Hi Professor David and MFOers,
With apologies to its author Elbert Hubbard, thank you for your Message to MFOers ( originally to Garcia). Your messages, in almost real time, of what’s what at the annual Morningstar Conference should permit us to take the investment initiative. So far that hasn’t happened. That’s not your fault. It’s like we are seated in the conference rooms with you.
It’s really not surprising that a fair review of the proceedings is almost always a mixed bag. Are the insights gleaned from the presentations worth the time and effort? Typically, these conferences generate a jumble of rubbish and a few gems. The wheat must be separated from the chaff.
For years (like 15), both my wife and I have been attending and even occasionally participating in the annual Las Vegas MoneyShow. Each year we question if the learning is worth the price. Yet each year we return with an optimistic mind-frame. Hope springs eternal. Fortunately we usually return home with a few nuggets of wisdom. So I suppose my answer is “yes”. Although the promises and expectations far exceed what is ultimately delivered, it is still a worthwhile time investment.
The Morningstar agenda at this conference is clearly directed at financial professionals. That suggests that the presentation bar should be set a bit higher given the likely sophistication of the audience.
Based on your summary reporting, the bar standard is unacceptably too low, or perhaps, the presentations are so generic or fuzzy, that the bar height can not even be accurately defined. That too is bad, but it is not a shock either. If the presenter actually had a special forecasting insight or investment preference, he/she is not likely to freely reveal it to a non-subscribing audience. If I were the presenter, I would reserve this gem for my paying clients.
I find it somewhat puzzling why a few MFO members are so short-tempered and even hostile towards Morningstar’s limitations, errors, and costs. Research and data collecting costs money. Folks are imperfect and blunders are made despite the best organizational, structural, and double-checking safeguards. Accepting that reality, I adopt a more forgiving posture. Even my Toyota was delivered with several minor flaws which the manufacturer quickly corrected.
I’m not advocating the elimination of skepticism. A skeptical attitude is needed when making all investment decisions. However, it has a limit to its usefulness. It has the usual diminishing returns characteristic. At some point, it detracts from permitting a timely decision from being made.
Morningstar is one of the preeminent mutual fund data sources available to us individual investors. Overall, it has served us well. How do I know this?
It has a growing legion of loyal customers who trust its services. It attracted a huge number of professionals at this session who were willing to invest time and to pony-up 795 dollars to attend these sessions. Its sponsor and exhibitor lists are impressive. It has a history that dates back to when Peter Lynch managed the Magellan fund. Morningstar must be doing something of service to the investing public.
Since it is a successful enterprise, it must be a win/win scenario for both the buyer and the seller. Otherwise money would not change hands. Morningstar is prosperous and expanding; it continuously tries to improve its products. Certainly not all of these experiments are successful or equally useful for its disparate customer base.
Early in its history, Morningstar was very weak on analytical talent. Originally they hired professionally trained writers while passing on market analytical/investment types. Eventually, Morningstar recognized that shortcoming and integrated Ibbotson into their team. As an elite provider of investment data and analyses, Morningstar is committed to keeping its edge. Sometimes their efforts work; sometimes these efforts fail. It is up to their users to assess the merits of these exploratory projects for their special circumstances.
It is far too easy to be a constant critic. The bad is overemphasized while the good is swept away without acknowledgment. If the Morningstar presentations are too dull or too inept, the answer is simple enough: abandon the ship.
As usual, Warren Buffett had a succinct and wise way of putting it: “ Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
Regardless of its shortcomings, I plan to continue using Morningstar as a primary mutual fund data resource. In the end, it is my responsibility to critically examine that data to judge its reliability prior to making a decision.
Your description of Bill Gross’s weird behavior is reminiscent of a like event at the recent Las Vegas MoneyShow. At that event, Ken Fisher made a presentation that seems to be a mirror image of Gross’s misstep. It was totally not decipherable and made no sense whatsoever. To be generous, everybody has a bad day. Perhaps it was caused by the Chicago air compared to the Newport Beach air? Nope, these guys are just being human.
We are often Fooled by a Random Success. I capitalized the phrase because I coupled a Nassim Taleb saying with a contribution from an old friend. Even tossing 10 consecutive heads doesn’t mean we’re in control. Luck is always an investment component. For what it’s worth, we each have a 1 in 1024 probability of tossing 10 straight heads. Not likely, but doable.
Professor, please keep the report flow coming. I wish I were there with you.
Best Regards.

Mr. G, recent actions and departures of staff over the past few months was discussed a few months ago here; and my main concern remains as to the morale of all managers and the "in the background" staff at Pimco.
Many of us have access to a variety of bond funds, with many funds having very acceptable performance; relative to Pimco's Total Return fund.
One Pimco fund we hold ( PIMIX ), is one that I hope we are able to keep; at least until we might choose to sell for our own reasons, and not reasons that may result from performance problems internally modified at Pimco from a poor morale culture.
I note the morale issue; as I have been involved in this circumstance within a large national/international company. Twenty years of fine performance with a tight team of 15 people, being disrupted by a manager who no longer "had a grasp" of events. The team lost members and was never again of established quality. The "morale factor" played a large role in destroying the team and, of course; the performance suffered.
Regards,
Catch

I cannot believe no mention was made of the Motley Fool Chimp Portfolio of the late go-go 1990s--- the first and only experiment (to my knowledge) that proved, empirically, Burton Malkiel was RIGHT! At the end of the trial--- how long did they run it? a year?--- the TR of the "fund", composed of stocks dart-selected by their chimp, exceeded the TR of over 50% of all domestic stock MFs in America! It was fascinating, among the best PR gimmicks of any start-up company ever.
Does anyone here remember what the Motley Fool portfolio was called?

FYI: Value-stock mutual funds have had the upper hand for the past 15 years, with the average value fund performing better for investors than growth funds by a large margin. But top growth and value funds in the period have similar performances.
Regards,
Ted
http://news.investors.com/investing-mutual-funds/061714-705126-top-value-funds-vs-top-growth-funds.htm

By the numbers, TPINX has great long-term, life-time numbers, and even "recent" cycle performance, but it's struggled the past 1, 3 and maybe even 5-year periods...

David Herro (Oakmark International OAKIX) and Rob Lovelace (American Funds New World NEWFX) were part of a panel on international values and value traps. Sarah Ketterer was was slated to attend but did not, some other senior Causeway official spoke in her stead.
Herro declared that he's "extremely enthused about what's happening in the emerging markets today ... there are generational changes that are very, very positive for those markets but one still needs to approach them with a fair amount of caution. He noted that 24% of BMW sales were in China last year, up from 0% 10-15 years ago. That signals a fundamental change in the orientation of China's economy.
Lovelace agreed but added that globalization has made a mash out of international indexes (hence index funds and ETFs). The indexes don't account for the source of firm's earnings but obsess about the location of the headquarters building. While the S&P 500 is nominally a domestic index, 37% of its firms' earnings are non-US and about 10% are derived from the emerging markets. European firms derive 50% of their revenues outside of Europe, while 80% of the earnings of British firms is not from the UK. At the same time, the indexes target firms domiciled in the EMs and weight the largest firms most heavily. That's a fundamentally bad decision since large EM firms are clustered in just three industries (commodities, banks, telecoms) which are very poorly positioned to benefit from the secular trends (the rising middle class, for example) that investors find so attractive. In addition, these larger firms are either state-owned or their decisions are state-controlled, leaving their managements powerless to control the firm's fate.
In general, the better path is to remain open to global brands whose products are highly sought after by the EM middle class and entrepreneurs, and whose operations are more transparent and driven by business criteria.
For what it's worth,
David

Bill Gross, the world's most important investor, was scheduled to give a keynote address today after Morningstar's luncheon. Apparently he actually gave two addresses: the one that Morningstar's folks attended and the one I attended.
Morningstar heard a cogent, rational argument for why a real interest rate of 0-1% is "the new neutral." At 2% real, the economy might collapse. In that fragile environment, PIMCO models bond returns in the 3-4% range and stocks in the 4-5% range. In an act of singular generosity, he also explained the three strategies that allows PIMCO Total Return to beat everyone else and grow to $280 billion. Oops, $230 billion now as ingrates and doubters fled the fund and weren't around to reap this year's fine returns: 3.07% YTD. He characterized that as something like "fine" or "top tier" returns, though the fund is actually modest trailing both its benchmark and peer group YTD.
I missed out on that presentation and instead sat in on an incoherent, self-indulgent monologue that was so inappropriate to the occasion that it made me seriously wonder if Gross was off his meds. He walked on stage wearing sunglasses and spent some time looking at himself on camera; he explained that he always wanted to see himself in shades on the big screen. "I'm 70 years old and looking good!" he concluded. He tossed the shades aside and launched into a 20 minute reflection on the film The Manchurian Candidate, a Cold War classic about brainwashing and betrayal. I have no idea of why. He seemed to suggest that we'd been brainwashed or that he wasn't able to brainwash us but wished he could or he needed to brainwash himself into not hating the media. 20 minutes. He then declared PIMCO to be "the happiest workplace in the world," allowing that if there was any place happier, it was 15 miles up the road at Disneyland. That's an apparent, if inept, response to the media reports of the last month that painted Gross as arrogant, ill-tempered, autocratic and nigh unto psychotic in the deference he demanded from employees. He then did an ad for the superiority of his investment process before attempting an explanation of "the new neutral" (taking pains to establish that the term was PIMCO's, not Bloomberg's). After 5-10 minutes of his beating around the bush, I couldn't take it any more and left.
Gross's apologists claimed that this was a rhetorical masterpiece whose real audience was finance ministers who might otherwise screw up monetary policy. A far larger number of folks - managers, marketers, advisors - came away horrified. "I've heard Gross six times in 20 years and he's always given to obscure analogies but this was different. This was the least coherent I've ever heard him," said one. "That was absolutely embarrassing," opined someone with 40 years in the field. "An utter train wreck," was a third's. I've had friends dependent on psychoactive medications; this presentation sounded a lot like what happens when one of them failed to take his meds, a brilliant guy stumbling about with no sense of appropriateness.
Bottom line: Gross allowed that "I could disappear today and it wouldn't have a material effect on PIMCO for 3-5 years." It might be time to consider it.
For what it's worth,
David

FGADX up 3.75 % !!
Have a good evening, Derf

FYI: The Gold ETF Just Staged Its 14th Biggest Move, Ever
Regards,
Ted
http://blogs.barrons.com/focusonfunds/2014/06/19/the-gold-etf-just-staged-its-21st-biggest-move-ever/tab/print/
Goldfinger: Shirley Bassey:

FYI: A blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by experts," Burton Malkiel famously argued in his classic 1973 book, A Random Walk Down Wall Street.
Regards,
Ted
http://online.barrons.com/news/articles/SB50001424053111903927604579634603846777722#printMode

FYI: *U.S. Stocks Close Mostly Higher; DJIA, S&P 500 Extend Win Streaks to Five Sessions
Regards,
Ted
http://online.wsj.com/articles/stock-futures-quiet-as-data-looms-1403180380#printMode
Markets At A Glance: http://markets.wsj.com/us

I'm kind of surprised that it is taking so long for the consumer world to wake up to this new rent-a-life concept.
I'm glad that I'm as old as I am... I really don't like what I see coming.

I completely agree with you. It's even a part of things like video games now. Your progress and other things are not stored on your console, they are stored on "the cloud", which has been a disaster at times for some recent major games (lose all your progress, if there's a blip between you and the cloud, you can't play for a while until things reset, etc. etc.) There is actually a very funny "cloud service" parody radio ad that plays on occasion in "Grand Theft Auto 5". ("Imagine...instead of your own computer, it's a giant one we all share. Nothing could possibly go wrong.")
And, of course, payments and the cloud:
http://newsroom.mastercard.com/2012/08/01/mobile-paypass-meets-cloud-in-google-wallet/
Again, sorry to go off topic, but the whole cloud thing is becoming upsetting. Done with rant.

"We offer a Premium Membership Service for $23.95 per month, $199 per year, $339 for 2 years or $439 for 3 years. If you haven't already, you can preview Premium Membership with a free 2-week trial period."
I've been offered a significant reduction the last two renewals. Call before expiration and tell them you're not going to renew because it's too expensive, and the rep will make a lower offer. The schtick seems very much routine to them.

@rjb112
Load waived and no transaction fee at Fidelity
Regards,
Catch

Very nice to know. Thanks

Yes, I purchased it load waived through Fidelity as well.

@scott. Yes, I see it too. You have to buy a subscription with Windows 365. Suspect in not too distant future, you will not be able to purchase Office to reside on your laptop.
Google Drive, DropBox are subscription based. Hard drives are ancient.
Hmm. Cars are leased. Homes rented. Ownership? Who's that for?
Related? Buy a new Makita, but you do not get the battery. That must be purchased separately. And, it must be a Makita battery.
Interesting. A world where ownership is just for corporations, governments, and the very wealthy. Used to be land-owners. Now IP owners? Service owners?
Enough fun.

@rjb112
$439---wow. It wasn't so long ago (or was it?) that I recall a $100/yr rate. I had no idea. I dunno, for what you get--- would "deplorable" be too harsh? (sigh)]

"How much does Premium Membership cost?
We offer a Premium Membership Service for $23.95 per month, $199 per year, $339 for 2 years or $439 for 3 years. If you haven't already, you can preview Premium Membership with a free 2-week trial period."
http://www.morningstar.com/help/faq.html#Premium

@AndyJ
You be The Man, Andy, you be The Man. Here's a cookie for the RSIVX smile.
Under Consumer Discr, you will see Lee Enterprises, 9.5%, 3/15/22. Google this with Cohanzick Investment Management, and in this pile (you've have to do some sifting) you'll find an SEC doc, describing the creation of this debenture by private placement memorandum. It was solely created with some of our money, pooled with monies from 3 private equity firms (secured senior lien loan, no more and probably less worrisome than anything else in the portfolio). So, congratulations; if you were not already, we are now proud owners of private equity debt. Hey, "money good," right? :)

@rjb112 Same deal at Shwab- NL / NTF; $2500 minimum / $500 subsequent; IRA: $1000 / $500.

The conference began with a welcome from former fund analyst Kunal Kapoor, who is now director of information products and client solutions. This year, as last, I found the intro somewhere between disingenous and creepy because it starts with the declaration that Morningstar is driven by it's desire to serve investors. Uhh, no. As a publicly traded entity, it has a fiduciary obligation to maximize return to its shareholders; if maximizing the firm's returns also benefits investors, so much the better. Regardless of where Morningstar started, that's where they are now: a multinational conglomerate behold to its shareholders and bolstered by a taste for acquisitions.
Three focuses for Morningstar's efforts currently: they're working to (1) provide advisors with deeper and broader research (they've rechristened their "mutual fund research team" as their "manager research team" because advisors care less about the package than what's in it), (2) to help advisors improve their operational efficiency and (3) to "help manage changing client dynamics." That latter point reflects a massive data aggregation effort, so that advisors will not only be able to analyze the assets that a client has given them but also all of the other assets the client has anywhere. Last year's promise of devoting additional resources of small and emerging managers is scarcely evident; this year's "emerging managers" panel focuses on the likes of Bernard Horn of Polaris Global Value (PGVFX) who has $300 million in assets and who has been running the fund since 1998. The implied judgment - "if you do stellar work for 15 or 16 years, you'll begin to reach the threshold of 'vaguely interesting' for us" - is not affirming. (To be fair, M* initiated analyst coverage when the fund was just seven years old but it's hard to reconcile the "emerging" label with the manager's tenure."
I'm sure that and Google Glass are both good things, but I'm comfortable with neither.
For what it's worth,
David

@rjb112
Load waived and no transaction fee at Fidelity
Regards,
Catch

Very nice to know. Thanks