal to offset the decline in mortgage-related earnings. I like Wells Fargo a lot. It is still a core holding. It is still a massive overweight top 10 holding.
Capital One is a bit different. I'd say it has taken a bit of a breather recently. Capital One to me has a great combination of a high-yielding loan portfolio, because of credit cards and auto-related loans, combined with cheap deposits both through the branch system and also through the online deposit [business] they acquired from ING. To me that is a very powerful business model that Rich Fairbank, the CEO, has put together over the last two years; he really took advantage of the distress in the downturn. People get concerned that Capital One is not growing its loan portfolio at the moment. But really they've bulked up so much that they are really shrinking down to a more solid core, and I think the story is going to be a lot about stock buybacks and dividends.
We have other regional banks, and one of the laggards has been M&T Bank (MTB), which has been trying to buy Hudson City Bancorp (HCBK). The regulators keep making them jump through more and more hoops on the compliance side of things, and it's taking forever. My belief is that they will ultimately close that transaction, and there will be a lot of benefits to M&T. The stock has been out of favor now for about a year. But as you know I'm patient, so that's a name that I think is going to generate strong returns for the firm over the next two years.
.
Q: Any other relatively new names you wanted to mention?
A: One timber REIT called Rayonier (RYN) is a contrarian pick. The company made an announcement toward the end of last year about its expansion. It was spending a lot of money in expanding one of its manufacturing facilities down in Georgia, and we were a little worried that maybe they were adding too much capacity to the global market. Lo and behold, they said yes, they expected their pricing and margins to be under pressure for the next year or so -- the stock was punished pretty badly. We did an analysis, and we thought that in the long term it would work out and so built it into a decent size position. It has a real-estate section although it is partly forest products as well, and they announced at the beginning of this year they were going to split the company in two. The stock went down a little bit on the announcement. But we still think there is great value there, so it is a name we are going to hang on to. We think that sum of the parts will be greater than you have at the moment. The other oddball thing I did this year -- I actually invested in an airline. I missed the big run-up, but we started to accumulate Delta Air Lines (DAL). So that's highly unusual, but things have really changed in the domestic airline industry. It has really consolidated down into three or four main players: American Airlines (AAL), United Continental (UAL) and Delta, and then Southwest Airlines (LUV) as well and JetBlue Airways (JBLU), which is quite a bit smaller. I think those companies are maybe not delivering the greatest customer experience, but they are delivering good value and much better service. That is translating into much better returns and profit margins for the industry. And as long as they remain disciplined, I think that the stock is relatively inexpensive still, relative to earnings. So even though I missed the first leg or so, there is still more to come.
Q: Thanks.
M* Snapshot Of JVASX: http://quotes.morningstar.com/fund/f?t=JVASX&region=usa&culture=en-US
.

I'm on the team but not for long. I like what David is doing with MFO and was supporting him with quarterly donations to keep the site above water. But after being told by ted to" lead, follow or get out of the way", I'm getting out of the way and going elsewhere with my time and financial support. Usenet has forum monitors and the ability to filter posters, I just wish MFO had that capability. Oh I'll check in every once in a while for interesting posts but anything with ted in it is flushed clockwise.

The best you can do is understand what annuities really are and where it works and doesn't and make a recommendation based on it.
Opinions on annuities vary but a lot of them aren't necessarily from a good understanding of them. The sleazy channels through which many of them are sold doesn't help either.
The biggest problem is that people (even some here) don't understand risk and what risk management is and they may not understand the concept of insurance either. All this comes from a lack of intuitive understanding of probabilities.
Annuities are a mixed investment and insurance product. As such, they behave differently from both.
There isn't a mystery to how annuities work. Any individual has two financial risks - market risk and longevity risk. There are ways to manage this but there is always a cost to managing risk. So, it is a trade-off between the potential impact of negative consequences of risk and the cost impact of reducing it. This depends on the individual circumstances.
Annuities work by taking on market risk and longevity risk but for a price. They introduce an insurer stability risk, but I will neglect that for the moment because that is handled differently.
If you knew you were going to live exactly for X years, there is no longevity risk and you can take market risk by investing the money. The problem here is one of cash flow because if the markets enter a bear period, you cannot assume an income flow without risking shortfall. If you had an investment product that guaranteed some X%, then you can take longevity risk by investing and drawing down based on that return. But the problem is one of shortfall if you were to live longer than you expect.
Annuities try to solve that and aren't by themselves evil, only bad fit depending on circumstances.
Annuities are NOT instruments to give you better investment returns or let you come out ahead than investing in your own. Nobody can offer annuities if that was the case.
Hypothetically, imagine if you could invest by yourself based on some assumption of market returns and longevity, AND you could take out an insurance on market downturns or longevity so you got paid only if the market went down or you lived longer. There would be a premium cost to that insurance that would eat into the investment returns. If you never needed that insurance, you have paid a non-refundable cost but you got a guarantee in case that wasn't the case. If you needed that insurance payout, then you MAY come out ahead. That is the way insurance works and this is what annuities basically are.
The way the annuities are priced aren't a mystery. The insurance company calculates present value of cash in reverse with assumptions on market returns and longevity. So, they can calculate a payout schedule for which the present value is the amount you want to put into the annuities. They are also managing risk and they are not nonprofit, so they account for that in two ways - one, with an insurance pool they reduce longevity risk, the same way life insurance works and they give you a payout whose present value is less than the amount needed for the annuity. The cost of doing business is accounted this way. There is nothing inherently evil about this, just an evaluation of whether the insurance premium is worth the insurance.
What are the alternatives? Investing on your own. People who suggest you can do so and prevent cash flow or shortfall problems if you have a long enough period really don't understand risk. Investing gives you return for taking a risk, if the returns were such a no-brainer, why would the markets give you those returns?
The key to understanding this is that there are different kinds of risks and some people have better ability to take on some risks than others and therefore can get a return for them. For example, if you have a time period over which you don't need liquidity, than you can get higher returns over someone that cannot take that illiquidity risk. The longer the time period, the better the returns. You can do this easily in the accumulation phase but not necessarily in the drawdown period and so you cannot assume those guaranteed results if you need liquidity.
The instruments that provide a return without liquidity risk may require you to take on other forms of risk, a common one being inflation risk. Or, it could be interest rate risk. This may create a shortfall risk if in a drawdown period and so some people may be able to take it on better than others and so get returns for it. So, there is no getting around the fact that every option has some risk you are taking on, if you expect a return. No amount of looking at the past is going to change that. Rewards may be commensurate with risk but not guaranteed by it.
So, the decision comes down to evaluating what risks one is able to take and the products that are right for it.
The starting point for this in a drawdown period is an evaluation of the financial requirement, both in terms of the absolute minimum needed (to avoid large consequences such as getting evicted, not getting health care, not having food, etc) that people can survive on if necessary and a desired need that will let them enjoy life as they would like to. The former is where you want to take the least risk.
Ideally, if you have enough capital you can self-insure not because you will be a better investor but you don't have as much of a shortfall risk and you can take on cash flow risk in down markets from the buffer.
Most people don't have that much capital in retirement years, so the calculation becomes difficult.
The next option if the above is not feaaible is a combination of annuities and investments. Ideally again, buying an annuity for that absolute minimum calculated above to take care of minimum cash flow risks and investing the rest taking on shortfall risks for the "discretionary amount" may be an option with lower amount of capital than self insuring all risks. The older the people get, the more feasible this option gets.
If there isn't enough capital to even guarantee the minimum with everything in annuities, then the reality is that one is underfunded and not something that can be fixed easily. The only option might be to take market and longevity risks and hope for the best in the time left.
There may be a partial solution by buying annuities with inflation risk taken by you than annuities that take on inflation risk for you as well and hence more expensive.
The above is a framework for that calculation for each specific person. Annuities may or may not be a good fit depending on personal circumstances and the price of available annuities for the risks outsourced.
In any case, the decision shouldn't be based on uninformed or uncertain (by being unfamiliar) opinions on annuities, they are just another financial product with good and bad applications. Just avoid the sleaze channels through which annuities are often sold and explore the options available in the context of the needs of this couple. That is the best one can do.

Thank you Ted, Old_Skeet and bee!
The Kiplinger article was really helpful and I plan to check out "The Moose."
I have seen the Fund Mojo before and will look it up again. I also sometimes check in to the Maxfunds site. I have used MFO for several years now and many of my current funds were bought after reading and following ideas from the site. I am completely in charge of my own retirement and I am always worried that I might miss something because I have pretty much rejected any outside help such as a financial advisor. What I like about McKee is his attention to risk. I have managed to do fairly well with my retirement planning on my own, but I can't really afford another major drawdown like I had in 2008.

cman said; It is just a blogging platform for anybody to write anything even if the attention is negative as in readers blasting the authors for stupid analysis.
Charles Barkley says(Watch the full 1:18)
http://www.cbssports.com/video/player/collegebasketball/202593347533/0/buzz-williams-reportedly-signs-deal-with-virginia-tech
Seriously,This is what I use Seeking Alpha for.The site does not exactly break any headline news but it is an excellent source of financial/investment news/trends throughout most M-F time frames. I use it to track portfolios and I subscribe to Energy/Dividend/Global/and Macro newsletter e-mails.The http://seekingalpha.com/author/michael-filloon/articles and http://seekingalpha.com/author/bdc-buzz/articles are always worth a peek.I seldom look at the site's Investment Ideas tab.I find the site a starting point for possible future investments or watch list candidates.
Aggregator - Wikipedia, the free encyclopedia
en.wikipedia.org/wiki/Aggregator Cached
Aggregator refers to a web site or computer software that aggregates a specific type of information from multiple online sources: Data aggregator, an organization ...

FYI:
Regards,
Ted
http://www.investmentnews.com/article/20140320/FREE/140329988?template=printart

From cman: "Financial markets are an organized way to get returns on capital, nothing more, nothing less. Money has no ethics or morals, it simply flows to where the returns are highest, whether it is based on unethical practices isn't a conscious decision that money makes and the new instruments do a good job of making that opaque so people can avoid thinking about it..."
Well-stated. I would add that it is not just new, recent opaque "instruments" that assist the people who drive the money from thinking about the fact that there is hardly a thing more tightly connected to issues of ethics than MONEY. Markets don't have a conscience. But people really, really should. There is little evidence of it, anywhere, sadly. Especially from those who drive the Markets.

Financial markets are an organized way to get returns on capital, nothing more, nothing less. Money has no ethics or morals, it simply flows to where the returns are highest, whether it is based on unethical practices isn't a conscious decision that money makes and the new instruments do a good job of making that opaque so people can avoid thinking about it.
You are correct about stocks, the original premise of investing in the company directly and sharing in its profits is no longer true for the most part. It is more of a derivative on the performance of the company with the returns coming from betting against each other. Companies can also exploit this to monetize the ownership of insiders and employees from the inflow of money. This will continue as long as people are making returns on their capital. Get an extended bear market and all of these will then be discussed and highlighted. Stock ownership is no more a way to influence the company (unless you are Carl Icahn) than ownership in an ETF is a way to influence its design and composition.
Regarding bonds, you are referring to Treasuries only. Corporate bonds are different and purchase of individual bonds are actually the most direct in being related to the company needs. Company borrows money from you and pays you an interest for that loan. When you buy bond mutual fund, you bring in the aspect of betting against other investors and getting returns from the flow of money than just returns. It is a legalized form of gambling just like equity markets despite all the rationalizations.
Use of treasuries is simply the means for the Treasury to manage their cash flow for the spending by the Govt of their revenue and so not a problem ethically or otherwise on its own. What you are pointing to is a problem with Govt policy for which there is no simple answer.
Any return on capital favors owners of that capital. By definition, this implies a transfer of wealth to owners of capital. A "fairer" system is when the returns on capital and labor are in equilibrium so that there is good mobity between the two but we are in a period where capital has managed to subjugate labor by both ethical and unethical means so that the returns are enhanced.
Part of your investment in the equity markets is to fund that move to increase the return on capital in any way possible without you getting your own hands dirty to speak, so yes, it could be considered unethical in a way but you will find most people have compartmentalized this into something that they don't have to think about so they can benefit from the return on capital.

Wednesday, March 19, 2014
Editor's Corner
World Boundaries Change
Ron Rowland
It’s never a dull news week when world boundaries change. Although the paperwork is not complete, the Crimean Peninsula went from being a territory of Ukraine to a part of the Russian Federation. Over the weekend, the residents of Crimea held a referendum and overwhelmingly (more than 95%) voted to secede from Ukraine and rejoin Russia. President Putin wasted no time, signing treaties at the Kremlin yesterday to annex Crimea. In a speech to the Russian Parliament he waved-off recent sanctions levied by Europe and the U.S., said a further “partition of Ukraine” was not needed, and referred to Crimea as Russia’s “historical south.”
The historical reference comes into play because Russia transferred Crimea to Ukraine in 1954 – 60 years and two generations ago. However, Ukraine was part of the USSR back then, and the transfer was seen as mostly symbolic. Many political analysts believe Putin is nostalgic for the old days of USSR supremacy in the region and he would like nothing more than to oversee Russia’s return to its former greatness. Markets seemed to take their cue from the portion of the speech downplaying further action and began the week with a strong relief rally.
Today, the Federal Reserve is grabbing the headlines as the FOMC completes its first meeting under the leadership of Janet Yellen. Some recent economic weakness caused analysts to lower the probability of another automatic $10 billion monthly reduction of bond purchases. However, the Fed proceeded to make that cut, bringing the monthly injections down to $55 billion, consisting of $25 billion in mortgage backed securities and $30 billion in Treasury bonds.
One significant change in the post-meeting statement was the removal of the 6.5% unemployment rate as a threshold to begin considering interest rate increases. This change seemed to catch many Fed watchers off guard. However, unemployment has approached that level the past few months, and we view the removal of this data point as consistent with the Fed’s prior commitment to keep rates low for an extended period after the completion of the asset purchase program.
Yellen also conducted her first post-FOMC meeting press conference today. She stressed that recent economic weakness was believed to be weather related and the uptick in the labor force partition rate was an encouraging factor. Market reaction to the FOMC meeting was negative. Stocks fell, bonds fell, gold fell, and the dollar rose. Last week’s market action looked like a flight to safety, and today’s reaction seemed to undo it all.
Sectors
Utilities made a spectacular jump from eighth place all the way to first as part of last week’s flight to safety. Health Care has controlled the top of the sector rankings for ten weeks, but Utilities’ climb pushed it down a notch to second place. Materials stayed close on the heels of Health Care. Real Estate, an income-oriented sector, climbed two spots to fourth. Technology had a good overall week, but its temporary pullback last Thursday and Friday resulted in a loss of momentum and a two-position slippage to fifth. Financials were essentially unchanged the past week, but that was good enough to increase its ranking a notch to sixth. Consumer Discretionary and Industrials were in a tie a week ago and are again today. In the meantime, they both fell three places and turned in some of the poorest performances of the week. Consumer Staples continued its steady climb off its early February low and managed to move ahead of Energy. Telecom broke out of its four-month downtrend while remaining in last place.
Styles
No changes in the top two positions, and no changes in the bottom four either. The short-term performance graphs of first place Micro Cap and last place Mega Cap may appear similar at first glance. However, once you plot them on the same chart with a consistent scale, the contrast becomes obvious. Zooming out to include a whole year, the fact the Micro Cap category doubled the performance of Mega Cap is readily apparent. Falling in behind Micro Cap are Small Cap Growth, Small Cap Blend, and Small Cap Value, giving small company stocks a decisive advantage over their larger brethren in this market. Small Cap Value posted the biggest improvement, allowing it to join this group by climbing from seventh place a week ago. This week’s changes in the middle of the rankings were consistent with the new inverse capitalization alignment seen in the accompanying chart. The Mid Cap trio occupies the middle ground while the Large Cap trio sits near the bottom above Mega Cap.
Global
Events in Ukraine generated global tension and market nervousness the past week, allowing the U.S. and its “safe haven” status to keep the top ranking. The physical proximity of Europe to these events caused exaggerated moves in European stocks, but the region managed to hold its second place position. Canada climbed two spots to third, moving into the upper tier for the first time in months and pushing World Equity down to fourth. Pacific ex-Japan moved up a notch to fifth, while EAFE weakened to sixth and is in danger of flipping into a negative trend. The U.K. held its relative position but lost its upward momentum. Japan posted a terrible week due to its inability to join the rest of the world in bouncing back from last week’s selling action. Last week we reported that China was on the verge of replacing Latin America as the worst-ranked category, and today’s chart indicates that has indeed happened.
Note:
The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.
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“With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee's guidance does not indicate any change in the Committee's policy intentions as set forth in its recent statements."
FOMC Statement on March 19, 2014
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Hi Guys,
Howard Marks has been long recognized as a member in good standing of the Benjamin Graham SuperInvestors club. That club of value investors has a very elite and limited membership honor roll.
I have been recently posting on the influence of the Luck Factor on financial outcomes. In a timely manner, Howard Marks just completed an interview at the prestigious Wharton School at the University of Pennsylvania. He acknowledges the major role that luck played in his investment career.
Here is a Link to that interview:
http://knowledge.wharton.upenn.edu/article/investor-howard-marks-luck-risks-job-got-away/
Enjoy.
Best Regards.

Hi Gary,
Simplification is usually beneficial, but over-simplification can be financially hazardous. I believe an investor needs to know as much as possible when assessing financial matters. Constant learning is essential to improve investing outcomes.
Hiring a fund manager or a team of managers does not relieve you of your portfolio management duties. It is just one step in the process. Yes, buying a mutual fund or ETF does transfer some of the investment tasks to the fund manager, but not all of them. You’re still the most important cog in the investment decision wheel.
So continue educating yourself on financial matters or risk ruin from the many professionals who will gladly exploit your blind spots. These guys are experts at filling their pockets while providing services that either fill or empty your pockets. As you correctly emphasized, fees are a persistent annual portfolio drain regardless of market outcomes.
There are simple strategies to substantially decrease this reward drain. Warren Buffett observed that “Beware of little expenses; a small leak will sink a great ship”.
Yale institutional investment genius David Swensen authored his “Unconventional Success” book in 2005. He likes to say that both amateur and professional investors only have 3 tools to work their magic: asset allocation, market timing, and security selection.
By hiring a fund manager, you transfer 2 of these 3 tools to his responsibility: the specific security choices and some of the market timing aspects. However, you fully retain the asset allocation responsibilities. David Swensen concludes that the asset allocation function contributes at least 80 % to the overall returns profile whereas the other two functions each only add 10 % to the returns picture.
Here is a Link to a recent Swensen lecture that he delivered as a guest on Robert Shiller’s economics and finance series:

In his book, Swensen said: “Poor asset allocation, ill-considered active management, and perverse market timing lead the list of errors made by individual investors.” Remember, you are still responsible for at least the asset allocation decisions.
Costs always matter and individual investors are always exposed to potentially escalading investment charges, some obvious and some hidden.
The private investor and his portfolio suffer from a triple whammy in this regard that is a heavy burden to overcome. The triple whammy for the individual investor is: (1) the fund and advisor fees, (2) the average underperformance of active fund managers to just match passive Index outcomes, and (3) the poor exit/entry timing of the investor himself.
All three factors are frictional drags that substantially reduce the private investors annual returns to approximately one-third of overall market returns. Countless academic and industry studies document this dismal shortfall.
The simple strategy to substantially attenuate this wealth robbing burden is to eliminate the second tier of advisor fees, to invest in low cost mutual fund and ETF products like Index funds, to avoid frequent trading that is tied to short term market timing, and to be alert to behavioral biases like overconfidence and herding that encourage faulty market decisions.
The MFO membership is dominated by folks who own mutual funds and ETFs. As a group, we recognize and reserve the asset allocation and the long-term entry/exit decisions for ourselves. To execute this task with some success, each of us continually upgrades our knowledge base by learning and with experience. I suggest that you will enhance your portfolio’s growth prospects by also adopting this learning pattern.
Thank you for your participation in this exchange and thanks for the Link.
Best Wishes.

I do not disagree with the failings of M* but I am not sure reading the prospectus and investing based on that is a practical solution for most investors in terms of return on effort. It is like trying to decide which car to buy based on reading the owner manual of each car.
There is a need for a comparitive analysis between funds, the tracking between the prospectus and what the fund actually delivers, etc that are not easily gleaned from reading the prospectus.
The prospectus is much more useful for financial advisors whose research time can be amortized over multiple portfolios than a single one. That is one of the values FAs can provide. It is also useful to understand funds that use special strategies or styles. I can't think of a fund I had to read the prospectus for to decide to invest in it.
A bad fund that is characterized/rated highly is more of a problem for the retail investor than a good mutual fund that is not discovered because of mis-characterization.

This is the Walk Street equivalent of NAR's it is always a good time to buy. Confuses correlation with causality for its conclusion.
Both Disciplined Dave and Hapless Harry were lucky enough to invest in a historic period where the demographics and policies created huge inflows into the market lifting everything. Will this continue for the next 30 years? Nobody knows except in retrospect.
But this has to be the dumbest and most irresponsible statement in financial media ever

... If you're hesitant for fear of entering at the market top and you're not a retiree or terminally ill, then this makes you a speculator.

Hi Guys,
“Chance favors the prepared mind” is a famous truncation of a Louis Pasteur quote.
A few days ago I mentioned that my wife just purchased Max Gunther’s 1977 reissued “Luck Factor” book. The subtitle of the book is “Why some people are luckier than others and how you can become one of them”. That’s worth exploring.
Chance does indeed favor the prepared mind, but all successful people acknowledge that luck is an influential factor in all their careers. Final positive and negative results often pivot on unforeseen factors that ultimately tilt the outcome in one direction or the other.
The military likes to talk about force multipliers. In everyday happenings, luck is a force multiplier. Folks who have studied both lucky and unlucky people have concluded that a person’s luck quotient can be augmented. Gunther offers several personal attributes that can be sharpened and actions that can be practiced that could enhance one’s luck quotient.
Gunther identifies four Luck Adjustment elements: the Spiderweb structure, the Hunching skill, action Boldness, and the Ratchet effect.
When applied to investing, the Spiderweb structure is an expanded number of financial contacts with divergent knowledge and interpretations. The MFO website and its membership serve to satisfy this need with its complex network of folks who volunteer information and meaningful guidance.
The Hunching skill deals with accepting the fact that we know more than we can immediately recall to form a cogent decision. At the decisive moment we feel that some decision is warranted, but we can not cobble together a precise logic chain to support that decision. Our subconscious stores data at various locations that can not be instantaneously accessed, but it’s there based on earlier learning and experience. We have a vague and clouded memory of it, and it forms the basis of our feelings, the source of our Hunch. Gunther recommends taking action on that Hunch.
History demonstrates that boldness is frequently rewarded. The bold enthusiastically seize opportunity when it is presented. The lucky seem to be bold; the unlucky seem to be timid. However, intemperate boldness can lead to faulty decisions and disastrous outcomes. Gunther emphasizes that boldness must be coupled to avoiding rashness. The investor must do a balancing act in terms of the risk-reward tradeoffs.
An investor recognizes that outcomes are uncertain. Total prescience is an impossible criteria when making an investment decision. Here’s where a probabilistic grounding that uses statistical databases can improve an investor’s luck quotient. It is prudent to prepare a safety net to accommodate unexpected events and unhealthy investment payoffs. Gunther names this the Ratchet Effect. He recommends that investors should be willing to admit an investment error, and be prepared to sell at some predetermined loss, like 10 % or 15 %. Any investor should have sufficient financial reserves to easily sustain these relatively minor disruptions. Never invest with grocery money.
This summary of Gunther’s Luck Factors takes us full circle to Pasteur’s chance favors the informed mind aphorism. What constitutes an “informed mind” for profitable investing?
I admire the financial works of Bill Bernstein. He had at least a partial answer to that question in his 2010 book “The Investor’s Manifesto”. Bernstein argues that most investors are doomed to fail (underperform the markets) because they, with a small percentage excepted, do not possess the requisite abilities. What are these requisite abilities?
Bernstein lists four: (1) a dedicated and continuous interest in the investment process, (2) a little math horsepower that includes some limited statistical and probability capabilities, (3) a historical perspective starting with the South Sea bubble, and (4) an emotional discipline to stay the course with a carefully crafted plan. He claims that Wall Street is littered with the bones of folks who knew what to do, but failed to do it. Execution is mandatory.
Much of what Bernstein says in his Manifesto couples tightly to the findings that Max Gunther summarized decades earlier. Fortune does not smile equally on everyone, but the odds for that winning smile can be enhanced with preparation, patience, and persistence.
Here are a few quotes that I culled from Bernstein’s book that reinforce some of Gunther’s work on the subject.
"The goal is not to maximize the chances of getting rich, but rather to minimize the
odds of getting poor." That’s the control risk axiom.
"Very high returns are almost always made by those brave enough to invest when
the sky is blackest." It’s tough being a contrarian, but the payday is huge because of the regression-to-the-mean market pull.
"Nothing is as likely to destroy your financial future as your own emotions." This is a caution against the (mis)behavior biases.
And finally, a brutally frank condemnation:
"The average stock broker services his clients in the same way that Baby Face
Nelson serviced banks." Bernstein has surely earned the privilege to slam an industry, but the criticism is far too broad for my comfort zone. I pass on this one.
You might want to read both books. They are breezy and easily read. I enjoyed both volumes, but not surprisingly, I was more impressed with the Bernstein effort because it contained an abundance of historical and statistical data. Enjoy.
Best Regards.

FWIW, I believe the 11 funds that are under consideration as TBTF are:
SPY - SPDR S&P 500 ETF
VTSMX - Vanguard Total Stock Market (all share classes combined, as are the others)
FDRXX - Fidelity Cash Reserves MMF
PTTRX - PIMCO Total Return
VINIX - Vanguard Institutional Index
VFINX - Vanguard 500
AGTHX - American Funds Growth Fund of America
AEGPX - American Funds EuroPacific Growth
VGTSX - Vanguard Total International Stock Index
FCNTX - Fidelity Contrafund
VBMFX - Vanguard Total Bond Market Index
The article says the fund companies are saying that because these are just vanilla funds that don't make extensive use of leverage, they can't be harmful to the financial system in times of stress.
I thought that the use of leverage and other "esoteric" instruments was precisely the difference PIMCO claimed between PTTRX and its ETF non-clone. Can't have it both ways - these are either similar funds or PTTRX is leveraging.
See, e.g. this 2009 Bloomberg article about PTTRX: "Such a portfolio [as quantified by M*] would be akin to a leveraged hedge fund's."
http://www.businessweek.com/magazine/content/09_48/b4157072840757.htm

Thank you all for the advice and suggestions so far. I sent an email with questions to both father and advisor and the advisor is waiting for Dad's permission to discuss it with me. This way I'll get answers in writing, but he seemed to think my questions (thanks to your collective help) were good.
@catch22 The advisor has already been hired and was before I started taking an interest in such things, and there's a 500k inheritance being sorted out at the moment and is partly why I'm both concerned about how its being handled and about switching horses mid-stream. (In other news my family members live forever).
I'll see if I can get a copy of the formal fee declaration and structure. My general inclination is to let the next few years play out to make sure things in his portfolio and other financial areas steady themselves out and then look to manage everything sans advisor. A post 9/11 unemployment phase left him doing some early drawdowns and he is still catching up.

A thought about going to Vanguard, Fidelity, whatever. They may be better in their recommendations; certainly they will be less pushy. But don't be lulled into thinking that they don't have their own (institutionally backed) biases as well.
Several years ago, I had my mother take advantage of Vanguard's free (for Voyager customers at the time, now you need to be Voyager Select) CFA financial plan. The guy did a very good, thorough job - spent a good amount of time talking with my mother, inventoried assets, talked about needs. Suggested asset allocation was appropriate, etc.
However, and not surprisingly, the suggested portfolio was all Vanguard funds. This made little sense IMHO for someone with a fair number of muni bonds. No reason to sell off that portfolio just to buy a muni bond fund, especially since transaction costs on bonds are prohibitive (bonds are often best viewed as B&H investments until they mature).
In addition, the LC blend recommendation was VFINX, at a time that Vanguard was touting how it worked with MSCI to get better indexes. (That difference was real, because of the use of buffer zones - S&P was the last to adopt these.) Vanguard had, and has VLCAX. (At the time, the price difference was just 1 basis pt.) While I did ask, I was never clear on the answer, and I guessed that it was the easier sale - everyone knows S&P 500.
Regarding Fidelity - their reps get compensated based on AUM, with higher rates for the more profitable products. Insurance products and Porfolio Advisory Services (PAS) being at the top of the list. Here's their FAQ on pricing and the detailed (13 p) pdf with details on representative's compensation.
On the plus side, they're not making this hard to find, and the incentives aren't large. On the negative side, this could explain why Fidelity kept urging me to suggest PAS to friends and family (not for me, though; Fidelity knows better than that).
Take all advice with a grain of salt.

Loads are typically waived for investments through wrap accounts. For example, quoting from the prospectus of TPINX, sales charges are waived for:

Advisory Fee Programs. Shares acquired by an investor in connection
with a comprehensive fee or other advisory fee arrangement between
the investor and a registered broker-dealer or investment adviser, trust
company or bank (referred to as the “Sponsor”) in which the investor
pays that Sponsor a fee for investment advisory services and the
Sponsor or a broker-dealer through whom the shares are acquired has
an agreement with Distributors authorizing the sale of Fund shares.

Of course the planner is receiving trailing fees (12b-1) from the funds. Not loads. An obvious tip off is the use of TRP Advisor class shares. These are shares with an extra 0.25% 12b-1 fee. Quoting from a TRP prospectus:

Advisor Class shares are sold only through unaffiliated brokers and other unaffiliated financial intermediaries that are compensated by the class for distribution, shareholder servicing, and/or certain administrative services under a Board-approved Rule 12b-1 plan.

The question I would ask is whether the wrap fee is reduced by the amount of trailing fees that the planner receives.
For example, here's Edward Jones' brochure about its Unified Management Account (wrap account) program.
"Fee Offsets. ... If we receive Rule 12b-1 fees for the shares in your account, we will credit the amount received to your account."

I think there should be a special place in hell for those who prey upon the distressed, the naive or the elderly.
Now that I have that off my chest, I would tend to agree with those that suggest she talk to Vanguard or a fee- only financial planner. Actually, its my belief that there should be no other kind but that's a different fight.
Good luck in getting her to accept your advice.
Best,

@cman:

She should reply to the financial planner/advisor: "Your clients would have been better off if you got them out of the market in October 2007 and kept them out until March 9, 2009."

Love it.