Hi, guys.
I know that Grantham is sort of a divisive figure here, with a bunch of folks describing him as some combination of failed and a perma-bear. There are two drivers of his failure to join the recent party. His firm's discipline is driven by mean-reversion. Their argument is, first, that stock valuations can be weird for years, but not weird forever. They keep reverting to about the same p/e they've held in the long-term. Why do they revert? Because stocks are crazy-risky and, unlike The Donald, most investors aren't willing to risk multiple bankruptcies on their way to great returns. Expensive stocks are riskier, so their prices don't stay permanently high. And, second, that profit levels can be weird for years, but not weird forever. Why do they revert? At base, if you're making obscene profits, competitors will eventually come in and find a way to steal them from you. More companies competing to provide the same goods or services drives down prices, hence profits.
Sadly, it hasn't worked that way for a long while. Grantham's argument is that price reversion has been blocked by the Fed since the days of Alan Greenspan. What happens when the market begins to crash? The Fed rushes in to save the day. In effect, they teach investors that pricey stocks aren't all that risky which encourages investors to keep pursuing higher priced stocks. Leuthold noted, for instance, that valuations at the bottom of the 2007-09 crash were comparable to those at the peak of most 20th century cycles. The problem with relying on the Fed is that pretty clear. And he argues that profit reversion has been blocked by a shift in executive compensation: executives are personally (and richly) rewarded for short-term stock performance rather than long-term corporate performance. If an executive had a billion to spend on a new warehouse distribution system that might payoff in five years or on dividend checks and a stock repurchase that plumped the price (and their bonus) this year, the choice is clear. In 2015, S&P 500 corporations put over $1 trillion into stock buybacks and dividends - economically unproductive choices - while is more than double what they'd done 10 years before.
Both of those factors explain Grantham's observation that stocks have been overpriced about 80% of the time over the past 25 years. His current estimate is that US stocks are overpriced by 50-60% right now.
Good news: that's not enough to precipitate a market crash, though "a perfectly ordinary" bear market is likely underway. Vanguard's Extended Market Index Fund (VIEIX) hit bottom on February 11th, down 25% from its June high. That matched, almost to the dollar, the decline in the emerging markets index. Both have rallied sharply over the past 10 days. Regardless, most stocks have been through a bear. Really catastrophic declines, though, rarely occur until market valuations exceed their long-term average by two standard deviations. The current translation: the S&P 500 - about 1900 as I write - at 2800 would be bad, bad, bad.
Bad news: you're still not going to make any money. GMO's model projects negative real returns on bonds (-1.4%), cash (-0.3%) and US large caps (-1.2%). Vanguard's most recent white paper on valuations, using different methods, leaves bonds at zero real return, stocks modestly positive.
Better news: the best values are in the riskier assets, which I hinted at above. US small caps are projected to make 1.5% real, emerging debt is at 2.8% and emerging equity at 4.5%.
For what that's worth,
David

Filing for the reorganization:
http://www.sec.gov/Archives/edgar/data/935015/000119312516472686/d144281d497.htm

@DavidV: Thanks for the question which is very bond specific. As you suggest, with bonds there are many variables in terms of credit quality, duration, structure and place of issuance (in the case of foreign securities). I find it best to invest in broader income-focused or asset allocation funds and let an expert sort this all out. T. Rowe Price's summary and annual reports for RPSIX (available on their website) probably should be required reading. The fund is not for everyone, but its composition offers insights into how someone might structure an income based portfolio. There's many other fine funds with similar objectives but different approaches. Max mentioned some.
My take on RPSIX's current approach is that the fund is pretty much avoiding bonds further out than 10 years duration and also underweighting government bonds in favor of mid-grade and lower quality corporates. The near 50% weighting in BBB and lower is most interesting. I don't think Price is including the fund's near 20% equity stake in their credit analysis, so that needs to be taken with a grain of salt.
(I attempted to cut & paste some relevant features from their summary page. But the fund's approximately 20% stake in equities made presenting an accurate representation too difficult.)
View Summary: http://www3.troweprice.com/fb2/fbkweb/composition.do?ticker=RPSIX

@DavidV & MFO Members Here are some suggestions.
Regards,
Ted
Suggested Bond Time Period Allocations:
25 Years + To Retirement:
11-25 " " "
1-10 " " ":
Retirement:
:
http://www.seninvest.com/article13.htm

@Dex @MikeM @MJG
As noted by Dex.....these first four
- know how to budget
- track your spending
- pay yourself first
- spend less then you earn
>>>If the person can not be involved with or control any of these, there will be no need for anything related to the Monte Carol machine.
Probably more so today than with my generation, there is a high likelihood that a college graduate today, or anyone employed has not a clue as to where they will find their arse on retirement day.
But, one thing is written; in that if the 4 items in the list above can not be properly controlled, the retirement roadmap will not exist to any value.
I know from 2015 the same type of budget information I know from 1970; as to how much and where monies travel in the broad budget categories. Tis not difficult to track.
Catch

@sligo & MFO Members: Fund opened on 11/1/13 @$10.00 and closed last Friday @$8.58, 74%, in cash, and a ER of 2.33%, just say no to Renee !
Regards,
Ted
Renee Haugerud:

Using a 4-5% withdrawal rate, the 100-age allocation could be very problematic, as it always has been. Unless there is simply more savings/investments than will ever be used, folks could find they are eating up principal much faster than their longevity will allow. Of course, not having a mortgage when retiring is a game changer, as is receiving a public pension. No mortgage AND a pension are huge. There is no 'rule of thumb' that should be applied here. It is very individualistic, and each household should spend a good amount of time planning just what 'retirement' looks like, both in terms of cash flow and life activity.

Anything to back that up or is it from your life experience?

"Many clients are spending a minimum of $3,000 a month once they stop working on basic necessities such as property tax, car payments and federal taxes, Ulin said."
- move someplace cheaper
"What you can control is saving early and often ..."
- all that really needed to be said
$2 million is a ridiculous number and trying to save $20,000-30,000 a year on the average Americans take home income of $35,000 has me wondering just who this article was written for.

Look out below! The average weighted price of bonds in Vanguard's Long-Term Treasury VUSTX is $110.58. If that is not a recipe for disaster somewhere down the road, I don't know what is. The average coupon is 3.67%. The actual 30-day yield is 2.29%. It doesn't take a rocket scientist to see the potential problems here. Just moving to intermediate-range bonds in VFIUX brings the average price down to $100.41, but there is still some disconnect with the average coupon at 2.97% vs. a yield of 1.29%. Still much safer than long-term treasuries.

Using a 4-5% withdrawal rate, the 100-age allocation could be very problematic, as it always has been. Unless there is simply more savings/investments than will ever be used, folks could find they are eating up principal much faster than their longevity will allow. Of course, not having a mortgage when retiring is a game changer, as is receiving a public pension. No mortgage AND a pension are huge. There is no 'rule of thumb' that should be applied here. It is very individualistic, and each household should spend a good amount of time planning just what 'retirement' looks like, both in terms of cash flow and life activity.

TurboTax Delux is available for $50 at Costco. The last of 1099-Div and 1099-B arrived this week and our 2015 return is now completed.

With the lack and disappearance of "steady" job prospects, ( compared to the boomer generation ) innovation in alpha producing investments, and lack of planning help available to young investor, they will have to be more DYI going forward. Robo advisors, buy and hold index investing, and 60 / 40 "glidepath" funds won't help in the accumulation of the millions of dollars needed for survival either.
One of the best steps that a young investor can take, is the opening and funding a ROTH IRA, and then investing in small cap value * . Applying a quantitative tactical model to a portfolio of small cap value, long bond fund and cash equivalents has taken a smaller investment stake and produced risk alpha above the buy and hold of small cap value **.
* https://docs.google.com/document/d/1kToqLWLISRk4n4YnSzv1hT5kBN54l5CvhwGgDwJKPJI/edit?usp=sharing
** https://docs.google.com/presentation/d/1pQuBfbPd18ca0G-KiZc5FIWNMx0pNa87INgsLjEwuzY/edit?usp=sharing
https://docs.google.com/presentation/d/1C37CJypoxHWHB09e3g25ewOGjP83wDZhj5j6tlrLJoA/edit?usp=sharing

@Lawler & MFO Members: Thanks for the reminder, here is the article. (Click On Article At Top Of Google Search)
https://www.google.com/#q=What+Recession?+GDP+Set+to+Grow+3%+barron's

Hell, it is very possible that most of my investments are always at least 45 days past the optimum entry/exit point. I don't need to pay GS or whomever more money in E.R. to do this work for me!!!
Don't know about all hedge funds; but the world's largest, Bridgewater (Ray Dalio) has old data about holdings on the internet after a given amount of time and is available for all to read/view.
Think I'll take a nap.
Good luck with the money.
Catch

FYI: You can make an ETF out of anything. Even hedge fund positions that are at least 45 days old.
Goldman Sachs Group Inc. earlier this month filed a prospectus for a new exchange-traded fund it plans to launch. The product it’s proposing, dubbed the Goldman Sachs Hedge Fund VIP ETF, will track an index of some of the most popular positions held by U.S. hedgies. It’s plan: To track an index of 50 stocks that appear the most in the top 10 holdings of U.S. hedge funds that rely on “fundamental” stock analysis.
Regards,
Ted
http://blogs.wsj.com/moneybeat/2016/02/19/goldman-plans-etf-to-mimic-hedge-funds-with-a-delay/tab/print/

http://www.thestreet.com/story/13465544/1/you-ll-need-2-million-before-you-can-think-of-retirement.html
Retirement is really post WWII concept that people still believe is possible for them. But if you are 30 or under prepare for living on the street or in the boondocks (read up on BLM land) in your 60s.
Thank you for paying your SS taxes - I'll be enjoying them.

Objective & Overview
The Hennessy Cornerstone Mid Cap 30 Fund seeks long-term growth of capital by investing in 30 Mid Cap companies, screening for undervalued stocks with above-average growth potential.
Investment Strategy
The Hennessy Cornerstone Mid Cap 30 Fund formula marries value with momentum, seeking growth at a reasonable price. Stocks for the portfolio are selected by strict adherence to the following time-tested, quantitative formula:
Market capitalization between $1 and $10 billion, excluding foreign stocks/ADR's
This market cap spread allows for inclusion of a broad range of mid-cap companies. Foreign stocks/American Depositary Receipts, or “ADR's” are excluded as they do not generate additional returns for the additional associated risk.
Price to sales ratio below 1.5
This value metric helps to uncover relative bargains. The formula chooses sales as its guide because sales figures are more difficult for companies to manipulate than earnings and frequently provide a clearer picture of a company's potential value.
Annual earnings higher than the previous year
While sales may be the best indicator of a company's value, the formula considers improvement in earnings as an indicator of a company's financial strength.
Positive stock price appreciation, or relative strength, over 3 and 6-month period
Historically, relative strength has been one of the most influential variables in predicting which stocks will outperform the market.
Select the 30 stocks with the highest 12-month price appreciation
Limiting the portfolio to 30 stocks allows just the top performers to be included, while providing ample diversification
The portfolio is rebalanced once annually, generally in the Fall
https://hennessyfunds.com/funds/equity/individual/f_3/sc_investor/cornerstone_mid_cap_30_fund/p_Quarterly/overview.fs

@msf: U.S. News & World Report ranks PSPHX #2 & ETHSX #16. My problem with ETHSX is it's load. There are many excellent health-care fund that are no-load. On the positive side is ETHSX's manager, Sam Isely, who's steady hand has managed the fund since inception in 1985
Regards,
Ted
ETHSX Category Percentile Rank:
http://performance.morningstar.com/fund/performance-return.action?t=ETHSX&region=usa&culture=en-US
FSPHX Category Percentile Rank:
http://performance.morningstar.com/fund/performance-return.action?t=FSPHX&region=usa&culture=en_US
PRHSX Category Percentile Rank:
http://performance.morningstar.com/fund/performance-return.action?t=PRHSX&region=usa&culture=en_US
JAGLX Category Percentile Rank:
http://performance.morningstar.com/fund/performance-return.action?t=JAGLX&region=usa&culture=en_US
VGHCX Category Percentile Rank:
http://performance.morningstar.com/fund/performance-return.action?t=VGHCX&region=usa&culture=en_US

John, H&R Block's Deluxe with State (under $30 at Amazon) worked very well after we jumped through some hoops. But our return wasn't complicated. Easy to navigate and to go back and correct or change earlier input when necessary. I think you can e-file federal for free, but we printed ours (to mail with a check).
Had trouble getting it to install on 5 year old MacBook which we hardly ever use. After entering the data, it calculated the tax but refused to print return because it was in a "read only" configuration. Phoned HR and got tremendous walk-through support for properly installing. Included downloading a newer OS from Apple. So in our case, the HR support was great.
http://www.amazon.com/Block-Deluxe-State-Software-Refund/dp/B01617VVCQ/ref=sr_1_1?ie=UTF8&qid=1455995456&sr=8-1&keywords=tax+preparation+software+2015
Several of the negative reviews mention issues running the Mac version. If you have a Mac, you need Apple's 10.6 SnowLeopard OS to run it. But it's also available in the Windows version if that's what you use.

"(ETHSX) is one of just a handful of funds that has consistently beaten the market over virtually every time period."
Statements like this always leave me wondering what "consistent" means, and what "market" means.
As an example, has a fund that underperformed by 2% in each of 2011, 2012, 2013, and 2014, but outperformed by 15% in 2015 "consistently" outperformed? Its 1, 3, 5 year records say that it has done well, but I'd hardly call it consistent.
ETHSX's record is somewhat like that, only it has done well in the past three calendar years. Though it has done poorly this short YTD (as has the entire sector) relative to "the market". It did not fare well relative to "the market" in 2012, while 2010 and 2006 were relative disasters. Here I'm using the S&P 500 and MSCI ACWI to represent "the market".
IMHO more significant (for any fund) is how well it has done relative to its sector. ETHSX's rankings are in the bottom half (M* category) for 3, 5, 10, and 15 year periods. With this statement I'm guilty of the same cherry picking as Barron's - I'm not looking year by year (or rolling periods). Though year by year, still it has ended only two of the last ten calendar years in the top two quintiles.
Lipper says pretty much the same thing, ranking it a 3 on consistency (3, 5, 10, and overall) within its Lipper category.
Note that Lipper divides the health care fund universe into two parts - domestic and global. This is another illustration of why defining terms, i.e. "the market" matters. Lipper considers ETHSX a global fund (JAGLX being a more consistent peer), while Lipper considers FSPHX to be a consistent domestic health care fund.