The Danger Of Over-Diversifying Your Mutual Funds For those that have a number of accounts along with a good number of mutual funds I formulated a sleeve management system that has helped me greatly. It might also provide you with some ideas that you can incorporate in something you might choose to develop for yourself.
The article speaks to a concern no doubt many have; but, it falls short and fails to offer direction as to how to solve the concern other than to go see a financial planner.
For those interested ... Here is what I did and I it found that it worked so well for me that I have chosen to stay with probally more funds than I absoutely need as I could probally reduce the number down to about thirty (three per sleeve) and still incorporate my system.
The system was derived from a betting system I used at the dog track many years ago. In this system I'd usually bet ten races and in these races I'd bet my three best picks in each race to win, place or show. Folks, I usually left the track with more money than I came with. So, for me, my system worked even better than I first thought it ever would. Even today, I still make an occasional trip to Daytona (visting friends) and bet the dogs using my system ... and, I still wear a smile as I usually come away with more money than went with.
Some ask me ... How you do you do this? If they were readers of the Observer then they would know. My wife knows, but our friends don't. So let's keep it to ourselves.
My Investment Sleeve Management System (09/02/2015)
Here is a brief description of my sleeve system which I organized to help better manage the investments that were held in five accounts. The accounts consist of a taxable account, a self directed ira account, a 401k account, a profit sharing account and a health savings account plus two bank accounts. With this I came up with four investment areas. They are a cash area which consist of two sleeves … an investment cash sleeve and a demand cash sleeve. The next area is the income area which consists of two sleeves. … a fixed income sleeve and a hybrid income sleeve. Then there is the growth & income area which has more risk associated with it than the income area and it consist of four sleeves … a global equity sleeve, a global hybrid sleeve, a domestic equity sleeve and a domestic hybrid sleeve. An finally there is the growth area, where the most risk in the portfolio is found and it consist of four sleeves … a global sleeve, a large/mid cap sleeve, a small/mid cap sleeve and a specialty sleeve. Each sleeve consists of three to six funds (in most cases) with the size and the weight of each sleeve can easily be adjusted, from time-to-time, by adjusting the number of funds and the amounts held. By using the sleeve system one can get a better picture of their overall investment picture and weightings by sleeve and area. In addition, I have found it beneficial to xray each fund, each sleeve & each investment area monthly; and, the portfolio as a whole at least quarterly although I do it monthly. Again, weightings can be adjusted form time-to-time as to how I might be reading the markets and wish to weight accordingly. All funds pay their distributions to the cash area of the portfolio with the exception being those in my 401k, profit sharing, and health savings accounts where reinvestment occurs. With the other accounts paying to the cash area builds the cash area of the portfolio to meet the portfolio’s monthly cash disbursement with the residual being left for new investment opportunity. In addition, most all buy/sell trades settle from or to the cash area with some nav exchanges taking place.
Here is how I have my asset allocation broken out in percent ranges, by area. My neutral targets are cash 15%, income 30%, growth & income 35%, and growth 20%. I do an Instant Xray analysis on the portfolio monthly and make asset weighting adjustments as I feel warranted based upon my assessment of the market, my risk tolerance, cash needs, etc.
Cash Area (Weighting Range 5% to 25%)
Demand Cash Sleeve… (Cash Distribution Accrual & Future Investment Accrual)
Investment Cash Sleeve … (Savings & Time Deposits)
Income Area (Weighting Range 20% to 40%)
Fixed Income Sleeve: GIFAX, LALDX, THIFX, LBNDX, NEFZX & TSIAX
Hybrid Income Sleeve: AZNAX, CAPAX, FKINX, ISFAX, JNBAX & PGBAX
Growth & Income Area (Weighting Range 25% to 45%)
Global Equity Sleeve: CWGIX, DEQAX, EADIX & PGUAX
Global Hybrid Sleeve: CAIBX, IGPAX & TIBAX
Domestic Equity Sleeve: ANCFX, FDSAX, INUTX, NBHAX, SPQAX & SVAAX
Domestic Hybrid Sleeve: ABALX, AMECX, DDIAX, FRINX, HWIAX & LABFX
Growth Area (Weighting Range 10% to 30%)
Global Sleeve: AJVAX, ANWPX, NEWFX, PGROX, THOAX & THDAX
Large/Mid Cap Sleeve: AGTHX, BWLAX, HWAAX, IACLX, SPECX & VADAX
Small/Mid Cap Sleeve: IIVAX, PCVAX, PMDAX & VNVAX
Specialty Sleeve: CCMAX, LPEFX & TOLLX
Over the past 90 days, or so, the four most recent additions are AJVAX, GIFAX, JNBAX & VNVAX. The four most recent discards are CFLGX, DEMAX, PASAX & SGGDX. Total number of funds currently held equal fifty.
I wish all ... "Good Investing."
Old_Skeet
Don't Cash Out Of Mutual Funds In A Bad Stock Market
The Danger Of Over-Diversifying Your Mutual Funds
Gargoyle Hedged Fund In a May 2014, Vintage Freak said this this about the write up of the Gargoyle Hedged fund which was than a River Park Fund
"Also, you don't sell call options to nervous investors unless one is talking about investors nervous that the market will go up! You sell it to bullish investors that want to bet on the upside so you can hedge your downside as you keep the premium if the market falls or remains the same. The more you sell, less exposure to the market's upside as you have to pay the increase over the strike price + premium.
You sell put options to nervous investors as insurance who are trying to hedge their downside and so not what the fund would want to do since the fund also wants the same protection. The fund could buy put options for downside protection but then it would land up paying the premium.
The write up is a bit confusing on what they are actually doing because of the above."
The same write up is included in the Sept 2015 write up, and the same confusion exists. If they are selling calls to nervous investors, the nervous investors must be buying out of the money calls to so they can buy the index at a lower price. The more likely scenario is that a nervous investor would buy a put option to guard against a losses on his existing portfolio. I have zero experience with the options, but I don't think the explanation is clear. Anyone know for sure what the fund actually does?
Riverpark RSIVX & RPHYX That's because the interest dividends are taxed at, say, 25%, while you only get tax credit for 15% of the capital loss.
I understand your point, but this is not entirely correct. If you have long term capital gains that are taxed at 1
5%, and your losses on RPHYX offset those long capital gains, then yes you are only getting 1
5% credit for those losses. But if your losses on RPHYX offset short term capital gains that are taxed at ordinary income, then you get full credit. And if you have no capital gains at all, you also get full credit against your ordinary income.
Riverpark RSIVX & RPHYX I could have sworn I posted this already somewhere:
Unfortunately, when current yield equals current cap gain loss, one comes out a loser. That's because the interest dividends are taxed at, say, 25%, while you only get tax credit for 15% of the capital loss. One winds up down 10% or so.
Personal Beliefs Don't Belong In Your Retirement Account ... the newer ESG styles ranks companies within industries and then tries to buy the ones with the best environmental, social and governance records. So for instance oil stocks are not excluded but only the ones with the worst ESG rankings. This many studies Deutsche Bank examined led to outperformance of the stock market, not neutral results.
Ben Allen at Parnassus (colleague of Todd Ahlsten),
in a Bloomberg article from a year ago, put it this way:
"Call it socially responsible, but Allen says his strategy is just due diligence. 'It's not just about feeling good about yourself in the morning,' he says. 'When we're looking at two similarly valued energy companies, and one has a good track record for worker safety and one doesn't, which do we invest in? That's a no-brainer.' "
Q&A With Joe Fath, Manager, T. Rowe Price Growth Stock Fund: (PRGFX) I was just looking at the graph of this fund last night. It has done really well long-term, outperforming the s&p500 since about 2000.
Plan And Act, Don’t React FYI: An investor can and should learn from the past. He should never react to the recent past. Why? The past can’t be changed, but it can be known. Reacting to the recent past leads investors into the valleys of greed and regret — good investments missed, bad investments incurred.
Regards,
Ted
http://alephblog.com/2015/09/02/plan-and-act-dont-react/
Q&A With Joe Fath, Manager, T. Rowe Price Growth Stock Fund: (PRGFX)
Daily Shot: (T Rowe Price) Latin America Fund - "Lying With Charts" + Bonus: Baron Small Cap Fund meconti:
Thanks for note. I think [can you confirm] that you are talking about the table that appears on the bottom of "Page 9", which I agree is a complex mess.
HOWEVER, the linked document ALSO contains a table that appears on the left side of "Page 28". [*]
That table includes performance for 3 months, 6 months, 1 year, 3 years,
5 years, 10 years, and [wait for it] "since inception".
If you look at that table - which compares the Baron Small Cap Fund to the R2000 Growth & the S&P
500 indices, it is clear that the fund has under-performed both, *consistently* for the last 3 months, 6 months, 1 year, 3 years,
5 years, and 10 years.
Another way to see this is to look at the M* [Performance] tab for this fund:
http://performance.morningstar.com/fund/performance-return.action?t=BSCFXfor these periods. If you do - as of 09-02-201
5 - you will see that the fund has been resting fairly consistently among the bottom (worst) third or so of its peers for the last 3 months, 6 months, 1 year, 3 years,
5 years, and 10 years.
To almost coin a phrase, there is no need to feed this dog. This dog won't hunt. Thanks to the folks at Baron for providing (diligent at least) investors with the table (on Page 28) that shows the weakness of the fund.
[*] Note: If someone knows how to link images and has the time, that would be a great help! Thanks [!] in advance [?].
The Closing Bell: U.S. Stocks Advance After Two-Day Selloff
Are You A Trader Or Investor ? Many decades ago I met a stock market specialist who was a Vietnam veteran. He said in Vietnam there was the saying “There’s the quick and the dead.”; then he said “In the stock market there’s the quick and the poor.”. This was a time when people did the trading and there were no HFT or other computer automated schemes. By quick he meant the real-time ticker; by slow he meant the 15 minute delayed ticker - a far cry from the HFT of today.
In general time can be categorized as past, present, or future. The past is all events that have occurred; the future is all possible events that may occur; and the present is the time between the past and the future. For example you plan to have a celebration of the new Government Fiscal Year on Saturday, October 3rd (with hopefully no Government shutdown). Your plan is to have a barbecue steak dinner. In order to determine the number of steaks to order, you send out invitations asking potential attendees to RSVP by September 30. With regard to the number of steaks to order, the time between September 30 and the time you send out the invitations is the present time.
Given the above, as an investor, I conclude that any comments I hear on TV are history. The next day the comments are ancient history and are ignored in favor of the current comment d’jour.
To be a successful trader you would need to be able to imply a future event from a past event and act fast enough before the implied future event becomes a past event. Given computers, the present may only exist for milliseconds. A long-term investor has a very long present: the time between the buy and the sell.
Vanguard: Perspective And Patience
Are You A Trader Or Investor ? FYI: At the risk of overstating the obvious, there are important differences between traders and investors. Their timelines differ, as do their goals, preferred assets and methods. Yet some of what I have been hearing from members of each group suggests they themselves can sometimes become confused about these dissimilarities. Blame the recent market volatility for this.
Regards,
Ted
http://www.ritholtz.com/blog/2015/09/trader-or-investor/print/
Daily Shot: (T Rowe Price) Latin America Fund - "Lying With Charts" + Bonus: Baron Small Cap Fund In response to the original post, I found an even more deceptive depiction of performance in the most recent Baron Funds quarterly report. I don't know how to insert the table from the report (p. 9 of report). I hope this link works.
baronfunds.com/BaronFunds/media/Quarterly-Reports/Quarterly-Report-063015.pdfWhen I looked at the table, I said to myself, "Huh?" There are column headers for 10-year,
5-year, and 3-year returns along with average excess returns. I had to study the table and footnotes for 30 minutes to see what they did. At first (and second) glance, one would get the impression that BSCFX has been performing wonderfully. By using the entire history of the fund, they have whitewashed over its "recent" performance. BSCFX uses the Russell 2000 Growth Index as its primary prospectus benchmark. I looked at returns of BSCFX compared to the ETF IWO (iShares Russell 2000 Growth ETF). If you were a new investor, or added to your account in the past 1, 2, 3, 4,
5, 6, 7, 8, 9, 10, 11, 12, or 13 years, you would have trailed the ETF/benchmark, and with a higher tax cost ratio.
Number of Years Cumulative Return BSCFX
Begin Date End Date BSCFX IWO Annualized Underperformance
6/30/2002 6/30/201
5 13 226.34% 2
52.77% -0.66%
6/30/2003 6/30/201
5 12 223.88% 2
50.71% -0.73%
6/30/2004 6/30/201
5 11 1
56.60% 167.07% -0.40%
6/30/200
5 6/30/201
5 10 120.37% 1
56.46% -1.6
5%
6/30/2006 6/30/201
5 9 104.96% 124.22% -1.09%
6/30/2007 6/30/201
5 8 71.40% 92.24% -1.
54%
6/30/2008 6/30/201
5 7 99.71% 11
5.67% -1.22%
6/30/2009 6/30/201
5 6 1
54.73% 186.
54% -2.31%
6/30/2010 6/30/201
5 5 113.90% 142.93% -3.00%
6/30/2011 6/30/201
5 4
51.67% 69.41% -3.11%
6/30/2012 6/30/201
5 3
57.98% 73.93% -3.80%
6/30/2013 6/30/201
5 2 27.
52% 40.43% -
5.
58%
6/30/2014 6/30/201
5 1 4.0
5% 12.
54% -8.49%
I found Baron's report egregiously deceptive. When this fund was new and nimble, it sidestepped the dot.com debacle. Since then, its quacks like an index fund with a grossly high 1.30% ER. Even as assets continue to overwhelm this fund, it continues to charge a 0.2
5% 12b-1 fee to attract even more assets.
Personal Beliefs Don't Belong In Your Retirement Account I guess I will plead "ignorance" on the topic..
Apparently "social investing" means shunning fossil-fuel producing energy companies. Yet, all the Top 25 holdings in VFTSX are massive CONSUMERS of fossil fuels, aren't they?
Virtually all MNCs who manufacture products, operate globally using an import-export business model (siting their production in the cheapest locale, then exporting to 1st world nations) rather than manufacturing locally which would minimize consumption of fossil fuels. The import-export model relentlessly consumes untold amounts of fossil fuels as product laden containers are hauled to the developed world, and empty containers are then returned to 3rd world production facilities.
I see ethical drug makers are well-presented in SRI screens. These companies routinely engage in price-gouging in the USA, and charge much less for the identical drug in other countries. Are those practices "socially responsible"?
Banks seem to be well-represented too. Of course, the banks engaged in an orgy of shoddy underwriting practices which permitted the mortgage crisis/Great Recession.
I see PepsiCo is a top VFTSX holding. Along with Coke, their products are among the greatest contributor to diabetes in this country and around the world. Socially-responsible? -- I guess it helps the business of those "socially responsible" diabetes-drug makers -- a "virtuous circle/feedback loop" if ever there was one.
[edit: Many of the tech companies ID'd as 'Socially responsible" engage in extremely aggressive & contorted accounting fictions designed solely to move 'accounting income' to offshore locations --- thereby legally dodging their tax bills (again its "legal" because they bribed legislators and hired lobbyists to make it legal). Is this "socially responsible" or is it sneaky, greedy, and serve to drain govt revenues, which impedes spending on "socially responsible" infrastructure, and health programs...?...]
My point -- all corporations are greedy b@$t@ard$. They conduct their operations, to one extent or another, in socially IR-responsible --albeit legal -- means. And often what they do is legal because they pay lobbyists and bribe legislatures (here and abroad) to turn a blind eye.
All business enterprises (of any scale) are "dirty" to one extent or another.
As far investing based on "religious" concepts --- I'm no clergy, but a certain philosopher/man of god, once stated its easier for a camel to go through the eye of a needle than for a rich man to enter into heaven. That philosopher would probably have suggested giving your money to the poor and skip investing altogether. (A philosophy which I certainly would NOT advocate!)
