The case is in hindsight only. If someone had suggested buying long dated bonds at the beginning of the year, they would have been put in a padded cell.
Even the Moose call switched to EDV after a rise of 12% or so this year close to its 52 week high. Is there a case now? The case for holding it is the same as it was at the beginning of the year and so is the case for not holding it. Only one of them will be right going forward.

This math (cost differentials) reminds me of a retirement decision I grappled with a few years ago:
"When should I take my retirement pension".
My employer provided me with a retirement pension calculation chart to consider (an annuity chart of sorts) . Calculations started at 25 years of service and maxed out at 37.5 years of service. To simplify the math of this annuity chart, a 59.5 years old worker with 30 years of service could retire with a pension roughly equal to 60% of their salary. An employee could also continuing working (earning a full salary) for 7.5 more years at which time that employee would qualify for a pension roughly equal to 70% of their salary.
What I tried to get across to my follow workers who wanted to continue working towards qualifying for a 70% annuity rate was the fact that they were working for the differential (salary minus a pension @ 60% of last year's salary) or basically 40%.
Of course this worker would earn 40% more money while continuing to work and eventually qualify for a higher pension payment (70%), but from my standpoint these 7.5 years are the "last best" 7.5 years of our lives.
Aside from the enjoyment of work (not really), I was not willing to spend 100% of my time over the next 7.5 years earning a 40% pay differential (salary - pension). Much of this 40% differential disappears from net (take home) income anyway (in the form of pension contributions, union dues, Medicare / SS deduction, state and local tax deductions, and work related expenses).
Cost differential can be steeper than we might image.

@jaba: I agree with you, this fund is one and a half drumsticks away from being a turkey. Here are the returns from the funds website.
Regards,
Ted
Martin Focused Value Fund (MFVRX) 3-Mo. -0.20% 6Mo. .50% 1-Year 2.22% Since Inception .82%
S&P 500 Index 3Mo. 1.81% 6Mo. 12.51% 1Yeae 21.86% Since Inception 21.16%
+ 1.39% expense ratio

How many people do you think would've put up with -15% ANNUALIZED underperfomance between 2003-2007?
I'd attach the annual report so you can see for yourself but I don't see that there's any way to do that here.

Another way to put it is that you know what it costs to get the S&P/Total Market performance.
You are paying Mick the Bookie for any outperformance beyond that, IF he or she achieves it. In this case 80bps of 500bps is 16%.
Of course, if Mick the Bookie achieves outperformance, you also have more money to compound.

Apparently, it would be those who wish to outperform the SP500 by being better at playing defense than offense ('better relative performance 2000-2002, 2008). There's more than one way to skin a cat.

Per their 2013 annual letter, Martin Capital Management has returned 5.3% annualized net of fees from 2000-2013 vs 3.6% for the S&P 500.
From 2003-2013, they lagged the S&P in every single calendar year, except 2008.
To quote from the commentary: "There are some investors for whom this strategy is a very good fit"
My question is who are these "some investors"?

Hi Guys,
The little trick to easily reproduce the Ellis calculation is to perform the analysis using dollars and not percentages.
Any dollar amount will do. Let’s assume a 1000 dollar investment.
The active investor was rewarded with a 410 dollar payday; the passive investor’s return was 360 dollars.
The active investor’s cost was 8.50 dollars; the passive investor’s cost was 0.50 dollars.
The excess incremental reward for the active investor over the passive investor was 50 dollars (410-360). The incremental cost for that reward was 8 dollars (8.50-0.50). The incremental cost for the incremental excess return therefore is 8/50 or 16%.
Extra performance is usually a costly matter. A ballplayer who hits at a .320 level draws a much more formidable salary than a .250 hitter. That’s only true if those averages hold water over time. Persistency matters much.
I too admire Charlie Ellis. He is a smart commonsense guy. But in this instance, I believe he is emphasizing the wrong side of the argument. If I could identify a fund manager who generated a lifetime excess return record in the 5% range I would be ecstatic and would gladly pay him 16% of that excess returns. These superinvestors are rare and hard to identify before the fact.
I hope this helps.
Best Regards.

David et al. how is this number added up? I am only good at math when I have a formula.
I love this...it's actually more disturbing and relevant than Flashboys/HFT. Great issue!!
"Assume an S&P 500 Index Fund achieves in a year a total return of 36% and charges investment management fees of 5 basis points (0.05%). Assume your other investment is Mick the Bookie’s Select Investment Fund which had a total return of 41% over the same period and charges 85 basis points (0.85%). Your incremental return is 500 basis points (5%) for which you paid an extra 80 basis points (0.80%). Ellis would argue, and I believe correctly so, that your incremental fee for achieving that excess return was SIXTEEN PER CENT."
Mike

MarkM: Thanks. What is Jim Stack's performance record? I know the Hulbert Financial Digest tracks him closely, but I don't subscribe to that. What was Jim Stack's performance during bear markets, such as March 15, 2000-October 2002, or October 2007-March 9, 2009, and during bull markets, such as the past 5 years, and 1991-March 2000?
Are you in Meb Faber's ETF's? I just read his book, Global Value.

FYI: Copy & Paste 5/1/14: Tommy Stabbington & Chiara Albanese WSJ
Regards,
Ted
Franklin Templeton Investments fund manager Michael Hasenstab has raised the stakes in his wager on Ukrainian bonds, but investors in some of his funds have folded their cards.
Investors are pulling cash from a Templeton fund with a relatively high concentration in Ukraine bonds and from his flagship Global Bond Fund, which also has invested in the Eastern European country's debt.
Mr. Hasenstab is known for his bold, contrarian bets on out-of-favor government bonds. He snapped up Irish bonds during the dark days of the euro-zone crisis and rode them to sterling returns. A few years ago, he similarly took a gamble on Hungary that paid off.
Michael Hasenstab said about Ukraine that he is 'encouraged by the long-term potential.' Patrick McMullan
Ukraine is proving to be a rougher ride. Its bonds have swung wildly during the political crisis over Crimea and the eastern part of Ukraine and are now broadly weaker for the year. Templeton has bought about $7 billion of Ukrainian debt, according to data provider Ipreo, about one-quarter of the country's international bonds. Mr. Hasenstab added to his holdings in the second half of last year and early this year, according to company filings.
The Emerging Market Bond Fund, which has $6.2 billion in assets, had 10.6% of its portfolio in Ukrainian bonds as of the end of March. It has seen outflows of $1.26 billion in the first three months of the year, according to data provider Morningstar. Mr. Hasenstab added to these holdings in March as the political crisis intensified, according to company filings. The Emerging Market Bond Fund has the highest Ukraine exposure among Franklin Templeton's funds
A version of the Global Bond Fund marketed to European investors, with assets of $39 billion and a 3% allocation to Ukraine, has seen outflows of $4.93 billion, according to the company. Outflows in the $71 billion U.S. version of the Global Bond Fund, with a 4.5% allocation, have been $570 million, according to Morningstar. Overall, U.S. and European funds investing in emerging-market debt saw outflows of just under 4%, the Morningstar data show.
In the first quarter, the Emerging Market Bond Fund lost 0.4%, while the Global Bond Fund gained 0.7%, according to Franklin Templeton.
One investor, who pulled cash out of the Emerging Market Bond Fund this year, said: "When you buy Franklin Templeton you know what you get in terms of high volatility. We reduced exposure to the firm earlier in the year to cut volatility in our portfolio."
Two investors in the Emerging Market Bond Fund said individual investors, who tend to be more skittish than institutional clients, were behind a large part of the outflows.
A Franklin Templeton spokeswoman said the fund is a "very niche strategy out [of] the range of global bond strategies managed by Michael Hasenstab, which accounts for $185 billion under management." She declined to comment further.
On a conference call with analysts Wednesday, Franklin Templeton Chief Executive Greg Johnson said much of the outflow from European funds can be attributed to investors allocating more of their money to stock and hybrid funds instead of bonds as Europe recovers from recession.
Mr. Hasenstab couldn't be reached to comment, and the spokeswoman declined to make him available.
Franklin Templeton has been reassuring investors over its holdings of Ukraine's bonds as the crisis escalates, according to a person familiar with the firm's business.
On Thursday, Russian President Vladimir Putin called on Ukraine to withdraw military forces from the southeast of the country, a move that would effectively cede control to the pro-Russian forces that have taken over about a dozen cities in the border area and are pushing for a referendum on its status.
Ukrainian government debt has endured a bumpy ride this year. A dollar-denominated bond maturing in 2023 yielded 9.14% at the end of 2013, according to Tradeweb. The yield climbed to as high as 11.5% in February, before falling back below 9%. As the crisis rumbles on, Ukraine bonds have fallen out of favor once more, and the yield on Thursday stood at 10.5%. Bond yields rise as prices fall. In comparison, a 10-year German bond yielded 1.47% on Thursday, according to Tradeweb.
Mr. Hasenstab himself has been on a charm offensive. Last month, he visited Kiev. In a video filmed in the Ukrainian capital and posted on the firm's website, Mr. Hasenstab strolled the streets and sung Ukraine's praises.
"We are very encouraged by the long-term potential," he said in the video. "It's a country that despite some of the short-term fiscal issues has very little indebtedness, close to 40% debt to [gross domestic product], which is a very manageable amount."
Some investors said they have some concerns the Ukraine bet could turn sour but are willing to keep the faith with Mr. Hasenstab given his excellent track record. His Global Bond Fund has returned 52.5% over the past five years, according to Franklin Templeton. In comparison, the JPMorgan Global Government Bond Index has returned 21.5%, according to J.P. Morgan.
"I think Ukraine is more of a marketing issue for [Franklin Templeton] than an investment issue," said one investor who held on to substantial holdings in Mr. Hasenstab's funds during the first quarter of 2014.
"Hasenstab would probably rather manage the fund rather than go on a tour to calm people down. But I think the worst is behind them, and I wouldn't have a problem investing with them in the future because of this."
s

Well Charles just found one of them. I've been a fan of and correspondent with Meb Faber for years!
I like Andrew Smithers books Valuing Wall Street and Wall Street Revalued. His latest containing solutions to the constant bubble blowing is only fair.
Ed Easterling's work at Crestmont Research is outstanding.
If I were to subscribe to a newsletter you can't beat Jim Stack of InvestTech. Tremendous track record of compounding gains. Was too sanguine in 2007 though. (Most were). My belief is that most don't look enough at market history to realize what bear markets from overvalued conditions do to portfolios. Stack knows his numbers but doesn't like the timing game. He will get defensive though and was.
Hussman is a tremendous market historian. A good economist also. I suspect his personal bear market ends in a bit and he regains some of his lustre.
You are right. The alternatives to stocks are slim. In 2007-2009 I was hiding out in jumbo CDs from American Express Bank at close to 5.5%. That ship has sailed.
Good luck with your reading and investigations! Read both sides. A man has to decide for himself.

FYI: Vanguard's Long-Term Bond Index Fund (VBLTX) is up 10.01% YTD, while their Long=Term Treasury Fund (VUSTX) is up 10.55% YTD.
Regards,
Ted
https://www.fidelity.com/insights/markets-economy/the-case-for-long-dated-bonds

FYI:
Regards,
Ted
http://www.mutualfundobserver.com/2014/05/may-1-2014/

FYI: (Click On Download)
Regards,
Ted
http://www.moneylifeshow.com/highlights.asp

Well, I am willing to grant you a 5-day extension; but if the grand opus is not in my drop box by Monday noon--- in fairness to the other students who did manage to submit their work by the self-imposed deadline (ya know... all 25% of them)--- then I may have to start deducting some points.
"Those are my principles, and if you don't like them…well, I have others." – Groucho Marx

If you are in FPACX (could not tell if FPA was an abbrev, the way this site mishandles, rightly, abbreviations), then go all in and leave it alone. You are obsessing. Romick is good. Others are good too, and I neglected OAKBX. But I left it, my own ocd, and went with the ones I listed. If you really believe in active mgmnt, then just do it.
>> My casual research indicates that a decent "bottom-up" value manager can do better than an indexed 60/40, 50/50 allocation over time.
Sure, if you can spot one, as with everything here.

Agree Mark. Extreme myopia is probably an affliction of most of us. As Dickens says (editing liberally here): "... it was clearer than crystal ... that things in general were settled for ever."
Here's what the facts show (if I'm reading them correctly): Over the last decade HSGFX suffered an annualized loss of -1.2%. HSTRX achieved an annualized gain of +4.43%. A 50-50 blend of the two would have earned around +1.62% annualized over that ten-year period (assuming no rebalancing).
Each can make what he wants out of those numbers.

rjb112--
That's the sell side spin of course. They are hoping you read the headline and not the actual quarterly letter. Typical.
His estimate on overvaluation of the SP500 is 65%. Mine says it is closer to 100% overvalued. That being said I am not 100% in cash here. I like some EM stocks, some European stocks and a few high yield bonds, but nothing comprising the HY index.
If it goes up another 20-30% from here that's all well and good. If it halves from here I am good with that also.
Still ten years left to play the game. Another market cycle at least. There will be opportunities all along the way.

Thanks Ted.
This is a remarkable article. Deserves attention, thoughtful analysis and discussion on MFO.
Barron's is nuts with respect to the title and subtitle they gave:
"GMO'S Jeremy Grantham Remains Bullish on Stocks"
"The famed investor says the S&P 500 can gain another 20% in coming years despite stretched valuations."
How about this instead:
GMO's Jeremy Grantham Remains Bearish on Stocks' Longer-Term Outlook