Hi Guys,
Along with a long list of other famous quotes, John Maynard Keynes is usually credited with saying “ When the facts change, I change my mind. What do you do, Sir?”
Well the equity market facts are changing given that January 2016 was a down month. Consequently, the expectations for a positive annual return should be revised to reflect this additional data. The obvious question becomes “by how much”?
Statistically, when new information is added to existing info to update a projection, the procedure is called a Bayesian analysis. Simply put, an original baseline projection is multiplied by the additional (new) data to provide the posterior odds. The method is attributed to Thomas Bayes who did the math work in the mid-eighteenth century.
Historical equity market data provides a departure point. I did a quick and dirty analysis to make an estimate using the S&P 500 as a benchmark. I went back to 1979 data because of easy access and divided that data into a 2 by 2 matrix. Entries were made into 4 boxes: both plus and minus January returns, and, plus and minus S&P 500 annual returns.
In rough numbers, the baseline anticipated S&P 500 annual return is historically positive about 70% of the time. How does that change if the January return is positive? If it is negative?
For the timeframe that I explored, January returns were positive 23 times and that translated into a positive annual S&P 500 return 20 times. That equates to an 87% likelihood. Not bad since the supplemental January data enhances the probability of a rewarding annual return from 70% to the higher value. But that’s not what happened.
For that same timeframe, January returns were negative 14 times. In 9 of those instances, the year end returns were positive. Those outcomes represent 64% of the examination period for a negative January. From a Bayesian perspective, these data suggest that the likelihood of a positive annual S&P 500 return is reduced somewhat from the baseline data set.
That’s not so good, but it is not a disastrous probability downgrade. Given current market uncertainties and the limited data set, it could be assessed as a marginal downshift.
That’s exactly my interpretation. I am slightly decreasing the equity portion of my portfolio this year, but that decision is more dictated by my advanced age (81) then these specific calculations.
I hope you find these simple analysis interesting, and perhaps even actionable. What will you be doing?
Best Regards.

OUSA looks compelling forbes.com/sites/trangho/2015/07/18/how-to-invest-in-the-stock-market-with-kevin-oleary-of-shark-tank/?utm_campaign=yahootix&partner=yahootix#11204b113f24

Updated Feb 9 with SCG grading
A follow up from my earlier preliminary study that I have named Rolling Alpha Returns Exposé (tm) RARE analysis of mutual funds to identify if mutual fund returns are sensitive to when an investor holds them (more sensitive they are, less likely most investors would have realized the fund's best returns even if they held it for a long time).
Having finished the remaining programming to find the distribution of returns, I am presenting a grading system for mutual funds using the following grades. Selected funds with at least 8 years of history from The Great Owls and the top 20-30 ranked funds at US News Fund ratings. They show significant differences in the sensitivity to time periods.
The grading scale:
A - Over-achievers : Significant alpha over index returns (1% or more per year) and for most investment periods regardless of which 3 or 5 yr period you pick in the last 8 years. So most investors would have seen that performance.
B - Steady achievers : Respectable alpha over index returns (0.5 to 1% per year) for most investment periods
C - Closet indexers : No statististically significant difference from index returns for most investment periods.
D - Pretenders : While some cherry picked returns look good, less than index returns for most investment periods
E - Lottery tickets : Significant alpha for specific periods but underperformance for most investment periods
F - Failures : Statistically significant under performance for most investment periods
X - Toxic : Very poor returns relative to index for most investment periods except for an insignificant percentage of intervals so unless investors caught that interval would have suffered significantly relative to the index
Selected funds can be index funds themselves but using a different index or a narrower index than the sector index but measuring themselves againt it.
Grades for selected funds:
(*) indicates Great Owl Funds
Large Cap Core/Blend US Domestic Funds
A+
SMVLX
A
JENHX(*), VSBPX
A-
VSLPX
B+
VITPX
B
POSKX(*), AWEIX(*), VTCIX, NMIAX
B-
JPDEX
C+
NOPRX(*), DTMEX
C
FLCEX, VQNPX, VPMIX
C-
PRBLX
E
YAFFX
F+
GLDLX(*)
F
PRDGX(*), TRISX(*), PRCOX
F-
WMLIX
X
CAPEX, SLCAX, SCPAX
Large Cap Value US Domestic Funds
A+
FDSAX(*), DFLVX, DPDEX, BRLVX
A
NOLCX, BPAIX, DDVIX(*), TRVLX, VWNDX, LSVEX
A-
VUVLX
B+
VEIPX, DODGX
B
MPISX, EVSAX
B-
TILCX, HOVLX
C+
FLVEX
C
TFFYX(*), DIVIX
D
EQTIX
F+
LCEAX, ILVAX
F
MEIAX
X
FBCVX
Comments on LCV funds in the post below.
Large Cap Growth US Domestic funds
A+
FDGRX, NICSX, GTLLX
A
TRBCX, TPLGX, TRLGX, FBGRX
A-
PLGIX, FNCMX, JIBCX
B+
PRGFX, PARNX
B
POGRX, VHCOX, RDLIX(*)
C+
TILGX, FDSVX, TLIIX,TILIX
C
VPMCX, FLGEX
C-
EGFIX(*)
D
JICPX, HACAX
D-
BRLGX, VWUSX
F+
MMDEX(*)
X
FCNTX, PRGIX
Comments on the LCG fund grading in my comment below
Small Cap Growth US equity funds
A+
PRNHX, DCGTX
A
PRDSX, HSPGX, BCSIX, RSEGX, TRSSX, JGMAX, WFSAX, JANIX
A-
PPCAX
B+
OTCFX
B-
WGROX, LSSIX
C+
TSCIX
C
PLWAX
C-
HASGX, GWETX
D+
WAMVX
D
DTSGX, FCAGX
F
CCASX, QASGX
F-
TISEX, GSXAX, SGPIX, TSGUX
X
BRSGX, MPSSX, TCMSX
PS: I do realize it is egg on my face for criticizing SMVLX and starting this analysis to prove my hunch while it came out on top of all the other funds. Sometimes intuitions can be wrong and hence the need for analysis. This is why startups pivot when intuitions about their markets aren't supported in numbers later on. Shows I didn't design the analysis to prove my hunch as can be easily done with statistics!
It appears that this analysis could be applied between any two similar funds to decide which one is less likely to disappoint if you weren't lucky enough to be in it for its best periods. This can be ONE fund selection criterion say for example if you wanted to choose between POSKX and VTCIX. This would help even more when there is no good index to compare a fund to like allocation funds or multi sector funds. More of such results later.

@vkt
OMG.........nah, they can't be "just" banks. They would get run out of town by the credit unions, eh? They've (the banks) got the need, the fix and the backing.
The Pusher Man (The Fed) has their backside.
Hell, the banks can still get .5% on cash reserves and "excess" cash reserves, as of December, with the rate hike.
The financial market place is so perverted.
Regards,
Catch

FYI: DoubleLine Capital, overseen by widely followed investor Jeffrey Gundlach, said on Wednesday it posted a net inflow of $1.95 billion in January, marking the firm's 24th consecutive month of inflows.
Regards,
Ted
http://www.reuters.com/article/doubleline-gundlach-inflows-idUSL2N15I232

Pull up a 10-year chart of the Nasdaq biotech index IBB and it will become apparent. The IBB gained 670% from the bear market bottom on 3/9/2009 to its peak in July 2015.
Although it has lost nearly 40% of its value in the last six months alone it, and other high beta, "risk on" equity holdings have much further to fall.
What goes up must come down. Way down.

I'm wondering if GPEOX might reopen to existing shareholders. I would like to add to my holdings. They are sitting at $335MM.

I called GP a few weeks ago asking the same question.

To answer my own question above here is what was reported mid last year
http://www.bloomberg.com/news/articles/2015-04-08/drillers-26-billion-in-hedges-spreads-price-plunge-pain

For U.S. shale drillers, the crash in oil prices came with a $26 billion safety net. That’s how much they stand to get paid on insurance they bought to protect themselves against a bear market -- as long as prices stay low.
The flipside is that those who sold the price hedges now have to make good. At the top of the list are the same Wall Street banks that financed the biggest energy boom in U.S. history, including JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.

The systemic risk hasn't been as bad as in the mortgage crisis. Insurance companies like AIG have not been foolishly involved here.
But explains why investment banks have been laying off or getting rid of their commodities trading divisions and may be partly why financials have been tanking in this sell off.
What are all the investment banks going to do for their profits when most of their proprietary trading opportunities close one by one? Do banking?

I'm wondering if GPEOX might reopen to existing shareholders. I would like to add to my holdings. They are sitting at $335MM.

@Dex and @Crash
Noted previous in this thread: "sea change that people are not talking about - free trade, population growth, robotics, free movement of money and movement of mfg to lower cost areas causing deflation and hardship for worker."
Like it's happening under our noses, but everyone looks past it. ...Or can't read the signs
A quick Google wordings search indicates the following linkage numerics directed towards papers, blogs and other related online postings:
--- free trade, 274,000 thousand finds
--- population growth, 47.4 million finds
--- robotics, 89.3 million finds
--- money movement, 84.2 million finds
--- manufacturing movement, 175 million finds
--- deflation, 7.7 million finds
--- worker hardship, 22.3 million finds
It appears that someone is writing/talking about some of these areas, eh?
I have mentally reduced the above finds numbers by 50%, due to redundant wording or multiple postings or similar.
I have not yet finished review of the sites information.
Regards,
Catch

I have to assume he was just showing only funds that start with A - C because it looks like Vanguard Dividend Growth VDIGX beat those listed and also the S + P for 3, 5 and 10 years. Its been my choice as largest fund holding a while now, with additional money waiting on sidelines for a bit lower level.

Tradeking supposedly charges $9.95 to buy a no-load fund, and another $9.95 to sell one, regardless of the holding period. I contacted them a few years ago and was told that they charge no short-term redemption fees other than what an individual fund might charge for short-term trading. I've read that they offer 8000 funds. I've never bought or sold a fund through them, so can't vouch for their reliability. Their website seems to be down today, so maybe trying to trade funds through them would be a headache.

I think Scottrade is just coming more in line with its rivals. Tradeking is too obscure for my tastes. Just today and yesterday I paid out $160 more in fees to Scottrade than I would have prior to 2/1. In the good old days you could buy and sell funds with no fees whatsoever no matter how short your holding period. I had to adjust when they changed the rules to short term fees and will have to adjust again now that these fees have been raised.

Junk bond stress posts biggest jump since financial crisis
Feb 2 2016, 14:28 ET | By: Stephen Alpher, SA News Editor [Contact this editor with comments or a news tip]
Moody's Liquidity Stress Index jumped to 7.9% in January from 6.8% previously - the largest one-month move since March 2009. The gauge measures the number of companies carrying the agency's lowest liquidity rating of S G L-4.
Stripping energy out, the index rose to 4.5% in January - the highest level since November 2010. In fact, six of the ten downgrades to S G L-4 this month were for companies outside the energy sector, though two of those are suppliers to commodity companies.
Junk prices are having another rough session today, with HYG down 0.6% and JNK off 0.9% as Treasury prices post big rallies..
http://seekingalpha.com/news/3074426-junk-bond-stress-posts-biggest-jump-since-financial-crisis
Original Source
Junk bond stress is spreading beyond energy, says Moody’s
By Ciara Linnane Corporate news editor Published: Feb 2, 2016 11:43 a.m. ET marketwatch.com
Oil and gas issuers have been pummeled in the last year by the collapse in oil prices, which has hurt the many shale players that emerged during the fracking boom. Many of those companies need an oil price of at least $60 a barrel to be profitable, according to energy consulting firm Rystad Energy.
In December, Moody’s warned that companies in the sector are facing a spike in defaults and downgrades, while investors in their debt are looking at major losses. Companies in the oil and gas and mining sectors have issued nearly $2 trillion in bonds globally since 2010, many of them in the junk category.
http://www.marketwatch.com/story/junk-bond-stress-is-spreading-beyond-energy-says-moodys-2016-02-02

Tradeking supposedly charges $9.95 to buy a no-load fund, and another $9.95 to sell one, regardless of the holding period. I contacted them a few years ago and was told that they charge no short-term redemption fees other than what an individual fund might charge for short-term trading. I've read that they offer 8000 funds. I've never bought or sold a fund through them, so can't vouch for their reliability. Their website seems to be down today, so maybe trying to trade funds through them would be a headache.

FYI: Dividend funds have underperformed the S&P 500 over the past 10 years after outperforming through the first seven years of the 10.
Regards,
Ted
http://www.investors.com/etfs-and-funds/mutual-funds/can-dividend-funds-get-their-mojo-back/

FYI: Gene Neavin, co-manager of the top-rated $753 million Federated High Yield Trust, divides junk bonds into two categories: the 10 percent of the market issued by metals, mining and energy companies, and the 90 percent from everyone else.
While the first group faces serious problems, the second is in surprisingly good shape, according to Neavin, whose fund has the best five-year performance among its peers. His view contrasts with bleaker forecasts from the likes of DoubleLine Capital’s Jeffrey Gundlach.
Regards,
Ted
http://www.bloomberg.com/news/articles/2016-02-02/why-the-best-junk-fund-manager-since-11-is-betting-on-a-rebound

Performance Trust offers a pure muni fund in PTRMX.
As a multi-sector bond fund, PTIAX seems to have strong convictions for munis and non-agency residential MBS. These two categories seem to make up 75% of the fund.

Vanguard Brokerage Services, like Fidelity, also imposes a $50 short term redemption fee for NTF shares sold within 60 days. There are some brokerages that do not add their own short term redemption fee to any that the fund might impose. When I posted on this three years ago, WellsTrade didn't add any short term fee of its own.
This may be obvious, but you can avoid all brokerage fees by buying funds directly.
You won't get access to institutional class funds that way (brokerages often reduce the min required), but if you're looking at short term positions, the 25 basis point difference between retail and institutional class shares won't add much to your costs.
Check into the fund family's wire fees - they're likely less than the broker would charge for a short term redemption, and wiring should give you access to the cash just as fast as selling at a brokerage. For example, DoubleLine's wire fee is $15 - less even than Scottrade's old $17 short term redemption fee.

Is it any cheaper anywhere else to sell a mutual fund within 90 days of purchase?

If you're talking brokerage fees, as Junkster is, Fidelity's NTF fee period is 60 days, not 90. Sell before 60 days, they charge $50. TF funds cost $50 one way (purchase only), with no penalty to sell anytime afterwards (unless, of course, there's a redemption fee charged by the fund company).

Voila--- terrific, Andy, and not exactly what I expected! It does have the ST redemption fee, and its subsequent is $500 (which makes it a little problematic for the small retail investor to "trickle it in"). But if it has been able to perform as it has without including any muni below IG, then that actually makes it even more attractive to me as far as throwing it into my fixed income mix. It has not been challenged by a major credit market test, but its record has advanced the fund into Great Owl status for awhile now, so maybe its time for a MFO profile, or at least a Stars in the Shadows mention?
@Andy Did they have an estimate of how large AUM could become before they'd consider a soft close to maintain effective execution?