FYI:
Regards,
Ted
http://blogs.wsj.com/moneybeat/2014/05/26/sideways-might-not-be-so-bad-for-the-markets/tab/print/

FYI:
Regards,
Ted
http://www.thereformedbroker.com/2014/05/25/absolute-returns-lol/

FYI:
Regards,
Ted
http://www.morningstar.com/Cover/videoCenter.aspx?id=648584
M* Snapshot Of OSTFX: http://quotes.morningstar.com/fund/f?t=OSTFX&region=usa&culture=en-US
Lipper Snapshot Of OSTFX; http://www.marketwatch.com/investing/fund/ostfx
Ranked #52 in (MCB) category by U.S. News & World Report:
http://money.usnews.com/funds/mutual-funds/mid-cap-blend/osterweis-fund/ostfx
Fund Website: http://www.osterweis.com/mutual_funds/osterweis

>> I would never pay a fund manager 1.14% ER to hold 46 cents of every dollar I invested in cash.
I read an interview ~>15y ago with a money manager who said exactly the same thing wrt her clients. It was at that point I put a lot of money into FPACX, since I wanted him to do just that, meaning pay him for his judgment, period.
It should be cheaper. Like Gabelli and YAFFX. Some of these guys tend to greed, apart from their judgment and process.

@Bobpa: Though you might enjoy this 2012 article from WSJ on the fund's manager.
Regards,
Ted
Copy & Paste 11/16/12: Karen Johnson WSJ:
Francis Chou was a 25-year-old telephone repairman in Canada when he pooled 51,000 Canadian dollars from himself and six co-workers to start an investment club.
Thirty-one years later, Mr. Chou manages more than US$650 million for investors at his firm, Chou Associates Management Inc., and runs the best-performing bond fund in North America.
"It wasn't a big sum," Mr. Chou says of his stock-investment club. "But it did quite well."
Indeed. The Bell Canada co-workers—and some of their parents and friends who also invested early on with Mr. Chou—now are each worth more than $2 million.
RISK DIVERSE: A value investor at heart, Francis Chou runs North America's best
est-performing bond fund at his eponymous firm in Canada. Pawel Dwulit for The Wall Street Journal
Mr. Chou's trajectory to the top of the bond-fund world shows how investors are tweaking tried-and-true strategies to boost returns and overcome chronically low interest rates. When he was starting out, Mr. Chou largely stuck to stocks and the classic value-investing methods made famous by Benjamin Graham and Warren Buffett.
"The key idea was to find bargains, and if you could find bargains, you could do quite well," Mr. Chou says in an interview at his unadorned suburban office, far from the bustle of Toronto's Bay Street financial hub.
Bargain-hunting is a skill that Mr. Chou, now 56, honed as a boy. Born in India to Chinese parents, he wandered among food stalls in the small northern Indian city of Allahabad, clutching a shopping list from his mother.
Because there were no refrigerators, milk had to be bought almost every day. While his mother worked as a Chinese-language teacher, the young Mr. Chou would check for freshness, turning the glass bottles to see the milk's color and thickness. He tried to discern which were priced too high, those likely to spoil soon and others that were watered down.
In 1973, Mr. Chou's older brother immigrated to Canada. Mr. Chou joined him three years later, with $200 to his name. Eventually he landed a job as a repairman for Bell Canada. But when Mr. Chou stumbled on an article about value investing, he felt he had found his calling.
A year after starting his club in 1981, Mr. Chou went looking for value-oriented firms. He introduced himself to Bob Tattersall, then at Bolton Tremblay Funds Inc., a Montreal investment-counseling firm that later grew into Canadian fund manager Montrusco Bolton.
"I have two weeks' holiday," Mr. Chou said at the time. "Can I work for you for free?"
Mr. Tattersall said yes. He was impressed by Mr. Chou's insights and asked him to analyze auto-parts maker Kelsey-Hayes Canada Ltd.
"He did a good job on the report, and he was pretty excited at the end when we called the CFO, put him on the speaker phone and did a telephone interview," Mr. Tattersall recalls.
For Mr. Chou, the two-week stint was a chance to scout Bay Street investment advisers, especially those who shared his value-oriented philosophy.
In 1984, he left Bell Canada for good, joining investment firm Gardiner Watson Ltd. as an analyst, working beside value investor Prem Watsa. It was Mr. Watsa who pressed for his hire. "My boss asked me give him 10 minutes. We spoke for a half-hour. I have never been more impressed with anyone than I was in that half-hour."
At Mr. Chou's urging, Mr. Watsa bought control of teetering Markel MKL +0.48% Financial of Canada, the Canadian unit of insurer Markel Corp. It eventually became Fairfax Financial Holdings Ltd. FFH.T -0.11% , of which Mr. Watsa now is chairman and chief executive.
Mr. Chou worked at Fairfax for about a decade, managing the company's surplus cash while running the grown-up version of the investment club launched at Bell Canada.
While never abandoning his roots in value investing, Mr. Chou has branched into riskier bets such as corporate "junk" bonds, which have been luring many investors with returns that are much higher than Treasurys, at least for now.
His investors have been the beneficiaries. The Chou Income Fund, launched in 2010 with $500,000, has been tops among North American bond funds so far this year, with a return of 28%, according to financial-data tracker Lipper. In the same period, the Barclays U.S. Corporate High Yield Total Return index has gained 12%.
Most of the assets in Mr. Chou's fund, which now has $6.3 million under management, are corporate junk bonds, including some issued by MannKind Corp. MNKD +0.13% and Dex One Corp. He typically holds investments for a few years, singling out beaten-up assets that he expects to rebound in value. Junk-bond prices were especially tempting when he launched the fund, he says, but they have become more dangerous to play now as prices have climbed.
In 2004, Mr. Chou was named fund manager of the decade in Canada by fund tracker Morningstar Inc., MORN +1.28% and his Chou Associates Fund swelled in popularity, with assets under management topping $1 billion.
Mr. Chou is unrepentant about taking more risks, but the financial crisis was a painful reminder that even successful investment strategies can be derailed quickly. Chou Associates Fund suffered losses of 10% in 2007 and 29% in 2008. Some investors took their money and ran.
The fund's performance rebounded with strong back-to-back gains. Over the past 15 years, it has risen an average of 8.3% a year, more than double the 3.4% average gain by the Standard & Poor's 500-stock index.
Mr. Chou has never formally marketed his funds to investors. Letters he writes to them have a folksy, humble tone that echoes Mr. Buffett, the billionaire chairman and chief executive of Berkshire Hathaway Inc. BRKB -0.14%
In an August note, Mr. Chou called a bad bet on a Chinese cellphone maker "an unforced error like they say in tennis." His investment was "an unnecessary penalty that would send us to the penalty box if it were hockey."
"The market can whack you," Mr. Chou says, "and remind you that you don't know everything."
M* Snapshot OF CHOIX: http://quotes.morningstar.com/fund/f?t=CHOIX&region=usa&culture=en-US
Lipper Snapshot Of CHOIX; http://www.marketwatch.com/investing/fund/choix
U>S. News & World Report Of CHOIX: http://money.usnews.com/funds/mutual-funds/world-bond/chou-income-fund/choix
Fund Website: http://www.chouamerica.com/

MFO Members: Fixed-Income 5-Year Returns (Source M*)
Regards,
Ted
1. Preferred Stock: 16.82%
2. High-Yield: 13.25%
3. Multi-Sector: 10.06%
4. Corporate Bonds: 9.88%
5. Emerging Market: 9.60%
6. LongTerm Bonds: 8.35%
7. Long Gov. : 8.06%
8. Nontraditional: 6.29%
9. Int. Bonds: 6.26%
10. World Bonds: 6.07%
11. TIPS: 5.01%

Howdy @Ted,
Are you able to provide data to support that active managed TIPs funds have been a "bad investment"; say, over the past 15 year period, relative to other major asset classes?
Lastly, I have not expressed that TIPs are a buy and hold propostion. They have their cycles, not unlike other asset classes.
Take care,
Catch

Howdy @KirkL,
You noted: "What are the advantages of buying a fund other than losing some return to annual expenses? It is not like we need to diversify risk since they are all guaranteed by the government."
>>>More or less, the average E.R. of an active managed TIPs fund is .5%; which is about the same, as the E.R. for a mutual fund company, money market fund. So, yes; one does give up some performance with E.R. costs, versus buying TIPs directly from the Treasury.
As to diversity; this is an investment sector where one may prefer to allow a manager(s) to use their skills in assessing the TIPs market. A management decision for this sector would be the selection (buys and sells) of the most favorable durations for the best possible performance at any given time. For me, this is the advantage. TIPs variances may be discovered, in part, viewing the returns of the following: LTPZ STPZ TIP or one's other choices.
You noted: "One reason to NOT buy a fund is to not get stuck with new purchases of individual TIPS with negative real rates. I only buy when the real rate is positive, an option you don't have with a mutual fund that might have to pay up to buy lower return TIPS for new money coming in which lowers the quality/return of the overall portfolio."
>>>I prefer the choice of being able to buy or sell a TIPs fund on any given day of my choosing. The managers may manage the fund; I will manage when to be in or out of a fund. If I considered buying TIPs directly; I wouldn't feel comfortable with the duration selection. Which duration? Or would one mix the durations? The $10,000 individual annual purchase limit is also a no-go for me.
Side note: Viewing active managed TIPs funds returns on a daily basis, as related to the daily long and short term duration TIPs returns usually gives one a good indication of the duration holdings of an active managed fund, at the time.
Perhaps of interest: http://www.nuveen.com/Home/Documents/Viewer.aspx?fileId=56370
The link is a Nuveen TIPs document from June, 2013. Exhibit 1, of the document, is an interesting notation.
Best wishes to you, with your individual TIPs holdings.
Regards,
Catch

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.

Wouldn't they say that cash is outside the investable universe they're talking about? I'd imagine they'd argue that it's impossible to judge which stocks are going to go down so successful use of cash is a random fluctuation. And of course, they've shown they're not above tossing in phantom 'risk' factors to explain any discrepancies.
All in all, thinking about this is a ridiculous waste of a lovely Sunday morning.

FYI: This guy belongs in jail.
Regards,
Ted
http://www.chicagotribune.com/business/breaking/chi-stephen-coleman-20140523,0,7630005,print.story
Chicken Little Growth Fund Gets Cooked:
http://www.kiplinger.com/printstory.php?pid=2513

FYI:
Regards,
Ted
http://blogs.wsj.com/moneybeat/2014/05/23/giving-yourself-an-investing-makeover/tab/print/

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

FYI:
Regards,
Ted
http://www.forbes.com/sites/greatspeculations/2014/05/23/alternative-ways-to-tap-into-alternative-investments/print/

@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

@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.

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.

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.

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. :-)

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: