An incredibly frustrating day with Fidelity yesterday - it highlighted lots of potential (for me, real) problems with the way the cost basis tracking is being transitioned from voluntary (funds/brokers voluntarily providing cost basis, usually average cost, as a courtesy) to mandatory.
To be fair to Fidelity (which ain't easy after yesterday), they had what may have been the best online system for tracking mutual fund lots, costs, trades, prior to this year. And that may have made it even harder for them to comply with IRS requirements going forward.
Their system still says that once you switch from average cost to specific share, you cannot switch back. But the IRS now requires financial institutions to allow you to switch back and forth via written notification (which may be electronic). Their system used to allow you to trade specific shares regardless of how you had set it up (I recall getting messages like: we don't recognize the shares you're telling us to trade, but hey, it's your neck on the line, go ahead, we'll send you back an acknowledgement). But now, even if you're set up for specific shares (and are selling pre-2012 shares that they don't report), if their records don't match yours, it won't accept the order with the lots you indicate.
That's not a hypothetical problem. I tried to sell shares in a fund that had been set up years ago for specific shares. I had sold shares in 2007 by specifying which shares, and had received a confirmation with those shares and lots confirmed. Didn't matter - apparently their system had sold the shares FIFO (the confirmation lied). Fidelity readily acknowledged the error, but initially refused to correct it. (A second person in their tax center finally agreed it could be fixed.)
My takeaway is to be meticulous, to ensure that every financial institution one deals with has the correct records for each share of each fund one owns; that every financial institution has the standing order (default cost accounting, e.g. FIFO, Highest first, average cost, etc.) that one wants. Don't rely on the fact that they're required to take your specific lot instructions when you make a trade (or even after that, up to the time of settlement).

Reply to @Old_Joe: China/India are more than happy to buy oil from Iran and apparently India has offered to pay for oil with gold.
"For every action there is a reaction. In other words the US likes to think we severely damaged Iran by forcing them out of the dollar system. But Iran is saying, in effect, ‘Keep your dollars. We have another payment system, it’s called gold.’
There’s a lot of gold in India and they are willing to exchange that for oil. You don’t need a banking system and you don’t need dollars. So I think the US, by throwing its weight around, may find because they’ve weakened the dollar so badly that people don’t just stand there and take it. So what happened this week was full scale financial war. We’ve cut Iran out of the dollar system and caused hyperinflation in Iran and they’ve responded.
China is ready to jump into the same game. They have a banking system and it connects to the Russian banking system and Russia has a fair amount of gold. So there could be a whole network among Central Asian countries, China, Russia, India, Iran and others, who say the time has come leave the dollar system completely."
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/27_Rickards__Gold_May_Super_Spike_as_We_See_the_End_of_the_Dollar.html

US Investors still have a ways to go before their allocations to equities look low historically (where major buying opportunities presented themselves). 1975-1990 household equity allocations were in high 20%s to low 30%s. Now we are still in the low 40%s.
Who Owns The World's Financial Assets? And Why Are U.S. Households So Fascinated With Stocks?
http://www.wallstreetrant.com/2012/01/who-owns-worlds-financial-assets-and.html

Some points made by the most recent (Date: Friday, January 27, 2012) Don Coxe Conference call:
Based on The Fed's most recent call...low interest rates, lots of liquidity, kicking the can down the road...there will be low return on high quality bonds which should force investors into equities and real estate (home mortgages)...all of this should be bullish of gold, silver and copper.
Expanding liquidity should help the solvency in US but it is still questionable for Europe in the short term where there is still plenty of solvency risk. Financial heroine (liquidity) may make it difficult to know which companies (especially banks) are sound and which are just "high" on cheap liquidity. Lots of cash, borrowed or earned, should spur corporate buyouts, take overs, and mergers.
Due to low interest rates, the servicing debt (14T Federal debt, pension funds, personal debt, etc.) will be good for individuals, cities, states, federal gov't who will be rolling over their debt in the next few years.
The 100 year drought in Texas has impacted cattle (meat prices) which will remain high. Any substitute for this protein will do well.
Global European companies have been hurt by the downturn in Europe and research in these companies could payoff handsomely.
Don Coxe Conference Call:
http://www.bellwebcasting.ca/audience/lobby/index.asp?eventid=70081727&lang=english&stage=&rndkey=&referral=9576836&sLoginVisible=

Europe should concern us as investors - being the financial swampland that's spilling over into the world economy. But I'm getting tired of pols pointing to Europe as the "example" of what the U.S. surely gonna become if we don't enact some draconian austerity measures. Com'on! Lota differences between Europe and the U.S. We got a single currency under a strict Federalist system. European Union's got the single currency - but no unified political system. In hindsight their mess was bound to happen as the members all went their own ways economically and politically while pegged to one common currency. Also, don't discount differences in population, society, geography, natural resources, institutions and historical experiences which make the continents much different. Don't mean to dismiss our own problems. Hope our semi dysfunctional govt can eventually solve these American problems. Just tired of certain pols crying "Europe" whenever it fits their political / ideological agenda. End of rant!

Bill Gross' Explains The FOMC Decision: "QE 2.5 Today, QE 3, 4, 5 … Lie Ahead"
- Additionally, Gross mentions financial repression and doesn't see a rise in rates for three years (at least.)
http://www.zerohedge.com/news/bill-gross-explains-fomc-decision-qe-25-today-qe-3-4-5-…-lie-ahead
SIX OF 17 FED OFFICIALS SEE NO RATE INCREASE BEFORE 2015
http://www.zerohedge.com/news/fed-slashes-growth-outlook-six-fed-officials-do-not-see-rate-hike-until-2015

How did I miss that?
Anyone using this product or have any opinions on it (I hold FESGX in a taxable account, and may be contributing more as I roll out of some financial stocks).
Cheers.
D. shostakovich

"Perhaps you regret not having the heavy entry fee to buy into a pure Hedge Fund."
There are feeder funds in the London market (as well as all manner of alternative/private investments), as well as roundabout methods (Greenlight RE being a main example, and both Third Point and SAC are in the midst of doing similar vehicles) in the US. There are other roundabout ways to invest with terrific investors, including Fairfax Financial Holdings (FRFHF.PK) Icahn Enterprises (IEP) is another one - that hasn't done well lately, but some may regard that as an opportunity.
There is also a rather bizarre closed-end fund (FOFI.PK) that invests in hedge funds (apparently managed by Wellington.)
There was some discussion that Bill Ackman would do a listed hedge fund last year, but it remains to be seen where that would list and if it would ever come to market.
Hedge funds are not foolproof either, as returns last year showed. However, I do think there are outstanding managers who do have a greater degree of flexibility than the great majority of mutual funds.
While certainly not a pure hedge fund, Marketfield (MFLDX) is about as close as I've seen, and a unique fund I recommend.
Nothing is foolproof or certain in investing - moreso now than ever. However, I do like having investors who have a significant degree of flexibility and a wider array of tools to approach today's markets.

(it's been in a 30 year bull cycle but interest rates can't go down from here and since prices move inversely to yield . . .)
I suspect all fixed-income investments have become a risky asset.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Worried minds think alike. Adhering to the quaint old guideline of stocks/bonds mix according to age would be 40/60 but feel more comfortable with 35/65 or even 30/70.
But dislike bond exposure at this juncture point for the reasons above. A rather sticky wicket allocating a majority of assets to a credit market that offers a negative real return
on most anything that addresses the interest rate risk (shorter term higher credit qualities.) I/we restructured the entire fixed income side over a year ago, in hindsight over a year early. Fidelity holdings are floating rate, short term muni, New Markets.
Also RPHYX, RNSIX which I was introduced to here and much thanks for that. The remainder of long-only bond funds were rolled over into a couple multi-asset strategies launched by Loomis Sayles and Doubleline employing complex long-short derivative strategies across currency, commodity, stock and bond markets. Apparently too complex. The Loomis Sayles fund
managed (...) to get wrong-footed whipsawed daily with a steadily dwindling NAV in both up and down markets plus no yield (MARYX, don't go there.) Bye-bye, rolled into RNSIX which continues on quite a roll in up, down or sideways markets, don't ask me how, now 20% of assets, its three separately managed subportfolios are a comfort factor for an outsized position. I'm aware of the overconfidence/hubris factor that afflicts fund managers who consistently find everything breaking their way until not, see Bill Miller,
Ken Heebner and the alphabeta bet, confusing one for the other, alpha and beta. The Doubleline Multi-Asset (DMLIX) continues to break even after a year, no more nor less with scant yield, basically a hedge fund for the 99% mom/pop retail investor with the same dismal performance as the pricier high net worth 1% varieties, commiseration knows no class.
The accumulation phase ended with retirement nearly a decade ago, capital preservation is the goal. Long term wind-at-back bond fund complacency will end with surpise and shock in the sort of interest rate rise exceeding all forecast guesstimations by hundreds of basis points the likes of which bankrupted Orange County in the mid-'Nineties. Amnesia is not a strategy. Seared both sides like a Texas-style steak by the '08 market crash the pain avoidance shift has been to the next burner to heat up. I'm not a shorter but it has its appeal regarding fixed income at present despite being dead wrong for over a year.
In a much higher interest rate environment laddering Bulletshares etfs hold vast appeal
for a buy-and-forget capital preservation minded individual with far better things to do (think beachwalk) than pay attention to financial markets having become a wall to wall mess, bumper to bumper, stem to stern, in my version because complexity favors the sinister.

I think anyone buying a fund that's essentially a bet of financial is plain nuts. If you bought it in 2008 is one thing. Wait for another 2008. I am. And yes, it is some Fairholme fund that I'll buy. The high minimums make that even more necessary. I mean 10K in FAIRX is bad enough. 25K for FAAFX. You better be 200% sure you will but and only sell in retirement.
I'm buying AUXFX instead. APPLX too.

Reply to @Investor: Interesting. I've not seen them provide a discount brokerage to retail customers. All I've ever been able to find is "Contact a Financial Advisor", from which I infer full service, full fee brokerage. At least they seem to be doing fine for you (via 401k).
Of course you're right about the two links being essentially the same. They both log you into one's Chase accounts.

Don't count on it. I love the quality of service that Fidelity provides, but when it comes to what services they have, they're off in their own bubble. I spoke with their annuity dept., where the rep said that she gets requests on virtually a daily basis to get statements on line, but Fidelity has yet to integrate this part of the business with the rest of their world. They don't even provide the tax statements for the annuities (e.g. 1099-R) online.
Roth option for an individual (solo) 401K? Forget it. Even Vanguard, that most stodgy of fund families, started offering one this year. (T Rowe Price offered this from the first year they were legal.) Given that solo 401Ks are one of the main (financial) benefits of being an independent contractor, I would expect that lots of people would be asking about this. (As I recall, the first year Roth 401Ks were available, Fidelity told me they were getting a good number of requests for it, and were looking into it; I guess that after many years, they're still looking.)
Lots of other things where I've provided suggestions or requests. All you get from their front line people is "they'll pass it on", and things fall into a black hole. Not that they're worse than anybody else in this regard, unfortunately.

invest w/ an edge commentary
Wednesday, January 18, 2012
Editor's CornerInvestor Heat Map - 1/18/12
Got Drachma?
Ron Rowland
U.S. stock benchmarks built on the January rally, with the S&P 500 closing above 1300 today for the first time in almost six months. Gains have been broad-based the last few days with most sectors participating and the laggards having only minimal losses.
A casual observer might think the bullish behavior is connected with earnings season. If so, it is partly because analysts created lower expectations since last quarter. In October, Wall Street expected 15% earnings growth this quarter. Now the consensus is only 7%. We are still early in the cycle though, making further generalizations difficult at this point.
Just before the long weekend, S&P downgraded its sovereign debt rating for nine European countries. This was followed Monday by a cut for their erstwhile savior, the European Financial Stability Facility. The downgrades appear to have had much the same impact as similar action did for the U.S. last August. Rather than higher borrowing costs, at least some of the affected governments were able to sell debt at even lower interest rates. The main thing this tells us is that no one cares what S&P thinks any more.
One place in Europe where rates aren’t falling is Greece. Negotiations with lenders are underway, but bond traders seem to think a default is imminent. Germany and other neighbors are not near as frantic about the possibility as they were a few months ago - which suggests their plans for an orderly dissolution of the Euro currency are probably complete. Get ready for a return of the Greek Drachma.
The world’s preferred safe haven is still the U.S. for now. Ten-year Treasury yields here are holding below 2% and show no hints of moving much higher. Economic data was generally good since last week. December retail sales ticked up since last year with notable strength in automobiles. Consumer sentiment improved, as did an index of homebuilder confidence. We are dubious the current strength can continue much longer, but for now we won’t fight the tape.
Sectors
The Industrials sector held on to the first-place position it seized last week and gathered even more bullish momentum. Materials is not far behind, though, after jumping from #5 to #2 since our last report. Financials fell to third place as resistance near the October peak proved formidable. Health Care picked up a little steam but still slipped back to the fourth-place position. The week’s worst-performing sector was Energy. Lower crude oil prices are no doubt a factor, but energy-related equities actually began sliding a few days earlier. We will see in the next few days whether crude’s move back over $100 helps the oil stocks. Utilities - which not long ago had a firm grip on the top sector position - is now almost in last place, just one rung off the bottom of the list. For now, at least, Telecom is still the lowest-ranked sector.
Styles
Equity Style categories remain packed into a tight range with little dispersion from top to bottom. This allows odd phenomena, such as the Large-Cap Sandwich. Large Value is in first place and Large Growth is on the bottom. We also have a strange pair near the middle of the pack with Mega Caps and Micro Caps right next to each other. Mega Cap is probably being held back by a large Energy allocation. Value is still ahead of Growth at all cap levels.
Global
This week’s Global picture should please anyone who likes symmetry. The number and magnitude of positive categories is nearly a mirror image of the negative ones. The U.S. is still on top, but China is moving up quickly. In fact, China had the best weekly performance of all 32 equity categories we track. Latin America and Emerging Markets moved up to third and fourth places, respectively, after both turned in above-average performances. Canada held steady near the middle of the pack. The U.K. slipped from #2 last week all the way to #7 now. This was partly due to a weakening pound, but the emerging-market surge was a bigger factor. Pacific ex-Japan gained some relative strength but is still in a bearish trend. Japan slid further down the ranks while Europe continued to hold a death grip on the bottom rung of the ladder.

Negative Interest
The paper shows that there have been five debt crises over the past hundred years, including the latest one, and the last two, since World War II, have both been accompanied by financial repression. The key to these measures, which are many and varied in nature, are to keep nominal interest rates lower than would otherwise be the case, which reduces the interest payable by governments. If you add in inflation this can lead to effective negative interest rates, and the rapid erosion of the debt mountain.
A “negative interest rate” is simply where the interest we get on our cash is less than the prevailing rate of inflation. The beauty of these measures, from a politician’s perspective, is that they’re not obvious to the general public – as the authors state:
“The financial repression tax has some interesting political-economy properties. Unlike income, consumption, or sales taxes, the “repression” tax rate (or rates) are determined by financial regulations and inflation performance that are opaque to the highly politicized realm of fiscal measures. Given that deficit reduction usually involves highly unpopular expenditure reductions and (or) tax increases of one form or another, the relatively “stealthier” financial repression tax may be a more politically palatable alternative to authorities faced with the need to reduce outstanding debts.”
http://www.psyfitec.com/2012/01/how-sneaky-governments-steal-your-money.html?
There are above board taxable accounts and below board taxable accounts. Tax deferred is to accounts as jumbo is to shrimp, they are taxed while one is asleep whether awake or resting. See buying groceries, paying utility bills, insurance etc.
this year compared to last and the year before.
"The beauty of these measures, from a politician’s perspective, is that they’re not obvious to the general public.."
And so institutionalized, a targeted 2% debasement in normal times plus negative real interest rates, whatever more in New Abnormal times, they aren't even obvious to politicians. The serruptitious is _taken_ for granted, not even a silly season talking
point or debate topic by candidates deemed 'serious' and serious only to those deemed fringy wackjobs. As a saver and investor one will find the point is nonfrivolous over time
as contrasted with The Issues of The Day which invariably are shown to be in the fullness of time synonymous with forgotten for good reason.
Former TreasSec John Snow? You can't make this stuff up.

Reply to @MaxBialystock: Max, it is indeed a great distinction to be "moderate" risk among the emerging bond funds (the riskiest bond asset class) or just "moderate" risk - period. Once you get other moneys, please don't pile up in high yield, another risky bond type. You will need to de-risk your portfolio. From reading your comments here and on FA over the years, I highly suggest that before you invest additional moneys, you should consult a fee-based financial adviser. I have much respect and appreciation for this Board, but having mostly EM equities and bonds so close to retirement is not the right thing to do. I will retreat now and will never repeat this again. Best wishes.

Comments on the above posts:
1. 'Investor' is correct with regard to Bill Nygren's results with OAKLX over the 5-yr period from 2007 through 2011. His fund is down -3.3% rather than the -15% I had claimed. I apologize for my error.
2. My point is singling out Bill Nygren's dismal results in 2008 is not to "cherrypick" a particular time frame or mistake, as the hysterical poster 'anonymous' claimed. Rather, it is to illustrate how Bill Nygren fared the last time he proclaimed that something (in this case, financial stocks in general and Washington Mutual in particular) were "significantly undervalued" and strongly advised buying throughout their bear market collapse. Didn't work out very well, did it? Every asset and fund manager will make mistakes but few have the hubris to proclaim that we are at "a buying opportunity of a lifetime" for equities. Even fewer have the hubris to take and maintain an 18% position in a stock that had obviously collapsed and broken all technical support levels.
3. While Bill Nygren may believe that this is the "buying opportunity of a lifetime" and that equities are "significantly undervalued" other skilled and knowledgeable money managers, e.g. Jeremy Grantham of GMO, believe that the market is overvalued at current levels. Bill Nygren's opinions in his recent Letter to Shareholders are not shared by the majority of fund and asset managers whose opinions I respect. While market performance in 2012 and 2013 may subsequently prove Nygren to be a genius I certainly would not be piling into equities, abandoning investing discipline or significantly changing the balance in one's overall asset allocations based on Nygren's opinions.
P.S. Oh, and for the record, I have never been invested in a fund managed by Bill Nygren.

Reply to @scott:
Hi Scott,
Thanks for your reference to AQR Capital Management’s interpretation and implementation of the Risk Parity concept. Although I am generally familiar with the concept, my understanding of its details, especially its execution aspects, is extremely shallow. Your reference has somewhat deepened my knowledge base.
I downloaded the AQR document and spent an hour reviewing it. In the spirit of the Internet, here is my WikiView of the paper.
I am favorably impressed by the directness, the honesty, and the technical characteristics of the report. Its content clearly identifies the prospects and the limitations of the risk parity strategy. It helps to establish a trust in the author’s firm.
I applaud the AQR philosophy that management costs, particularly in the Hedge Fund universe, are far too high. The current cost structure seems appropriate, but the huge initial investment hurdle is an unassailable entry mountain for most private investors. I hope some group alternatives exist as is often the case.
A major AQR position is for ultra diversification across products, markets, and globally. It is ubiquitous in their document. I completely agree, but that is not a novel investment idea.
AQR talks about the complexity of risk, about its multidimensional nature. Yet when reporting their methodology, they revert to the conventional standard deviation measure of the risk parameter. This defection to the conventional representation has implications further down the road in my review. For now, the AQR document failed to walk the talk.
I was pleased with the ADQ presentation of investment category outcomes from the past 40 years, particularly with the segmentation of their discussions into decades and into different crisis periods. History does matter and informs our decision making.
I applaud ADQ for properly crediting the academic work completed by Harry Markowitz and James Tobin in the 1950s. These are the cornerstones of efficient portfolio construction and the investment separation concepts. Again, these are well established risk control concepts that are taught in every financial college course today. Nothing new here.
Let’s get back to the definition of risk once again. The ADQ team acknowledges standard deviation shortcomings, but uses it throughout the paper. That’s okay, except when displaying the potential benefits of leveraging in the Efficient Frontier curve given as Figure 6. Markowitz and Tobin used standard deviation as the full measure of risk because that was likely their simplified understanding five decades ago. By resorting to that same definition, ADQ understates the risk of Leverage when investing.
Note that the Leveraged portfolio in Figure 6 is still a linear function of Risk. ADQ knows better. See the warnings in their disclaimer section. At one point, they say: “It is also possible to lose more than the initial deposit when trading derivatives or using leverage.” That’s honest, but it is not properly reflected in the linear extrapolation relationship depicted in Figure 6. For the leverage notional depiction, the curve should bend, convex downward. As expected rewards increase, at some point, the risk price tag is likely to become exorbitant. The leveraged risk/reward tradeoff is definitely not linear.
Without leveraging, the standard Risk Parity portfolio is likely to deliver muted returns (perhaps similar to the Permanent Portfolio genre). The commonsense risk/reward investment tradeoff axiom remains intact; higher expected reward means higher risk adventures.
ADQ offers to sweeten the deal by engaging in very active Hedge Fund leveraging techniques, many of which are fairly presented in the paper. These techniques include special forecasting skills, preferential market assessments, and very active, and accurate money management tools. Hedge funds typically operate in this space. ADQ has considerable expertise and experience functioning in this specialized environment. But those operations increase risk; success can never be guaranteed, and risk is not fully represented in the Figure 6 plots.
ADQ has the experienced talent to execute this investment approach. They have been doing it for years. Just recognize, that is a risk mitigation method that degrades in risk control as leverage stretches for higher returns.
Market watchers have long recognized the realities of “fat-tailed” return distributions. About 15 years ago I did personal Monte Carlo computer simulations to inform my retirement decision. I did my own computer programming. Initially, I postulated Bell curve return’s distributions.
To enhance my simulation fidelity, I modified my code to do Bell curve returns when the randomly selected volatility was within a stipulated standard deviation factor, and then defaulted to a power-curve distribution when that standard deviation criteria was violated. The power-curve distribution better models the real world fat=tail return’s distribution.
Of course, my portfolio survival rate declined with the wilder ride that the fat-tails modeling projected. I still retired as planned, but my wife and I decided on a smaller portfolio drawdown rate as a result of those simulations.
We were never happy with the robustness of those simulations because the point of departure from the Bell curve, and the decay exponent in the postulated power-curve distribution were arbitrary. There is a paucity of data in the fat-tail regime. Inputing an exponential decay rate is pure guesswork. Assumptions must always be made in the borderline zone between orderly and unpredictable future market behavior. Luck is important.
I’m sure you made a wise decision in your ADQ investment. I know you do not expect miracles. It’s a nonlinear world.
Best Wishes.

Hi Guys,
A few famous forecasters and fund managers shared a collective forgettable 2011.
Fairholme Fund (FAIRX) manager Bruce Berkowitz, Morningstar’s domestic stock 10-year champion manager of the decade award recipient, wants to forget his financial Bank of America and real estate company St. Joes selections. Fifteen year benchmark beater Bill Miller of Legg Mason fame, lost his job after several dismal stock picking years. Money manager wizard Jon Corzine of MF Global is so forgetful that he can’t remember where over one billion dollars of client funds went. PIMCO’s bond guru Bill Gross wants to forget and be forgiven for his outsized US Treasury bond commitment. Financial analyst Meredith Whitney regrets her erroneous projection of a 2011 municipal bond market meltdown.
If such renown investment professionals fell so far, so rapidly, what chance does a time constrained and resource limited private investor have? A historically complex marketplace has become ever more challenging because of instantaneous institutional trading, highly volatile markets, and uncertain economic conditions.
Forecasting market returns and winning sectors is a fool’s task. The Midas Touch is not a constant human attribute, even among the elite professionals. Especially for the second tier of market mavens, outperforming a basic benchmark is a stumbling hurdle for most professionals.
Year after year, Standard & Poor's Indices Versus Active (SPIVA) and Persistence scorecards demonstrate that typically two-thirds of these experts fail to clear their benchmark tests. Here is a generic Link to the array of S&P summary studies that document these recurrent findings:
http://www.standardandpoors.com/indices/spiva/en/us
Just look at the checkerboard pattern that Periodic Tables of Returns charts show over 10 and 20 year periods for major categories of investment options.. Attached are several illustrations generated by Callan Associates and by Allianz Global. These Links get you to a web page that can provide access to the actual reports themselves by scanning the page. The Callan report button is self-evident. The Allianz button is located at the page’s bottom-right side and is titled “The Importance of Diversification”.
The extra button pushing is worth the minor inconvenience.
These two samples currently only show performance data through 2010. Typically they are updated by late January or early February every year. I’ll Link to them again when the updates become accessible.
http://www.callan.com/research/periodic/
http://www.allianzinvestors.com/EducationAndPlanning/InvestorEducation/Pages/AssetAllocation.aspx#
The Allianz chart presents a more comprehensive summary of discrete investment categories. I like it better than Callan for that expanded choice format.
If there is a recognizable pattern in this jumble of data, it totally escapes me. It is chaotic in character. To paraphrase Rudyard Kipling “If you see a pattern, you’re a better man than I., Gunga Din. Behavioral researchers have identified false pattern recognition when none actually exists as a common fallacy in our attempt to know the unknowable.
Of course, one piece of market wisdom that has survived the fires of time, and even today offers at least a partial answer to the portfolio construction dilemma, is category diversification. The portfolio construction approaches recommended by Paul Merriman remain dedicated to such diversification. Please examine his tabular summary of various equity/bond mixes at the following website and hit the “Fine tuning your asset allocation” button:
http://www.merriman.com/learn/bestofmerriman/
In particular, note the table at the end of the presentation.
The Merriman table is illuminating in several dimensions. Observe the measurable benefits of long term diversification; the bottom-line averages show that a 50/50 portfolio mix of equity and bond holdings can produce almost full equity market-like returns at roughly one-half its volatility (standard deviation). Other statistical values at the bottom of the table show more risk mitigation measures.
Notice that the various mixes that Merriman constructs are not just a two component equity and bond mutual fund. Merriman’s portfolios are assembled from a more diverse universe of funds that include small caps and international components. Also, he has honestly subtracted a 1 % management fee from his tabular listings.
Some market commentators argue that category performance correlation coefficients have coalesced such that diversification is no longer a viable option to mitigate risk. While correlation coefficients have migrated towards perfect correlation (a value equal to One), they remain sufficiently below the limiting “One” value to make diversification a worthwhile risk control strategy.
For example, the latest issue of Money Magazine reports that the 3-year Morningstar correlations between the US equity market is 0.9 against emerging markets, is 0.2 against US bond, is 0.8 against REITs, and is 0.6 against commodities. Correlation coefficients among investment classes are dynamic and do change over time.
One takeaway from the correlation matrix is that a simple 50/50 equity/bond mix is still an excellent risk mitigation strategy.
I am aware that most seasoned MFO participants are fully cognizant of the investment resources that I quoted above. This posting is mostly directed at the more neophyte investor who might not be familiar with all the informative tools and analyses that are easily accessible on the Web.
Concentrated investments generate superior rewards if they are correct. The historical record and commonsense suggest that it is impossible to be right all the time. Even Warren Buffett suffered a few years of bad decisions and sub-par performance. Bill Miller was not adaptive enough to changing market conditions after 15 contiguous years of Index beating performance, and paid the price.
Bruce Berkowitz, a pragmatic, highly focused, and fully committed manager lost, at least momentarily, his deft selection and timing touch. His skill set has not vanished in a single year. It is quite possible that he will recover with time just like the Nifty-Fifty growth stocks of the roaring 1960s and 1970s eventually did over integrated time.
For the fun of it, please checkout this re-revisit of the Nifty-Fifty stocks from an academic’s purview of this tiny piece of thorny investment history:
http://economics-files.pomona.edu/GarySmith/Nifty50/Nifty50.html
Investment controversy and debate are hardly ever fully resolved.
As I wrote in an earlier submittal: “It is Time in the Market, Not Market Timing” that matters most. The debate and the challenges continue.
Best Regards.

Soupkitchen,
Our main accounts are also with Fidelity; so you too have an almost unlimited choice of funds. I presume this is Fidelity, U.S. and not U.K.? Although I don't know about differences in investment choices.
FNMIX , for emerging markets exposure from a well run fund. (this fund will be subject to the value of the $US; but managed well in 2011 with a stronger dollar, which may persist going forward....until numerous other financial problems find smoother sailing, globally)
FTBFX, a total type bond fund that gives one a broader mix
LSBRX, a mutli sector, global bond mix
DLTNX, although noted as an intermediate bond fund at M*, this is a mortgage securities bond fund. I do believe Mr. Gundlach, currently has proper focus upon what is taking place in the bond world; and otherwise, too.
NOTE: Our house holds numerous bond funds; but I can not say what we may hold in this sector in one year's time, let alone a "buy and hold"; although I understand your thoughts about letting selected, broad based and active managed bond funds stay in place in one's portfolio. Managers do move on; and/or retire. Similar thoughts could also place one's choices into etf's or broad based bond index areas.........BND or VBMFX. At the very least, you'll save about 1/2% of expenses, vs some active managed funds.
I will also agree with the choices listed by others above. FSICX is a bit more restricted at this time, as to %'s allowed to be invested into various bond sectors.
Not unlike other fund choices, you need to review the prospectus to get a better understanding of a fund's flexibility. This will take some time and work to sort out what appeals to you, as well as a look backwards for returns to help with some clues as to the previous abilities of managers.
TRY THIS: Using the resources drop down menu here at MFO, select "navigator". At the "navigator" page....in the "fund name" box....type total return bond ......a list will populate, of which you may scroll downward. The list will not be inclusive of every total return bond fund, but will set a start point. You may also use total bond .......which will provide a different and shorter list.
Also, at Google Finance........in the "get quote" box, type in total return bond .......Google will set a short list in the drop down list of what it thinks you may be interested............ignore and do not click upon anything in the list...........but, do click upon the icon for "get quote". A large list will be placed below on the page. The first part of the list may be index or eft funds..........scroll down and you will find a list for "mutual funds" showing the first 20..........scroll to the bottom of this list and click upon "show all funds". The page will refresh the list. Each page will list 20 funds..........now at the bottom of each list page you will find an arrow > to let you move to the next list page of 20.
This involves a fair amount of work, but may be of value.
Either of these listing methods will also give some redundant results, as various classes of the same fund will also be shown.
Lastly, do you have your own list of bond funds that you have for consideration? The short name list of funds that have been noted in this thread is surely not complete; and others have noted bond funds of value here at MFO in past postings. Hopefully, others will offer their choices, too. Take your time with study of funds that you feel suit your needs.
I will be nosey, and ask in which country do you reside? I understand if you choose not to reply to this question. Enjoy your time here, at MFO.
Regards,
Catch

Reply to @scott: Hi Scott, I agree with you on a number of your observations but also have a couple of somewhat different observations on a number of points.
I think one thing is constant. Change. We are living in a world with ever accelerating change made possible by the use of technology. However, while all things do change, some thing change faster and others only gradually.
I do not view easy access to information as a hindrance for actual experience. In fact, for an interested party, the availability of information and ability to reach out to other individuals seeking same interests have enhanced the individuals willing go extra step. I welcome that. I regard being able to look up instantly information on a plant is improving efficiency to reach our goals. This is nothing got to the with being lazy or not. Hey, if this is what it takes to keep some people from doing something stupid and later being discouraged, let it be. Just look at this forum.
Sure, these technologies also contributed to a lot of junk and non-productive uses as well but potential to do some good has improved. These technologies has enabled the pace of development to increase and thus the obsolescence factor of what we use and what we do (the processes). We also have new problems to deal with now that we did not have to deal with before (such as texting while driving, walking). Well, you cannot win all, you have to adapt. To some observers this might look chaotic. May be so from a distance.
I visited Chipas state of Mexico last Thanksgiving holiday. There are indigenous people, dependents of mayans. They still wear their traditional cloths. But, I have seen many using cell phones, texting as well. Their children are in the cyber-cafe doing homework on the computer sitting next to some tourist who is using Skype to communicate to their loved ones back at home. Technology is changing the whole world and making it possible for some to make a leap. When these tools are given, what used to be backwards societies are not much different than what is our so-called advanced, complex society. Technology has allowed the repressive regimes to topple this past year. Just a decade ago, it was unthinkable for these nations to go through these changes.
Now, the effect of technology on Finance and investing is not negligible. I think the technology allows people to be involved in the process more, have access to more up to date information. Like I said texting has enabled newer modes of communication but created problems, technology created the problem of more frequent trading.
While everyone is willing to declare Buy-and-hold is dead (and they declare this every year yet it goes on), what I actually see that people are doing worse than the funds they own (Dalbar study). There is so much competition in the market place that even with the arming of more up to date (recent) information is not enough, we are not doing any better. They lack the perspective of longer term history. They think these problems are unique but while all the information is available via the same devices, they did not bother to reach out to inform themselves of the history. The technology did not make them any wiser.
Mostly passive investors that carefully decide on their allocation, properly diversified and tuned their portfolio to their risk tolerance and risk exposure needs, occasionally (or systematically) rebalanced that are able to tune out daily noise are actually doing better.
While S&P 500 might not have done great in the last decade a properly diversified portfolio actually did much better. I will link to a PDF from FundAdvice.com which is demonstrating that a 50% equity-50% bond portfolio over 1970-2010 returned 10% annually with much less volatility and drawdown. I am looking forward to update with 2011 included in this table.
http://www.merriman.com/PDFs/FineTuning.pdf.
While a buy and hold portfolio succeeded fairly well, most people that attempted to time in and out of portfolios have actually done worse. Dalbar studies show that. Fund Investor returns show that. We can even see this on the so-called guru reviews published by Hubert Financial Digest and CXO web sites. If they could really do better consistently, perhaps they would not sell their newsletters. It did not take much effort for know nothing passive investors to beat out many of the so-called professionals. For each people successful in market timing (worse market timing on gut feeling instead of steady mechanical systems like Flack uses), there are many failed attempt at great costs. I am sure many people here have one or more experiences in this board with their own failed attempt in market timing that cost them (including me). It is just too hard for many of us to accept that we are average even with additional information we now have access (other people do have access to that). We cannot win on short term trends, trading. We have a life, family, jobs etc. We need to broaden our view to longer term trends and try to get long term returns. Many investors are not even getting the long term averages but they are not benchmarking themselves either so they are just not really enlightened as much as they think they are.
What got people into trouble were their greed and fear. This is nothing new but technology made this greed/fear to inflict damages more often. The winners of the frequent trading game is those at brokerage houses. They have vested interest in trying to discredit long term investing themes.
I even see some changes on your own behavior. You used to trade more often, your investing has gradually evolved towards a longer term view in this past year.
As for rejecting longer term history of the markets, you have a point that current culture of the society has evolved even if our physical DNA is probably has changed very little if any during this time. Yet, after each crash, I read/see similar claims made at that time. The human resiliency has eventually got over. I think it would be a mistake to dismiss the market crashes, recessions, etc. does not provide any valid measure today.