FYI: Copy & Paste 6/13/14: Jason Zweig: WSJ
Regards,
Ted
Investing graybeards like to say that "bull markets climb a wall of worry." This one has been sleepwalking up a wall of boredom.
As of this Friday, the S&P 500 has gone 980 days without a 10% decline, according to Birinyi Associates, the fifth-longest such stretch on record. This past week's nervousness, set off by the insurgency in Iraq and the surprise defeat of U.S. Rep. Eric Cantor, is thus the perfect pretext for investors to think about what they will do when the market takes a serious beating.
For, sooner or later, it surely will—and those investors who have honestly prepared for it will stand the best chance of surviving unscathed. In a downturn, you won't be the same investor that you are now—unless you rely on rules and procedures, rather than willpower alone, to regulate your behavior.
New research shows that the kind of stress brought on by a collapsing stock market fundamentally changes how people make financial decisions.
In a series of recently published experiments, Mauricio Delgado, a neuroscientist in the psychology department at Rutgers University in Newark, N.J., has found that even a moderate amount of sudden stress can make people more sensitive to losses and indifferent to small gains.
In these experiments, people are put under stress by immersing their dominant hand in ice water (at about 39 degrees Fahrenheit) or wearing an arm wrap cooled to the same temperature. Shortly thereafter, most people show an impaired short-term memory and an elevated level of the stress hormone cortisol. Stress in the world outside the laboratory, often brought on by social interactions, is almost certainly more intense than this simple simulation in the lab, says Prof. Delgado.
People are then asked to choose between simple gambles with varying odds and different amounts of money at stake. Under stress, participants gravitated toward bets giving them a higher probability of making a smaller amount of money. When gambles paid off, brain scans show, the natural response in the reward areas of the brain was blunted by stress.
"Exposure to stress makes people more loss-averse and diminishes their overall sensitivity to reward," says Prof. Delgado. "And if a reward is of low magnitude, [people under stress] often don't care about it very much."
Thus, at the very moment when falling prices make assets more attractive to own, most investors are likely to focus on how much they are losing in the short term—rather than on how much they stand to gain if they hang on for the long term.
They are also likely to fall back on emotional—or what Prof. Delgado calls "habit-based"—decisions. "Stress tends to exacerbate your typical biases," he says. "If you usually make conservative choices, it will make you more conservative." And if you typically make risky choices to avoid locking in losses, he says, stress "will make you more risk-seeking." Other researchers have found similar patterns of behavior.
That helps explain why investors who swore they would never sell often end up fleeing to cash when stocks drop, while others add more to their positions than they ever anticipated.
In calm times, like the markets of the past few months, it's hard to imagine how you will feel when all the arrows turn to red from green. What's more, even in the heat of the moment, when your body and brain show the signs of acute stress, you might not be consciously aware of the pressure you are under.
So it's vital to make sure you have procedures in place now to control your future stress.
Start by asking yourself where the potential is greatest for nasty surprises. One obvious vulnerability: Companies that have rung up a long string of consecutive earnings increases are likely to fall much more steeply than average once their profits falter. If imagining the stock price falling by, say, one-third doesn't make you want to buy more, then you probably should consider selling now.
Force yourself to consider the total value of your portfolio, including all other assets, rather than just focusing on the price of your latest loser. That is often called "thinking like a trader," although you don't have to be a trader to do it.
By netting all your gains and losses against each other, research by several economists and psychologists has shown, you can reduce the intensity of your emotional response to falling prices. Be sure you have set up a spreadsheet or portfolio-monitoring software that displays the value of your overall portfolio more prominently than any individual holding.
If you haven't recently "rebalanced," selling a bit of whatever has gone up the most and adding the proceeds to whatever has gone down the most, now is an ideal time.
Taking moderate action now, while markets are still calm, should help you avoid doing something reckless when investing turns suddenly stressful.

Oilprice.com
FREE
WEEKLY REPORT
13/06/2014
Summation
Turkey has been hesitant until now, but it needs a new bargaining chip with Washington, and it also needs to carefully balance its relations with Russia, upon which Ankara has its own form of energy dependence. In the end, it will be the Ukraine crisis and the need for some delicate geopolitical rebalancing that opens up the Bosporus for a Turkey-Ukraine energy coup.
Brazil has enormous oil and gas reserves. That is what has led to many getting in the way as PBR has fallen out of bed. The problem is that de-risking those reserves requires enormous inward investment of both capital and technology. When corruption is endemic and the oil industry, as a state owned monopoly, is more of a political football than a business, those two things have been virtually non-existent. Even if Rousseff does hang on and win, the election looks sure to offer the possibility of a crackdown on corruption and an economic environment more attractive to foreign companies.
http://us2.campaign-archive1.com/?u=ed58b19f2b88e4a743b950765&id=cf242cee9c&e=41e04eb3d1

Yields to 1%?
http://www.advisorperspectives.com/dshort/guest/Ralph-Dillon-140521-Global-Yields.php

related - long term bond reads
Long-term bonds have been strong so far this year despite early worries about rising rates
http://dailyjournal.net/view/story/9171c8f6087e4462a70d6a9e846466f2/US--Of-Mutual-Interest-Long-term-Bonds/#.U5zUbkCjLs0

@rjb112: Is this what you are looking for. ?
Regards,
Ted
http://www.morningstar.in/tools/mutual-fund-returns-calculator.aspx

@Ted: Yes, looks like it is. How did you find that jewel? Ted, can you get that calculator to work for you?
I tried a few times, and nothing happens. And I have M* Premium membership too.
Have an appointment.....will be back in 5+ hours to reply.....

@MJG: Very nice website, thanks for posting. http://www.buyupside.com/
Lots of good stuff there.
On another note, I'm looking for a website that has a calculator to calculate the total return of specific mutual funds from any start date to any end date. Do you know of any?
For example, what was the total return of xyz mutual fund from January 15, 2012 to August 2, 2013

Yeah, I keep seeing this "5%" figure for bank loans, but I have yet to find an (unleveraged) bank loan/floating-rate MF that is kicking this yield out. And I still think the minute these loans hit the LIBOR float bar they'll all be called away from you (if not before) and you'll never get the protection you thought you had by including them in your portfolio.

FYI: Not to say loans are a bad investment – they still offer comparatively high yields (5% on average lately), and they’re secured by assets, which offsets some of the credit risk associated with the junk-rated companies who take on these loans. But be mindful of that credit risk – today’s Wall Street Journal has a featured story detailing how loan covenants are becoming more lax lately, a behavior often seen at the peak of credit cycles when investor discipline starts to erode.
Regards,
Ted
http://blogs.barrons.com/incomeinvesting/2014/06/13/bank-loan-funds-see-worst-outflow-since-2011-as-rates-stagnate/tab/print/
M* Bank Loan Fund Returns: http://finance.yahoo.com/funds/lists/?cat=$FOCA$BL$$

Hi Guys,
First and most importantly, I like Brett Arends’ MarketWatch columns. He is well informed and mostly writes intelligent articles. But the referenced piece is not among his finest. It is arrogant, shortsighted, and pretentious. In competition with the Permanent Portfolio, I choose to call his the Pretentious Portfolio.
Allow me to explain why.
The perfect portfolio is a moving, dynamic target; it’s elusive because, in truth, it is an idealized concept. The theoretical Efficient Frontier line is not really a single, invariant line. It is actually a cloudy, murky zone that is constantly shifting. The zone migrates to address developing technologies, strong competition, evolving demographics, and emotions.
One major factor in that dynamic behavior is that category correlation coefficients are not nearly constant. They frequently change, and sometimes quite violently and unexpectedly. The perfect portfolio today will most certainly not be the perfect portfolio tomorrow. My guesstimate is that if Arends were to revisit his forever portfolio a year from now, some obvious amendments would be required.
Arends chosen time frame is rather limited. Fifteen years of back-testing is only a small fraction of the marketplace’s well documented history. Depending on how his portfolio was actually assembled, it could be a product of data mining.
At the very least, the robustness of his perfect solution should be tested against other time periods. Also, I hope he has the courage to monitor its future performance. Many of these perfect solutions dissolve almost as quickly as the print in the reporting article dries.
Arends portfolio is much more complex than his benchmarks which also seem to be very inappropriate as measurement yardsticks against the many components of the Arends discovery. This is yet another illustration of inappropriately selected straw-man benchmarks which were carefully chosen just to show superior rewards.
The portfolio is not the S&P 500 and is not a 60/40 Balanced fund. To be of any value whatsoever, a comparative benchmark measurement must be made against a real equivalent. As used in the Arends article, the comparisons simply demonstrate the merits of broad category diversification when cobbling together a portfolio.
Overall. I do endorse the fundamental logic and thinking that supports Arends’ construction. I simply take issue with his exaggerated claims and his short test time horizon. It is a Bridge to Far in claims and far to short in terms of data challenges. Usually, he’s better than that.
As an aside, if you want to explore the transient character of correlation coefficients, the “buyupside” website offers an attractive, easy tool for that purpose. Just input different dates for two investment products, and see the resultant change in their correlation coefficient valuation. Here is the generic Link to the site and to the specific correlation coefficient tool Link, respectively:
http://www.buyupside.com/
http://www.buyupside.com/calculators/stockcorrelationinput.php
Huge changes in the correlation values are not uncommon. Remember, this is not an assignment. I don’t have that power or control. You do so as a learning lesson for your own benefit.
My answer to the opening question is a firm NO. A perfect portfolio doesn’t exist, and if it did, it would be very transient.
Best Wishes.

150 different portfolios (passive):
http://whitecoatinvestor.com/150-portfolios-better-than-yours/

@DaveC: Outstanding resource, thanks! A treasure trove.

I think its safe to say that its best to keep things as simple as possible and as cheap as possible regardless if you prefer managed or index funds. Also diversification is important If you look at what Ted posted a while back :(http://www.callan.com/research/download/?file=periodic/free/757.pdf) , it clearing shows the importance of owning a little of everything. Definitely a case for diversification !
If you get confused then you should follow John Bogle's advice. 3-4 buy and hold funds is all you need. While I know this site discusses mostly managed funds, its hard to dispute the data that index funds held in the right combination will outperform 70% of a managed fund portfolio. I struggle my self with the idea of indexing but the proof is in the performance numbers.
Guido

150 different portfolios (passive):
http://whitecoatinvestor.com/150-portfolios-better-than-yours/

FYI: Times are tough for bond investors, but Thornburg's Jason Brady has a wide latitude in his Strategic Income fund. He's not seduced by the highest yields, and takes a conservative approach to risk
Regards,
Ted
http://online.barrons.com/news/articles/SB50001424053111904651304579608060773638806#printMode
M* Snapshot Of TSIAX: http://quotes.morningstar.com/fund/tsiax/f?t=tsiax
Lipper Snapshot Of TSIAX: http://www.marketwatch.com/investing/fund/tsiax
Fund Is Ranked # 6 In The (MS) Bond Category By U.S. News & World Report:
http://money.usnews.com/funds/mutual-funds/multisector-bond/thornburg-strategic-income-fund/tsiax
Fund Website: http://www.thornburginvestments.com/funds/strategic_inc/strategic_inc_hlt.asp

FYI:
Regards,
Ted
http://www.kiplinger.com/printstory.php?pid=12523
M* Snapshot OF FPACX: http://quotes.morningstar.com/fund/fpacx/f?t=fpacx
Lipper Snapshot Of FPACX: http://www.marketwatch.com/investing/fund/fpacx
Fund Is Ranked # 11 In The (MA) Category By U.S. News & World Report
http://money.usnews.com/funds/mutual-funds/moderate-allocation/fpa-crescent-portfolio-fund/fpacx

@STB65:
Many financial planners and financial advisers will not use high yield bonds in the mix, as they behave more like stocks and not much like Treasuries. They don't diversify away stock risk. And reducing stock market risk and diversification is the reason they are using bonds in a portfolio. So take for example David Swensen, who wrote Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen (Aug 2, 2005). He goes into great detail about why he only recommends Treasury bonds in the bond allocation. He is the portfolio manager of the Yale endowment. Or Larry Swedroe, author of multiple books and articles. He will only use extremely high quality bonds in the bond allocation. Again, because junk bonds don't provide the diversification and risk reduction they are looking for. Take a look at how high yield bonds performed during the financial crisis of Oct 2007-March 9, 2009. Junk bonds performed like stocks, both on the way down and then on the way up after March 9, 2009.
I have tremendous respect for Rick Ferri, who does include junk bonds in his allocation for clients, and also Larry Swedroe, who does not. And also for David Swensen, who, although I do not believe he has financial planning 'clients', wrote his book to advise the non-professional investor about how to construct their portfolios. David Swensen in his book recommends 15% in TIPS and 15% in Treasuries, 20% in REITS, the other 50% in globally diversified stocks (and he specifies the stock breakdown by US, developed foreign, and emerging mkt)

While I wish Vanguard employes were more equitably compensated (but I wonder how many leave from the lower echelon), I'm happy with an ER <.5% average in Health Care, Capital Opps, and Primecap, plus others. Wish my 403b included the company. If I ever buy an annuity, it will probably be there.

Depends on age and anticipated retirement age. 20 to 50 y.o. with retirement at 70 (probably the new normal for the younger generation): 10% short term bond and 10% high yield bond and remainder in stock funds. Would include mid-cap blend or value and/or small cap blend or value for this period of one's investing life (and might even extend it to retirement age)
Age 50 and above: this distribution is logical, but I prefer ETFs that meet the criteria.

I'm looking for opinions about this bond ETF:
Pioneer High Income Trust Common (PHT)
http://cef.morningstar.com/quote?t=PHT&region=USA
Returns:
http://performance.morningstar.com/funds/cef/total-returns.action?t=PHT&region=usa&culture=en-US
This fund's returns look great in the past 1, 3, 5 and 10 years. It took a hit during the 2007 (-13.49%) and 2008 (-33.42%), but the performance was not too bad in its own category (rank: 21 and 60 respectively). It's performance was off the charts in 2009: 105.92% vs. 78.41% for its category.
Why can't this bond fund be considered a great fund in the ETF universe and also, in general, all of the mutual fund universe?
Do you have any other ETFs or mutual funds that are comparable to this bond fund and why are they better than this one?
Thanks.

I have this in wife's retirement portfolio. I was buying on the dips down in the $4-8 range and racked up quite a few shares. I would think around 5 or so plus years it will start moving upwards as a lot of US companies are investing heavily on infrastructure in that part of the world waiting on this frontier to take off.

Gold miners,solar,oil gain.India, Reits fall.
Weekly ETF Gainers / Losers
Jun 13 2014, 16:14 ET Seeking Alpha
Gainers: GDXJ +13.01%. GDX +6.49%. TAN +5.42%. VXX +4.84%. OIL +4.29%.
Losers: EPI -4.16%. VNQ -2.21%. IYR -2.02%. XHB -1.94%. MOO -1.77%.