I took another look at the article, and the author's previous article which further described the study, and I think the point is that just because a fund had a great year, doesn't mean it will persistently have great years. Bill Miller did it for a stretch, but then he came back to the mean.
The author's prior article on the subject (July 19, 2014) recognizes that over a longer term, some fund managers do beat the market. He points out that Hodges Small and SouthernSun Small Cap "rewarded shareholders spectacularly, turning a $10,000 investment to $35,000 over those five years, ... By contrast, the same investment in a Standard & Poor's 500-stock index fund would have become more than $23,000..."
I believe the value of the study by S&P Down Jones is to point out the risks of buying the hot funds that had a great year--as opposed to considering the long-term and the methodology of the fund. Too many investors buy the top one-year performers and end up selling when the funds have bad years.
[I do believe these forums lose some of their value when they descend into a right/left struggle. It can be a real turnoff.]

HibTampabay,
The primary focus of the article was about performance persistency. That's why the S&P Persistency scorecard was the referenced document.
Again back to the baseball analogy, the issue is if a .300 hitter in year One is likely to repeat his success in subsequent years. That's a tough task for most hitters and results in overpaid ball players.
The Persistency scorecard tells the same challenging story for fund managers. Persistency is an illusive goal for most of them with a very few rare exceptions. You don't often get what you pay for in the active fund investment universe as constantly emphasized by John Bogle.
The debate about the luck-skill spectrum in investing is stimulating, but I believe it is irrelevant in the discussion of the referenced article. You obfuscate by defaulting to the shortcomings of the baseball analogy and the luck/skill arguments.
You're diverting attention away from the purpose of my post; you're mudding the waters. Simply put, you were wrong in the manner that you originally read the article.
Best Wishes.

Over the last 20 years Health Care funds have shellac the overall market in both to the upside on gains as well to the downside on losses. Here's VGHCX (Health Care) vs VTSMX (the Market) over the last 20 years. Will this continue?

Hi Guys,
Be careful here; be very careful indeed.
Trustworthy statistical sets don’t lie when based on honestly representative surveys. Their interpretations are an entirely different matter. In those interpretations, definitions matter greatly. A misinterpretation might not be dishonest; it might simply be a conflated reading of the stats.
Based on my quick reading of the referenced article, and an even quicker reading of your comments, I suspect MFO posters are conflating the S&P data that is the primary source for the article.
The article quotes data from the S&P Persistency scorecard that measures mutual fund performance persistency. That specific data records consistency of returns, not absolute total returns over any integrated multiple periods.
The author focuses attention on the top 25% of funds over the initial baseline year, and than reports only on their persistency in remaining in that top quartile for each of the next four years. They mostly fail to do so.
But that observation says nothing about the cumulative returns of these funds in the entire reporting period. A baseball player who hits in excess of .300 for 4 of any 5 seasons, but has a sub-par .299 in one of those seasons would also fail the S&P Persistency test. I would still trust that .300 hitter in any circumstances and would want him on my team (portfolio).
Properly assembled, statistics don’t lie. However, some writers do purposely lie using statistics to boost a flawed position. Many more writers misuse stats because of statistical innumeracy. And readers add to the chaos by misreading and/or misinterpreting the quoted statistics. User be very careful indeed.
The referenced piece tells more about the fund manager skill/luck debate than about the more important Excess Returns delivery over time.
Best Regards.

Wonderful article! It never bothers to tell us what it means by "the market", however only 2 funds finished in the top quartile of whatever it is for five straight years, less than randomness would produce. This is said to show that you should buy index funds. However, I can guarantee you that no index funds finished in the top quartile of whatever it is for five straight years, either. Index funds aren't designed to do that. They're designed to beat something like 55% or 60% of funds year after year after year with their advantage accumulating as time goes by. So what is it supposed to prove when you show that active funds don't finish in the top quartile all the time?
The above is not to say that I have anything against indexing a stock portfolio. I would say that this is exactly the kind of article that I would expect from the New York Times.

Junkster recently mused in a post about striking a balance between reaping now and sowing for the future as we manage our individual portfolios during our "retirement" years. The article in this link suggests it may be appropriate to plan on living to 100 as we consider this question. It also suggests we manage our individual portfolios like endowments, seeking to balance annual withdrawals and portfolio growth to avoid eroding the principal.
The idea of looking at our individual situations and then deciding on an amount to set aside for the future -- be it the nominal or inflation adjusted principal or some other amount -- makes sense to me. (It is the basic approach I use to manage my portfolio.) The decided upon amount can be set aside for use if a dramatic future increase in medical and related care expenses requires it. And, it can include additional funds to be left to our heirs and/or to do good things in the world after we are gone. The remainder of the ongoing total returns in our individual portfolios can be reaped now.
The success of this approach assumes we will avoid doing too much reaping after one or two good years. So, "Reaping Now" needs to be averaged over some number of years. But, the idea that we each need to have a conversation with ourselves and make peace with much we want to be setting aside "indefinitely" for the future makes sense to me.
http://money.usnews.com/money/personal-finance/mutual-funds/articles/2015/03/12/the-100-year-old-portfolio-investments-for-a-long-life

Hank....EXAXCTLY...thats what makes these type articles Silly and meaningless (which the NYT is famous for) I could write an article on the next page of the paper on the same day that headlined
"60% of (my) managed funds beat the stock market index the last 5 years"
...so draw your own conclusion....
The conclusion is that the information is meaningless..

Hi Ted. I glanced at that in the NY Times whose headline stories I receive daily on Kindle.
I've never had a lot of confidence in their financial reporting - though same goes for many other publications. What struck me is they seem to be basing these conclusions on the period immediately following the 08-09 market meltdown. I do recall that during the "roaring 90s" index investing became very popular and the S&P 500 was greatly run up. It than suffered and lagged for several years following that hot stretch. So, I'd expect a rebound following the 08-09 market wash-out. This probably helps account for the great run it's had in recent years.
None of this is intended to dispute the advantages of holding index funds for the very long haul. I'd agree on that. But to draw conclusions on just a 6-year stretch strikes me as a lot of journalistic hoopla.

For a young person, forget it for 30/40 years and you are Rich in retirement
Remember to buy high profit US companies paying good dividends and go to sleep in your regular job....your made...

@msf But you did enjoy and were grateful for the extra customer service and advice you received while you were paying the extra 12b-1 fee at Citibank, didn't you? :)
@Crash
1. do you have any clue what the difference between PRSNX and their new Global Unconstrained Bond fund will be? I was thinking of PRSNX as a global bond fund long before it was put into that category, and it has never seemed (to me) that it has had too many constraints on its operation. I'm not clear about just which constraints they will be "unleashing" with their new offering. I guess it's just wait and see?
2. Now, don't go turning on the gas and putting your head in the oven about this, but I just went to TRP to purchase a few more shares of PREMX and PRSNX, and.... the NAV listed for both of them was lower than what I saw posted elsewhere Friday afternoon. Sure enough, I then went to my Fidelity watch list and the NAVs are listed as of 3/12. So, maybe the DBMS people broke early at Morningstar (last week) and at Fidelity (this week) for a FAC "mtg"; or.... there are some problems developing in Bond Land, whereby we just aren't going to get current NAVs in certain circumstances. [I would note last Friday there was some turbulence in MBSs, and this Friday there was some turbulence in EM bonds] Just speculating here.

Looking at the objectives for the two funds at Price's website:
The unconstrained is, well, unconstrained as to average maturity while PRSNX expects to keep a range of "4-15 years" average maturity;
The unconstrained will likely contain less junk bonds, "up to 30%" as opposed to PRSNX having "up to 65%" junk;
And it seems the unconstrained will usually include a bit more foreign, "at least 40%" as opposed to PRSNX with "up to 50%".
In practice, I'm not sure that there will be a big difference between them.

FYI: The bull market in stocks turned six last Monday, and despite some rocky stretches — like last week, when the market fell — it has generally been a very pleasant time for money managers, who have often posted good numbers.
Look more closely at those gaudy returns, however, and you may see something startling. The truth is that very few professional investors have actually managed to outperform the rising market consistently over those years.
In fact, based on the updated findings and definitions of a particular study, it appears that no mutual fund managers have
Regards,
Ted
http://www.nytimes.com/2015/03/15/your-money/how-many-mutual-funds-routinely-rout-the-market-zero.html?_r=0

Hi @Maurice
Yes, the wonderfully simple and easy to read Bloomberg fund ranking category page. That tool went bye-bye about 4-5 years ago. I used to link that page, and its listings results quite a bit at FundAlarm.
I did query Bloomberg about that tool, noting that is the best available for ease of use.....the quick view. I did not have a reply to my question of why the tool was pulled.
I have not found anything else to replace it; at least to the point of being so easy to use with very readable listings.
Too bad for us.
Regards,
Catch

Hey, I resemble that remark.
Many years ago, Citibank had a discount brokerage (Citicorp Investment Services), and provided a decent suite of bank services if you had a few $K in combined accounts, including their brokerage account.
They had a very limited, mostly high ER set of NTF funds. But they did offer TRP Advisor class shares (the ones with 12b-1 fees) NTF. I did a mental calculation and figured that it was costing me just a few bucks a year (I kept just the min required for the bank services).
Seemed worth it at the time. Since then, I've left Citibank and transferred the shares to TRP. Price did a tax-free exchange of the shares into Investor class shares (no 12b-1 fees).

I have been looking for a replacement for MFCFX (Marsico Flexible Capital) recently. The departure of D. Roa, 7/2012, seems to have had a signifcant affect on the performance of this fund. In fact, according to M*, it DOES NOT have one stock holding from Mr. Roa's tenure; all stocks were bought in 2013 or 2014.
I have researched and compared various replacements and POGRX is high on my list. But when I compare it to MFCFX and other LCG funds it's metrics and returns are not usually at the top.
What is it that so impresses everyone about Primecap Odessey Growth? I'm not saying it is not a solid fund, it certainly is, but how good is it?
I have to admit, I do like the sector concentration a lot!
Bottom line, I think the near three years after D. Roa left MFCFX is enough time to determine if the new Mgmnt team is doing a good job. I don't think so; there are too many other All-cap/Large-cap Growth funds to choose from.
I am looking for some suggestions, opinions and insights!!
Thank you,
Matt

http://blogs.barrons.com/emergingmarketsdaily/2015/03/13/emerging-markets-markets-sink-2-5-for-week-unloved-but-resilient/?mod=djemb_dr_h
This linked blog post from Barrons with analysis of performance and prospects of various EM economies from Deustche Bank has me wondering about my own allocation to emerging markets. For the last several years I've been reading about how this year is going to be the one for EMs, that dough is flowing into EMs, that valuations are favorable, and so forth. Fact of the matter is, my EM and FM funds (all the usual MFO suspects from Matthews, Grandeur Peak, Aberdeen, Morgan Stanley, and Lazard) haven't done squat since 2011, relative to my US holdings. I have reduced exposure in recent months, but haven't closed out any positions. Wondering how members are dealing with EMs. What are you taking for queasiness?

FWIW: I bought HAP some years ago, an index of companies that deal in commodities. It basically went nowhere so I sold it 2-3 years later.
I know a properly diversified portfolio should have some commodities, but aside from doing good during the worst of times, the idea seems rather pointless.

@MJG
You noted: "Well, humans get tired and focus drifts. We are subject to household and health problems. We are influenced by current events and the medias selective hype on these events. We are also guilty of overconfidence in our own skills. We trade too often. Several studies have shown that equity accounts that are more or less dormant for years outdistance others that are frequently traded.
>>> Yes.
Investors also abandon our well crafted rules and policies when the going gets tough. That’s true of both individual investors and professional money managers. Our market timing decisions are often a catastrophe. We are inconsistent in choosing and navigating our selected stars.
>>> Yes.
John Hussman is a prime recent example of a mostly successful wizard who failed to continue his planned march without introducing a disastrous route change. He added historical data sets to make his model forcibly agree with his predetermined decision; the facts be damned in this instance. That’s a classic, first-order sin when doing forecasting work.
>>> Yes.
What to do? John Bogle has it right: just stay the course. Don’t junk your rules and process just because an outcome has been a disappointment. Nobody is ever 100% correct with the possible exception of MFO’s Ted (am I having fun at Ted’s expense?).
>>> Yes.
When change is justified as the investment world constantly evolves, change slowly and incrementally. That’s applying Kahneman’s System Two deliberate slow thinking advantage. When investing, our System One fast response heritage gets us into deep water far too often.
>>> Yes.
It requires near perfect timing to be either all In or all Out of the marketplace for periods, and still recover long term market returns. Not many of us are successful at this process. We vacillate. This is not the coward’s approach, but it is the prudent approach."
>>> Yes.
If a person chooses to be their own investment adviser (an investor); they must know who they are, to the fullest extent; and to maintain the conviction that they must and will maintain a standard of introspection to continue to be fully flexible and adaptable to learning and required changes. Understanding that as the world and their world continues to change, that they too are likely changing, and thus the need for ongoing self assessment.
Two of the most honest investors (although I don't know about their successful profits) I have known for 40 years both wanted to save for retirement, did save and admitted that they had no desire to learn about investing. But, they did hire an advisor. Others I have known for many years had the same desire to save for retirement, but were not willing to learn and also not willing to hire someone to help with direction. I consider these folks as not really being honest with themselves about investing and probably other aspects of their lives.
As to other comments, I don't know what "trade to often means". Relative to what? Yes, we all are bombed with outside forces that may affect our health physically and mentally which can add to problems with mental focus and drift problems.
Perfect timing is not required to have a decent percentage return on a portfolio. Keeping the other football team from scoring more points is all that is needed, if one's team can only score field goals. A lot of investing profits may be obtained without scoring touchdowns with every investment play. One is not likely to buy at a bottom and sell at a top; but there is much to gather to the favorable side of monies in between these two areas.
As to what you noted above: If an investor can be aware of and understand some of the traits listed; they must continue to monitor who they are or are becoming, relative to investing skills and knowledge.
Lastly, the percentage of very profitable investors; based upon their measure of risk and reward is likely also a small percentage of the available population.
Regards,
Catch

There was a time when M* put the information out on a timely basis. That is how they built their reputation as the go to service for investment research. Reputation can be fleeting however.
US car companies built their reputation on well built cars that lasted. But in the 70's, they blew that reputation by producing crap and unfinished products. Many cars were missing key items as they sat on the showroom floor.
It's called complacency. While I admire Lizzie's coming on at MFO to explain the issue, it is the same PR that has been put out over the past few years on this same subject. M*Darrell has been posting the same thing over on their forums.
I can afford the premium service too but I do expect service in exchange for my money. M* is going on the assumption that they are the only game in town so you can either put up with their errant service or stay away. I prefer the latter.

This plot does not show the standard deviation. For example, if EM will grow 2.9% per year during 7 years, one will get approximately 20%, in average. But what if the average gain of 20% means (approximately) that one may either lose 50% or gain 90% ? (These estimates are a gross simplification of what may happen.) For many of us this would be a very dangerous game to play. Previously they were giving the standard deviation in their predictions, but they no longer do it now.

Hi Guys,
In a 1997 6-game chess challenge, IBM’s Deep Blue computer program beat Grand Master Garry Kasparov in a tipping point match between man and machine. The machine won. Was this the harbinger of a machine takeover, especially of the decision making process? Maybe, maybe not.
After all, man might just use these programs to supplement his decision making process. Kasparov, armed with access to the Deep Blue program, should logically whip Kasparov without that tool. I suppose that would be true if Kasparov slavishly accepted Deep Blue’s analysis. However, being human, Kasparov would likely succumb to compromising behavioral biases and reject the computer’s advice under some circumstances.
Today, mathematical algorithms are outperforming human decisions in several disciplines. That’s a little surprising given that these same algorithms are formulated by curve fitting decision factors used by the same humans that they subsequently defeat. Decision consistency is not a strong human attribute.
Phil Tetlock, of Hedgehogs and Foxes fame, has been conducting a 5-year Intelligence Advanced Research Projects Activity (IARPA) forecasting study for over two years now. In a second stage, he formed 5 teams of 12 men each from his best expert forecasters from a first stage test series. A fundamental commitment here is a belief in the wisdom of informed crowds.
His research unit also developed algorithms using factors that his experts identified as influencing their decision making and forecasts. At present, these algorithms are slightly outperforming the expert teams. The study continues. Here is a Link to a Tetlock 2012 video interview on his IARPA work titled “How to Win at Forecasting”:
http://edge.org/videos/year/2012
The text from this Edge interview is also available.
In Daniel Kahneman’s “Thinking Fast and Slow” book, he references a huge body of studies that continue to demonstrate that algorithms outdistance expert human judgments in a diverse group of disciplines like medicine and investing.
In medicine, machine diagnosis, on average, are more accurate than on-site doctors. In investing, hedge fund manager Ray Dalio admits that when he and a computer analysis that he trusts make a disparate forecast in an investment decision, the computer program is right two-thirds of the time. Why is the machine superior?
Well, humans get tired and focus drifts. We are subject to household and health problems. We are influenced by current events and the medias selective hype on these events. We are also guilty of overconfidence in our own skills. We trade too often. Several studies have shown that equity accounts that are more or less dormant for years outdistance others that are frequently traded.
Investors also abandon our well crafted rules and policies when the going gets tough. That’s true of both individual investors and professional money managers. Our market timing decisions are often a catastrophe. We are inconsistent in choosing and navigating our selected stars.
John Hussman is a prime recent example of a mostly successful wizard who failed to continue his planned march without introducing a disastrous route change. He added historical data sets to make his model forcibly agree with his predetermined decision; the facts be damned in this instance. That’s a classic, first-order sin when doing forecasting work.
What to do? John Bogle has it right: just stay the course. Don’t junk your rules and process just because an outcome has been a disappointment. Nobody is ever 100% correct with the possible exception of MFO’s Ted (am I having fun at Ted’s expense?).
When change is justified as the investment world constantly evolves, change slowly and incrementally. That’s applying Kahneman’s System Two deliberate slow thinking advantage. When investing, our System One fast response heritage gets us into deep water far too often.
It requires near perfect timing to be either all In or all Out of the marketplace for periods, and still recover long term market returns. Not many of us are successful at this process. We vacillate. This is not the coward’s approach, but it is the prudent approach.
Your comments are solicited. Thank you.
Best Wishes for your continuing investment success.