Quoting: "But you can’t plan on a stock market crash every single time stocks fall. Sometimes stocks go down without an enormous crash. Were it not for the occasional correction or bear market, stocks wouldn’t offer a risk premium over bonds and cash.
Plan on seeing stocks fall plenty of times over your lifetime, including the occasional crash."
It's been difficult lately, to take the long-term view. But that's my frame of reference. I've got the world covered, leaving out Latin America, deliberately..... I hate to see the numbers, the last several days. Maybe I should just go fishing and start to think again in terms of YEARS. "I love it when a plan comes together." ---George Peppard.
Fishing results: https://scontent-a-ord.xx.fbcdn.net/hphotos-xap1/v/t1.0-9/s720x720/10628570_10202606813880871_8137407407218187508_n.jpg?oh=8eaad4dbfee36c6483e3f21ffb6c55be&oe=54AE224A

An old quote - "The market teaches you to lose."
It may not be a 'crash' this time. It may begin as a steep decline and then a slow decline over years. Then there have been periods of trading ranges.

Hi Guys,
I couldn’t agree more. Whether its gambling, stock speculation, or long-term investing, its always a necessary policy to know the odds and the likely payoff matrix.
That’s an easy assignment when tossing a pair of fair dice. All that is needed is to count the number of combinations that produce a desired outcome. The probability of throwing a “7” is exactly 6 out of 36 possible outcomes, or 16.667 %, with complete certainty.
Complete certainty is never possible given the complex interactions, the vicissitudes of unknowable events, and the emotional responses to the markets from both professional and amateur investors. Since calculation of precise odds are an impossibility, defaulting to an examination of historical records offer an appealing compromise. These data are especially practical when estimating the likelihood of severe market meltdowns to gauge portfolio risk and recovery times.
I’ve identified two references that provide this requisite frequency data. The data comes from two respected sources and considers two long periods to allow timeframe comparisons.
The first data set covers 50 years and was generated by the Ned Davis organization. It records the DJIA returns. Here is the Link:
http://www.americansuperior.com/bear.htm
The second data set covers a far more extended timeframe, and is an American funds product. It too shows DJIA past market declines dating from 1900 to 2013. Here is the Link:
https://www.americanfunds.com/resources/basics/risk-and-volatility/living-with-a-market-decline.html
Both references provide useful market downturn frequency tables that are subdivided by decline magnitudes. Please visit these resources. Both include some limited discussion of lessons learned and offer guidelines on how to soften the blows.
Good luck and good investing decisions to everyone. Being familiar with the hard statistical market meltdown data will improve your likelihood for good decision-making.
Best Regards.

@rjb112, I agree. It's possible he is right but this might be one of those statements based on years of statistics. The bad years that saw huge declines might throw off the end results as would big up years. The purpose of the article is to tell the buy and hold faithful to hang in there. It's not as bleak as you might think.

" "Fairholme's 13.2% annualized return has outperformed 99% of peers over 10 years. " (FAIRX's performance over the past five years since is at the 98th percentile.) "
The question for us Fairholme investors is, were the last 5 years mean reversion and Berkowitz has no particular talent, or were the first ten years the "mean" for him, and we'll soon revert back to that?
As far am I'm concerned, if the answer is the former, I may give up on active management except for very low-cost, group managed funds such as Vanguard's non-index offerings.

FYI: Fixed income gurus, financial media talking heads and asset managers have been forecasting rising interest rates for at least two years. They were (and still are) wrong.
Even as recently as one week ago, bond prices took a hit on news of a jobs report that showed a pickup in hiring last month, but prices picked back up this week after Fed minutes revealed that some participants wanted to err on the side of patience to keep supporting the world’s largest economy for longer than expected.
This type of mixed news and uncertainty is likely to continue as the fear of a weaker economy outweighs the fear of inflation. But even if rates start rising in 2015, as is currently expected, it doesn’t mean panic and mass exodus from bonds.
Needless to say, investors in bond funds have been challenged to do a good job of managing the fixed income portion of their portfolios. With that in mind, here are 3 bond funds to buy now for uncertain economic and market conditions.
Regards,
Ted
http://investorplace.com/2014/10/3-bond-funds-unpredictable-market/print

@Tampabay: I've never been a believer in the so called 'eating your own cooking' theory. I could care less if a fund manager has any money in the fund he/she manages. The proof in the pudding is what kind of returns do they get. There is no evidence that funds who's managers invest in them perform any better.
Regards,
Ted

Businessweek, Jan 14, 2010: "According to a July 2009 study by fund tracker Morningstar (MORN), managers with more than a $1 million stake in their own funds beat 58% of peers, on average, over the past five years. Funds with no manager investment beat 46% of peers."
Whether this is credible evidence is debatable, but there is evidence.
Now the next sentence in this article from almost five years ago reads: "Fairholme's 13.2% annualized return has outperformed 99% of peers over 10 years. " (FAIRX's performance over the past five years since is at the 98th percentile.)

The author writes that the Trinity Study was updated in 2009 (it was updated in 2011 using data through 2009), says he conducted his own "research" over a 23 year period covering the years 1988-2011 (that's 24 years, from Jan 1 1988 to Dec 31 2011), and uses a single 23 24 year period (a curiously odd number) rather than rolling 30 year periods as Trinity did.
If one is going to use a single time period, then instead of his choice of 1988-2011, one might look at 1973-2002 (a true 30 year period). Eyeballing suggests this is the worst postwar 30 year span - starting with the dreadful 1973-1974 bear market (-48%), 1980-82, 1987 (a quick 3 mo. loss of 33.5%), and ending with the 2000-2002 loss of 49.1%.
(I really don't know how bad this would come out; it is left as an exercise for the reader.)
Bear market data: http://www.nbcnews.com/id/37740147/ns/business-stocks_and_economy/t/historic-bear-markets/
Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

"It seems I delay in taking the profit & or gain. Does anyone care to chime in as to what they would do ?" Derf
On all my profitable holdings(losers are a different question) I set a STOP PROFIT figure:
For example: if I want/need 8% yr from my investments, and I am up 30-40% after 3yrs, I set a figure of 25% profit as a SELL figure, then if the investment goes down I have a good sale, If the investment goes up later, I don't care, I got my 8% a yr., that's what I wanted it the first place...easy peasy
GREAT for current market as we all have Good/great gains for the last few years, WHY give them back? Take your 8% yr (or whatever) and run with what you have or wanted to make...tb

@catch22: The is no need to link Lipper Indexes on a daily bases, once a week as I have done for years is enough.

The article's author failed to point out that Pin Oak Equity (POGSX) drew down 88% in 2002.

Amazing drawdown. Worse than the great depression. Looking at the bio of the manager at the time, it says he has more than 40 years of investment experience. Must have been almost exclusively dot com tech to have a drawdown like that. He stopped managing the fund in 2007

Hi Guys,
“Yet, many clients continue to believe that their managers can and will outperform. (The triumph of hope over experience is clearly not confined to repetitive matrimony.) Even though no major manager has done so, the average US institutional client somehow expects its chosen group of active investment managers to outperform annually, after fees, by a cool 100 bps.”
So too do individual investors although I suspect their outperformance expectations vastly exceed the 100 basis points that institutional agencies seek.
This extended quote is from Charles Ellis’ paper “The Rise and Fall of Performance investing”. That paper was the primary reference that supported the article by Scott Burns that Ted linked earlier today. I always prefer to examine the primary source directly whenever possible. Here is a repost of the Ellis link:
http://www.cfapubs.org/doi/pdf/10.2469/faj.v70.n4.4
Ellis concluded that “ Often blinded by optimism, clients continued to see the fault as somehow theirs and so gamely continued to try to find Mr. Right Manager, presumably believing there were no valid alternatives. ………. And active managers continue to fail to outperform. Table 1 shows the grim reality of how few funds have outperformed their indices after adjusting for survivorship bias over the 15 years to year-end 2011.”
This article motivated me to explore the potential return penalties that might be coupled to our search for superior active fund managers. I used the data reported in various parts of the Ellis paper.
Roughly one-third of active managers outdo their benchmarks by about 1.0 % annually. Two-thirds of active managers underperform their benchmarks by about 1.5% annually. These asymmetric outcomes are based on a recent 10-year summary period. Cost drag is a major factor.
Therefore, simply put, the average net Excess Returns for a single actively managed mutual fund is: (1/3 X 0.010) – (2/3 X 0.015) = -0.00667 or -0.667% annually.
To illustrate the impact of this average negative Excess Return on a portfolio consider a few scenarios like 1 or 3 active fund positions on a totally active portfolio or on a portfolio with a 50/50 split between active and Index holdings.
If an all Index equity portfolio delivers an 8.00% annual reward, the 1 and 3 unit active fund components for an all actively managed portfolio will generate 7.33% and 6.00% annually on average. For the 50/50 mixed active/passive portfolio, the annual returns would be 7.67% and 7.00%, respectively. On average, such is the price for seeking positive Excess Returns from risky actively managed mutual funds.
To overcome this penalty, the investor must seek and find active managers who reliably and persistently generate positive Alpha. That’s a tough task. As Ellis highlights, such winners most often do not repeat.
In doing this analysis, another question surfaced. Picking an average active fund manager is a losing tactic. How much better does the selection screen have to be to secure a positive Excess Return? What are odds? Using the same data and the same net Excess Returns equation, it appears that the screen must eliminate almost two-thirds of all active fund managers (60% by calculation). That seems like a workable task. But again, performance persistency remains a dubious challenge.
Thank you Ted for posting the primary reference. I encourage all MFOers to read the Ellis document. It rings a bell. Active mutual fund investing is an uphill battle.
Best Regards.

If one wants to discuss how people are adding risk by reaching for yield, that's fine - and that's basically the lead sentence in the article. But the writer seems to have an agenda, and has slanted graphs and omitted data to that end.
(Disclaimer: I am a fan of Core Plus bonds - in my view, Core is to Core Plus as S&P 500 is to Total US Equity Market. In each case, the latter provides broader and better exposure to their respective markets - US bond and US equity.)
Everyone "knows" that the US Aggregate Bond Index (tracked by AGG) is much too heavy into government securities. Even Bogle says so, and suggests the index is weighted about 70% in Treasuries and other government bonds.
So when I look at Chart 1 (correlation coefficients), what jumps out at me is not that Core Plus is (slightly) correlated with equities, but rather that a good chunk, if not all, of AGG's (slight) negative correlation with equities could be coming from its heavy slug of government bonds (which the chart shows have a much stronger negative correlation with equities).
What this suggests is that if we were to look at Core Bond funds' correlation with equities (since they rightfully tend to have much lower percentages of Treasury/government holdings than AGG) is that they would have virtually zero, or perhaps even a slight correlation with equities. To me it is telling that the writer provided a core plus bond composite, but not a core bond composite. That likely would have undercut his thesis that there's a lot of difference between core and core plus.
Take the data from that chart, and look at the R-squared values for Core Plus and Aggregate. They're about 10% - close to meaningless.
Look at Table 2. The writer implies, without justification, that because Core Plus bond funds contain some junk bonds, their volatility will be similar to junk bonds. Table 2 shows 14.5 year (curious choice) volatility (std deviation) figures US Agg, junk, and equities. But missing are core bond and core bond plus figures.
This is a suspicious omission, since Chart 1 provides data for core plus, and Chart 3 provides a graph for core bonds (using Wells Fargo Advantage Core Bond as a proxy).
I'll remedy that. Using M*'s figures for 15 years (14.5 is not a standard time range), we have

Std Dev	Sharpe
Core (MBFIX)	3.59	1.12
Core+ (WIPIX)	3.53	0.98
Agg Index	3.50	0.99
S&P 500 Indx	15.38	0.26

The naive idea that adding a modest amount of a volatile asset (junk bonds) to a portfolio will necessarily make it more volatile is wrong. The obvious (albeit contrived) counter example is to add to a portfolio an asset that is volatile and perfectly negatively correlated with the portfolio. Adding a small amount of that asset will reduce the portfolio's volatility.
What one sees here (between Core and Core Plus) is little difference. (I used WIPIX, since the writer selected to use MBFIX, so I simply used the Core Plus representative from the same family.)
I could skewer Chart 3 as misleading also, but you get the point.
If you're really concerned about Core Plus funds that are "too" aggressive, just avoid funds whose portfolios are rated low grade by M*. Lots aren't.

Cashin has only been on the floor of the NYSE for something like 50+ years.

And no one has helped him off the floor yet!
"Help, I've fallen and can't get up"

This week might tell the story, technically.
http://m.seekingalpha.com/article/2555415-stocks-the-most-important-week-in-6-years?source=feed_all_articles

Interesting, yes. Short version: overweight US stocks "as much as you can." He sees blue skies and sunshine, still, for years to come. Given current circumstances, retail, durables and services will do very well. He says interest rates could fall even further, from a mere 2.35% just recently.

Yep and good for him. Anyone who works fifty years in a profession loves his job.
To clarify my position, I would rely on Art Cashin much more than any of the cheerleaders and squawkers CNBC has.

Cashin has only been on the floor of the NYSE for something like 50+ years.
Edited to add: Bio http://www.businessinsider.com/art-cashin-biography-2012-7?op=1

I'm connecting this with my holding in DLFNX (DoubleLine "core") which I've seen referred to here as a core-plus fund. I've owned it for just over 2 years, now. It's a tiny slice of my pie, 2.56% of portfolio. It's taken two years for it to gain 5.7% for me. I'll keep it.

Hi Tampabay,
Over the years I have held a good bit of my investment cash, time deposits, in CD's.
Old_Skeet