Hi @vkt and @Old_Joe
I witnessed and began to understand this transformation (management in particular) as I watched the "old management", most of whom were educated properly for their positions; but who had also moved "up" through the company and actually knew what the company was all about. In 1990, a group I had worked with for a number of years was always in the top 5% of monetary performers nationwide. The company president invited several of us for lunch and a meeting to "discover" our secret of high standards and performance. He listened very closely and began some changes within the company. Within 2 years he and numerous others in upper management were replaced with outsiders who had no knowledge of the particular business. I watched as the company took too many wrong paths to make things "better". The majority of the new leaders were MBA folks who had graduated in the early 1990's. They tried all kinds of fancy stuff to enlighten the workers. But, never again did anyone from upper management ever ask "us" what could be done to improve the performance of the company. I suspect their ego(s) caused them to know they had already learned from the MBA program books what needed to be done. Sadly, they didn't know, that they didn't know.
This technical company still exists, but has had a few CEO's removed under shady circumstances and more than one class action lawsuit filed by employees and customers.
Just one of what I suspect are numerous similar conditions of American companies.
Regards,
Catch

Frankly DavidV, your timing strategy is possible I suppose. There are successful trend followers here that are very successful on avoiding big losses. Junkster comes to mind. He does it with specific funds in a specific sector. He buys when he determines an upward trend has formed within a trend channel that he is comfortable with and sets a specific sell percentage from the high after he buys. It absolutely works for him, but I don't believe everyone possess the skills or diligence needed to succeed with this type of investing. Maybe you could use the same approach with a portfolio mix. If you don't have the skill and diligence needed, and I know I don't possess those attributes, the risk tolerance buy and hold method would fit. And I'm comfortable with portfolio weight adjustments depending on economic factors, like old skeet. Just not 100% in or out.
So even with the average and standard deviation statistics MJG gave you (I think 10% average return and 12% standard deviation), probability statistics say you would have a 68% likelihood of yearly returns between -2% and +22% (10%-12% being the low). Of course that means you have a 32% chance of returns below (could be well below) -2%. If you want to open up the normal distribution curve, say to 95% confidence (2 standard deviations) with a 60/40 portfolio you are likely to have year to year returns between -14% and +32% (and 5% possibly worst or better). If you look at 2008, you see moderate 60/40 balanced funds losing 20-25%. So heck, in 2008 you were in that slim 5% worst case probability range. It happens. If nothing else, the great recession tells you the market can be very mean. But, within 5 years it was back.
A disclaimer on the numbers. I'm well through my second beer after a hard weeks work.

Goldman cuts S&P 500 earnings outlook
Jan 8 2016, 08:00 ET | By: Stephen Alpher
Goldman's equity team cuts $3 per share from its expectation of S&P 500 E P S for 2015-2017. The new numbers are $106, $117, and $126, respectively.The revision means annual E P S growth of -7% in 2015 (the worst performance since 2008), 11% in 2015, and 8% in 2017.At issue, naturally, is energy, and that sector last year likely posted a decline in operating E P S for the first time in 48 years. Also important topics are margins that appear to have peaked, and the risk of a broader economic slowdown.On margins, it's all about tech, and in tech it's all about Apple. Goldman expects tech margins to peak this year and then begin to decline. If you can find an S&P 500 company that can raise margins, buy it.
http://seekingalpha.com/news/3020796-goldman-cuts-s-and-p-500-earnings-outlook
Market Commentary (posted Jan 7th 2016) from OTTER CREEK LONG/SHORT OPPORTUNITY FUND OTCRX
As we have discussed in prior letters, we believe the overall valuation in both the equity and bond markets are not overly attractive on an absolute basis
considering the fundamental growth outlook. S&P 500 earnings are expected to be around $125 per share in 2016 implying a price to earnings ratio of
approximately 16x – near historical averages – however, we see potential downside risk to earnings estimates this year. The US economy continues to grow
modestly despite a sluggish industrial and commodity environment. However, we believe that there are lingering risks surrounding China which combined with
the potential for ongoing stress in credit markets should be a pause for concern going forward.
As we enter January, we have approximately 18% of the Fund in cash and are looking opportunistically to deploy that capital. We expect markets to be volatile
as the Federal Reserve attempts to gradually increase interest rates in the midst of moderate domestic growth and soft global growth trends. We look forward to
an in-depth discussion on broader macro outlook, portfolio positioning, and new ideas during our quarterly conference call on January 20th
http://www.ottercreekfunds.com/media/pdfs/OCL_Factsheet.pdf

Hi Alex,
Well after the last couple of days I hope you are still in your money market. :-)
At 86 years old, you might consider putting some of it into an immediate annuity. The balance will vanish when you do but the payout starting at your current age should be pretty high. I was quoted about a 6% payout and I'm 25 years behind you.

What was the name of that deliberately concentrated fund that was brand-new, about 3-4 years ago..... The fund manager's own father was in charge of his OWN fund or funds. At the time, I noticed it was heavily into high-end retail. Dang. Not much help. Maybe others can recall.

@MikeM: Yes. I may need money in the next 3-5 years. I understand that it is all speculation. Nevertheless, I believe it should be some optimal strategy to achieve the goal.
One way to do that is to wait till the portfolio drops 10% and then sell everything.
Another way is to use buy and hold strategy: to protect against stock market drop of up to 50% with 10% risk tolerance your portfolio allocation should be about 20% in stocks.
These are two extreme approaches and both of them not good. I hope there is something more reasonable.

If there were an

automatic technical criteria

I think we would all buy that book and we could limit our downside to what ever we wanted it to be. If that book told us when to buy back-in we would all be rich. Well, at least the people who bought that book. I agree with davfor. If you already decided your risk tolerance is to lose no more than 10%, you shouldn't be 60% equity.

I would prefer not to speculate on future market direction

I would say any method anyone gives you can only be speculation. How could it not be? Pick a realistic equity allocation and at most play within a range - ala oldskeet. And why did you pick 10%? Do you need the money in the next 3-5 years?

Hi Guys,
The referenced article about Joe Granville recalls a dormant blast from the past.
In the early 1980s, I attended a Granville investment lecture in a downtown San Bernardino, CA auditorium. The auditorium was huge and so was the excited crowd. Given his earlier market forecasting successes, the size and enthusiasm of the mob was not unexpected. He sold many subscriptions that day.
Granville did not disappoint. He was the ultimate showman. I don’t remember the details of his technical analyses oriented presentation, but it was mostly Bear in character. Unknown at that time, his forecasting acumen had already abandoned him.
His long range Bear stance was the beginning of the end for him, although he remained a popular TV guest and published a market news and forecasting letter for decades afterward. Not too many folks, including market professionals, kept accuracy scores in that timeframe. That’s also true to a lesser extent these days.
In his personal appearances Granville mesmerized his faithful followers. He became famous for his entry stunts. In the San Bernardino presentation that I saw, his entry was nondescript. But during his talk he did wow the audience by pulling down his pants revealing spindly legs and underpants that had stock market symbols on them.
Memory is a funny and unpredictable thing. I don’t remember any of his technical analyses methods although I used a technical approach (later terminated) at that time. I only remember his outrageous “pants” incident.
Given his failed predictions in subsequent years, it’s amazing how popular Joe Granville remained. His fame exceeded his skill and talent.
It shouldn’t surprise me all that much given that many mutual funds that have performed poorly for extended periods retain a loyal supporter base. We resist change even after a bad decision; admitting a faulty decision is a daunting challenge. I’m sure the behavioral wiz-kids have much to say on this subject.
Market timing is indeed hazardous duty. Abby Joseph Cohen’s career exploded with a badly timed forecast in 2008.
Best Wishes.

I will keep an eye on PTIAX and NEARX. I currently own OSTIX in my Roth IRA as well as RSIVX. I would love to buy RPHYX, but it looks like it will be closed for the next 100 years...

I swapped FAIRX into FAAFX to avoid the capital gains distribution last year while staying with Berkowitz. I'll give him a couple more years, but if he doesn't recover, I think I'm abandoning active management altogether. If you take a fund which does amazingly for 15 years and has all the ingredients for continued success, then it underperforms and keeps underperforming, then there's just no way to pick a good active fund. SEQUX seems to be proving another example of that. But hey, I haven't lost hope yet!

The persistent lagging performance in last few years was self-inflicted with poor stock selection I my humble opinion. If you have lost confidence with the management, it is time to move on. There is nothing wrong with cash until better opportunities come along.

Not a bad idea buying BRK.B Maurice. If you can find a list of holdings preceding the last few years of drama and craziness in this fund then you might symbolically recreate the fund as you once knew it. FWIW, We did discuss this about a year ago and I did sell FAIRX for BRK.B

New year, new assessment of FAIRX. Makes up a sizable percentage of my mutual fund investments. There would not be any tax implications to selling the fund. Years back FAIRX was just as concentrated. But the majority holdings were in Berkshire Hathaway. Today the make up is far different, and perhaps is too risky for the return.
Can you suggest one fund that is focused, as an alternative? Maybe I should just buy BRK-A. Well I can't really do that. But I could buy BRK-B. Sorry to long time readers who tire of my asking this every year.

Some options for your consideration might include Akre Focus fund.........Smead Value fund...........Oakmark Global Select fund..........I'm quite happy with those three
Or to avoid disappointments from concentrating in one fund like FAIRX, one could go the passive indexed route, with:
Vanguard Total Stock Market Index fund and Vanguard Total International Stock Market Index fund.
You certainly won't underperform the market that way, and have those types of disappointments.....

I've been looking at this fund for a couple years, but just felt it was getting too big even back then. That doesn't seem to effect growth funds investing in FANG apparently.

Hi Alex,
I constructed my initial reply to your investment desires without challenging or questioning your stated objectives. Your goals and preferences are yours alone. Given your age and the steeply progressive RMD requirement, your bottomline objective is extremely bushytailed.
I agree with the several MFO contributors who suggested the difficulty, perhaps impossibility, of satisfying them. It is a tough nut to say the least.
Given the progressive character of the government RMD schedule, I believe the task is almost impossible using the historical returns of any major market investment categories.
Today, your RMD is 7.1%; 5 years from now that RMD grows to 9.3%; 10 years from now the RMD has escaladed to 12.3%. The number of investors who achieve this level of returns approaches zero. It might be a good idea to reconsider your objectives.
If you disliked my earlier post that recommended deployment of Monte Carlo codes, you’ll hate my following suggestion that statistically backstops the futility of your tentative plan. The tool that I used to reinforce my assessment uses market average return and standard deviation data. It is the Bell (Gaussian) curve.
Market rewards do not exactly follow a Gaussian distribution, especially because of fat-tails, but are close enough for modeling purposes. The fat-tails make the Bell curve too optimistic in terms of real as opposed to projected returns. By the way, some Monte Carlo codes adjust for the fat-tail effect.
Your problem is much more demanding than a simple negative market year. Your portfolio must not only accommodate that probability, but it must also generate a return that exceeds your escalading RMD. Market volatility (standard deviation) kills. Diversification can help here by reducing portfolio standard deviation, thus dropping the likelihood of not meeting your high target.
How much does reducing standard deviation help? The Bell curve tables yield an approximate answer. The good news is that these tables have been graphically programmed on the Internet. You can determine the cumulative likelihood (the probability) of any event by simply knowing its projected standard deviation. Here is a Link to one useful graphic presentation prepared by the Math is Fun website:
https://www.mathsisfun.com/data/standard-normal-distribution-table.html
Please give this site a test run. Since your main interest is the likely cumulative failure rate to satisfy your RMD target, please click on the “Up to Z” button on the graph. Now simply move the standard deviation marker to determine the cumulative probability of the event to the desired level of volatility.
For example, suppose your portfolio has a projected return of 8.5% with an anticipated standard deviation of 12%. That’s a realistic projection for a diversified portfolio that is heavy into equities. Now assume that your RMD is at the 7.1% level. That’s 0.12((8.5-7.1)/12) standard deviations below the expected annual return.
What is the likelihood of that happening? Place the moveable marker at the -0.12 level. The probability of that happening is about 45%. Not good news.
Alex, this type of analyses strongly suggests that a cash reserve is warranted if you do not want to sell funds from your proposed equity portfolio. You have many options. A low cost short term government bond fund is one such option. As suggested by other MFOers, you might want to reformulate your objectives. As always, the choice is yours.
Edit: I was too hasty in my initial posting here and made an error in my example problem. I've corrected it. Sorry about that.
Best Wishes.

The muni trade seems to be getting a little hot now. I'm still heavy there, just hope it doesn't reverse too, um, energetically.

Agreed! Yesterday on Barron's Daily all I saw was to beware of 2016 in most markets but not so in munis. An article about Blackrock's love of them and another of David Kotock's. This run is now two years old! Where was everyone in January 2014? I don't like crowded trades but will give my usual mumbo jumbo of enjoy the ride while letting price be your guide and have an exit point.

Agree with Old Joe. The actual RMD factor of more than 7% is not something I would want to attempt, since that would involve tactics that are probably too risky for you. And volatility could well be problematic, too. If you target just the tax rate, staggered CDs starting with 6 months and going out 2 years, would start to get more interesting as the Fed raises rates more. The possibility to acquire new-issue municipal bonds to invest the after-tax RMD dollars is not unattractive, unless you are using this for cash flow.

Hi Alex,
Based on your advanced age, you impose a high target returns requirement, a high hurdle that gets higher each year as your RMD increases annually, on your portfolio.
I completely agree with MFOer msf with regard to scoping the problem by consulting the government RMD tables which are tied to life expectancy.
Numerous academic and industry retirement studies have concluded that a withdrawal rate of about one-half your RMD goal is a doable target that results in high portfolio survival odds over extended timeframes. The usual outcome from Monte Carlo simulations is that a 4% drawdown over a 30 year retirement period generates portfolio survival odds that are in the 95% and higher range.
Given your age, the anticipated portfolio survival timeframe is more like 15 years. This shortened period changes the calculus considerably. Some additional calculations are needed.
Nowadays, these calculations are easily and rapidly done with some simplifications that should not significantly impact any conclusions from the analyses. Since learning to fish is more useful than being gifted a fish, I suggest you do the analyses yourself.
One tool to do a respectable Monte Carlo analysis can be found on the MoneyChimp website. Here is a direct Link to the Monte Carlo calculator on the helpful site:
http://www.moneychimp.com/articles/volatility/montecarlo.htm
Please exercise it to get an informed feeling for the likelihood of a successful accomplishment of your goals.
For a representative portfolio with an 8.5% annual average return and a standard deviation of 12%, a survival likelihood of 98% is anticipated for a 15 year period. If that period is extended to 20 years, the portfolio survival likelihood decreases to 86%. If the portfolio volatility is increased from 12% to 15% annually, the portfolio survival probability is deceased from 98% to 93% for the 15 year timeframe.
Parametric analyses like these help an investor to get a feel for the soundness of his plan. These general cases seem like attractive potential outcomes from a portfolio survival perspective. However, note that MoneyChimp does not provide the end value of the portfolio. If a single dollar remains in the portfolio after the designated period, MoneyChimp scores that as a portfolio survival instance.
If you want more detail, please give the Portfolio Visualizer version of Monte Carlo a test run. Here is a Link to that site:
https://www.portfoliovisualizer.com/
This excellent website will allow you to back-test generic and specific portfolio asset allocations, and also to do a Monte Carlo simulation that outputs portfolio survival odds and average portfolio end wealth values.
For one test run, Portfolio Visualizer yields a 96% survival likelihood for the 15 year period with a 50% US Stocks, 25% Large Cap Value, and 25% International Stock portfolio allocation. A 37,000 dollar average annual drawdown rate was assumed.
The median portfolio end balance was 1.1 million dollars, and both the 25 percentile and 75 percentile end values were provided. Since these are Monte Carlo simulations, results will change a little with each running of the code.
These estimates were done using historical base rate returns. Given the current investment environment, you might want to do the simulations using slightly more muted market return projections. You can input your own predictions and do some sensitivity scenarios.
If you don’t like the specific outcomes, these Monte Carlo tools allow you to play endless what-if options to explore allocations that might improve the projected results. The work is easy and even fun. Enjoy.
I edited to convert my original post from MRD to RMD. Sorry for the nomenclature error.
Best Wishes.

1. What is your understanding of the term “captured earnings growth”?
2. "International Stalwarts already has about 127 million in AUM per M*, so I'm not sure how long this one will stay open. 2-3 years"
I think it is going to stay open for longer than 2-3 years......
Since this is more of a midcap fund, they will let the assets run up much more than their other funds

Right, it looks like they're not going to double down on value, even though that could pay off in the long run, but the growth oriented international funds have been strong- OBIOX, OSMAX.
International Stalwarts already has about 127 million in AUM per M*, so I'm not sure how long this one will stay open. 2-3 years? They're sure doing a lot of hiring and then no more offerings planned for the next 6?