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.

Well, +3% is a lot better than the average investor in 2015.

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.

Market timing does not work, period...if by "work" one means to increase total return over long periods of time. I do believe timing MAY work to prevent a catastrophic (e.g 2008) loss since one would be out of the market during the worst of a decline. That said, by the time one jumps out, he/she has already lost a considerable sum. And then the equally hard part is deciding when to get back in the market. By the time that happens the investor likely missed some and perhaps the strongest part of the recovery. A case study is Mebane Faber (one of the best if one believes in momentum/timing). His GMOM fund went to cash last year (2015) on the wings of Faber's view that his signals suggested among the most compelling case EVER for jumping out. Of course by then the fund was down a lot, and it did indeed miss the best of the recovery which began just after the switch to cash. I still hold a small position in GMOM just to see what Mr. Faber is doing, and I think his approach can work over the longer term in producing a decent risk-adjusted return. Do I think it will beat the market, no way, and probably would be better off just sticking with Wellesley!

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: In a great scene from the classic film, The Wizard of Oz, Dorothy and her friends have — after some difficulty and fanfare — obtained an audience with “the great and powerful Oz.” When, during that audience, Dorothy’s dog Toto pulls back a curtain to reveal that Oz is nothing like what he purports to be, Oz bellows, “Pay no attention to that man behind the curtain,” in an unsuccessful effort to get his guests to focus their attention elsewhere.
Regards,
Ted
https://rpseawright.wordpress.com/2016/01/05/here-we-go-again-forecasting-follies-2016/

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

@Old_Skeet. On the domestic side of DEQAX look @ WHGIX.Not much downdraft in '08 and 20% cash @ 9/30/15.Mix of equity,bonds,Pref Shares .Do not own it.Doing research with WSGCX,global converts.Certainly appreciate your input on this forum.You express many an idea and your implementation of those ideas for all of us observe and research. Thanks and a good New Year to you.

Here's the real take-away from Junkster's article. "Markets are off to a scary start in 2016. The average investor is already down 5.1% in 2016 through the end of yesterday’s trading day."
Tough titty said the kitty when the milk went dry.

In mutual fund terms the -3.01% average investor return in 2015 may have looked something like this.
History (12/31/2015) 2015
DODBX -2.87
From a popular and long respected fund family with $14 Bil in assets
http://performance.morningstar.com/fund/performance-return.action?t=DODBX&region=usa&culture=en_US
Upside & Downside Capture Ratio DODBX
DODBX 1Yr upside 143.72
1 Yr downside 145.72
http://performance.morningstar.com/fund/ratings-risk.action?t=DODBX&region=usa&culture=en-US

Hi @vkt , Fleshing out some knowledge based explanations for the quote I posted above was my goal. So, your comments are appreciated.....
By the way, I strongly suspect most people who participate in this board approach media articles with a fair degree of skepticism! Even so, there are helpful things to be gleaned from them.
Also, after reading the article, I quickly checked M* as you did and also did a quick 10 year search using the MultiSearch tool. It was interesting to compare this fund to VGHAX and to FPHAX (which is my current health care sector investment). ETHSX performed the best by far during the draw down period that ended in 02/09.

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. :)

Thanks @Ted. This quote from ETHSX 's Samuel Isaly caught my eye: "...he’s optimistic about gene editing and new technologies, and about large, profitable biotech companies. “Their valuation measures are roughly the same as the S&P 500,” he says. “That has happened like, twice, ever—and the last time was during Hillarycare in the 1990s.”"

Just to throw out a name (NOT A RECOMMENDATION) for discussion purposes:
Cook & Bynum COBYX:
So far, its record sucks, and it has a high expense ratio, yet I am strangely attracted to its out-of-left-field bent, as an explore - not core.:
- 6 names in the portfolio (3 of which are 12-15%)
(44% domestic/15% foreign/41% cash)
They sound like they are strongly influenced by and can recite Ben Graham chapter and verse, with a dash of Buffett: ("a concentrated portfolio of companies that meet the following core investment criteria: Circle of Competence, Business, People and Price.")
Is COBYX attempting to pull off what Buffett did early on, or for that matter, Berkowitz?

@TSP_Transfer, @willmatt72 and others,
TPS, thanks for posting the information on projected earnings for 2016 & 2017.
After reading your post, I revisited and reviewed some source information on reported earnings for the S&P 500 Index along with some forward estimate numbers.
Using this information I computed the Index to now be selling on a reported basis at TTM P/E Ratio of 21.6 this is down from my 2015 year ending findings and closing number of 23. On forward estimates I had the Index with a year ending estimate of 17.4 which has now dropped to 15.8. These current P/E Ratio numbers are looking better to me.
So on Friday afternoon, I put my buying britches on and bought a little adding to an existing position (DEQAX) found in my G&I Global Equity Sleeve. This fund is invested heavily in the defensive sectors at better than 50% and then add the communication and real estate sectors and this accounts for about 65% of the fund's sector holdings. In addition, it sports a decent yield of at about 2.75% with a distribution yield of about 7.4%. Year-to-date it is down 3.4% as compared to the Index being down about 6.0%. It’s not a top bell ringer of a fund but just a steady producer that performs well in down markets; and, a primary reason I own this fund.
For those interested it’s M* report is linked below.
http://www.morningstar.com/funds/XNAS/DEQAX/quote.html

FYI: (Scroll & Click On Article title At Top Of Google Search)
Nobody said beating the market is easy. In any given year, historically speaking, fewer than half of active managers beat their benchmark, and about half of those do so purely as a matter of chance. There are, of course, some managers who beat the market year after year after year—but determining which manager is going to do that is next to impossible.
But not totally impossible.
Just four funds made the cut, all led by managers who are venerated in the industry, but not exactly household names. The biggest, $25.7 billion Harbor Capital Appreciation (ticker: HCAIX), has been run by Sig Segalas of Jennison Associates since 1990. The standout performer was Sam Isaly, a star in health-care investing but less well-known in the diversified stock fund universe; he steers the $1.6 billion Eaton Vance Worldwide Health Sciences (ETHSX). The other two were Jerome Dodson, manager of the $708 million socially responsible Parnassus fund (PARNX), and a little-known investor named David Carlson, whose $2.2 billion Elfun Trusts (ELFNX) is open only to General Electric’s 300,000 U.S. employees and retirees.
Regards,
Ted
https://www.google.com/#q=The+Market+Beaters+Barron's

@Junkster,
Thanks for making post of this information. Even though I beat the average for my area of the country with a loss of about 2.2% I am not thrilled with my results. In review of S&P's as reported earnings for the the fourth quarter of 2015 I am finding an improvement in reported earnings as the S&P 500 Index started the quarter at $92.23 in October and finished the quarter at $95.38 ... this is an improvement and a turn-a-round for earnings. If earnings improve like S&P has projected then the markets although off to a rough start should also improve.
Earnings season starts Monday with Alcoa reporting after market close.

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.