Hi Guys,
I agree this is not a new finding.
Superior portfolio performance is a rare commodity for individual investors, for mutual funds, for investment categories, and even for the marketplace itself. At some time, usually now rather than later, the iron law of regression-to-the-mean gets enforced.
The referenced article captures that attribute. As Mark Twain observed: “History may not repeat itself, but it rhymes”. Markets change and often change in a supercharged way. Warren Buffett remarked that “The dumbest reason in the world to buy a stock is because it’s going up”. Yet many of us do exactly that.
We love winners and assume their continued winning ways. The odds against that happening are not all that high. Academic and industry studies demonstrate the regression rule time and time again.
The referenced article cautions against being “suckered”. Yet we are strongly motivated to buy last years winners. That’s a failed strategy that seasoned investors understand. Seasoned investors who populate MFO are familiar with the SPIVA scorecards and the Periodic Table studies that show how fragile persistency really is. For the newbies to the MFO site, here are Links to both a representative and recent SPIVA report and a Periodic Table:
http://www.spindices.com/documents/spiva/spiva-us-year-end-2014.pdf
https://investment.prudential.com/util/common/get?file=1D065355D2CC360385257B7D00536F8A
Indeed we are suckers for the hot hand. When searching for new investment opportunities we are often drawn like flies to honey to those stocks and those funds that occupy the top of the returns list.
What these types of scorecards show is that performance persistence is an illusion. The rotation is amazing; the table entries quickly reverse themselves.
Studies consistently demonstrate that the average active mutual fund underperforms its Index benchmark. Further, the average individual investor underperforms the mutual funds that compose his portfolio. We lose returns on several dimensions because of impatience and poor timing.
That’s the sad side of the story that victimizes the general investment public. Hopefully, MFOers are more disciplined and less momentum driven. I suspect that our portfolios contain a higher fraction of Index products, and that we hold them for longer periods. The general mutual fund data suggests that this is happening among both institutional and private investors. Good for all of us; our sucker quotient is decreasing.
EDIT: It's tough posting while watching the pro football games with a cheering group of fans.
Best Wishes.

How many of us avoided market timing in 2007-8 and did not capitulate eventually?

Capitulation is the classicial way to sell low and lock in the paper loss. For those who stand pat and ride it all the way back in 2009 and more in the following years. Market will go up and down. Key here is to stick to an asset allocation that is within your risk tolerance (BobC pointed this out on his past posts).
2016 did not started well but things will settle down as always. Don't think we are coming close to the situation of 2007.

The major averages are still very high compared to March '09. I'm 70+ and very conservatively positioned. Am also taking out 4-8% a year in annual distributions (varies).
Our distributions so far this year came largely from our most conservative income-oriented funds. So, relatively speaking, our small equity positions have increased a bit recently. And as part of annual rebalancing I ended up throwing a few more dollars at PRNEX which has had a horrible year. But, we're talking small amounts here. (Probably raised that fund's allocation by 1-2%. )
No - I wouldn't back up the truck and start buying at these lofty levels. Although if 25 years old again I'd probably be in invested in 1-3 good global allocation funds and out fishing or something. It's all about risk tolerance and time horizon.

@MJG
Your question to me: "By the way, what did you think about the technical parts my posts? I was trying to be helpful."
Technical suggestions and observations are not a problem or concern, in my opinion or for me. I tend to use a mix of fundamental and technical for investing considerations. Although I favor technical indicators more so for price movements that do not lie; I always try to understand how the price numbers arrived at their current standing.
Energy pricing over the past year or so is an almost perfect mix of fundamental and technical. When fracking methods in the U.S. really started to produce, I used this information as a starting view point as to what was going to become of pricing for the major energy products to be had from this process. This "fundamental" view for watching has produced the expected pricing. At the very least, this should have kept investors away from this broad sector, with the exception of those who use inverse investing products for a potential profit.
And yes, I accept the aspect that we here are "trying to be helpful". I am sure there could be many reports over the years from those we never "know about" here at MFO, who have found a better path to their investing from knowledge and thinking that has been obtained from this forum. Without doubt, the investing styles of those who read and/or write at this forum finds many variables.
Obviously, those here who express opinions and/or offers ideas are not "in it" for the money, eh?
Regards,
Catch

Hi Everyone,
I use Powerfunds Portfolios to guide my investing -- Aggressive Portfolio for IRAs (we're about 15 years from retirement) and Conservative Portfolio for college funds (needed in the next 1 to 6 years). I have found them to be quite prescient about what categories will do well going forward, though sometimes a bit early in switching. Last year, the Aggressive Portfolio had a gain of 3%. (Sadly for me, I didn't do as well, with -1.7%. The recommended double oil short DTO was too volatile for me and I passed on it, but it is up 100% over the last year). In 2008, the Aggressive Portfolio was down about -16%, not too bad. The portfolios change every 12 to 18 months.
New recommendations for the portfolios came out yesterday -- check them out at the link above. Basically, in the Aggressive Portfolio, they are recommending ~ 40% in long term bonds, a switch from growth to value, new investments in utilities and Italy, and some shorts in case of a total market meltdown.
lrwilliams

Old_Skeet holdings in cash equals about 25% of my asset allocation accorning to Morningstar's Instant Xray. I started raising my allocation to cash a few years ago as I felt stocks were becoming to expensive to keep buying more of them. With this I stopped reinvesting my mutual fund distributions and accrued them in the cash area of my portfolio. I have now reached a full alloction to cash (25%) and above my target of 20%. Now that the S&P 500 Index has entered correction territory and reported earnings (according to S&P) have started to pick up I have started to review my portfolio searching for some equity funds that might need to be rounded up within their respective sleeves. This past Friday, I spent a little cash (less than one percent) and I increased my position in DEQAX raising its percentage within its sleeve weighting to about 15% with a target weighting of 20%. So, I will need to buy again to achieve the weighting balance I am seeking. Currently, CWGIX has a weighting of 60%, EADIX has a weighting of 25% and DEQAX has a weighting of 15%. Looking to be about 55%, 25% & 20% respectively if S&P 500 earnings materailize as anticipated. I am thinking they will.
And, if earnings keep floundering and disapoint and the markets continue to pullback then I have ample cash to help cushion the fall and put some cash to work when I feel market conditions warrant. Some might say this is market timming (perhaps so, perhaps not); but, I think it is just being prudent and investing inside the confines of my established portfolio's overall asset allocation. And, when I become cash heavy, its time to rebalance ... and, I plan to be prudent as to how and when I do this.

FYI: It's tempting to look at which mutual funds did best in 2015 and just invest in those. Winners win, right?
Not in the investing world. It's tough for funds to stay on top, and last year's winners regularly turn into this year's losers.
Regards,
Ted
http://bigstory.ap.org/article/15a9f489710c4b658f22d07e07f198b2/dont-get-suckered-last-years-fund-winners-often-go-bad

If I had a 3-5 year horizon, I might reverse your percentages to 40-60. Three years is a pretty short term window and if things went bad you would not have much time to recover. Therefore, try to make it so things don't go so bad.

Has anyone pondered the obvious question before taking such media articles for granted?
Why would you consider the manager of a sector fund as extra-ordinary in having beaten the S&P 500 when the sector itself has been beating the S&P 500? Even a sector index fund would have outperformed S&P 500. Looking at the performance of ETHSX in M*, it appears to have underperformed the M* Health index over the last 3, 5 and 10 years.
Isaly is a 700-lb gorilla in Health investing (and part of the reason for snowballing growth in healthcare investing that self-sustains the performance). But there are good reasons to be in his hedge fund that hedges against big pharma by also participating in VC funding from early stage to pre-IPO companies so if big pharma were to falter with pipeline issues, his fund would still do Ok. The same wouldn't be true of all the retail health care funds overloaded with big pharma.
Like all fund managers, he talks his book in public. This is not necessarily a bad thing but years of Bill Gross and now Gundlach should have made readers immune to words from fund managers. :)

My problem with "rock star" active managers is that they almost invariably stumble at one point or another, I tend to find them near the end of their cycle of outperformance.
Then, when they begin to underperform, should I bail at the end of one day of underperformance, one week, one month, one year, three years of underperformance?...well you get the idea.
Mr. Danoff may be one of the active managers who never stumble. Let's hope so. But the consistent outperformers are, in my opinion, nearly impossible to identify.
Arnott, Berkowitz, Bill Miller, and Yacktman are just a few of the "rock stars" who fooled me.

Hi Guys,
DavidV is not a very experienced or confident investor, and the market’s shaky start this year has only operated to reinforce his qualms. Given the poor start, it’s probably helpful to review the statistics on market meltdowns. There are plenty of websites that summarize these data in an attractive, easy to understand format. One such nice summary is provided by Scottrade. Here is a Link to it:
https://about.scottrade.com/blog/blogposts/Market-Corrections-and-Rebounds.html
Although the article was published in 2014, it provides the bulk of the necessary data in a graph that incorporates the depth of the downturn, and the times for both the meltdown and its recovery. It’s always a good idea to be familiar with the base rate stats in order to establish an anchor point. Any special insights and/or circumstances that exist now can be used to extrapolate off that departure point.
I especially like the bar chart presentation that graphically illustrates the length of the entire cycle and the extent of both parts of it. The final chart in the article depicts the benefits of a mixed stock/bond portfolio in terms of ameliorating the impact of several market meltdowns.
Knowledge of the odds is always mandatory. Scottrade provided a succinct summary. Here it is: “The Market Downturns and Recoveries image below shows 15 major corrections of 10% or more over the last 88 years; on the right side of the image, you can see how long it took the market to recover. In instances where the market declined by less than 30%, the average length of the downturn was 8 months and average recovery time after the downturn was 9 months.”
On average, these are not long times. Dependent on spending needs, these data, along with a comfortable safety factor, suggest how much cash should be held in reserve for protective purposes.
Enjoy. I hope you find these data both useful and entertaining.
Best Wishes.

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...