If you are going to own actively-managed funds, it would seem to me that concentrated portfolios and investment flexibility make a lot of sense. For example, why would I pay for active management in a fund that has 200+ holdings and is essentially a closet index fund?
On the other hand, owning a mix of 5-6 'dynamic' funds, like FPA Crescent, Oakmark Equity & Income, Price Capital Appreciation, Thornburg Income Builder, BlackRock Global Allocation, etc. over the last 20 years would have provided investors with better long-term returns than the S&P 500 and much less volatility. So there is more than one way to look at this.

I would be cautious about owning core bond funds when we are in a period of rising interest rates. Flat-to-lower rates are ideal for core bonds, but when times are less sure, hiring experienced, unconstrained bond managers seems to make sense. Even in times when core bonds should shine, some unconstrained managers out-perform. Consider Carl Kaufman, Dan Fuss/Elaine Stokes/Matt Eagon, Kathleen Gaffney, Jason Brady, and others. This does not mean unconstrained funds won't have a bad year along the way. Most investors have never experienced a long period of rising interest rates, and will find out the hard way that some core funds (and some unconstrained funds, too) will be sorely tested in the years ahead. Then again, the definition of what a core bond fund is. VBMFX, for example, has not lived through a period of rising rates. It has been stellar in the past, but none of us knows what will happen. Duration is one way to measure potential risk, with this fund having a probability of losing 5.6% of its value for every 1% increase in interest rates. If that is something one can live with, ok. But I would much rather reduce overall risk by owning a group of actively-managed, non-core funds. Different strokes for different folks.

The saddest thing is that there was next a "next generation" after them. Greg Frasier was great at Diversified International, then left. Reasonably talented folks rotated through Magellan, then mostly left. And the names I read five years ago on Fidelity's top young managers have remained, at most, quite reasonable.
David

Yak Yak Yak! Agree with everybody. But, there's been this type of jabber in the mainstream press for decades. Probably hit a peak during the bull market of the 90s. Helps sell papers or they wouldn't do it. Costs them real money to do hard hitting investigative reporting - and money is something most major news organizations are pitifully short of. (The plight of our major newspapers and other news outlets is a totally different story, but one that saddens me to no end.)
Keep in mind, too, that the MFO audience is quite financially sophisticated and has become more so in recent years. Heck, we have several here from the financial industry, and the "casual" investors are no sloughs either. So, an article telling us to assess our risk appetite and think a little about the pounding many took in '08 is going to seem superfluous to most. However, if you're just starting out investing and looking for guidance, it's not bad advice - and probably cost the writer and Journal little in time or money to churn out.

Yes, interesting interview.
The Fed just said it expects the Fed Funds rate to be 3.75% by the end of 2017. Gross has a strong opinion about what would result:
"The Fed has said that the appropriate interest rate long-term to keep the economy in balance is 3.75% to 4%. I say it’s 2%. If the Fed follows through by raising the federal funds rate to 4% in the next few years, there will be bear markets for all assets."

FYI: (Click on Article Title At Top Of Google Search)
In many ways, Will Danoff and Joel Tillinghast couldn’t be more different—and yet they’re part of the same rare breed. Danoff, a pediatrician’s son and onetime assistant of the superstar investor Peter Lynch, and Tillinghast, descendant of one of Rhode Island’s earliest European settlers, are two of Fidelity Investments’ best investors. Danoff looks for big companies that he thinks will double their earnings over five years, on the theory that stock prices will follow. Tillinghast will only buy stocks that are trading below $35 and appear undervalued despite growing cash flow. Both have built amazing track records: Since he took over Fidelity Contrafund in 1990, Danoff has returned 13.4% a year to investors; Tillinghast, since launching Fidelity Low-Priced Stock in 1989, has returned 14.6%.
Regards,
Ted
https://www.google.com/search?newwindow=1&site=&source=hp&q=fidelity+bright+stars+barron's&oq=fidelity+bright+stars+barron's&gs_l=hp.3...1578.14030.0.14375.30.29.0.1.1.0.83.1928.29.29.0....0...1c.1.54.hp..12.18.1202.bKv4WKDIEeA

I had not heard of Fairholme before I came here but it sounds like the fund slowly condensed like cooking on the stove. A lot of shareholders may not have realized what was happening until it was too late.

I think you are exactly correct. People invested in FAIRX because of Bruce Berkowitz and his superb stock managerial skills. Investors in FAIRX did not feel they needed to scour the portfolio and second guess the manager. Then out of the blue one day it's, "What, 50% of my investment is in AIG, common stock plus warrants"? 15% in BAC. Sears....ahhh. St. Joe, another risky stock. Then Freddie and Fannie, whose very existence depends on court cases, super high risk. Add it all up..... All of a sudden, this is not the guy who for years said, "Rule number one, don't lose money"....Rule number 2, don't forget rule number 1". Any FAIRX investor can handle a large weighting in Berkshire Hathaway, because most FAIRX investors are very well disposed towards value and towards Warren Buffett. I sold all my FAIRX at the end of 2013 and first week of 2014. It was the accumulated risk that the portfolio had taken on, and concomitant loss of faith that BB was really following Rule number 1 and Rule number 2, as he had promised.

Until I sold FAIRX a couple of days ago I had owned it for over 10 years. Over the years BB drifted from being a deep value focused manager to a swing for the fences style.

I'm sure many FAIRX shareholders sold this week. The below was posted on another message board just yesterday:
"I solved the problem. I am done with Bruce Berkowitz as of the close of business today. Sears is up about 7% right now so I hope that helps a little bit to lessen today's losses. I made very good gains over the last 7 years and cashed out of this investment vehicle from this once RESPONSIBLE money manager."
[bolding mine]

Until I sold FAIRX a couple of days ago I had owned it for over 10 years. Over the years BB drifted from being a deep value focused manager to a swing for the fences style. When management changes, through style drift or manager turnover, we are faced with bad choices: sell and incur tax costs or stay put and hope for the best. To me that is the most frustrating thing about active managment and the most compelling argument for indexing. Even when investing in indexes underperforms, you are not forced to sell and pay taxes prematurely because the manger is no longer what you invested in originally. I have to admit that despite that I still keep a healthy portion of my assets actively managed. Perhaps against my better judgement.

@bee, no doubt. "This fund has had many more great years as this 10 year performance chart shows."
By the way, the 2.55% YTD from 9/30/14 is now -8% as of yesterday, but up 1.77% today with good performance by Freddie and Fannie.
And possibly the 3 best years (on a relative performance basis) were 2000, 2001 and 2002. Breathtaking performance relative to the market. You would never know that was a bear market, looking at FAIRX.

If history rhymes this just might be a good year to dca into additional shares of FAIRX.
Similar to 2011 when the fund was in the 100th percentile of LV funds, 2014 is looking much the same. The fund was in the 96th percentile as of Sept 30th so I will venture a guess it is in sole possession of the cellar today.
This fund has had many more great years as this 10 year performance chart shows.

To me the key is that the manger's investments be consistent with the fund's stated goal that caused us to invest in it in the first place. BB repeatedly says his first rule is not lose money. Digging a huge hole every couple of years and then taking big risks to get out of it is not consistent with his first rule

@ValueSeeker, you have a very good point about BB's emphasis of his first rule. And his second rule is don't forget the first rule. .

Wasn't that Buffett's "rule".

Not sure I ever heard/read Berkowitz say it. Berkowitz's thing has always been "ignoring the crowd" (sometimes the crowd is right) and lately, he seems to have taken to anything resembling something TBTF.

Yeah, it's always been BB's first and second rule. He's expressed it many times, as ValueSeeker says. Here's some documentation. But I certainly agree with you, lately he has taken to anything resembling TBTF, systemically important companies, etc.
http://fortune.com/2010/12/10/bruce-berkowitz-the-megamind-of-miami/
Quoting from the article: "As he is fond of saying, “The first rule is: Don’t lose money. The second rule is: Follow the first rule.”"

FYI: Bill Gross, founder of Pimco, and its chief investment officer for the past 40 or so years, resigned last week. Rumor has it that he was but two steps ahead of a mutinous gang, swords out, planning to make him walk the plank. Gross was too quick and before the mutineers could force him, he jumped ship -- and landed at Janus Capital. There, we surmise, he was given a slug of equity and a free hand to run a smaller, more nimble fund.
Regards,
Ted
http://www.bloombergview.com/articles/2014-10-03/bill-gross-s-investor-outlook-on-palace-coups

To me the key is that the manger's investments be consistent with the fund's stated goal that caused us to invest in it in the first place. BB repeatedly says his first rule is not lose money. Digging a huge hole every couple of years and then taking big risks to get out of it is not consistent with his first rule

@ValueSeeker, you have a very good point about BB's emphasis of his first rule. And his second rule is don't forget the first rule. .

Wasn't that Buffett's "rule". Not sure I ever heard/read Berkowitz say it. Berkowitz's thing has always been "ignoring the crowd" (sometimes the crowd is right) and lately, he seems to have taken to anything resembling something TBTF.

To me the key is that the manger's investments be consistent with the fund's stated goal that caused us to invest in it in the first place. BB repeatedly says his first rule is not lose money. Digging a huge hole every couple of years and then taking big risks to get out of it is not consistent with his first rule

@ValueSeeker, you have a very good point about BB's emphasis of his first rule. And his second rule is don't forget the first rule. He needs to scrap that, and tell shareholders that FAIRX is an aggressive, risk taking fund whose goal is to hit a home run. And not act like this is a fund whose primary goal is not to lose money, like some Warren Buffett or more like a Benjamin Graham investment.
You had good reason to sell, as you stated, "What he is doing with a number of positions feels to me like gambling and not value investing". He should change his value investing/don't lose money mantra. Many FAIRX shareholders are not happy to be in a position where a court ruling so affects their investment. That's not the BB that long time shareholders came to trust. He appears to have changed a lot from those earlier days, taking risks that seem out of character with what shareholders thought he was like.

What Vintage Freak said. There were plenty of signs for years now that BB's funds are risky -- if you weren't up for risk and holding on for the long term, you should never have invested with him.

@bee, I think you're exactly right! Easy monetary policy in Japan and a weaker currency will help stocks there just like it has sent stocks on a great ride for the last 5+ years in the U.S. I don't buy the idea that the U.S. is at risk of sliding into deflation although Europe is having more difficulty with that.
@Mona, I don't see anything on Matthews site or M* that suggests they've hedged currency exposure for MAPIX (I didn't check MACSX). I also believe the tax that's coming into effect in Japan in another month or two will hurt the economic numbers at the end of this year and into next year, which will either mean the BOJ will have to further ease to help the economy (sending the currency lower) or the currency will fall because the economy is worse.
I'm going to write a note to Matthews about currency hedging and I'll post whatever answer I get here but my experience with them has been that it takes a day or two for them to answer my emails.

Bloomberg TV had a small segment regarding the Japanese automakers today. Due to the new tax, they are slowing production in Japan and increasing production overseas.
If this is happening in the other sectors that sounds a bit ominous for the Japan markets.
@Mona, Yes I think those Matthews funds would be affected. For how long? That would require a crystal ball. I don't have one. If Abe's schemes don't work, he will be out in short order and Japan would have a new prime minister, the umpteenth one in so many years.

I do think active management can be valuable and has a place. For example FPACX and VWELX have given us market like returns with lower volatility. I also like PAAIX for its equity like returns, lower volatility in times of stress and inflation protection using multiple asst classes. To me the key is that the manger's investments be consistent with the fund's stated goal that caused us to invest in it in the first place. BB repeatedly says his first rule is not lose money. Digging a huge hole every couple of years and then taking big risks to get out of it is not consistent with his first rule

That is the argument of indexers. It is indeed hard to find active fund managers who can beat the index over long term. Those who take the most risk would have greater
standard deviations in their returns, which means they may appear to be much better than everyone in some years. Having said that I do own active funds, but keep a close eye. The only funds which I have owned for a long time (around 10 years) are FPACX, OAKBX and MACSX. More and more of my portfolio (started off with about 40%, but it has increased to about 50% because it did better than the rest) is in ETFs. There does seem to be some short term persistence in performance which I try to exploit.