Investors Bet Giant Companies Will Dominate After Crisis From MN Doctor Niloo Kruger - She debunks several myths that are going around. Worth reading, we need the truth.
“So much misinformation, so little time. I have decided to write out some myths/false information that keep appearing on my newsfeed. Feel free to comment if you agree or disagree with me. Just please, keep it fact based and be willing to have an open discussion about it.
1. If everyone would just follow the social distancing/isolation rules we would be done with this sooner.
- Until we have a more effective method of stopping the spread of COVID and/or treating COVID social distancing and isolation will remain in effect to some level. It is not because people aren’t following the rules, it’s because it’s the only thing we know that can stop it up to date.
2. The flu kills about the same or more than COVID.
- The flu on average has killed about 36,000 people per year. COVID has killed 57,000 in 4 months. The mortality rate of the flu is about 0.1% while COVIDs rate is roughly 3%. The argument has been made that COVID mortality rate is actually lower since there are much more cases of COVID that haven’t been tested. This may be true, but likely is also true about the flu (many have it who aren’t tested) and the evidence we have to date supports a rate of 3% and certainly it’s not so much greater to drop the mortality rate 30x lower to equal the flu. The two are not comparable.
3. The health care system can handle millions of flu cases a year, they can handle a couple hundred thousand COVID cases.
- Testing and PPE, testing and PPE, testing and PPE. This is the key. We have wide spread testing available of the flu because it isn’t new. We know how to stop the spread of flu (cover your mouth, wash your hands). COVID is new. We don’t have widespread testing of this available, we weren’t prepared for this. Because the testing takes so long for turnover (because there is a backlog and limited testing supplies) we use more PPE than necessary until patient’s test come back. As we get more widespread testing, the turn around will be faster and the amount of PPE needed is less. The stay at home order/isolation bought us time to do this.
I heard a great analogy regarding this. McDonald’s serves 68 million people a year, however, if I go up to any McDonalds and order 500 burgers, it overwhelms the facility. They are not prepared to do this. BUT, if I call two weeks ahead (stay at home order for two weeks) and let them know I will be ordering 500 hamburgers, the facility has the time to prepare.
4. The COVID models were all wrong because we don’t have the numbers predicted by them.
- The models were based off no stay at home/shelter in place orders. 40 out of 50 states have created some sort of order such as this. This has been the one thing that we know limits the spread of the disease…worked in China and Italy. China started to open back up again and numbers started to climb again. The purpose of these orders are NOT to decrease the number of infections, but to buy time for hospitals to build capacity for beds, training, ventilators, PPE, and testing. Also it buys researchers time to learn about COVID to help with treatment of the disease. This strategy has worked, although it has also tanked the economy. However, what we have learned now can help us slowly open businesses back up using appropriate social distancing that we didn’t know about 6 weeks ago (like wearing cloth masks can help stop spread of asymptomatic infection to others). And even more importantly we have the ability to test and quarantine people who have COVID now, something again, we didn’t have the ability to do 6 weeks ago.
5. Hospitals are getting paid more for COVID and there is pressure on doctors to diagnose patients with COVID and to put it on the death certificate.
- This one is truly the most baffling to me. Hospitals are losing millions of dollars due to COVID. No matter who you are, people like to make money. Hospitals like to make money and they do not want to cancel things that are easy money (elective surgeries, well child visits, screening tests). These things have low risk to patients typically and good outcomes. Hospitals have not cancelled this because they are going to make more money with COVID. I assure you, they will not. Children’s Hospital has lost more than 40 million dollars. Last month Allina announced that they lost 63 million dollars. Staff at hospitals throughout the country are getting furloughed. No one is making money because of this. They stopped these easy money things because they know that without widespread testing available and without proper PPE, you risk healthcare workers being exposed to COVID and some data has come out that healthcare workers are at higher risk of mortality due to higher viral loads presumably due to increased exposure. Also, doctor’s do not sign death certificates unless they are a forensic pathologist. Doctor’s do determine cause of death. Cardiac arrest or respiratory failure have never been appropriate to put as a cause of death because virtually everyone ultimately dies of this. Instead, the INCITING SOURCE that precipitated the cardiac arrest or respiratory failure is what should be placed as the cause of death. So for instance, if patient comes in with COVID and ultimately gets a pulmonary emoblism (because COVID has been found to put you at increased risk of clots) that leads to cardiac shock and that’s why you die, then the appropriate cause of death is COVID. Because COVID tests haven’t been widespread, physicians have been allowed (not coerced or pressured) to put COVID as the suspected inciting source as the cause of death despite them not having a test to prove the patient had COVID. I know of no doctor who feels pressured to label something as COVID. Overall, every physician, nurse, healthcare worker, administrator, hospital is losing money, just like the rest of us.
Longleaf Partners Small Cap Fund reopens to new investors (LLSCX)
"Core" bond fund holdings IMHO it's not that people took on more risk than they thought but rather that people do not appreciate what risk is. Stuff happens. Risk generally is rewarded, but the ride can be jarring.
The average
10 year returns for multisector and for intermediate core bond funds were very close as of today (May 3, 2020). Multisector: 3.65%, core 3.80%.
Take the same ten years through the end of 20
19 and the averages are multisector: 4.87%, core: 3.8
1%. (All data from M*'s legacy graphs;
see here for
10 years through 20
19,
see here for
10 years through today).
Over the long term, higher risk investments will probably do better, but when there are corrections or disruptions, they'll come down to earth faster and harder, bringing their long term averages closer to the lower risk investments.
My guess is that the "wealth effect" has something to do with people's reactions. High flying funds make people feel wealthier than they are; they don't factor in embedded risk. So when, as is inevitable, that risk manifests and the funds show themselves to be just somewhat better, people tend to feel disappointed. I'm suggesting that rather than feel disappointed when bad things happen, instead feel just a little less good when good things happen.
Based on the performance figures, ABNDX is an average fund. It's done very well this year on a relative basis, about 3.5% above category average. And that's brought its
10 year performance up to about 0.35%/year above category average.
On the other hand, PIMIX has held up relatively well against its category, ahead 0.5% YTD. Even from peak (Feb 23) to trough (March 23) it did better, losing "only"
13.3% vs.
14.22% for its category.
ISTM the question is whether one is willing to hold higher risk categories over a long term for a payoff, recognizing that long term is not one or three years but more likely five or even ten years. If that's too long to stay pat, then intermediate term core bond bonds would seem a better fit.
FWIW, I haven't reacted with changes to my portfolio. The only changes I'm contemplating are lateral moves (not category changes) that I've been looking into for years. I just have a little more data to work with now.
"Core" bond fund holdings @Old_Joe,
You have asked for my thinking on fixed income. Here goes ...
My ability to review funds has been compromised by M*. Part of my quick and dirty review matrix is no more through M* Portfolio Manager. In portfolio manager I have been able, up untill recently, to view the 52 week high and low for a mutual fund along with % above and below. I can still do this with stocks, closed end funds, and etf's but not mutual funds.
I began this study because I was disapoined with the performance of my income funds as I felt they should have held up better than they did during this recent stock market swoon. I had been in this review process now for a couple of weeks ... and as of last week my review matrix is void of these 52 week details that was part of this review and study process. This is where I was getting my upside and downside capture numbers. Now, no more.
I do remember looking at ABNDX to see how it performed against some of my current bond funds as like you I had owned ABNDX before (from time-to-time). ABNDX and AGTHX along with ANCFX were part of my seasonal spiff package where I'd load equities (AGTHX & ANCFX) in the late fall and hold them until spring then rebalance and move (through the nav exchange program) into fixed income (ABNDX) (commission free). Generally, I'd also put my new money to work and buy the bond fund during the summer months as the commission to purchase it was less than to purchase equity funds. I learned to do this early on in my investing endeavors during my teenage years from my late father's stock broker. As a matter of fact he is the one that schooled me on the seasonal investment stratey (Sell In May) that I have used through the years and still do today as May/June period & September/October period are generally seasonal (calendar) rebalance times for me.
During this review of my fixed income sleeve I remember that ABNDX when compaired to my other holdings was the better performer during the downdraft period while it did give up some ground to the others in its fair weather performance. Still it's yield is a little low (2.2%) for my taste. Some Old_School Mytholodgy, taught to me by my father's broker during my early years in investing, was to make +2% above inflation on fixed income and savings and +4% to +6% on value (equity income) and +6% to +8% (perhaps more) on equity growth positions. I remember back in the late
1990's and early 2000's I was getting a yield from AHITX of about
10% (now about 6.5%) and a 5% yield on CD's and yes ABNDX was at the 5% yield mark as well (now around 2.2%). Then the Great Recession came and fixed income started paying little to nothing as it is today with the FOMC's low interest rate policy. With this ... equities have thrived and bonds have withered. Thank goodness for the hybrid funds.
I guess what I'm saying to you ... and others ... fixed income is not what it use to be. And, to gain yield I took on more risk in my fixed income sleeve than I thought I had. If I had continued with ABNDX as one of my core fixed income holdings I'd now be better off today than where I am now in protecting the downside. Still my other holdings within my income sleeve over a ten year period have out gunned ABNDX from both a yield and a total return perspective.
I'm thinking that this new bond fund by American Funds (MIAQX) is a marketing tool fund to help better sell their fixed income stuff thus retain more shareholder money that might now be moving to other bond houses. Anyway, I plan to cut some of my fixed income money back to American Funds where it be ABNDX (most likely) or MIAQX (the new fund) as I'm equity heavy and May/June are rebalance months for me. This rebalance is mostly because I am equity heavy based upon my asset allocation model more so than a seasonal timming strategy move plus I like to rebalance in both spring and fall. In addition, I've been thininking of trimming some from FKINX and moving these proceeds (through nav transfer) into FISCX and FBLAX. FKINX has disappointed me (lately) but it is the first fund I began my investing endeavors with, at age
12. It still remains as one of my top five positions outside of cash.
Thanks ... Old_Joe for asking my thoughts. In writing this out gave me some clairty to the mater as well. I had an elementary school teacher that had us writing a Friday paper as what we had learned in school for the week. I've kept with this through the years and even today write a weekly recap ... more so ... on my portfolio and the market than anything else. One week I turned in a blank paper ... I learned "the hard way" not to do that anymore. Come Monday ... I had to write 50 times on a sheet of notebook paper (front and back) ... during recess ... "I'll take good daily class notes so I can write my Friday paper." In doing this she marked my Friday paper assignment as complete. Told me next time ... I'd not be so lucky.
If I learn anything of great value with my call to my advisor about this new bond fund ... I'll let you know. I'm planning to do a nav transfer this week as I have to call to do this. This will be a good time to make the inquiry on the new bond fund. I'll post what I learn.
Old_Skeet
WHOSX How many times have we all said: "Have a PLAN, and stick to it." That doesn't mean stick to it despite the fact that circumstances have fundamentally changed, of course. (I think the Zurich Axioms are a good touchstone.) And diversification is important, not over-diversifying so that the result is "di-worse-ification." Eh??? WHOSX? That fund is doing better than gangbusters, lately. AND back in 2019, too. The YTD gain on that thing is bigger than God's ego.
Seafarer Growth and Income fund
Seafarer Growth and Income fund @Crash. You know what you might have done right thing. I've successfully transitioned to having a mercenary attitude toward funds. This argument about a funds "potential" is BS. People have to make decisions in the real world at a given point of time and don't have the benefit of hindsight. Shame on people like M* shaming people with "investors are effing stupid and always sell / buy at wrong time". They make their money publishing articles. We have to earn our money and then figure out how to grow it. They don't have to grow their money but grow their revenue stream. Easy to criticize investors and money managers when you are running a business to critique everyone.
You do what you think is right for you. Everyone else can take a flying F. It do own SFGIX because I'm still in the plus column.
PS - Finally feels good to have my single malt this weekend.
Even tonight, I see SFGIX is not doing badly compared to peers, lately. (YTD and 20
19.) But as has been noted here often enough, that fund is a rare breed. Hard to compare it with the run of the mill stuff in that category.... My international stuff is virtually ALL in PRIDX these days, and foreign is a small slice now, and going forward, deliberately. (7% of total.) Single Malts. Now, yer talking! Limited selections around here, especially with the virus restricting everything. Lately, I've imbibed the Bushmills "Red Bush" variety of Irish whisky. I do believe it's smoother than the original. But I do miss a swig of The Balvenie. Liquor is so expensive here. The good news is: you can get it at the supermarket along with your eggs and butter and cheese and tofu. ;)
