Reply to @catch22: OK, once again bad phrasing. on a rush to post and go. I was pointing that while your portfolio seems lacking in terms of equity exposure at first look, the correlation of high yield and other hybrid bonds with equity markets suggests indirectly you have much higher equity [market] exposure. I am not sure how you are using M* to compute such exposure but if you have access to Financial Engines, you could see your exposure wrt. to total market (which includes FE modelling of total market with domestic and foreign equities by capitalization, bonds, cash, and other instruments). Last time I check S&P 500 was around 1.5x as the total market portfolio modeled.

Thank you for the response and a very interesting discussion of the Laudus fund.
I'm seeing new generations of alternative strategies appear for retail investors - in terms of managed futures products, there was the Rydex Managed Futures fund (not actively managed, positions changed only once a month), then the AQR Managed Futures fund (actively managed), now you have funds that allocate to hedge funds/commodity trading advisors (Mutual Hedge Frontier Legends, Grant Park Managed Futures).
Now, new generations do not mean that they're any good, but they offer the retail investor a product with much more flexibility and greater potential (emphasis on potential) to keep up with the market. Additionally, in terms of some "all-weather" strategies like managed futures, consistent (minor) returns. Arbitrage funds are another.
In terms of long/short funds or "market neutral" funds, I suppose it comes down to management, timing and many other issues. One (well, I) can also lean towards issues with funds going long/short on various fundamental metrics in a market that's less and less about fundamentals. The structure of a mutual fund also makes me wonder if a lot of these "hedge fund" like strategies are also difficult to consistently pull off to any great degree without the ability to trade heavily in the manner of many hedge funds (most of whom are also getting paid 2 and 20).
Marketfield (MFLDX) is one long-short fund that's done well given that it doesn't take the short element of the strategy quite as seriously and has demonstrated use of varied levels of shorting to dial up/down risk, whereas many funds in the category appear to desire (or be required) to have a consistently higher level of short positions. Again, timing, but it's done well so far and demonstrated a pretty strong ability to make macro bets and time risk exposure.
In terms of an actual hedge fund, Greenlight RE (GLRE) is a reinsurance company whose float is invested with David Einhorn's hedge fund, Greenlight Capital. It's a roundabout way of investing in a hedge fund, but more liquid than some of the other options. More managers are looking into this structure to try for stable money. Not a hedge fund, but another remarkably successful company with this structure is Fairfax Financial (FRFHF.PK), whose investments are run by successful value investor Prem Watsa (who bet against subprime in 2008, resulting in a positive return for Fairfax.)
I don't think one should have a massive portion of one's portfolio in alternative strategies and there are going to be funds that are gimmicks (many of which will likely get weeded out at some point, as some weirder ETFs have that either don't get interest or instances where people simply lose interest after the initial hype) or just plain mediocre, but I think there is a place for some of the better funds out there in one's portfolio to offer more loosely correlated returns and provide somewhat of a balance.

Reply to @scott:
Hi Scott,
Thank you for your information packed reply to my WSJ article reference on Hedge Fund-lite mutual fund alternatives. You certainly have studied mutual fund options in this arena. I’m sure many MFO participants will benefit from your insights.
I no longer invest in mutual fund Hedge Fund strategy simulators; their strategies are too complex and often too convoluted to satisfy my conservative mindset. I now prefer simple, transparent approaches that are easily understood. That was not the case a decade ago.
In the past, I seriously considered and actually purchased a fund that featured long and short position tactics. The fund that I owned for over five years was a Barr Rosenberg originated Laudus market neutral fund. Performance results were mixed; overall rewards disappointed; the approach was anchored in exotic analytical models that Rosenberg’s team developed to more automate the decision process. Timing for a fund employing a market neutral philosophy is a daunting task that not many have successfully conquered.
You may recall that Rosenberg was a mathematical wiz-kid who Peter Bernstein highlighted in his groundbreaking book “Capital Ideas”. Rosenberg integrated the concepts of Markowitz, Tobin, and Sharpe into realistic models for daily investment guidelines. In the 1970s, Rosenberg was a kingpin in risk management, both from an educational perspective and as an active money manager. BARRA is his invention and bears his name. He enjoyed great success, both professionally and personally.
After several iterations his surviving investment operation (AXA Rosenberg Group LLC) firm ran into a reporting transparency issue with Charles Schwab and suffered a setback in distribution and, especially, in public trust. That occurred a few years past with the Laudus Rosenberg Global Long/Short Equity (RMSIX) fund. The issue was some coding error that was not properly reported. I believe Barr Rosenberg is not formally engaged with the firms that he founded, and is essentially retired.
From a September 22 release titled “Axa’s Barr Rosenberg to Pay $2.5 Million SEC Fine, Is Banned From Industry” from the Bloomberg business news agency: “Axa Rosenberg Group LLC’s co- founder Barr M. Rosenberg agreed to pay $2.5 million to settle claims by the U.S. Securities and Exchange Commission, which accused him of securities fraud for concealing a coding error in his firm’s investment model.” He can easily afford the fine, but the ban certainly erodes and diminishes his stature as a financial founding father. Too bad.
I had abandoned the market neutral hedging concept a few years earlier. Timing both buys, sells, and shorts is just too challenging a chore. It just adds too many dimensions to the decision process, even when directed by a sophisticated model and coupled to a fast machine with ample computing power. I have never been impressed with the historical performance record delivered by the various market neutral approaches.
Once again, thank you for your well crafted and informative reply.
Best Wishes.

http://www.bloomberg.com/news/2011-11-07/buffett-broadens-portfolio-by-spending-23-9-billion-in-quarter.html
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) invested $23.9 billion in the third quarter, the most in at least 15 years, as he accelerated stock purchases and broadened the portfolio beyond consumer and financial-company holdings.

Reply to @claimui: My rambling thoughts: I definitely see what you're saying and agree with you. I have a very volatile stock, but it's part of an otherwise fairly low-key portfolio and I *get* that it's a volatile stock; I'm not going to dump it because the volatility comes as a surprise. I believe Cliff Asness of AQR has talked about balancing momentum investing with value investing.
That said, I think the "never finished in the bottom third" is an interesting (although the only issue with it is that past performance does not indicate future results) list, given that investors (both large and small - hedge funds also saw massive redemptions this year) are - I think - becoming increasingly short-term in their thinking. I don't think that's entirely new (again, while I hate to reference Cramer, his "Confessions of a Street Addict" has a good section about running his fund and having to supply increasingly shorter and shorter-term performance numbers to his clients), but it's becoming worse.
Additionally, risk tolerance (again, I think) has never really recovered from a few years ago (and actions of financial companies that have eroded trust in the financial system aren't helping, either.) Anything that - I think - can demonstrate a relative degree of consistency - is not a flawless option, but it may not be a bad place to start for some people. It's definitely not a solution, but maybe there will be some people who will find a more consistent fund a more comfortable hold. Yacktman is a good example of this, and I think probably the best example of a comfortably consistent fund for those who are looking for a fund that's easier to not get whipsawed out of.
I don't think buy and hold as a sole strategy is a good idea in this environment, but I do think that devoting a portion of the portfolio to that while giving the remainder some degree of greater flexibility (it's going to be different for everyone) is what I think will work better over the next decade - viewing the portfolio as different buckets. I have some investments that I view as 5-10 year investments and I don't really care about the day-to-day; some are VERY short-term in nature and many more mid-term in nature.
Also, I do believe that it's easier to buy and hold specific stocks/themes versus funds, for the obvious reason that if an individual investor has a strong/specific long-term view on something, it's easier for them to not sell through the ups/downs. People are still going to often sell at the wrong time, but I do think if someone has a strong view on a company/larger theme, it is somewhat easier to buy and hold for a long-term view. If you're leaving it up to a manager, it's a matter of having a high degree of faith in the manager and I don't know if the majority of investors can have a long-term belief in a particular manager. John Paulson made the biggest trade in history with subprime, but if the hedge fund tanks shortly after, there's going to be people who leave, and more than a few.
Time and time again, you see investors fleeing from a particular manager having a bad year, even if they have been successful over the longer-term, whether it be Cramer (and there's a great portion of "Confessions" where Cramer believed that people who had done very well with him wouldn't leave during a bad year - soon after, the fund nearly had to shut down) or Berkowitz or Heebner or whoever. Some will do well coming into a particular fund after a bad year, but that's not always a successful strategy, either.
Lastly, I think that funds with a greater degree of flexibility can be easier long-term holds and will fare better over the next 5-10 years. The flexibility has to be combined with skilled management that can use those tools to their full effect, but I do think that funds (and there aren't that many - Ivy Asset and Marketfield are examples) that have the ability to invest across a number of different asset classes and use different strategies can be somewhat easier long-term holds.
Or you can have something like Merger (MERFX), which is never going to hit a home run (given the strategy, no one should expect one), but is likely to just keep knocking out single digit returns in good times and bad. Someone might skip it because of what they believe to be lackluster returns without really researching the strategy, but would those people have been pleased with it in 2008 and might that - as a portion of the portfolio - taken away a bit of the sting from other portions of the portfolio? Maybe. Or when everything's going great, people don't want a Merger, but things aren't going to always be sunshine.
Merger will never hit a home run, but might its ability to hold up better over good times and bad be a nice way for the average person to bring overall portfolio volatility (especially since I don't think the volatility that's currently seen in the market is going away any time soon) down? I think so. Arbitrage Event Driven (AEDNX) is another option, although more complex (using merger arbitrage and other arbitrage strategies.)

RBC Wealth Management
Michael D. Ruccio, AAMS
Senior Vice President
25 Hanover Road
Florham Park, NJ 07932-1407
(p) (866) 248-0096
(f) (973) 966-0309
[email protected]
www.rbcwm-usa.com
Market Week: October 31, 2011
The Markets
Double-barreled relief over the economy and the plan for attacking the European debt crisis powered a rally in equities. In the wake of Thursday's 340-point jump in the Dow, the industrials were closing in on their best month since January 1987 with a 12% gain, and the Russell 2000's 18% gain since September 30 will likely make October its best month ever. By Friday, the S&P 500 and the Nasdaq had regained roughly three-fourths of their losses since mid-July. The renewed global optimism sent bond yields up.
Market/Index 2010 Close Prior Week As of 10/28 Week Change YTD Change
DJIA 11577.51 11808.79 12231.11 3.58% 5.65%
Nasdaq 2652.87 2637.46 2737.15 3.78% 3.18%
S&P 500 1257.64 1238.25 1285.08 3.78% 2.18%
Russell 2000 783.65 712.42 761.00 6.82% -2.89%
Global Dow 2087.44 1846.63 1964.49 6.38% -5.89%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.30% 2.23% 2.34% 11 bps -96 bps
Last Week's Headlines
Eurozone leaders finally announced an agreement they hope will build a firewall around Europe's sovereign debt problems and enable banks to keep credit flowing in the region. Under the agreement, banks holding Greek debt will receive 50% of what they're owed, in hopes that the reduction will enable Greece to cut its debt to 120% of its gross domestic product (GDP) by 2020. To help cushion future losses, banks will have to raise €147 billion to cover higher capital reserves. The agreement also would raise the resources of the European Financial Stability Facility to roughly €1.4 trillion, though there were no details on how the increase would be paid for. Finally, the agreement allows the EFSF to maximize its resources by guaranteeing sovereign bonds or setting up special-purpose vehicles to provide financial support.
The odds of a double-dip recession seemed to dim after the Commerce Department said the economy grew almost twice as fast in the third quarter as it did during the second. The 2.5% initial estimate of growth surpassed Q2's 1.3% and Q1's anemic 0.4%. The report also said that consumer spending rose 2.4%, including a 4.1% increase in durable goods and 3% growth in spending on services. Exports were up 4%, and business capital spending jumped 16.3%. Government spending was unchanged as a 1.3% drop in state and local government spending helped offset a 2% increase in federal government spending.
Home prices rose in August in the 20 cities tracked by the S&P/Case-Shiller index. Though prices were still 3.8% lower than a year earlier, the increase was the fifth in a row, suggesting that prices could be starting to stabilize. Meanwhile, the Commerce Department said sales of new single-family homes were up 5.7% in September.
Americans spent more and saved less in September; according to the Bureau of Economic Analysis, consumer spending was up 0.6%, while the savings rate dipped to 3.6% from 4.1% the month before. Meanwhile, incomes rose 0.1%.
A drop in orders for transportation equipment led to a 0.8% decrease in new durable goods orders in September. The Commerce Department said it was the third straight month of declines.
The more income you had over the last two decades, the more income you got, according to a study by the nonpartisan Congressional Budget Office. For the 1% of the population with the highest income, average real after-tax income rose 275% between 1979 and 2007. Households in the top 20% saw a 65% increase in income, while for the 60% of the population in the middle, incomes grew just under 40%. Those in the bottom 20% saw an 18% increase from 1969 to 2007. The CBO said the shift in overall pre-tax income (not counting taxes and payments such as Medicare/Social Security benefits) was caused by two factors. Income sources, such as jobs, became increasingly concentrated in fewer individuals (the most important factor); also, capital gains and business income represented a larger percentage of overall U.S. income, while the share of income from salaries and wages fell.
Eye on the Week Ahead
Earnings reports should receive more attention now that a European rescue operation has been announced (though details of the debt game plan also will be under scrutiny). Unemployment data will be of interest in light of the new GDP number, as will the Fed's Wednesday announcement.
Key dates and data releases: U.S. manufacturing, auto sales, construction spending (11/1); Federal Reserve Open Markets Committee (FOMC) meeting (11/2); weekly new jobless claims (11/3); business productivity, factory orders, U.S. services sector (11/3); unemployment/payrolls (11/4).

Reply to @bee: One can say the same time about the purchase of Hewlett Packard, 2%. If the point of entry was in the low 20's, only time will tell if that is a good decision now that Apotheker is gone (with $25 million severance!). I think RIMM still have value and will likely to get bought out by someone else, just like Motorola.
One point the article failed to point out is how Yacktman managed to side-step the questionable sectors, i.e. big financial banks. In contrast, Fairholme invested heavily in BAC and continued to buy more as it drove ever lower. Let's hope BAC turns around soon...

http://individual.troweprice.com/staticFiles/Retail/Shared/PDFs/PriceReports/Fall2011PriceReport.pdf#page=1&placementGUID=em_prcreport&creativeGUID=EMBDHT&v_sd=201110
kipinger best 25 mf
http://www.kiplinger.com/printstory.php?pid=2151863
stinker of the yr
http://www.investmentnews.com/article/20111023/REG/310239985
M* ranks best/worst MF for 401K
http://abcnews.go.com/Business/morningstar-ranks-best-worst-mutual-funds-401k/story?id=14789497
loomin ETF shakeout
http://www.fa-mag.com/fa-news/8945-the-looming-etf-shake-out.html
putman offering new retirement income funds & tools
http://www.financial-planning.com/news/Putnam-retirement-tools-mutual-funds-2675713-1.html
are you bogleing
http://www.forbes.com/sites/rickferri/2011/10/24/are-you-bogleing/
also - ot
http://www.forbes.com/sites/dividendchannel/2011/10/25/why-hatteras-financial-corp-is-a-top-10-reit-stock-with-15-34-yield/
vanguard dividend etf
http://www.etftrends.com/2011/10/a-closer-look-at-vanguards-high-dividend-etf/?utm_source=iContact&utm_medium=email&utm_campaign=ETF Trends&utm_content=
junks bonds are hot but there are still plenty of fire
http://money.cnn.com/2011/10/21/markets/bondcenter/high_yield_bonds/
which investors are in long term
http://blogs.wsj.com/venturecapital/2011/10/24/groupon-which-investors-are-in-for-the-long-term/
Market Week: October 24, 2011
The Markets - rbc investments
A tug-of-war between earnings and Europe dominated equities last week. The Dow industrials overcame a discouraging start to the week and managed a third straight week of gains. However, the Nasdaq slipped back into the loss column, while the S&P 500's encouraging week still left it in negative territory for the year and the small-cap Russell 2000 continued to struggle.
Market/Index 2010 Close Prior Week As of 10/21 Week Change YTD Change
DJIA 11577.51 11644.49 11808.79 1.41% 2.00%
NASDAQ 2652.87 2667.85 2637.46 -1.14% -.58%
S&P 500 1257.64 1224.58 1238.25 1.12% -1.54%
Russell 2000 783.65 712.46 712.42 -.01% -9.09%
Global Dow 2087.44 1845.80 1846.63 .04% -11.54%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.30% 2.26% 2.23% -3 bps -107 bps
Last Week's Headlines
Despite strong words from G-20 finance ministers about the need for a formal plan for containing the damage from European debt problems, the eurozone continued to debate ways to enhance the European Financial Stability Facility's resources. However, any formal agreement failed to appear last week, though French and German leaders said they anticipated having one this week. In the meantime, Moody's warned that France's AAA debt could be hit with a negative outlook if its budget is strained by bailout demands; it also downgraded Spain's debt from Aa2 to A1.
September's 0.3% consumer inflation rate was the third increase in as many months. According to the Bureau of Labor Statistics, that put the inflation rate for the last 12 months at 2%. At the wholesale level, inflation was worse; driven mostly by a 2.3% jump in energy costs and a 10% increase in the prices of vegetables, it spiked up 0.8% in September, for a 6.9% rate for the last year.
Federal Reserve manufacturing numbers were mixed. The New York region was negative for a fifth straight month, while new orders were flat. However, the Philadelphia Fed survey showed improvement, jumping from -17.5 in September to 8.7, the first positive number in three months. Nationwide, industrial production rose 0.2% in September and was 3.2% higher than a year ago.
China's efforts to try to control inflation there contributed to a slower pace of economic growth--9.1%--during the third quarter. According to China's National Bureau of Statistics, that's down from Q2's 9.5%.
Housing starts shot up 15% in September, putting them 10.2% above last year. According to the Commerce Department, that's the highest level since before the homeowner's tax credit expired last year. Building permits, an indicator of future construction activity, fell 5% from August, though they also were up from a year ago.
Sales of existing homes dropped 3% in September, according to the National Association of Realtors®, though compared to the previous September, they were up 11.3%.
Eye on the Week Ahead
Action or lack thereof at the midweek European debt summit is likely to affect the mood of the markets. A first look at Q3 economic growth also will be of interest.
Key dates and data releases: home prices, consumer confidence (10/25); new home sales, durable goods orders (10/26); initial estimate of Q3 gross domestic product, pending home sales, weekly new jobless claims (10/27); personal income/spending, labor costs, consumer sentiment (10/28).

Burt,
Fsicx isn't really a go-anywhere fund; it's more of a diversified fund with a default allocation that it sticks pretty close to. It's a pretty palatable (lower risk) way to own some high yield and developed and emerging foreign bonds. Here's how M* describes it in the analyst report:
"Management starts with a neutral asset-allocation mix as a baseline and then makes slight adjustments to that mix based on relative valuation and market outlook. The neutral mix is 30% U.S. government issues, 40% U.S. high-yield obligations, 15% developed-markets sovereign debt, and 15% emerging-markets bonds."
And since this is copyrighted material behind a pay wall, I'll need to invoke the copyright exception of a brief citation for a review:
*** Scintillating, yet profound, Morningstar takes financial analysis to a new level with this page-turner of a report on Fidelity Strategic Income!
Ha, ha.
AJ

A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets.
Okay, and with the full faith and backing of ? ........... just a minute, just a minute; we will return with that answer after a brief commercial message.
One may find more than enough experiences of this kind in the non-financial world via theme parks and Disneyland/worlds around the globe; and synthetic has been wonderful in the areas of chemical and related products, too.
I suggest that any such issues in bonds or whatever other areas they choose; should be named "vicarious or dream bonds"..........
Definition of VICARIOUS
1a : serving instead of someone or something else b : that has been delegated
2: performed or suffered by one person as a substitute for another or to the benefit or advantage of another : substitutionary
3: experienced or realized through imaginative or sympathetic participation in the experience of another
4: occurring in an unexpected or abnormal part of the body instead of the usual one
Regards,
Catch

Reply to @ET91: Well - and I think this is probably the last I'll say about Fairholme because even I think I'm going over the same ground.
1. I hope Fairholme does well/turns around for the people who own it.
2. I think Berkowitz is an excellent investor, but even I thought the banks simply were in the eye of the storm before problems appeared again. Some other major investors (Tepper, etc) who had a similar thesis ("OMG, the banks are values!") got largely out before the turn. While Berkowitz can continue to believe that this is a repeat of the '90's, there's a point where people aren't willing to follow on a massive - to the point where the fund relied on it - bet that isn't working. Fairholme has almost always been concentrated, but I don't believe bets have been made similar to the size of the AIG bet, for example. Managers get upset when people run during a tough period - I believe Whitman also got royally pissed when people ran in 2008 - but money (whether it be rich money, smart money, dumb money, old money, funny money) will head for zee hills in this sort of situation, without fail. Again, read the Cramer book - managers think that "I've made so much money, people won't leave." Yes, they will. Raising the minimum investment doesn't do anything - people are still going to leave.
Even hedge fund managers are coming up with new ideas to get stable sources of money - Ackman is taking a fund public next year and Third Point has started a reinsurance company like Einhorn has (although it isn't public, yet.)
2a. I'm surprised there haven't been hedge fund-like mutual funds created with a lock-up period (as a trade-off, they would have far greater flexibility than traditionally seen with a mutual fund.) Then managers could make unusual/risky/hedge-fund like bets on anything and have the ability to use hedge-fund like tactics - private equity, whatever - and people would know going in.
2b. Here's a question that could deserve its own thread: can you be a mutual fund like Fairholme and make a massive bet (and while the fund has been concentrated, I don't think it's ever been this concentrated in terms of the size of the bets and the hot money probably allowed him the ability to go that big in terms of the bets) on something like financials that may not work for a year or two or three when the level of underperformance will cause large redemptions, negative press and a general negative feedback loop (having to sell positions to raise cash, people not in the fund staying away because of what they're seeing and reading) probably by the end of the first year? It doesn't matter if it's Berkowitz, either: John Paulson could make the biggest trade ever and if his fund tanks the next year (worse than Berkowitz is doing), it really is a "what have you done for me lately?" They're not going to go, "Oh ok, better luck next year." (Speaking of, I wonder how Paulson's fund betting on literal real estate in the SW is doing.)
Every manager is going to have a bad period - it's a given. However, I think how they handle it shows a lot.
One almost has to be a smaller, specialized fund to make these sorts of bets and be able to sit on them under the radar and with investors who know what they're getting into. People on here can know what Fairholme is generally about, but I'd be curious what % of money in Fairholme is average people who invested in "this Berkowitz guy" who was "Morningstar's Manager of the Decade".
2c. Does raising the minimum investment for a mutual fund to $10K, $25k, etc cause money to be redeemed faster when things go South? If people have less money at stake, maybe they'll give the manager a little more time. Some are obviously dealing with giant portfolios, but how many people had Fairholme as a gigantic holding in a smaller portfolio, given how it's done in prior years?
3. The "thank you note" to the government was off-putting and seemed really about ego; it may as well have said "thank you for continuing to bail out my top positions." The banks may be bailed out/backstopped again if they get into trouble (actually, it seems likely), but I think that's a really unsatisfactory investment thesis. If you're telling me there's no better ideas out there than piling money - doubling and tripling down - into financial stocks who will continue if things go bad again because they'll get bailed out, things are even worse than I think.
Even if the world doesn't turn sour again, not seeing what the catalyst for banks will be anytime soon - they'll be dealing with increased regulations, increasing anger from the general population, etc. I will say at least Berkowitz has admitted it hasn't been a good year, it isn't like Kinetics Paradigm and their response when they stuck with financials all the way down in 2008.
4. It's exciting to me when great investors offer new products that can give retail investors new strategies or asset classes or even just another take on the usual asset classes from a great investor. I look at Fairholme Allocation and I think the idea of having nearly half the fund in two names is absurd, and what's new in it?. Fairholme Allocation almost feels like it was a way to get more money to invest in the same financial bets. If the fund isn't going to take a different approach than the other fund, then really - why offer it? Closing Fairholme also should have been considered.
5. I'm a little surprised that the situation with Fernandez was so sudden, although it appears as if it was prepared for.

The whole thing continually reminds me of Cramer's discussion of the run on his hedge fund in "Confessions of a Street Addict". His fund started tanking and his wife told him to prepare for a run on the fund. He laughed it off, thinking that he'd made so much money for these people previously that there was no way they'd leave - sure enough, many of them who'd been invested with him for years and years did - and did so in no uncertain terms - and the fund got very, very close to having to liquidate.
In the case of Fairholme, it was a risk to make a gigantic bet on financials in this period - not only a bet, but betting to the level where many of the bets would likely be difficult to unwind. Fairholme is a core holding for many people, and when a giant bet went awry, the fund not only stuck with it, then doubled and tripled down.
People can can continue to call these financials "values" all they like, but it didn't work and there's really no catalyst for them on the horizon, yet Berkowitz continues to say that "this is a repeat of the '90s'." Even if Berkowitz is right - and I didn't think he was when his bet on the financials started - how long is he going to wait while the market stays - in his opinion - irrational?
This isn't a supporting player fund or specialized hedge fund (speaking of hedge funds,many of the funds who acted like the financials were "values" appear to have wisely bailed part/all.) Fairholme is (was?) a core holding (for many people) mutual fund that has a large minimum investment. It's not even a matter of risk as much as it is one manager's wrong-way bet - and the retail investor isn't going to be loyal, no matter what Berkowitz has done over the last decade. All the hot money who heard about this "Berkowitz guy" from Morningstar or elsewhere have now headed for zee hills.
People are not only not going to wait around forever (especially if the fund doubles and triples down on the investment) for a risky fund-sized bet to work out sometime, but it risks severely negative press and outflows (speaking of negative press, I can't believe more hasn't been made of Fairholme Allocation's ridiculous allocation to only a couple of names, as well as its appearance of just a way to extend financial bets.)
It all puts a damper on anything like trying to do something with St Joe (which wasn't going to happen anytime soon anyways, but after all that's gone on this year, any possibilities for that have been extended further into the future.) Fernandez has now left, and that doesn't get into the ridiculous thank you note to the government or the conference call with BoA's CEO, which felt like a desperate PR stunt.
As for the Barrons article, you have to be a subscriber. I see something about Berkowitz forgiving a large loan to Fernandez in the preview, though?

Daniel Schmerin
Current
Director of Special Situations at FAIRHOLME CAPITAL MANAGEMENT, LLC
Past
- Chief Operating Officer, Public-Private Investment Program, Office of Financial Stability at U.S. DEPARTMENT OF THE TREASURY
- Director for Preparedness Policy, Homeland Security Council, Executive Office of the President at THE WHITE HOUSE
- Presidential Management Fellow, Bureau of Economic and Business Affairs at U.S. DEPARTMENT OF STATE
- Research Assistant, Office of the Vice President at THE WHITE HOUSE
- Research Assistant, Office of the Rt. Hon. Bruce George MP, House of Commons at UNITED KINGDOM PARLIAMENT
Education
Georgetown University
London School of Economics and Political Science
University of Pennsylvania
**********************
Fred Fraenkel
(Fairholme Chief Research Officer)
Current
Vice Chairman at Beacon Trust Company
Global Research Director at Beacon Trust Company
Past
Board member at Gerson Lehrman Group
Chairman at Clear Asset Management
vice chairman at ING Barings Furman Selz
managing director at Lehman Brothers
senior management positions at Prudential Securities and E.F. Hutton
security analyst at Goldman Sachs
Education
University of Pennsylvania - The Wharton School
Lehigh University

Bad bet on financial sector this year, particularly with such a large allocation. Too little too late after this stock lost 48% of its value this year.

http://news.morningstar.com/articlenet/article.aspx?id=397494
* FPA Nabs Ex-Oakmark Vets to Launch Foreign Fund
* Berkowitz Sells Off a Portion of Regions Financial
* First Eagle Adds High-Yield Team
* Another Shakeup at Goldman Sachs
* New manager for T. Rowe Price Africa & Middle East (TRAMX)
* etc.

Here's an excerpt from a good article in today's WSJ- I can't link it, as they require a subscription.
"The two dozen or so big banks woven into the fabric of the global economy are a special case: If they go, it's not only their shareholders and creditors who get hurt; everyone does. Because of that, everyone expects governments to rescue them.That can be costly, and gives those institutions an edge in raising money, taking risks and attracting customers over banks that are "too small to save."
Big banks can be vital to the global economy, though how big is big enough is a question yet to be answered. Big trucks are good for the economy, too. They can carry lots of stuff and do things cars can't. But you don't want to be on the road when a truck crashes and explodes. So we require tougher safety standards for trucks than cars, more training for their drivers, and so on.
"The right response," Federal Reserve Chairman Ben Bernanke told Congress this week, "is to put extra cost, extra supervision on these [financial] firms that will give them an incentive to eliminate unnecessary size, to eliminate unnecessary activities and to reduce their risk-taking."
One approach to dealing with this small group of big banks: Make them hold even more capital, as a percentage of assets, than other banks. Leaders of big banks—mostly loudly J.P. Morgan Chase's Jamie Dimon here in the U.S.—aren't happy. No surprise: The rule is likely to reduce their profits and limit their dividends."
One more thing: There's an alternative to requiring the biggest banks to hold extra capital, which bankers would like even less: Break them up.

Reply to @CathyG: I went into a bank a year or so ago and they didn't even have 6 month CD rates posted, someone had to go and dig out a sheet from somewhere. Now the same bank is showing 0.15% for a 6mo CD. That's really not even worth the effort to go there. They're showing 0.75% for 2 year, which is lousy but probably actually - sadly - really good in comparison to a lot of other offers out there. I remember in 2007, I had an ING online 6mo CD that was something like 4.5%. People run to EM debt looking for yield because nothing safe/easily accessible is offering it, then that reverses (still provides the yield and the fundamental case, but large investors flee, average person sees the sector not doing well and then gets discouraged or whipped out.)
I have been somewhat encouraged by a bit more discussion on CNBC then there has been about how this has been terrible for those who rely on fixed income. Do I think it'll change? Probably not anytime soon at all, but I was somewhat encouraged to at least hear a bit more discussion on financial media.
"Still.... it now seems so clear that investing has nothing to do with fundamentals anymore... just need to try to figure out what most investors' moves will be."
Yep. I think sort of an example of this is CGM Focus, which was formerly the hottest stock fund in the universe, as manager Ken Heebner would be able to move in and out of trends with impressive skill and pretty impressive speed for an increasingly large fund. For the last two years, Focus has lagged significantly, because I think what trends there have been aren't sustained and Heebner is having difficulty with timing.
There was an article the other day that Heebner's trading this year, if annualized, would work out to a 553% turnover rate (Heebner's previous yearly rates of around 300% were huge - it's always been said that Heebner moves quickly to the point where looking at Morningstar holdings was pointless, at 553% turnover, it's really pointless), which is insane for a stock mutual fund. It just kind of turns into a scramble. Heebner's highly intelligent and I respect him as a manager, but it sort of symbolizes the kind of rapid movements from stock-to-stock and sector-to-sector; the manager considered probably the most nimble in the business is getting whipped around trying to find a consistent trend.
You can tell the public to buy and hold 24 hours a day/7 days a week, but this market is going to continue to alienate people and I wouldn't be surprised if this level of volatility continues. You see it in the weekly mutual fund outflows. I do think there's going to be a point where bonds start to reverse, but maybe not for a longer time than I can imagine. I shorted treasuries again yesterday with a little bit. I just can't imagine there's that much downside at this point to that, but I'm sure I'll probably find out the opposite.
I think Bob C has been good in trying to work in alternative/non-correlated strategies for his clients that reduce volatility and may actually perform well when the markets aren't (managed futures is probably the prime example.) I'll admit that I've taken money out of risk in the last month or so and have moved to things like AQR Risk Parity (AQRNX), which is certainly not no risk, but is dialing down risk. I also continue to hold some oddball stuff, including a few shares of a fund that holds timber land in various parts of the globe. I continue to hold Jardine Matheson, which for me is really one thing that I do plan to be a buy and holder of as a bet on Asia over the very long-term (5-10+ years and possibly longer) There's definitely a few other things that I plan on keeping for the long-term, but for the meantime, risked has been dialed down and I'm circling the wagons around those longer-term holdings.
I do think EM debt became too hot an asset class, but I like the long-term fundamentals and story. Well, you get big money that flows in and then at the drop of a hat, zips out (which, again, is not good with a smaller asset class) There's no long-term viewpoint really, on that or anything else. EM stocks have really not done well this year, so I think those will come around if people start bargain hunting, and if sentiment on EM changes, then EM debt may start to stabilize.
Very, very sorry to hear about your husband's mother! That's really sad and tough, and an example of how the financial crisis has really left a lasting and terrible impact.
"My Mom's medical group will no longer take her as Medicare + Supplemental insurance (is requiring Advantage HMO now to keep her as a patient)." I think it's really very hard, and I know older family/friends are looking at long-term care and other such options and finding it difficult in terms of the process and pretty much everything else about it.

Reply to @johnN: It's an issue of Greece and the institutions that will be effected if they default, and a potential "domino effect" with other countries. However, the banks in this country still have massive issues. There was a great interview with Michael Lewis ("Liar's Power", "The Big Short" and other books) yesterday on CNBC, and he said effectively what I've been saying: how are we back discussing these financial companies after we bailed them all out only a few years ago? It's a crisis of confidence - Morgan Stanley comes out and says it doesn't have significant exposure to Europe, and two or three banks apparently have to come out and back them up. Yet, Morgan Stanley continues South. People don't believe them. I think there's also an element of counter-party risk fears.
In other words, this: http://market-ticker.org/akcs-www?post=195306

Howdy,
Addendum: Oct 4 2011, Tuesday
Mr. Patient Investor is really trying to convince himself of why stay the current course/portfolio for the next 6-12 months awaiting the grand event(s); awakening and cleansing of the financial houses of the developed countries. For more than two full years the European debt question has loomed overhead and has whacked the markets two times in the month of May and still the fire burns worse today.
Perhaps, if offing/selling our equity and related holdings we would miss the grand equity rally to come; and the investment grade bond holdings would then suffer.
The words of this song rang into my head this morning; originally from the Supremes version, and for the hippy-dippy crowd; the more obsecure version a few years later by Vanilla Fudge. The latter perhaps being more soulful and suited to today's invesmtent sentiment. I did not alter the original lyric; as one may fit and place their own words to suit the investment circumstance.
Lastly for now. Perhaps the old investment shotgun will come out of the closet today and just blast what has already been thumped enough and beyond; recheck the bond funds that held their ground in 2008; and the most critical past the fundamental and technical.....keep our fingers crossed for the luck.
Regards,
Catch
Set me free, why don't cha babe
Get out my life, why don't cha babe
'Cause you don't really love me
You just keep me hangin' on
You don't really need me
But you keep me hangin' on
Why do you keep a coming around
Playing with my heart?
Why don't you get out of my life
And let me make a new start?
Let me get over you
The way you've gotten over me
Set me free, why don't cha babe
Let me be, why don't cha babe
'Cause you don't really love me
You just keep me hangin' on
Now you don't really want me
You just keep me hangin' on
You say although we broke up
You still wanna be just friends
But how can we still be friends
When seeing you only breaks my heart again
And there ain't nothing I can do about it
Woo, set me free, why don't cha babe
Woo, get out my life, why don't cha babe
Set me free, why don't cha babe
Get out my life, why don't cha babe
You claim you still care for me
But your heart and soul needs to be free
Now that you've got your freedom
You wanna still hold on to me
You don't want me for yourself
So let me find somebody else Hey!
Why don't you be a man about it
And set me free
Now you don't care a thing about me
You're just using me
Go on, get out, get out of my life
And let me sleep at night
'Cause you don't really love me
You just keep me hangin' on...
Original, Oct 3
Sold the laggard of the HY bond funds YTD, today. DHOAX was sold and monies moved to DGCIX, which already had some monies. The choices available are limited with this particular retirement account, so the next best choice/guess? was made. Selling DHOAX gave up what will likely be a closing yield today of almost 9%.
For you folks holding bond funds with a fair amount of Treasury exsposure, including TIPS; ya'll should have a smile on your faces when viewing today's closing NAV's....with the assumption that the manager(s) is parked in the proper place. For the total bond funds invested in both T issues and HY; the NAV may be a mixed bag of + and - offsets.
Planned to move other monies today; but did not have account access until 3:30pm.
Now, if the folks in Europe come about with a full grand plan to sooth the big investors; and if we continue to move into more of the middle of the road bond funds, well; we will get a big face slap, as in theory; the equity kids will be buyers and the bonds will sell off. As to the U.S., well, the kids are back in D.C and who knows what magic will come from them. I DO NOT like the action in the NASDAQ arena.
Ok, gotta get some things done before the sun moves over the horizon.
Take care,
Catch