Reply to @andrei:
Hi Andrei,
Thanks for your thought-provoking reply.
I would caution here against a too rapid rush to adopt a “Wisdom of the Crowds” investment philosophy. It only works sometimes and it would be extremely time consuming and difficult to effectively apply. Here’s why.
You need only revisit the Cleveland Fed study that I referenced. Here is another conclusion that I extracted from that fine report:
“The evidence presented above makes one thing very clear—we must be cautious before relying on what the median economic forecaster predicts, at least with respect to overall GDP growth and CPI inflation.” Within the text, the paper documents that: “…. Since 1983 the median forecast was accurate in only seven years, or about 30 percent of the time.”
That’s not a very strong endorsement for the survey’s median finding. Also, to get a meaningful statistical sample, a large number of credible forecasters must be interviewed. That too is a formidable, labor intensive task.
So, as songwriter Paul Simon sang “Slow down you’re moving too fast”. That’s also the primary theme in behavioral researcher Daniel Kahneman’s seminal book, “Thinking, Fast and Slow”. It is worth getting a copy of that masterpiece; it will help in your investment decision making.
Although rare and challenging to identify before the fact, especially talented investment experts do exist. Long term performance records establish their special abilities. In my original posting I mentioned Ken Fischer. For years he has maintained an average success ratio well above the CXO survey group average. That high standard is likely due to a mix of inherited DNA from his Dad, his educational background, his opportunities, and just a little luck. The luck factor is what causes variability (standard deviation) in his absolute annual performance and his relative performance standings.
Warren Buffett is similarly a prime example of an outstanding, relatively consistent, and sometimes imperfect investor. Buffett documents a group of similar investors who applied the teachings of Benjamin Graham in his 1984 presentation at Columbia University titled “The Superinvestors of Graham-and-Doddsville”. Here is a Link to that classic debate piece:
http://www.tilsonfunds.com/superinvestors.html
So active investors are alive and an elite few are doing well. But their numbers are very limited.
A major issue with “The Wisdom of the Crowds” is the requirement for fully independent individual predictions. The population as a whole tends to quickly adopt herd behavior (trends, fashion, fads). The herd mentality also is pervasive within the investment analyst community.
Analysts fear being singularly wrong. John Maynard Keynes captured the motivation for the herd instinct with his famous quote “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally”. Folks, even professionals, actively seek to be part of the crowd.
The Wisdom of the Crowds book was written as a frontal counterattack to the Charles Mackay classic “Extraordinary Popular Delusions and the Madness of the Crowds” written in 1841. Financial mania and bubbles such as the South Sea bubble and the tulip bulb mania are highlighted in its text as examples of irrational herd speculation that destroyed substantial wealth, especially among the poorer classes. Indeed, there are always two legitimate sides to every debate.
Most folks are quiescent followers. That instinctive behavior is what got the intelligent, hard working, well educated, prosperous population to behave badly during Hitler’s ascendancy to power in depression dominated Germany of the 1930s. Eric Hoffer succinctly encapsulated that natural and normal tendency in his short masterpiece work “The True Believer”: He said that “When people are free to do as they please, they usually imitate each other.” A consensus is not always a good thing.
So Andrei, please do not jump to a premature and unnecessary investment policy. I guarantee you that both the investment world opportunities and your investment priorities will evolve and will constantly change.
Best of luck to you.

MJG,
You noted:

It is not extraordinary that as informed private investors we demand the performance track record and financial history for a portfolio candidate mutual fund manager. Yet we do not impose that same rather benign requirement when judging the merits and shortcomings from any forecaster that comes within earshot or eyeshot.

Unsure of how you are able to judge the "we". I am not able to make such a judgment towards those here at MFO.
I have little use for those and/or their postions on the extreme left or right, be it a business meeting, politics, religion or whatever any other topic may allow for such a position; but I would leave myself wide open for lack of attempting to understand a related position if I was not open to listening the why's. One may gather the smallest pieces of information, for one's better understanding and knowledge from some of the most unlikely areas. One obviously has to first venture into area, to discover whether there is or is not any value.
I term for myself, that some of this is what the old "liberal arts degree" was inclined to encompass; a broader range of knowledge, that may lend itself to be better understanding of many areas, that may be directed towards a more specfic area of knowledge. I have been in my share of business meetings where extreme views have been presented, especially from a centralized business organization and the corporate folks. These views were going to become actions that would have ramifications upon the whole business plan. What was discovered too many times is that the "planners" did not know, that they did not know. They had a poor understanding of what they thought was the best plan of action. The meeting had benefit of allowing myself and others to enlighten these folks to the "real world" and away from their small cubicles of knowledge. For the simplest of examples: these folks were planning to actions of how to rope a calf at a rodeo; but had never performed the task themselves, had never attended a rodeo, nor had ever been upon a horse. But, they had "book learn'in" and so they must be right; especially with a masters degree in "book learn'in".
Are forecasters and/or the learned investment forecasters always right. Not likely. May there be trinkets of their words that may help anyone of us form a better judgment about our own investment thinking? One would hope so. I, too; would like to discover how the investment forecasters fared with their own portfolios, beginning in late, 2007; and their returns to date from that time frame.
The best benefit I may become to those around me, with whom I chat from time to time; is to "cause them to think differently about, a topic familiar to them, or to cause them to think about a topic that have never before considered." I have to hold myself to nothing less; to become a better person or investor.
What our house may miss, in part; is the "best investment areas of 2013" forecasts which will drop onto the investment world, like leaves from the fall season trees; while we are away from our magical computer device during the holiday period. I suspect there will be more than enough forecasts to view through the month of January, 2013.
Oh, well; I gotta get......already late for today's projects.
Regards,
Catch

Hi Guys,
I recently created a rather mild storm when I proposed that, in general, it is a waste of precious resources (like your limited time) to seek and study financial economic and investment forecasts that are typically generated annually about this time every year. I was unprepared for the soft uproar.
Until now, I had never really explored this topic with any committed research, but I merely based my apparently controversial opinion on generic experiences with such forecasts.
I suppose my upfront biased opinion was likely fortified by a large body of familiar quotes attributed to some very noteworthy and prestigious practitioners and world leaders.
To illustrate, Winston Churchill famously observed that "If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.” That certainly has been my experience.
It is not extraordinary that as informed private investors we demand the performance track record and financial history for a portfolio candidate mutual fund manager. Yet we do not impose that same rather benign requirement when judging the merits and shortcomings from any forecaster that comes within earshot or eyeshot.
Perhaps the reason for that laxity or oversight is that such minimal scorecards are rarely available. That’s too bad since trust must be established by prior performance assessments. In baseball parlance, all I seek is a well documented batting average.
Many years ago I subscribed to the now defunct Worth Magazine. Each year that monthly magazine published many stock picker selections, sector performance estimates, and market return forecasts from expert consultants, market gurus, and financial writers.
For several years I saved these forecasts and compared them against realized results and new annual forecasts. Accuracy performance was dismal, and the future annual forecast dramatically differed from the previous year’s projections. I wrote to the Worth publishers and challenged them to maintain, to score, and to annually report updates on their predictions. I wanted a scorecard, and to my surprise they acknowledged the request with positive action.
As a minimum, that decision demonstrated courage from an unlikely quarter. Unfortunately, Worth’s assembled experts did not improve with age, and their yearly scorecard remained dismal. Perhaps that’s why they stopped publishing their magazine a few years later.
I still believe that it is essential when establishing credibility that any forecaster owes his public a fair accounting of his prognostications record. Given today’s technology that task is a simple matter.
The questions to be addressed are simplicity themselves. How many experts participated? What was the average prediction? How accurate (mostly inaccurate) were each forecaster’s prediction this last year? What is each forecaster’s accumulated accuracy record? These are not difficult demands.
How did each expert compare to the mean and/or median forecast? How many experts were more accurate than the group average performance? At this moment I’m thinking in terms of “The Wisdom of the Crowds”. Maybe some group herding instincts come into play here.
Some of these questions are being routinely addressed in studies, both academic and in the popular media. Here is a Link to one such study reported by the Cleveland Federal Reserve Bank:
http://www.clevelandfed.org/research/Commentary/2007/0315.pdf
It is interesting to note that the Cleveland Fed is here testing the accuracy of private forecasters while simultaneously ignoring their own depressingly poor national GDP growth rate extrapolations. In a direct way, this is equivalent to “the pot calling the kettle black”.
The authors of the referenced article reinforce my earlier ad hoc assertions with the following summary paragraph:
“We find little evidence that any forecaster consistently predicts better than the consensus (median) forecast and, further, we find that forecasters who gave better than-average predictions in one year were unable to sustain their superior forecasting performance—at least no more than random chance would suggest.”
This conclusion mirrors similar findings from extensive S&P SPIVA and Persistence scorecard studies. Prediction persistency is a challenging chore for any forecaster. The researchers failed to identify any “Hot” hand phenomenon. The future, with its unfathomable Black Swan events, is forever uncertain and eludes our forecasting capabilities.
The Cleveland Fed finding is also consistent with the research that is summarized in the Guru section of the CXO Advisory Group website which focuses on market expert’s stock selection prescience. Over a long timeframe, CXO demonstrates that market wizards struggle to maintain a 50 % accuracy scorecard. Ken Fischer seems to be an imperfect exception, but an exception nevertheless.
Making predictions is easy work; a fair scoring of those predictions introduces the predictor to hell’s fire. Sometimes experts are spot on-target; sometimes they completely miss. Luck often impacts outcomes. Misguided or overconfident forecasters should be held accountable.
I long remember a Forbes magazine article in about 1993 in which global strategy guru Barton Biggs projected an extended US bear equity market; he endorsed a foreign Emerging market exposure. I partially acted on his recommendation. A 3-year Emerging market disaster followed. My portfolio still retains erosive burn scars from that ill-timed move. But I learned.
In summary, the current empirical evidence is overwhelming. From a personal experience perspective, from industry Guru evaluations, from collections of mutual fund management performance assessments, and from academic studies of the economic elite’s forecasting record, the assembled data clearly demonstrates that the experts are no more successful at projections than a fair coin flip.
The game these experts play is very asymmetric in outcome attributions. Their potential clientele bear all the financial risk while a forgiving, uncritical media and forgetful investor cohort permit the myth to continue.
Okay, I accept that my arguments might not be completely compelling. Forecaster prescience and follies are debatable stuff that might inspire MFO discussion further down the road, and maybe even some heated controversy. So be it.
Merry Christmas.

Reply to @Mark: Didn't mean to sound (and wasn't) upset, but I was rather dismayed with the way that a thread on a particular alternative fund devolved into a sour discussion a few weeks ago and - not saying that your comment was taking it in that direction - but I was going to say my piece and move on from this thread.
However, in terms of a question asking more about alternatives, I'll offer my views.
Personally, I think what I'd recommend for someone is going to vary considerably depending on their age and risk tolerance. In past portfolios I've recommended when asked on this board, I've generally recommended in the neighborhood of 10% in alternative strategies, possibly a bit higher depending on age and risk tolerance. I forget, but - and I apologize if I'm mistaken - I believe poster Bob C has said he has clients in a 10-20% allocation to alternatives (he uses alternatives, but I forget to the exact degree.)
These investments also generally are less correlated (to some degree, all depends on what you're talking about) to the day-to-day movements of the market, and have the ability to provide some degree (again, depends on what) of buffer in times of market stress and especially sustained market stress.
Many long-short funds have not worked, and it's been my view that the "Hedge Funds for the Masses" movement that has come and gone didn't fare well for a number of reasons, such as limited flexibility and being too strict with the definition of long/short. The funds that have stood apart in the category in the last few years are funds that have displayed skill at dialing up and down risk and having a much more variable degree of exposure. The Robeco fund is another strong example, and the two funds that David has profiled seem promising.
Managed futures hasn't done well as a strategy, although the above fund is different in its approach. Trend following funds did quite well in 2008 when the trend was down. An example is the Rydex Managed Futures fund, which gained a lot of attention when it made 8% in 2008. Since then, the fund would appear broken. You have a fund that only updates its positions once a month, which essentially - in this day and age - makes it a Fisher Price My First Hedge Fund. The way that commodity and financial markets are these days, it continually has been off on timing as what it follows whips around, and I've said it should be updated or just discontinued. These funds have not done well, and I question a bit whether managed futures as a strategy (in terms of the trend-following variety) can really work in a mutual fund structure in most market environments. If there's another 2008, they'll probably work just fine again, although not to the degree that will make up for the opportunity cost during the period they didn't.
Managed futures hedge funds can be far more nimble than updating positions once a month, and - as a result - the fund (and category) may not fare well. However, a number of managed futures hedge funds, which have the ability to be far more nimble - have fared better in recent years. The strategy is intended to deliver mild returns during most (not all, some years the strategy doesn't fare as well) good and bad years.
As for the managed futures fund that is the subject of this thread, I suppose I view it as something of a global macro hedge fund, able to make bets long/short across multiple asset classes in a broad fashion. There are many global macro hedge funds, and it comes down to management as to whether they can pull off the strategy consistently - in terms of to what degree, I don't see a stated goal. I don't own the fund and I don't have a place for it, but it's interesting and I don't have an issue with it (aside from not really seeing a stated performance goal, although maybe I just missed it.)
Are there gimmicky alt funds or funds that are too esoteric? Sure. A particularly good example is the James Global Alpha Real Return fund, an absolute return emerging market and commodity fund from the former manager of Pimco Commodity Real Return. A number of these funds, even if they do well, will probably not attract enough AUM to continue.
I also tend to think that the alternatives mutual fund sector has not attracted the talent, as why wouldn't someone open a hedge fund and have a greater degree of flexibility, restrictions on withdrawals from the fund and greater fees? A number of notable long-only mutual fund managers have also left for hedge funds in recent years.
There are also merger arbitrage funds, which go long a company being bought and short the company doing the buying. This has traditionally resulted in "singles" (single digit returns, maybe low double digit in a good year) in good and bad years. In the last 3 years, not that appealing. In 2008, appealing. For an old, retired person looking to have some equity exposure in a strategy that has pretty consistently churned out a few % a year in good times and bad, they may find it a very comfortable position for a small part of their portfolio.
"Why not just a short fund then? "
I'm getting a long-only manager to (hopefully) find opportunities long. I'm getting a long-short manager to (hopefully) find opportunities in both directions. Where I think a number of funds in the category have faltered in recent years is their inability to dial-up and down exposure - just because a fund is long-short does not mean it continually has to devote a substantial portion of the portfolio to shorts. Maybe there are times when it will find few short opportunities, and that's okay. I think that's what you've seen with Marketfield and the Robeco fund that have allowed them to be standouts in the category - that multi-speed approach to the strategy that, in theory, limits the drawdowns in bad years and to dial-up risk again when the manager feels appropriate. While past performance is no guarantee of future results (which can certainly be said about any strategy), the Robeco and Marketfield funds and their handling of 2008/2009 are good examples.
I'm largely long (and a mix of funds and single names), but I do find allocating to a manager that is largely global and multi-asset in its long-short flexibility (Marketfield) to be considerably appealing. I have funds both US and foreign where the intended goal is for the manager to find opportunities long-only, and I have a few funds that have some degree of flexibility long-short across multiple asset classes and find opportunities in both directions.
These funds (like Marketfield and Whitebox) are hedged to a varying degree and I do not expect them to beat the S & P 500 (although wouldn't complain if they did, certainly.) If someone has a portfolio where every investment has a goal of beating the S & P 500 and they can tolerate volatility over the long-and-short term, fine. Personally, I have risk in the areas/sectors/investments where I want to have risk, and I find less volatile funds like Marketfield and others to provide a reasonably good counter-balance.
Additionally, funds like these provide flexibility (which hasn't been as important in the last 3-4 years where there hasn't been a sustained period of market stress, but I continue to think flexibility will be important over the next 5-10 years), less volatility and are not heavily correlated to the day-to-day market movements. There are no expectations of utopia, certainly, but simply - in this day and age - looking for the combination of skilled managers and a greater degree of flexibility and options for those managers to approach the market across different environments good and bad.
If I'm asking a fund manager to go solely short, I'd better be willing to endure loss due to inflation and possibly long market rallies. However, there are short opportunities in good markets and bad, and I think it's appealing to have a manager that has the flexibility to go after those, to some degree depending on market environment. A solely short fund to me is really a more tactical call, and more of a short-term trading vehicle than something that I would have for any great length of time.
The average person should not heavily venture into one fund or strategy, for any number of reasons. They go full Heebner (or Hussman, odd both H's) for a few years or more, for example. There really isn't anything much like Marketfield, in terms of that fund's global approach.
" I'd say conservatively off-hand that 90% of investors don't fit that criteria. "
Most people don't want to do the homework about basic long-only investments and I doubt that schools will start teaching personal finance at the high school level. Or, people just don't want to learn about investing and pay someone else to invest for them. That doesn't mean that these strategies aren't useful when used by skilled management.
Additionally, in terms of saying 90% of investors, interesting that the top 1% of wealthy in the US own a little over half the stocks, bonds and mutual funds. 90-99% own 39.4%, The other 90% owns about 9.3% (the bottom 50% of that owns 0.5%).
http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#half-of-america-has-only-05-of-americas-stocks-and-bonds-3

Reply to @scott:
Hi Scott,
Thank you for your thoughtful reaction to my post.
Based on your comments, I suspect we are in substantial agreement.
In part, you said: “ … (I)f you continue researching and reading and thinking and formulating opinions on what you read (whether you agree with it or not), you’re continuing to exercise the mind.”
Indeed a loud YES to that observation. Our compasses are completely aligned on that thought.
I do suspect that you and I would not concur on the amount of time that we are each prepared to commit to the investment decision making process and/or the sources that we would consult for our primary inputs.
I have little patience for casual Internet sources that are more or less ad hoc in construction, non-verifiable, and with a paucity of supporting references and data. Brevity is not a positive attribute in this instance. Far too many Web-based interchanges fall into this category, and are consequently not trustworthy.
So, I tend to rely more heavily on fully documented positions such as those reported in peer reviewed academic research, essay length papers, and carefully crafted books.
I do not automatically discard less formal opinions, I just interpret them more skeptically and worry over the incentives that motivate them. Time is too valuable to waste on junk advice, so prudent judgments to discount that advice quickly is often necessary.
Behavioral studies suggest that this rapid-fire assessment is often made based on an emotional like-or-dislike criteria. Unfortunately this bias does compromise the decision-making process. Detailed, hard data does operate to constrain this wealth destroying tendency. The 4-minute TV interviews, and the short opinions expressed on Internet exchanges reinforce this bad habit. I work to limit my exposure to these debilitating inclinations.
In essence, this answers one of your questions. Wall Street analysts are working for their firms, not for you. They profit, albeit indirectly sometimes, from investor hyperactivity. I do not trust their recommendations. I do not watch CNBC; I do not watch Fox Business; I do not watch Bloomberg. I do make a few exceptions on rare, eventful days.
I do subscribe to the Wall Street Journal. I trusted Jonathan Clements when he wrote financial columns for that paper. I do read some submittals from MFO members. I do read David Snowball’s monthly contribution. So I carefully and judiciously select my basic investment sources. I suspect most MFO participants do likewise.
You also asked if I have acted on advice offered in articles. Yes I have, but I’ve been rewarded with very dubious outcomes. Today, I do so far less frequently than I did so in the distant past. Burn injuries are painful and are remembered for a long time. I am a smarter investor today, than I was in the mid-1950s when I purchased my first stock holding in the Chock-Full-O’Nuts company.
Like you, I too attempt to learn each and every day. Admittedly, some days I’m guilty of some retrograde decisions. I surely am not immune to behavioral financial biases. But like everyone else, I’ll keep on keeping-on.
Best Wishes.

"Well here we go again as we expose ourselves to the market forecasts for 2013. "
Well, yes. People offer their opinions every year for the next year; the way financial media is, people offer their opinions and predictions every day about things macro and micro. It's not that these people can see the future - obviously - but they may have a point or two that may be worth considering (or maybe not.)
Investors can certainly read these, but with a filter - be able to take a point or two (or three) away from what people are saying, and everyone has a favorite economist or two (or three) that they look to. I love reading other people's work on Seekingalpha or other such sites - even if I don't agree with it in the slightest! If you read something and don't agree with it, it's my philosophy that if you continue researching and reading and thinking and formulating opinions on what you read (whether you agree with it or not), you're continuing to exercise the mind.
Yes, time is best spent researching and browsing great, classic written works in finance, but in this day and age, apps like Taptu can allow one to browse through financial sites like Seekingalpha extraordinarily quickly. (Additionally, whoever has a phone or tablet should look at Taptu; it's an exceptionally useful way to collect various news and blog sites in one place.)
I don't think I know everything either and I think one never stops learning in terms of investments. I don't think I know the future, but I can try to look "over the horizon" at what I believe to be large/small trends based on personal experiences, research and other analysis.
"I do not waste precious time seeking or listening to their forecasts. "
Have you ever acted on an investment idea, been inspired to look at a stock or sector or otherwise acted on an investment based in part upon an article or articles?
"But a significant faction of that third cohort is peopled by folks who deal in financial pornography. These guys know better, but are fueled by financial incentives"
You mean, like many WS analysts?

Hi Guys,
Well here we go again as we expose ourselves to the market forecasts for 2013. Good luck if you think these market gurus are especially prescient and gifted soothsayers. They are not.
I do not waste precious time seeking or listening to their forecasts. I suggest you do likewise. Your time should be a highly valued commodity that deserves better exploitation.
William Bernstein beautifully captured the essence of investment forecasting for the individual investor. I’ll crudely paraphrase his insightful summary as follows: “There are three types of investors: (1) those who know they can’t know the future, (2) those who don’t know that they don’t know, and (3) those who know they don’t know, but claim that they do have this ability.”
I suspect most MFO members fall into the first grouping. Likely, many neophyte investors and hyperactive traders populate the second grouping. I propose that a majority of professional investment advisors and gurus collect in the third cohort.
Some in that third category actually believe that they have a special forecasting talent. They are unwittingly wrong. These folks are like Astrology advocates pretending to be scientists. The investment forecasting skill set does not exist in any precise format. Uncertainty rules.
But a significant faction of that third cohort is peopled by folks who deal in financial pornography. These guys know better, but are fueled by financial incentives. They are typically grossly overpaid for their often wealth destroying bad forecasts. They are shameless shills, shysters, and charlatans. Don’t trust their expertise, don’t trust their opinions, and don’t trust them. They will surely erode your wealth if you follow their often self-serving guesstimates that masquerade as scientific projections. What a sad way to make a living.
I have not read the referenced article; I do not intend to do so. Therefore I make no specific judgments about the investment professionals interviewed for that report, or the quality of their estimates. I sincerely hope that they do not fall into the last grouping that I discussed. For all I know they may be disillusioned true believers in their forecasting acumen.
But I propose that it doesn’t matter whatsoever. These market wizards have no more forecasting expertise then any MFO participant. Considering the uncertainties confronting us in 2013, their predictions have about the same merit as our own estimates.
Unfortunately, all of these guesstimates are unreliable. Therefore, one reasonable strategy might be to practice flexible thinking, to keep some reserves, to maintain a long term time horizon if possible, to make minor adjustments only as required, to stay focused, and to stay the course. All of that is within our capabilities given a committed portfolio plan. Trust your own instincts.
As renown economist Paul Samuelson noted: “ It is not easy to get rich in Las Vegas, at Churchill Downs, or at the local Merrill Lynch office.” For most of us, the best portfolio advisor is ourselves.
If you visit enough of these expert forecasts, and plot the assembled predictions, you will generate a completely darkened scatter map that provides no reliable actionable exegesis powers. So don’t waste your own energy on this useless task.
Ted, I agree that Sam Eisenstadt might be a rare exception. I too cut my investing teeth on his Value Line research. But that work mostly concentrated on individual company assessments. His excellent original evaluation techniques did require a rework after many years of success that were followed by some hard failures. I suppose nothing remains constant in the investment universe.
Merry Christmas.

Why Central Banks Can't Let Up on Stimulus
As for the bond-buying programs -- aka quantitative easing -- that dovetail with the low interest rates, the U.S. central bank alone shortly will eclipse $3 trillion on its balance sheet and is expected to end 2013 north of $4 trillion in electronically created money.
Globally, that figure is, well, a lot.
"When you add up all the central banks in the world, it's going to be over $9 trillion," said Marc Doss, regional chief investment officer for Wells Fargo Private Bank. "That's like creating the second-largest economy in the world out of thin air."
http://finance.yahoo.com/news/why-central-banks-cant-let-204737141.html
Hotel California
In a CNBC interview Wednesday evening, the Wall Street Journal’s Jon Hilsenrath called Dr. Bernanke a “gunslinger.” Our Fed chairman is highly intelligent, thoughtful, polite, soft-spoken, seemingly earnest and a huge, huge gambler. And he’s not about to fold a bad hand. Almost four years ago, I wrote that Fed reflationary measures were essentially “betting the ranch.” This week they again doubled down.
http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10737
In for a penny in for a pound. Things initiated as temporary are how the world is now.
A bond debacle in the form of lessened bond fund nav's may be of a lesser concern
amongst imagined and unimagined outcomes of a confrontation at OK Corral.
The actions and behavior of financial markets and credit markets are of primary
importance precisely because leadership elected and appointed deem them secondary.
Several former sovereign states now wards of super-sovereign states have come to understand the unspoken ordering of things or yet failing to understand are living with its dictates just the same.
"Inside the Risky Bets of the Central Banks"
Serious matters follow appetizers, wine and small talk, according to people familiar with the dinners. Mr. King typically asks his colleagues to talk about the outlook in their respective countries. Others ask follow-up questions. The gatherings yield no transcripts or minutes. No staff is allowed.
"A big secret of central bank cooperation," Mr. King said, "is that you can just pick up a phone and have an agreement on something very quickly" in a crisis.
This summer, the central banking clique kept in close touch as they readied for a new round of monetary activism. On June 8, Mr. Bernanke and Mr. King spoke by phone for a half-hour before policy meetings at their central banks, according to Mr. Bernanke's phone records, obtained in a public records request. A few days later, Mr. Bernanke spoke by phone with Mark Carney, head of the Bank of Canada—and last month named as Mr. King's successor. Shortly after, Mr. Bernanke called Stanley Fischer, head of the Bank of Israel, and a former MIT professor who was Mr. Bernanke's dissertation adviser.
On June 18, Mr. Bernanke had an early morning call from his home on Capitol Hill with Mr. Draghi and Mr. King, according to his phone records, as the men assessed the impact of the Greek election on Europe's financial system.
Mr. Bernanke sat quietly during the discussion. But he and the other major central bankers were already primed to launch a new monetary onslaught.
A few days later, the ECB announced an agreement to buy bonds of struggling European governments in exchange for a country's adherence to fiscal austerity.
Then the Fed announced plans to buy bonds every month until U.S. job market improves "substantially." The BOJ, despite Mr. Shirakawa's hesitance, soon followed with news it also was expanding its bond-buying program.
http://online.wsj.com/article/SB10001424127887323717004578157152464486598.html
http://www.globaliamagazine.com/?id=1404
You're in good hands with AllState.

If I were an investor in the Yacktman funds I would have to think really, really hard about holding that investment once the father steps away from managing the funds. The lifestyle differences between father and son I think are too stark to ignore. While they may play no part in the financial or investing realm you'd have to wonder.

Reply to @Charles:
Hi Charles,
Thanks for your comments. I don’t disagree with you.
I’m sure that a whole bevy of financial advisors, market gurus, active fund managers, and especially hedge fund managers totally concur. It’s the same horde who descend on us, and try to sell us their expertise at some considerable cost.
Does the evidence support their sometimes exaggerated claims? With few exceptions, the academic study answer to that question is a resounding “No”, especially over any meaningful timeframe.
The accumulated data finds that only a small percentage of wizards beat their proper benchmarks annually, and that percentage drops precipitously as the time horizon is expanded. Superior performance persistence is almost nonexistent.
Although I do not recall specific statistics, that dismal record is repeated even more frequently for Hedge fund management. Just observe the number of Hedge fund failings each year; their bankruptcy rate is frightening and devastating to their clients.
Are there noteworthy exceptions? Absolutely “Yes”. But that is the nature of statistically characterized uncertain outcomes. Some rare winners will emerge. In that sense my ironclad assertions overstated my true understanding, but not by too much. They were made for simplicity and for emphasis.
It is very likely that Ed Thorp, author of the popular “Beat the Dealer” blackjack card counting technique, is one of the exceptions. He is a very smart, prolific, and persistent man. I understand that he runs a Hedge fund from the beach area of Southern California.
I do not doubt his success. But I do not have access to his performance record, and likely do not qualify as a perspective customer anyway. Too bad. Exceptions like Thorp prove the general rule.
My honest assessment is that most investment experts are most expert at extracting fees from their clients. Their expertise at securing excess returns for their customers is dubious at best. It’s not that they are dishonest; they truly believe that they are financially gifted; the evidence does not support that belief.
Merry Christmas.

Reply to @MJG:
“Investing and soap share a common trait; the more you handle the soap, the smaller it gets.”
I like that!
"Studies demonstrate that nobody has the talent to select future “hot” managers, nobody effectively times the market, nobody is prescient enough to reliably forecast the economy or market rewards, and no financial wizard consistently beats the market. Those are the cruel facts."
Ha, well, after reading...

...I'm not so sure. I suspect Ed Thorp and others might disagree with you.

Hi Catch,
My simple response to your simple question is that I plan to retain all of my current holdings.
I do plan to rebalance towards a slightly lower equity allocation. That decision is not prompted by a fear of equity volatility, but rather reflects my age and need for wealth protection as opposed to wealth creation.
The calendar date change is an artificial decision criterion. If I carefully crafted my portfolio to satisfy my investment targets for 2012 (I did), there is absolutely no incentives to trade, excluding tax benefit harvesting, simply because it is year’s end.
We will be inundated with economic and market forecasts for 2013. These forecasts will provide a huge scatter in predicted outcomes. But they will all share one common characteristic: They will all be guesstimates supported by historical references, but highly unreliable relative to the future. The future is forever uncertain.
Instantaneous reactions are usually wrong-headed and hyperactive trading is a loser’s game. I forget who said something like this, but “investing and soap share a common trait; the more you handle the soap, the smaller it gets”. Year end trading erodes wealth.
Studies demonstrate that nobody has the talent to select future “hot” managers, nobody effectively times the market, nobody is prescient enough to reliably forecast the economy or market rewards, and no financial wizard consistently beats the market. Those are the cruel facts.
So I shall stand-pat on a portfolio that I smartly cobbled together over a lifetime of successful and failed investment decisions. I will monitor to detect Black Swans, but, by definition, these events are not predictable.
Staying the course works in the long haul.
One universal truism in the investment world is that “the only certainty is that there is no certainty”.
Best Wishes.

I definitely wouldn't call myself brilliant, but I continue to learn and continue to research. As for common sense, while common sense is certainly a terrific trait to have, I think it's not entirely able to be applied to today's ADD (or better yet, ADHD) market. It's a matter - I think - of using common sense to see both large and small trends, and to explore how to best play those trends.
Given the "noise" of the day-to-day, I think where common sense comes in is trying to have some ability to see "over the horizon". In the short-to-mid term, I think common sense is less and less an element of today's markets, where computers trade instantly on headlines and investors' view of what is "long-term" is massively shorter than what it was 20 years ago. For some institutional investors, it seems as if long-term if tomorrow, mid-term is end of day and short-term is an hour.
Actually, as for the exact specifics, the average holding time of a stock has gone from several years in the 1960's to less than several days now (http://www.businessinsider.com/stock-investor-holding-period-2012-8)
I have I'd say 50% funds and 50% individual stocks (+/-, but that's in the neighborhood), and try to keep a balance between individual names and active management. I do think people have to be diversified across asset classes and globally; the financial media (both large and small - even something like Seeking Alpha) are so US-centric, but it's really a very global economy and I think one can't simply have an all-US or very heavy US portfolio and say that the multinationals have exposure to foreign economies.

Hi Guys,
Sorry folks, but I do not consider any current MFO participants , acting individually or as a team, brilliant. I definitely include myself in that harsh assessment.
On the positive side of that hard judgment is the realization that some very famous financial wizards and fund managers have made some infamously bad investment decisions. Brilliance does not automatically guarantee successful investment outcomes.
Personally, I reserve the brilliance accolade for the rare genius in any challenging profession whereby giant understanding or unexpected progress is realized.
I would not even award the brilliant accolade to investment heroes like Warren Buffett or Peter Lynch. They surely achieved above average outcomes, but the statistical law of large numbers suggests that a few outstanding winners will always exist. These two giants just happen to have held the winning lottery tickets. Buffett and Lynch both experienced some bad outcomes, but generally survived their failings. Many others, Legg Mason’s Bill Miller comes immediately to mind, did not. Such is the luck of the draw.
Overall, the mutual fund industry has generated a ton of data that supports the notion that active mutual fund management is a challenging, a daunting, and an unpredictable success assignment that defeats just about everyone who accepts that task, given an extended measurement time horizon.
A triple whammy seems to operate in the mutual fund business that limits success. A huge assembled performance database documents this sub-par history. That database includes institutional entities, but especially, it encompasses individual investors. Smart investors are competing against smart people and tend to neutralize each others talents.
First. as a cohort, in almost all mutual fund categories, passive Index funds typically outperform actively managed funds. Standard and Poors’ SPIVA and Persistence scorecards, prepared annually and for extended timeframes, document this dismal record.
By a huge margin that survives extended measurement time periods, an overwhelming percentage of Index products generate higher returns than their actively managed category counterparts. This finding is consistent over time and includes both equity and bond categories.
Second, on an individual level, comparisons of time integrated fund returns greatly exceed returns accumulated by private investors. Morningstar studies, as well as other respected investment agencies, document this finding. DALBAR surveys develop similar conclusions. Most likely because of a poor trading discipline, entering at highs and exiting at market lows, private investors have accumulated a consistent history of disappointing performance when compared against the funds that they hold in their portfolios. We are often late to the party.
Given that (1) active funds typically underperform passive equivalents, and that (2) private investors do not attain even the results of their selected funds, private investors are not rewarded with market-like average returns. Sadly, we settle for a fraction of what the overall market produces. And that happens year after year after year. As John Bogle observed, the croupier extracts his fees and substantially reduces the payout pot.
The third part of the whammy is the very asymmetric nature of the rewards distribution. For those rare cases when outstanding positive Alpha (excess returns) is realized, it is a modest level, like a few percent above a proper benchmark. For those many more negative Alpha scenarios, the undersized returns are far more negative than its assigned benchmark. Both the number and the size of the outcomes define the miserable record of the active investment community.
These three whammy components compound to significantly reduce investor payouts annually. What can an investor do? He can do what institutional investors do by committing to a mix that gravitates towards a passive investment weighting. He can choose to direct a larger percentage of his portfolio to low cost Index products.
Couple this wealth eroding triple whammy with behavioral handicaps such as overconfidence, an overweighting recent data bias, and debilitating anchoring tendencies, and it’s not shocking that individual investors do not harvest market returns.
I guesstimate that most MFO members hold a significant actively managed mutual funds mix. I do. Therefore, I do not characterize us at the dizzying heights of brilliance. No, we do not warrant that high an attribute.
But I do believe that the MFO membership share a high level of commonsense. And in many ways, reliable commonsense trumps spotty brilliance when making investment decisions. The race is won by the patient, by the persistent, by the consistent, and by avoiding mistakes. Those attributes are frequently tied to commonsense wisdom. Brilliance is not reliably predictable and is usually not repeatable. Commonsense is.
So by rejecting your likely tongue-in-cheek claims towards brilliance in favor of commonsense wisdom, I am respecting your investment assessments and am granting you a realistic tribute. MFO is populated by smart folks, and I fully enjoy the opportunity to exchange investment ideas and references with you.
MFO is indeed a fun and thought-provoking website that can benefit all investors, regardless of our philosophies and wealth status. I anticipate that acceptable rewards await us in the near future.
Best Wishes.

Hi Guys,
Are we brilliant or lucky Investors?
Over the weekend, Jason Zweig issued an addition to his The Intelligent Investor WSJ column titled “Are You Brilliant, or Lucky?”
Here is the Link to that insightful and entertaining column:
http://online.wsj.com/article/SB10001424127887323316804578165143799397184.html?mod=googlenews_wsj
Enjoy.
Not surprisingly, most of us fall in the spectrum that exists between the endpoint extremes of total brilliance and completely lucky. That is especially true when we compete in events (investment decisions) that are dominated by incomplete information, uncertainty of future outcomes, and behavioral biases.
Zweig highlights some of the concepts and interpretations frequently advocated by Michael Mauboussin, professor at Columbia University and Chief Investment Strategist at Legg Mason.
Mauboussin is a strong proponent of a reversion-to-the-mean performance when competitors are of roughly equal capability. He often uses sports analogies to emphasize and illustrate his investment wisdom
For example, he sees it far more difficult for a ballplayer to hit over a 400 batting average today compared to when Ted Williams last accomplished that feat decades ago because all ballplayers have improved to an extent that the skill levels are approximately the same for all so that luck becomes a more dominant factor with regard to outcomes.
Mauboussin suggests that an outperforming skilled fund manager who has recently outpaced an Index is likely to revert towards that Index average, although if he is truly skilled beyond his rivals, he will likely still out-dual those less talented competitors over the long haul. Time and patience are winning investor characteristics.
Michael Mauboussin is a very attractive, popular, and articulate TV visitor on financial shows. Within the last year, he has appeared on several well-known financial programs including WealthTrack and the Steve Forbes Intelligent Investing program.
Here is a YouTube Link to a Steve Forbes interview conducted about a year ago:

Enjoy. It is worth a visit. We all need both skill and a little luck in the investment world. Let’s wish that “Luck will be a Lady Tonight.”
To incompletely answer the original question, we need not be brilliant, but we surely need a little luck in this complex investing environment.
Best Regards.

Thank you, very valuable information.
How do you measure how a fund will hold value in a case of an interest rate increase, other than the average effective duration?
Judging a financial matter only by looking at one measure seems too easy for me, and things are usually a lot more complicated.

Oops, SFGIX is not tax-sheltered, either, among my holdings.
I see what you mean about front-loads being waived in a retirement vehicle, yes. On the other hand, a close friend trusted a colleague who also was licensed to be a stock broker/financial advisor. He worked for or with an investment group connected to Smith Barney, but then they were bought-out, and my friend's account went to the new outfit as a matter of course. Though it was a 403b, this particular investment advisor must not have registered the thing that way, because his statements all clearly listed the 5.75% FRONT-LOAD on each monthly contribution!

Don't know about Abby. I think Ted nailed her pretty well. But I do know something goofy's happening in bond land - virtually all flavors stripes and colors. If this was just Treasuries or high-grade corporates, I'd say it's confirmation of a looming recession or depression. But - Com'on folks! Junk bond's don't soar in response to impending financial collapse. No, something else's going on. If you haven't seen David's "Trees Don't Grow to the Sky" essay, give it a look. He's boiled down to easy-read length a topic on which volumes have been written over recent years. I'm not into doomsday prophesies - which seldom live up to the hype. However, as a novice investor I do care about "relative valuations" among asset classes. When any asset class's valuations have risen year after year, and when flows IN continue to increase despite these high valuations, than you're setting the stage for something most unwelcome to occur. The timing, shape, scope, severity of the eventual outcome are highly speculative. No one knows. That's why the ramblings of Gundlach may seem vague or disjointed.
My high yield bond fund (PRHYX) has been a staple for well over a decade, rarely disappointing - though '08 was tough on this sector. Originally conceived as a low-octane substitute for equities, I'm afraid I've come to gradually view it more as an income component while gradually incorporating additional equity funds into the mix. I know there's something called "scope creep" which occurs when a fund manager invests outside the originally intended area. (perhaps buying small caps for a large cap fund). As individual investors we may be subject to something similar. Perspective creep?
Reluctantly, I'll be shifting my PRHYX assets this week into the newer and smaller PRFRX - Price's new floating rate fund. Floating rate funds have somewhat lower credit risk, since the loans they invest in are issued by banks to borrowing companies or institutions. They still represent loans to lower credit risk borrowers and are still considered speculative. But in bankruptcy proceedings (as I understand it) get repaid in higher order than do junk bonds. Secondly, and more importantly, floating rate bonds hold up better in rising rate environments than do most bonds - as rates are continually shifted upward on the outstanding debt.
Not an easy call. PRFRX has returned only 7.44% over 1-YR as compared to 15.56% for PRHYX. I imagine the disparity will continue awhile longer. Also, am aware that PRHYX has closed to new investors. Exiting will be final. In truth, it has grown to behemoth proportions as dumb money has piled in over the years. I wonder going forward how they will manage such a monster. PRFRX, on the other hand, is quite new and only a fraction the size. Hopefully this will allow managers to be more nimble and take advantage of opportunities that arise. BTW: I still own one domestic bond fund, DODIX, also some internationals - and a few hybrids that hold bonds, namely: RPSIX, TRRIX, and OAKBX. Also hold one balanced fund, DODBX, which has limited bond exposure.
Thanks for reading all this. (You can buy some No-Doze at Amazon:-)

Reply to @bee: The Canadian version of Buffett, Prem Watsa, remains the largest RIMM holder and added recently - he also got on the board of RIMM.
http://www.valuewalk.com/2012/11/fairfax-financial-buys-new-oriential-still-largest-holder-of-research-motion/
http://www.theglobeandmail.com/globe-investor/investment-ideas/rim-how-to-bet-on-a-broken-stock/article5782526/
Yacktman/Watsa/RIMM:
http://www.sfgate.com/business/bloomberg/article/Yacktman-Raises-RIM-Stake-as-BlackBerry-Slips-4074601.php