David and Mike,
Yeah, I'm looking to run this on different time periods to play around with it. I'm kind of curious if FPA is right or if it's just an anomaly. I'd also like to know how much a manager's top 5 (or whatever number) drives overall performance.

I hope the pay for this interview and these answers was maybe $50 or so. $40 perhaps.
I love the way investors, and journalists, think of all this like sports teams, or individual players, on a streak, in a slump, wait'll next year, how do they compare w the past?, lost their touch, on a roll, shooting better, slugging worse, etc etc.

@MikeM. I bought some PRPFX after the rest of you guys fled. Converted it to a Roth in January 2016. In the 3.5 years since the conversion it’s up 27.35%%. Not great - but not bad either for a fund so despised here. Represents 11.5% of invested assets. For contrast, I carry about 15% in cash and short-term stuff yielding very little.
Re: Doc Hussman - Yes. We’re both solidly in the “recovering” state now, having participated in the folly in our early years. So, it’s hard (for me anyway) not to look back and take an occasional jab at the humble fellow.

I struggle with this topic all the time. Taleb might argue that only pedestrian journalists would make an issue of such things, since most journalists untrained in probability can't recognize being "fooled by randomness." Instead, like M* claims, look at the process ... the "generator" of the return. If the process is good the numbers will follow, sooner or later. And ultimately, it is the investor that determines just how long is too long. Is Hussman's process good? Or Heebner's? Fund Alarm was established on the premise that 5 years was about as long as an investor should give a fund manager to prove whether the "generator" is worthy. I find fund managers these days, especially quants, would rather not talk about performance: "Need to give it 10 years," they say. And, maybe statistically, they are right ... and even 10 years may not be long enough. Some random thoughts on this cloudy morning ... from Orcas Island this summer.

Hi @hank
You noted: "looking at the situation I was trying to illustrate, at the end of 6 months the equity investor had a 20% gain in his pocket and the guy with the Treasury bond had a 1% gain"
>>> Uh, no on the 1% gain for 6 months (unless one is holding an individual bond and viewing yield only).
investment grade bonds LQD vs SPY 6 month chart
Many bond fund investors for the past 6 months have had decent returns, as yields have decreased.........meaning prices moving up, yes?.
A few selected choices for total returns for the past 6 months:
--- LTPZ, Pimco long term TIPS = +11.6%
--- ZROZ, Zero coupon bonds = +14,8%
--- LQD, corp. bond etf = +11.8%
--- EDV, Vanguard extended duration Treasury = +13.5%
--- IEF, intermediate duration Treasury = +6.4%
***bonds having a good start this Monday morning, July 8
Take care,
Catch

My, my, I don't find Mr. Carlson's questions too insightful. Presumably he gets paid for that column?
However, the topic of neg-yield debt is interesting. Here are my questions:
1. Is it possible to short neg-yield debt? If so, then presumably, the shorter would receive proceeds for the shorted instruments up-front, but would also be paid a (modest-) yield by the party who is holding the shorted bonds. Is that right? If so, I can see somebody like Pimco engaging in this activity with great effectiveness. The danger I suppose would be that neg-rates go even more negative..
2. Neg-rates seem to be the "new normal" in much of the developed world. That being so, why not use these rates to de-lever sovereigns globally, as follows: Sovereign govts and their respective CBs could agree the govt could issue "perpetual placement" bonds in 100 billion denominations (yen, dollars, Euros, etc), which would be purchased by the CB of each sovereign. These "PPP" bonds would yield interest of $1 (one dollar, yen RMB etc) per annum (effectivly zero interest). Being perpetual, there would never be any need to worry about maturing debt. The proceeds could be used to redeem public, interest-bearing debt. In this way, sovereigns could effectively de-lever.
Inflationary? Well, its the lack of inflation which seems to be the problem. I think issuing PPP debt makes more sense than paying premiums to private bond-holders (enriching them, but doing nothing to get money in circulation). And the reduction of most sovereign paper would push private investment into the productive sector.
3. "How did we get here?" - By that I mean persistent risk of deflation, There are many culprits: offshoring of jobs by MNCs from the developed world to EM has definitely suppressed incomes of those NOT in the top 5%. In fact "lower inflation" was one of the mantras pushed by the globalists. Well, they got it. In spades. Declining/negative birth rates are another factor. Feminism -- by disrupting household formation patterns which have existed for thousands of years and through "family planning" is killing the developed world both in the present and over the next several decades.
But I will say that debt is a major factor. Issuance of debt permits acceleration of consumption, which would otherwise be deferred. Global debt-to-GDP is ~ 230% and growing. So 230% of this years global consumption was already pulled forward (into prior years). We now sit in that future, where, what should have been today's consumption/demand was already satisfied. Of course there is insufficient demand --- the demand has long since been satisfied. Today's demand has been "robbed" by the past, just as we in turn are "robbing" economic vibrancy in the future to keep the music playing today.
Thoughts?

FYI: European stocks paused after a selloff in Asia on Monday, as the strength of the U.S. labor market led to doubts that the Federal Reserve would cut rates as much and as quickly as investors had hoped.
Asian markets were hit by Friday’s strong U.S. jobs data, which have dented investor hopes for a move to lower rates from the U.S. central bank at its next meeting in July.
At the same time, industrial production and trade data from Germany remained weak in May after April’s sharp contraction, suggesting that economic growth continues to slow in the heart of Europe.
The pan-continental Stoxx Europe 600 index and Germany’s DAX were helped by Deutsche Bank stock rising nearly 4% after it launched a new restructuring plan on Sunday, which aims to cut nearly 20,000 jobs and slash its balance sheet.
Chinese shares dropped, with stocks in Shanghai down 2.6% and Hong Kong’s Hang Seng down 1.7%. Japan’s Nikkei also lost 1%, mainly reacting to the drop in U.S. stocks on Friday and the view that fewer market-supporting interest-rate cuts will now come through.
U.S. stock futures also slipped, with the S&P 500 down 0.1% and the Dow Jones Industrial Average down 0.2%. Meanwhile, 10-year U.S. Treasury yields fell to 2.025%, from 2.044% on Friday. Yields fall as prices rise.
Regards,
In Europe, bond prices rallied and yields fell, heading back toward record lows set late last week. The German 10-year yield was minus 0.381% down 0.018 percentage points from Friday’s close, while French and Italian yields also fell.
Elsewhere in emerging markets, Turkey’s lira fell nearly 2% on concerns about central-bank independence, after President Recep Tayyip Erdogan dismissed the bank’s governor over the weekend.
In commodities, gold was up 0.6% at $1408.40 per ounce and Brent crude oil gained 0.33% to $64.44.
Ted
WSJ:
https://www.wsj.com/articles/global-stocks-fall-as-u-s-rate-cut-prospects-recede-11562563827
Bloomberg:
https://www.bloomberg.com/news/articles/2019-07-07/asian-stocks-set-to-slip-turkish-lira-tumbles-markets-wrap?srnd=premium
IBD:
https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-zscaler-stock-market-rally-cyberark-stock-boeing-737-max/
CNBC:
https://www.cnbc.com/2019/07/08/stock-market-us-futures-lower-as-jobs-data-dashes-fed-rate-cut-hopes.html
Reuters:
https://uk.reuters.com/article/uk-global-markets/global-shares-muted-as-prospect-of-sharp-u-s-rate-cut-fades-idUKKCN1U301F
U.K.
https://uk.reuters.com/article/uk-britain-stocks/tobacco-stocks-help-ftse-100-counter-easing-fed-rate-cut-bets-idUKKCN1U30OK
Europe:
https://www.reuters.com/article/us-europe-stocks/european-shares-edge-higher-deutsche-bank-rally-lifts-banks-idUSKCN1U30NH
Asia:
https://www.marketwatch.com/story/asia-stocks-slide-monday-in-wake-of-us-jobs-report-that-undercut-market-hope-for-aggressive-fed-rate-cut-2019-07-08/print
Bonds:
https://www.cnbc.com/2019/07/05/bond-markets-treasury-yields-tick-lower-as-investors-await-key-jobs-data.html
Currencies:
https://www.cnbc.com/2019/07/08/forex-markets-dollar-us-jobs-in-focus.html
Oil:
https://www.cnbc.com/2019/07/08/oil-markets-us-jobs-report-in-focus.html
Gold:
https://www.cnbc.com/2019/07/08/gold-markets-us-jobs-federal-reserve-in-focus.html
Cuirrent Futures:
https://finviz.com/futures.ashx

If you continually monitor the M*, Lipper*, etc. charts and keep shifting money away from the poorer performing funds into the better performing ones in each “category” (as a good many do), than I’d say you are a “closet momentum player” - though probably unaware of it.

I wouldn't call that momentum investing @hank. Jumping to the hotter fund is just a good way to reduce your returns over time. Momentum investing is, as I understand it, monitoring and playing trends in a disciplined manner, having a plan to enter and a plan to leave.
Oh, and Hussman is far from a momentum investor. He uses a bunch of stock value and economic data to predict the financial markets are doomed. Polar opposite of letting the trend be your friend.

Good stuff from @MikeM. :)
But allow me to attempt to explain. The fund manager who boosts returns by buying hot stocks (let’s assume “systematically”) is the real momentum player. He / she knows full well what they’re doing. The individual investor who moves money to that fund because it’s been “outperforming” its peers is the unwitting victim of the momentum strategy - thus, a “closet momentum player”. Hussman is a hard one to explain - more like a loose cannonball on the deck of a rolling ship during rough seas I’d say. (No telling where it will go or what damage may result.) However, if folks flock to HSTRX six months from now because they see a “bond fund” that’s been whipping other bond funds by 5 or 6%, they will have bought the momentum kool aid, and likely won’t realize it.
Just MHO. But you make good points. (Folks should be aware that both Mike and I invested with Hussman once upon a time and long ago)

If you continually monitor the M*, Lipper*, etc. charts and keep shifting money away from the poorer performing funds into the better performing ones in each “category” (as a good many do), than I’d say you are a “closet momentum player” - though probably unaware of it.
A simple example of how the game can be played might be John Hussman’s HSTRX - which Lipper describes this way: “The Fund seeks to provide long-term total return from income and capital appreciation by investing fixed-income securities, such as U.S. Treasury bonds, notes and bills, Treasury inflation-protected securities, U.S. Treasury Strips, and other U.S. Government agency securities.”
Yet, a quick scan of top holdings indicates approximately 15% to consist of precious metals mining companies. As might be expected, this “conservative income fund” jumped about 8% in the last quarter. (It suffered a loss nearly as large in the 4th quarter.) If gold keeps rising, the fund may well flaunt a 15-20% gain by year’s end. While representing only a small % of the fund, the driver in terms of over and under performance has always been its investments in metals and mining - not its bond managing capabilities.
Hussman doesn’t disguise this very well - so most here are aware of the reason the fund might over or underperform its peers during shorter periods. But if you carry the logic a little farther, it shouldn’t be hard to recognize that other fund managers can play the same game - even improve on it - by adding hot momentum funds to their holdings during rising markets, causing their funds to outperform, drawing in even more investment dollars, and allowing them to buy even more of the hot momentum stocks .....
You might say this is a classic case of the elephant chasing his own tail.

Hi @Paul. What value would this top 5 fund information give you? Would it help you determine the managers value more-so than the funds overall return. Seems like a lot of work for... what purpose.

@Paul, coming late and unread to this, but I can see the top 5 for FLPSX easily at M* Top Holdings, of course, and then could plot them the last six months or whatever period and see how they did compared with anything else. Including the fund overall, of which they were 17%. However, this is as of the end of April.
So even if I thought JT had bought them some time ago (I could go delve his reports) and I could determine roughly when, the outperformance, or whatever, would be only approximate, right?, dependent on timespan and exact periods. Also not up to date.
So I am not sure it is possible to do what you wish, and I wonder what FPA was talking about specifically.

FYI: Share buybacks are as American as mom, apple pie and hot dogs on the Fourth of July.
You’d never guess that given the many politicians on both the left and the right who say share repurchases are a newfangled, evil spawn of deregulation. Buybacks, argue their critics, barely existed before the Securities and Exchange Commission changed a rule in 1982 and unleashed a multi-trillion-dollar torrent—enriching fat-cat investors, starving workers and stunting the long-term prospects of the companies buying back all those shares.
Regards,
Ted
https://www.wsj.com/articles/the-fireworks-over-share-buybacks-are-duds-11562338801?mod=searchresults&page=1&pos=1

FYI: Overlooking a strawberry field off the coast of California, Bernzott Capital Advisors doesn’t look much like a Wall Street firm. Portfolio managers dress in jeans, shorts, and flannel shirts. They sit in an open bullpen. Arranging meetings is simple: “We spin around in our chairs and talk to each other,” says Ryan Ross, an analyst and portfolio manager. “If you came in here you might think it’s a surf shop.”
Regards,
Ted
https://www.barrons.com/articles/the-best-mutual-funds-youve-never-heard-of-51562370354?mod=article_inline

FYI:
Regards,
Ted
https://www.barrons.com/articles/mutual-fund-winners-and-losers-for-the-second-quarter-of-2019-51562373043?mod=past_editions

FYI: To still believe in active management is quite something, especially when you work at BlackRock (ticker: BLK), the world’s largest asset manager and a giant in the world of index investing. Yet Mark Wiseman, 49, believes it’s a critical component in long-term investing that will provide the returns that people need for retirement.
Regards,
Ted
https://www.barrons.com/articles/blackrock-talks-solutions-to-short-termism-and-the-retirement-crisis-51562370565?mod=past_editions

msf, that's very helpful. Thanks again!
I'm basically trying to see how much performance is attributable to the top 5 holdings. I read a while ago that FPA ran an analysis and said that their top 5 holdings beat the index by a large amount. I'm mainly curious what FLPSX would look like with the top 5. It's not been a great performer over the past 10 years but part of that is due to its international exposure. I wonder if the fund would have outperformed the S&P 500 if one looks only at the top US holdings.
It looks like FCNTX is up about 80% over the past 5 years so it seems like the larger holding have done quite well.

Just do the same thing I described, but point-to-point. Identify each segment of time where the top five don't change. For each segment, compute the total return using Portfolio Visualizer (PV), setting the start and end dates ot the segment. Then combine the total returns by multiplying, as illustrated below.
PV gives you the growth for each segment. It shows what the final value would be starting with $10K. For example, if it shows that you start with $10K and wind up with $12K at the end of a segment, you've got 120% of your starting value (and your total growth is 20%).
Suppose your top five stocks remain the same from Jan 2014 to June 2015, and then you've got a different top five from July 2015 to the present. If PV says that $10K grew to $12K in the first period, and that $10K grew to $180K in the second period, you combine them as:
$12K/$10K x $180K/$10K = 1.2 x 1.8 = 2.16. That is, $10K at the beginning grew to $21.6K at the end; equivalently, your total return was 216% - 100$ = 116%.
---
I am beginning to wonder what you're trying to do here. Even if the data you want existed (it doesn't because funds don't publish their holdings daily; they're only required to do so quarterly), it would be highly unstable. One stock might fall out of the top five merely because it grew slightly more slowly than the number six stock. Index funds have "buffers" to mute this sort of thrashing; here you're amplifying the effect.
I produced a list of top five equities for my example fund, FCNTX on half-yearly basis using the fund's (semi) annual statements. You can see the problem I described as well as another one - multiple classes of a company.

	YE2013	6/2014	YE2014	6/2015	YE2015	6/2016	YE2016	6/2017	YE2017	6/2018	YE2018	3/2019
GOOGL	7.30%	3.60%			3.30%	3.20%	3.70%	3.70%	3.50%	3.20%		
GOOG		3.70%	2.80%			2.90%	3.20%		3.20%			
FB			3.30%	3.90%	4.90%	5.70%	5.80%	6.80%	7.20%	7.30%	5.60%	6.39%
BRK-A	4.10%	4.30%	5.00%	4.40%	4.20%	4.80%	5.40%	5.00%	5.20%	4.60%	5.80%	5.18%
AAPL	3.40%	3.10%	3.40%	4.00%	3.40%			3.40%				
MSFT										3.50%	4.30%	4.43%
WFC	2.80%	3.30%	3.50%	3.60%	3.30%							
AMZN	2.60%	 				3.60%	4.10%	4.60%	5.10%	6.60%	6.70%	6.90%
BIIB				3.00%								
UNH											3.80%	
CRM												3.60%
Total%	20.20%	18.00%	18.00%	18.90%	19.10%	20.20%	22.20%	23.50%	24.20%	25.20%	26.20%	26.50%

Alphabet (formerly Google) split into two share classes in early 2014. So what was a top holding of FCNTX was halved. In some periods, both share classes remained in the top five, pushing out another top five stock for no other reason than you were effectively including only the top four stocks (since Google took up two slots). In some other periods, it looked like the exposure to Google got cut in half, for no other reason that one of the two share classes missed the top five cut. Sometimes it looked like Google was "sold off" completely (e.g. June 2015), even though the fund held a lot of Google stock.
This thrashing didn't represent a change in exposure to Google. Such thrashing happened simply as a result of what you asked for.
Notice also that the fraction of the fund that the top five stocks represents ranges from 18% to 26.5%. Viewed this way, "top five" seems rather arbitrary. I might look at the top 20% of holdings, or come up with a more elegant metric for "high conviction" holdings. I'm not sure what "top five" signifies from an analytic perspective.
Here are the (semi) annual reports from the SEC site that I used to create the table above:
12/31/18 https://www.sec.gov/Archives/edgar/data/24238/000137949119000865/filing706.htm
6/30/18 https://www.sec.gov/Archives/edgar/data/24238/000137949118004082/filing706.htm
12/31/17 https://www.sec.gov/Archives/edgar/data/24238/000137949118000849/filing706.htm
6/30/17 https://www.sec.gov/Archives/edgar/data/24238/000137949117005591/filing706.htm
12/31/16 https://www.sec.gov/Archives/edgar/data/24238/000137949117000981/filing706.htm
6/30/16 https://www.sec.gov/Archives/edgar/data/24238/000137949116005364/filing706.htm
12/31/15 https://www.sec.gov/Archives/edgar/data/24238/000002423816000025/Main.htm
6/30/15 https://www.sec.gov/Archives/edgar/data/24238/000072257415000288/main.htm
12/31/14 https://www.sec.gov/Archives/edgar/data/24238/000070420715000083/conmain.htm
6/30/14 https://www.sec.gov/Archives/edgar/data/24238/000002423814000041/Main.htm
12/31/13 https://www.sec.gov/Archives/edgar/data/24238/000087846714000111/contrafund.htm

I had to go back and check, but U.S. Treasury notes do not compound. Here’s an explanation:
“A $10,000 treasury note with a seven percent coupon rate pays an investor $700 per year interest in two semi-annual payments of $350 each. The interest from notes and bonds paid out to investors is simple and does not compound.”. https://www.sapling.com/8173138/interest-government-bonds-simple-compounded
So a 2% 10-year Treasury over its lifetime would yield only 20% total return

Consider a 10-year zero coupon Treasury that you buy for $10K and pays you $12K (20% increase) at maturity. That's clearly a 20% total return.
Is a 2% 10-year Treasury that you buy for $10K and that puts $100 into your pocket every six months, instead of your waiting 10 years to get any interest, really no better?
Consider a bank that pays monthly interest on a savings account. Its APY is greater than its APR; the calculation assumes you'll reinvest the interest though you're under no obligation to do so. Now consider a second bank that pays annual interest. Its APY is equal to its APR, because you've got only one payment per year. There's no opportunity to compound within the year.
That's the same as the situation with coupon bonds. The hypothetical total return (yield to maturity or YTM), is calculated like APY - it assumes that you'll reinvest the coupons (interest) at the same rate until maturity. Of course if you don't, then you'll only get the coupon rate (analogous to APR). But you'll have that cash in your pocket, cash that could be earning more interest.

Thanks @Ted for sharing that figure.
I had to go back and check, but U.S. Treasury notes do not compound. Here’s an explanation:
“A $10,000 treasury note with a seven percent coupon rate pays an investor $700 per year interest in two semi-annual payments of $350 each. The interest from notes and bonds paid out to investors is simple and does not compound.”. https://www.sapling.com/8173138/interest-government-bonds-simple-compounded
So a 2% 10-year Treasury over its lifetime would yield only 20% total return. Had you bought the S&P index on January 1 and sold it at the end of June you’d already be farther ahead than had you purchased the 10-year Treasury on the same date but held it until June of 2029.
I realize that many invest in bonds of lower credit quality and having higher yields. And likely not many on the board hold their bonds to maturity. However, in terms of relative value (the 10 year bond vs. equities) something just doesn’t add up. If equities are supposed to offer a growth premium over safer government backed paper based on their added risk (known as risk premium) than that would suggest that either: (1) equity valuations are greatly overextended or interest rates are absurdly low.
(I suppose there’s a third possibility: that stocks were severely underpriced going into 2019 on a relative value basis. Does anyone seriously believe that?)

msf, that's helpful but I was hoping for something that would look at it in real time, for lack of a better term.
For instance, it would look at the top 5 for 2014. Then if the position went out of the top 5 it would assume it's sold and the new stock would be added for performance tracking.