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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

IRNIX - Iron Strategic Income
Possibly the worst beer I ever tasted.
http://www.ebeercans.com/Iron-City-Beer/485/

hank May 2014 in Fund Discussions
Alternative Ways To Tap Into Alternative Investments
FYI:
Regards,
Ted
http://www.forbes.com/sites/greatspeculations/2014/05/23/alternative-ways-to-tap-into-alternative-investments/print/

Ted May 2014 in Fund Discussions
How is ur TIPs fund do'in???
@rjb112 @Ted @cman
Howdy,
Using the common TIP etf as the charting choice; one may view the previous 3 years.
TIP, 50 100 200 day, simple moving average Note the pricing of the asset and forget the yield. This is a type of asset, not unlike any other to be considered for an invesment. Be it for 3 months or 3 years or.....
We (family) have not used any TIPs related funds or etfs to obtain a yield. The overriding consideration for many of our bond fund holdings, and in particular TIPs, is related to pricing. @rjb112. You noted buying TIPs or related funds; but not now, as the yield is too low. The yield is low now, in part; due to supply/demand. Not unlike the 10 year Treasury; if it were to begin showing lower yields starting next week and continuing for the next 6 months. I wouldn't be concerned about investing in these going forward. I would not be investing for the yield; but for the upward move in pricing that would be taking place at the same time.
I have seen too many times from the talking heads on tv and in writings about why would anyone want to invest in a 10 year bond offering only X% yield back in 2010 and/or 2011. 'Course, the yield continued to move lower and the price higher. The "wise" talking heads seldom mention the monies to be made in the pricing. They mostly speak/write about the lowly yield. They surely weren't educating their viewers or readers.
Similar bond actions were in place for the high yield sector in early 2009. But, with these; some folks were only looking at the 20% yields. All well and good, to be sure. But the big money was made with the much oversold pricing of this bond sector as the Fed continued their actions to rescue the financial sectors.
Not unlike equity holdings; we also view bond sectors for their unlying prices, and place much less consideration for a yield that may be obtained.
I do not know if this is a common practice of bond investing among individual investors or not. But, this is how we view this investment area.
The original post and links for this thread were related to inflation; but is not the reason for our TIPs holding since February.
All things being in place at the right time; also allow TIPs to provide more upward pricing action from more than a demand from any inflation perception, and this is an area of "risk-off" in equity sectors and global events that may be worrisome for a period of time. Folks will travel to TIPs as well as other Treasury areas for "safety". A bonus possibility.
Summary for this house (family). Bond pricing has trends for a variety of reasons, not unlike equity sectors.
During a stagnate market place; one could hold a 10 year Treasury fund and an equity based fund, both yielding 2.5%; and find no difference in total return at the end of a given period.
We do use active managed bond funds to sort the details and make purchases that would be beyond our abilities and accessablity.
Most importantly is to each for their own reasons for investments.
Lastly. We do our best to invest for a decent, risk/reward return. We are not fussy about the sectors involved.
Take care,
Catch

catch22 May 2014 in Fund Discussions
How is ur TIPs fund do'in???
@Ted: "TIPS are for investors who fear the future without cause."
Maybe you are only referring to their purchase right now, but not to TIPS in general?
TIPS can be a great investment. I purchased a 10-year TIPS somewhere around the 1997 time frame. It had a coupon of 4 and 1/8 or 4 and 1/4, don't recall which. I held it to maturity, and received the 4 1/8 or 4 1/4 each year for 10 years, plus inflation adjustments. I purchased it directly from Treasury Direct with no fees. The total return was very acceptable, especially since I took no risk. I did not "fear" the future.
Check out what some notables such as David Swensen, Larry Swedroe, Bill Gross, William Bernstein, Rick Ferri and others (who highly favor them) have said about TIPS. A lot of academics, e.g., PhD economists and finance professors at universities, have great things to say about TIPS. William Bernstein and others recommend laddered TIPS, held to maturity, as an excellent risk free retirement planning tool.
I wouldn't buy a TIPS currently, because the yield is way too low for me to think that this is an attractive investment at this time. But when the real yields on TIPS are attractive, I play to buy them. I find it amazing that some have purchased them at times when real yields were negative. That's not a Ben Graham type value proposition to me.
You don't need to "fear the future without cause" to buy TIPS. You just need to be a student of market history, and inflation history.
Historically, inflation has been one of the biggest threats to the portfolio of a retired person. Or perhaps the biggest threat. This is very fundamental.
I have no forecast for inflation and interest rates. I'm not a market forecaster.
In 1979, inflation averaged 11.3%; In 1980, 13.5%; In 1981, inflation averaged 10.3%.
Even in 1990 it was 5.4%
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
It can happen. TIPS can be a very prudent investment for the risk averse investor, when he is compensated with a decent coupon, a decent real yield.

rjb112 May 2014 in Fund Discussions
How is ur TIPs fund do'in???
More "inflation" noted by a frustrated Amazon shopper:
Amazon continues to restrict the "free" Prime shipping - recently imposing a $25 minimum for smaller "Prime" items to ship free (even for Prime members). We needed a small order by next week totaling about $24.50. Attempted to meet the $25 threshold by adding an inexpensive used CD from one of their third party sellers. No Go. They now require all the included items be "Fulfilled by Amazon" (Translated: that generally means more expensive.)
Paying higher dollar amounts for the same products and services seems to fit the definition of "inflation" very well. Certainly, the added costs of the Prime restrictions in recent years exceed the hypothetical 2.2% inflation rate. To be fair, it probably has more to do with price increases at FEDX and UPS than any intent by Mr. Bezos go gouge shoppers.
(Sorry David. Hate to bite the hand that feeds us here at MFO. Still like Amazon a lot for generally competitive prices, super convenience, great customer service and excellent support when returning items.) Regards.

hank May 2014 in Fund Discussions
Is Bogle Befuddling ?
Nevertheless, I'll provide you with more ammunition!
By my estimate, there are 6,281 stocks on the NASDAQ plus NYSE, so you are being too nice.....your argument is stronger than you stated it to be! So my guess is that there are 2,597 stocks unaccounted for in the total market index, not just 1400 !
Thx, the number keeps changing depending on when it was counted in the economic cycle. It has been as high as 9000+ in the recent past. 5000 was used as a lower bound.

What's up with that? How can ALL active investors sell? Who are they going to sell to?
The passive investors, or indexers, are just buying and holding the index. To keep with the theme of the discussion, I don't see how it is possible for ALL the active investors to sell and go to cash. They can't sell unless there are other active investors to buy their stocks.
Sell to all the index funds and ETFs that must keep buying mindlessly with net inflow of money into each fund, of course. :-)
Index fund and buy and hold are independent concepts. Index funds may not churn stocks (and so passive that way) but they are buying and selling all the time based on net flows of money in and out of the fund. Active traders use index etfs to trade.
Selling everything is a logical extreme in theory. The point is that the more the active funds sell losing stocks to go to cash, the greater the divergence from the index performance mathematically and Sharpe's guarantee.
In practice, active investors can be thankful for the liquidity provided by index funds for stocks in the index when there is net inflow of money into index funds. Helps their rotation or profit taking strategy.
For example, transports are currently extremely relatively overbought and funds trading technically will be dumping them over the next few weeks/months if other sectors don't catch up. A lot of it will be purchased by index funds unless there is a net outflow of money from index funds in which case they will sell as well and we get a big correction.
I think cman hit on the critical point, that for this stuff to be mathematically true, you have to be talking about exactly the same investing universe of stocks. So "the index" or "the indices" have to be very clearly defined. And if the active managers invest in stocks that are not in the indexes, then the math assumptions, including what William Sharpe wrote and what Bogle talks about, do not hold.
It is worse as pointed above. It is not ANY index fund that can be used for the mathematical guarantee. Only the theoretical index that is a close enough representation of the proportional holdings across all investors at all times of all stocks held by them. You cannot run a real fund in practice with that property.
As to how closely the typical market cap weighted index funds tracks that theoretical index in practice, I don't have concrete data. But I would expect it to vary significantly and diverge more as the market cap range increases in the category being indexed.

cman May 2014 in Fund Discussions
How is ur TIPs fund do'in???
Not an expert on the bond/inflation stuff. The folks buying these TIPS with the 2.2% projected inflation expectations could well be right.
However, I do know that the snack-sized pack of pistachios I buy at Walgreens just shrank from its previous 1.5 ounce size to only 1 ounce while retaining the same price. It appears to me that overnight the dollar in my pocket has shrunk by 33% whenever I walk into Walgreens and buy my favorite snack. So ..... I see that anticipated 2.2% annual inflation rate and wonder.
None of this should be interpreted as being a "bond hater." I own a lot of them, mostly through balanced/hybrid-type funds, and am aware that they come in many different forms and provide stability and other benefits to a balanced age-appropriate portfolio.
Catch: Speaking of tourists and inflation, looks like the gas tax in the state is going to jump big-time over the next few years. :-)

hank May 2014 in Fund Discussions
Are ETFs Like 'Hotel California' ?
FYI:
Regards,
Ted
http://blogs.barrons.com/focusonfunds/2014/05/23/are-etfs-like-hotel-california/tab/print/
You new this was coming, didn't you !
Hotel California: The Eagles:

Ted May 2014 in Fund Discussions
Is Bogle Befuddling ?
"Are you really saying the roughly 1400 stocks out of the total of 5000 US stocks not in VTSMX are all microcaps? Please clarify as to where you get this inference from."
++++++
I'm not sure on that.....but my guess is that the vast majority are. I'll find this out. I just sent off an email to the company that developed the index for Vanguard's Total Stock Market Index fund. The Vanguard reps did not have the answer, and I have no way to contact the people who run the Vanguard index funds.
By the way, I believe your argument is even stronger than you are making it out to be! Nevertheless, I'll provide you with more ammunition!
By my estimate, there are 6,281 stocks on the NASDAQ plus NYSE, so you are being too nice.....your argument is stronger than you stated it to be! So my guess is that there are 2,597 stocks unaccounted for in the total market index, not just 1400 ! Of course, there are also lots of stocks in the over the counter market which I'm sure the indexers won't mess with due to liquidity and size constraints, and other factors. But not that many active mutual funds will mess with them either.
You have a lot of excellent points, and I'm determined to study this issue to understand it better. I'm quite certain I don't understand this issue anywhere near what I would like.
I'm already in full agreement with most of your points.
+++
"Otherwise, if the active managers, in theory, market time perfectly, and go to cash before a crash with the loss in value from such sales captured by everybody including the index funds, then the active managers can ALL beat the indices by staying out of the marker for the crash"
+++
What's up with that? How can ALL active investors sell? Who are they going to sell to?
The passive investors, or indexers, are just buying and holding the index. To keep with the theme of the discussion, I don't see how it is possible for ALL the active investors to sell and go to cash. They can't sell unless there are other active investors to buy their stocks.
Also, apparently there must be some (not on MFO) who think that 'no one can beat the indexes.' Of course they can. Just look at performance figures. As I mentioned above, John Neff beat the pants off the index for 31 years!! Charles Akre has consistently beat the indexes for well more than a decade at two fund shops. What about Peter Lynch......It's quite clear that tons of mutual funds and tons of active managers have beaten the indexes in their investing universes or 'categories.' I think the question that Sharpe and Bogle address is whether the average performance of all active investors in aggregate beat their respective indexes, or the universe that they invest in, after expenses.
I think cman hit on the critical point, that for this stuff to be mathematically true, you have to be talking about exactly the same investing universe of stocks. So "the index" or "the indices" have to be very clearly defined. And if the active managers invest in stocks that are not in the indexes, then the math assumptions, including what William Sharpe wrote and what Bogle talks about, do not hold.

rjb112 May 2014 in Fund Discussions
Is Bogle Befuddling ?
>> manager who has soundly beaten the market using a quant strategy,
Uh. BOGLX looks like a small-cap, so no wonder it has beaten SP500. It is a v good performer more recently, yes, since you can exclude its huge drop 08-09.
I mean, compare with GABSX and FLPSX for periods longer than 5y, like 7-8-9-10. Note the depth of that dip.

davidrmoran May 2014 in Fund Discussions
Is Bogle Befuddling ?
@vert, there are two separate points being mixed up here.
One being inside the box for Sharpe's mathematical guarantee. Obviously, bigger the box, the more difficult it is to find stocks outside it. Sharp's assertion is about ANY box. VTSMX is just one example of it. But his results have been used to claim the result for ANY index vs active fund in that category, for example, that large cap active funds cannot beat SP 500 index for mathematical reasons as outlined by Sharpe. This is incorrect. So, the violations of those inside-the-box assumptions should not be ignored.
The second point is that Sharpe's mathematical results are valid regardless of what the active managers do within that box. But this result is true only when the index to measure against is constructed in a way that is impossible to have a fund for in practice because of the required allocation. VTSMX (or any index fund in any box) is not it. If you use those then you get the paradox I have described above.
To understamd why, one has to understand Sharpe's argument for the result not just the abstract and summary talking points. Let me illustrate by a simple example.
Consider a box that contains only two stocks A and B equally priced to keep it simple. There are two active investors IA and IB each of whom own one share of A and B respectively. Let us say an index owns a share each of A and B. Sharpe's argument works like this:
Say A goes up 10% and B goes up 20% with IA and IB realizing the corresponding results. The index gains 15% from owning both. Sharpes' thesis is that IB overperformed by 5% but IA underperformed by 5%, so the average investor dollar didn't beat the index and will be worse after fees. This is the correct part.
But there is an implied assumption about that index that is critical. What if there was a third investor who also owned B? The average over all investors is then 16.67%, a 1.67% win over the index for the average. Or what if all the three owned only B? All of them beat that index by 5%! That is the paradox.
If you think about what happened here, Sharpe's formulation is correct ONLY when the index you consider contains the underlying stocks in the SAME proportion as the aggregate stock holdings from all active investors. There will be no paradox here.
The index cannot be market cap weighted, or equal weighted or ANY weighting unrelated to the actual share proportions held by investors. Not only is any index fund like VTSMX far away from this, it is not even possible in practice to create such a fund because it will have to continuously keep altering its allocation to match what investors are doing!
Again, this is all about the validity of the mathematical guarantee. Good theory but not very applicable in practice and incorrectly propagated by people who only understand the headlines.

cman May 2014 in Fund Discussions
Is Bogle Befuddling ?
Sure, its true but I think this is a simple throwaway statement. As an analogy, what if you and 5 friends make a pact using a coin that says when it is your birthday and if you hold the coin, someone else in the group will step forward and buy it from you for whatever price you name. Or maybe its a closed bid auction and everyone has to bid for the coin on your birthday. (OK, this may need some fleshing out) In any case, the coin changes hands, the group of 6 doesn't gain or lose any money overall but obviously someone could and would be a winner.
What I find interesting is the same folk that tell you that the world earns the market return are quick to tell you the average investor falls far short of that return (by as much as 50% of that return). Well then some other group must be earning what the average guy leaves behind, no?
As to Sharpe's paper, where is he drawing the box? His market is every intangible and tangible item on the globe. What if I sold stocks in 2008, and bought a restored 1970 Chevelle? Are my current gains weighed against those that bought my stocks and sold me that car? What if the guy who sold me the car bought machine tools and started business - how can Sharpe say its all in one box?

Rbrt May 2014 in Fund Discussions
Is Bogle Befuddling ?

Is the information contained in William Sharpe's paper correct, which is essentially the identical information that Bogle talks about above, and has been talking about for decades?
Are you really saying the roughly 1400 stocks out of the total of 5000 US stocks not in VTSMX are all microcaps? Please clarify as to where you get this inference from.
Sharpe has a model within which his mathematical result is correct. The point is that the model assumptions don't fit reality because of ALL the factors mentioned in the comment above. So, you cannot generalize the results of that model to something that doesn't fit the assumptions of the model.
Think about why VISVX has beaten VTSMX over the long term even though VTSMX probably includes ALL the stocks in VISVX. If you have actually read Sharpe's paper, can you resolve the paradox mentioned above? :-)
Active managers have a lot of tools at their disposal - going to cash in overvaluation periods, modifying the allocation to be different from the index, going outside the index, etc and Sharpe's model doesn't model that reality in its assumptions.
Note that it doesn't mean that the active managers will necessarily beat the index from the above but that the mathematical results of Sharpe doesn't say apply to the reality when managers are able to violate the assumptions in reality.
You seem to be making the case that managers don't violate the above assumptions to make a difference in practice. I am not sure that position is justified given the entire universe of funds and the number of stocks outside the index. It can only be resolved with concrete data.

cman May 2014 in Fund Discussions
Is Bogle Befuddling ?

It does not follow that because most individuals won't beat a market that all will not -- or should even feel they need to measure their returns against that market.

++++++++++++++
Certainly so mrdarcy.
And Bogle knows this. His son is an active mutual fund manager who has soundly beaten the market using a quant strategy, and Bogle is invested in his son's mutual fund. That fund, BOGLX, has a 5-year return of 25.32%, versus the S & P 500 return of 18.86% for the same time period. That's a very impressive record, and the 10-year record is also admirable, and beats "the market" as well as the fund's M* category.
And Vanguard has a large number of actively managed funds. Bogle is well aware that the former manager of the Vanguard Windsor Fund, John Neff, beat the pants off the market for 31 years, while Bogle was at Vanguard running the place.
As far as the whole universe of actively managed funds, that's a different matter, and what Bogle speaks about.
There were some comments above, but I'm not sure if anyone read the Noble Laureate Dr. William Sharpe's paper,
stanford.edu/~wfsharpe/art/active/active.htm
It deserves reading, and commentary.
Comments above suggested that the information is perhaps not applicable, as the index does not include stocks that active managers invest in. I'm not yet convinced. The Vanguard Total Market Index fund currently invests in 3684 stocks. If I am correct on this, that includes every stock in the S & P 500, every midcap stock, and all (or almost all) the stocks in the Russell 2000. Someone correct me if I'm wrong on that. The only thing left out would be illiquid microcaps, yet the Total Market Index does include microcaps, but certainly not all of them.
But I don't believe a huge number of fund managers are focusing on microcaps.
The point was also made about stocks of companies coming out of bankruptcy, and initial public offerings.
But lets talk about the vast majority, and not the very slim minority. Let's get to the center, and not dwell on the fringes. How many initial public offerings are there, and how significant is this to our discussion here? How many stocks of companies coming out of bankruptcy are contained in the portfolios of Mutual Fund Observer participants?
Is the information contained in William Sharpe's paper correct, which is essentially the identical information that Bogle talks about above, and has been talking about for decades?

rjb112 May 2014 in Fund Discussions
Charles Schwab Himself Is A Big Fan Of Index Funds
FYI: Of course he's a fan, he sell haystack funds.
Regards,
Ted
http://blogs.marketwatch.com/thetell/2014/05/22/charles-schwab-himself-is-a-big-fan-of-index-funds/tab/print/

Ted May 2014 in Fund Discussions
How is ur TIPs fund do'in???
Just a note.
http://online.wsj.com/article/BT-CO-20140522-710429.html#printMode
http://www.businessweek.com/printer/articles/736694?type=bloomberg
TIP LTPZ STPZ

catch22 May 2014 in Fund Discussions
You Don't Understand Risk
>>>So you do this with mutual funds, which have min holding periods?<<<
Most certainly (it's just a $17 charge to exit before the three months) but rarely/never with a fund that has short term redemption fees.
>>>> PS. Doing 4.5 mile hill run just about every other day. On "off" days, long walks in local canons and beaches.<<<<
That's great Charles! Lucky guy having access to the beaches. In my case I am running less but hiking more than ever and out there about every day.

Junkster May 2014 in Fund Discussions
4 Things Doom-And- Gloomers Got Totally Wrong
FYI:
Regards,
Ted
http://www.marketwatch.com/story/4-things-doom-and-gloomers-got-totally-wrong-2014-05-22/print?guid=E0A22414-E123-11E3-AEFD-00212803FAD6

Ted May 2014 in Fund Discussions
You Don't Understand Risk
Thanks for sharing Junkster.
I do struggle with setting right exit level: 3%? 6%? 9%? 6 mo MAXDD? On single equity holding. Depends on category volatility certainly, as Scott instructs. Where it is against 10-mo SMA. How much money it has made or lost me. Whether rationale for holding has changed.
It does seem that unless you have (or believe you have) a true edge, hard to justify hanging on watching a stock holding drop...regardless of investment horizon.
As for funds, however, I know you suggest the exit levels should be tighter. Here though I'm inclined to go with the PM. If I believe (ha!), I hang in regardless. If I don't, I exit. But I try to allocate such "buy and hold" plays accordingly in my portfolio.
Just me.
Hope all is well.
PS. Doing 4.5 mile hill run just about every other day. On "off" days, long walks in local canons and beaches.

Charles May 2014 in Fund Discussions
Matthew 25 Mutual Fund MXXVX
Well. 5y sure is superior, 10y nothing to rave about if you compare with other v v good funds (FLPSX, PRBLX, YACKX). Note that 5y is sooo superior because their 09 dip is so horrific and the bounceback so long, 4y, unlike the others mentioned. In other words, one wonders what the so-called investor returns are. Who would not have bailed sometime 08-10?

davidrmoran May 2014 in Fund Discussions