On CXO, you might note two things. First, the data ends in 2012. Second, they're measuring the short-term performance of the market after public statements by a guy who isn't talking about the short-term.
The statement “The probable winning bet [is] a very mean reversal … for the next few years” is assessing by six-month performance of the S&P. Uhhh ...
That doesn't defend Grantham's record as a forecaster. He entirely agrees that as long as the Fed sees itself as the market's savior, the historical forces on which their market projections rely are largely unreliable. That's a separate issue from asset class projections, whose question is "in the intermediate term, is small or large likely, as a class, to do better than what we've come to expect from the market as a whole."
As ever,
David

http://www.sec.gov/Archives/edgar/data/1418191/000141304216000337/walthscvsupp.htm
497 1 walthscvsupp.htm
WALTHAUSEN SMALL CAP VALUE FUND
TICKER WSCVX
February 24, 2016
SUPPLEMENT TO PROSPECTUSES DATED JUNE 1, 2015
The Board of Trustees of Walthausen Funds (the “Trust”) has approved the re-opening of the Walthausen Small Cap Value Fund (the “Fund”), a series of the Trust, to new investors and new accounts effective on or about March 1, 2016. In connection with this action, the following changes are hereby made to the Fund’s Prospectus:
The sentence “The Fund is closed to new investors. See “Investing in the Fund” on page 8 for additional details.” is deleted on page 4 and page 8 of the prospectus.
The section under the heading “Investing in the Fund” is deleted on page 8 of the prospectus and replaced with the following:
You may purchase shares directly through the Fund’s transfer agent or through a brokerage firm or other financial institution that has agreed to sell the Fund’s shares. If you are investing directly in the Fund for the first time, you will need to establish an account by completing a Shareholder Account Application (To establish an IRA, complete an IRA Application). To request an application, call toll-free 1-888-925-8428.
************
Please retain this supplement with your Prospectus for future reference. You may obtain more information about the Fund at www.walthausenfunds.com or by calling toll-free 1-888-925-8428.

Interesting argument. There's always overvalued areas. However, for natural resource producers it's hard to make that claim. Gas is overpriced at $1.25 (excluding tax)?
Tech is nearly impossible to value anyway. If you're building 8-track decks you're overvalued. If your aeorspace division is about to receive a big contract from NASA to supply the space station or ferry payloads to the moon, you might be undervalued.
Central banks and lawmakers will do what they will do. But it would be rare indeed for a paper currency to maintain or increase in purchasing power over extended periods. This begs David's question a bit I suppose. But, even nominal gains in equities are preferable to little or no gain in cash.

If we are in a period of rising interest rates, I would be cautious with bond holdings in terms of duration, maturity, quality. At some point, there may be an opportunity to lock in 3, 4, 5% in CDs and short-term bonds. That's a ways off, for sure. But that would be a way to reduce potential volatility. We have clients that came to us with old single-premium fixed annuities that have minimum-interest guarantee of 5%. We told them to hang on to these. They were purchased in the 1990s when 5% seemed impossibly low. Just goes to show us.

Fortunately OSTFX had the smarts to dump Valeant, unlike Sequoia and some others (Vanguard was also very late to dump, BTW). Perhaps the most important thing to keep in mind is that Osterweis started as a firm that managed money for ultra-high net worth families. Capital preservation was and is a high priority. The funds came along as an offshoot of the private money management, sort of a "what can you do for out grandkids" response. As a result, OSTFX has never been flashy, never been a style-box fund (it is most definitely not a midcap blend fund, another M* mistake), and strives to provide good returns over the long haul. Everyone of us has owned at least one fund that stumbles once in a while. Prior to last year's crappy number, you have a 10-year average return of that is very close to the S&P 500 with less risk. We are willing to give the team a little slack here. There has been very little turnover on the team, with Berler and Kovriga there since 2006. Are there concerns? Yes, there are always concerns with actively-managed funds.
If OSTIX is compared to the Non-Traditional Bond category (which is where we believe it should be), it is a bracket buster. Are there concerns? Yes, but the YTD number is not because the team decided to take dumb pills. Like OSTFX, we are giving them some slack, but nothing suggests there is any flaw. Which reminds me again that I seldom read M* analyst commentary for a good reason.

@Shostakovich OSTFX had a huge position in Valeant Pharma before analyst Andrew Left's take-down of it last Fall. I think OSTVX also had a significant chunk in it, too. They dumped it right away, before things got worse (as they have), but considerable damage had already been done.
http://www.benzinga.com/analyst-ratings/analyst-color/16/02/6508179/valeant-gets-closer-to-lefts-50-target-after-new-account?curator=thereformedbroker&utm_source=thereformedbroker
Combine that with the HY bond exposure in the fixed income sleeve, and a presence in MLPs, and you pretty much have your under-performance explained.

Andrew Foster dropped a note in my mailbox this afternoon to inform me that the 4th Qtr Portfolio review for SFGIX has been posted. As most know, Mr. Foster worked in Asia for some time before his days at Mathews and reacts (and doesn't react) to Asian events in uncharacteristic ways. Always worth a glance, IMO, even if one isn't prepared to have him work with your money just yet.
http://www.seafarerfunds.com/fund/portfolio-review
His current stance on Asia--- and on emerging market stocks in general--- has taken a turn, and I think it's worth a smoke in the pipe:

February 2016 – In his latest portfolio review, Andrew Foster discusses a shift in the Fund’s composition, away from the Asian region, and toward larger stocks at the expense of smaller ones. Next, he speculates as to the cause behind the collapse in China’s capital markets. While he does not offer a definitive explanation, he does suggest that circumstances may be serious enough to warrant attention from investors.

Hi Dex, Hi BobC
Thanks for your commentary. Perhaps from this dialectic exchange a useful synergy will emerge. That often happens.
Best Wishes.

We probably don't differ as much as you might think. The difference is probably where you put the emphasis. The items I mentioned are the meat of the issue.
The monte carlo is a tool for evaluation and planning - but not high on my list.
If I were to expand upon my list:
- know how to budget
- track your spending
- pay yourself first
- spend less then you earn
I would add - understand cash flow in retirement investment planning:
- investment income
- pension
- SS
- 401K distribution requirements and taxes
- 'near cash' investments to cover stock/bond downturn periods
After that you can use the monte carlo to model you options.

Hi Dex, Hi BobC
Thanks for your commentary. Perhaps from this dialectic exchange a useful synergy will emerge. That often happens.
I take no issue with the general rules that you both advocate. I too use them. But they are motherhood and apple pie. If your mother and father did not lecture them as a practical gospel before teenage, your parents were delinquent. That advice is accepted wisdom; it just does not go far enough for retirement planning purposes.
Those guidelines simply do not yield a yardstick to measure retirement planning progress against, and do not help in a final retirement decision. Some metrics are needed. A Monte Carlo approach is a perfect tool given the uncertain nature of future portfolio performance. Monte Carlo methods were specifically developed during World War II to address uncertainty, especially when a boatload of data are accessible.
Napoleon said: “Nothing is more difficult, and therefore more precious, than to be able to decide”. Information gathering, data interpretation, hypotheses testing, and flexibility to adjust are essential elements in any ongoing retirement planning process.
Without numbers and expectation estimates, a potential retiree is lost at sea. Without credible estimates any retirement consultant is similarly lost at sea, and is not providing a full service. Convenient, easy to use, and fast Monte Carlo simulations fill many of the gaps, at least in a probabilistic sense. That’s as good as it gets.
For example, use the PortfolioVisualizer Monte Carlo tool. In a few minutes it runs 1000 random cases for the input parameters. Those input parameters are easily changed to explore what-if scenarios. Those what-if scenarios test the robustness of any assumptions. Time span is changed with a single input.
Output includes a likely median end wealth portfolio value, a portfolio survivable probability, and the 25 and 75 percentile portfolio value likelihoods. All this is good stuff and informs both the sagacity of the ongoing savings process and any final retirement date decision. These outputs can be updated over time, and yield retirement guidance. And it’s all free for the doing.
Note that the Monte Carlo simulators that I recommend do not operate in a vacuum. They are just one tool in a retirement planning toolkit. Adopting that tool does NOT preemptively require discarding all the other elements discussed in these exchanges. These are not mutually exclusive planning devices. They should be used in tandem.
Monte Carlo simulators have become a more or less standard tool in financial planning circles. An early version was developed by Nobel Laureate Bill Sharpe. He still runs that service as part of his Financial Engines website. Like all tools, the everyday American wisdom is to “use it or lose it”. I’m at a loss to construct an alternate way to generate any meaningful projections for the survivability of any retirement war-kiddy.
Your suggestions are welcomed and encouraged.
Best Wishes.

@MFO Members: Here is Jeremy Grantham's 2/4/16 Barron's interview titled "Grantham: Economy Will Beat Consensus View"
(Click On Article Title At Top Of Google Search)
Regards,
Ted
https://www.google.com/#q=Grantham:+Economy+Will+Beat+Consensus+View+barron's

Asset bloat is the least of their worries. ARTQX is down by 70% in about two years; $10 billion to $3 billion, roughly. ARTVX is down 90% in four years; $3 billion to $300 million, again in rough numbers.
David

FYI: Financial planning and everything associated with it can be stressful and complicated, even off-putting. For a financial services brand like TIAA—which just dropped the "CREF" from TIAA-CREF—that can present a marketing challenge.
Regards,
Ted
http://www.adweek.com/news/advertising-branding/why-financial-services-company-shortened-its-name-and-changed-its-logo-169807
Mutual Fund Wire.Com Slant:
CREF-Less:
http://www.mfwire.com/common/artprint2007.asp?storyID=53520&wireid=2
TIAA Website:
https://www.tiaa.org/public/index.html
M*: TIAA Fund Family:
http://quicktake.morningstar.com/fundfamily/tiaa-cref-asset-management/0C00001YVW/fund-list.aspx

Hi, guys.
I know that Grantham is sort of a divisive figure here, with a bunch of folks describing him as some combination of failed and a perma-bear. There are two drivers of his failure to join the recent party. His firm's discipline is driven by mean-reversion. Their argument is, first, that stock valuations can be weird for years, but not weird forever. They keep reverting to about the same p/e they've held in the long-term. Why do they revert? Because stocks are crazy-risky and, unlike The Donald, most investors aren't willing to risk multiple bankruptcies on their way to great returns. Expensive stocks are riskier, so their prices don't stay permanently high. And, second, that profit levels can be weird for years, but not weird forever. Why do they revert? At base, if you're making obscene profits, competitors will eventually come in and find a way to steal them from you. More companies competing to provide the same goods or services drives down prices, hence profits.
Sadly, it hasn't worked that way for a long while. Grantham's argument is that price reversion has been blocked by the Fed since the days of Alan Greenspan. What happens when the market begins to crash? The Fed rushes in to save the day. In effect, they teach investors that pricey stocks aren't all that risky which encourages investors to keep pursuing higher priced stocks. Leuthold noted, for instance, that valuations at the bottom of the 2007-09 crash were comparable to those at the peak of most 20th century cycles. The problem with relying on the Fed is that pretty clear. And he argues that profit reversion has been blocked by a shift in executive compensation: executives are personally (and richly) rewarded for short-term stock performance rather than long-term corporate performance. If an executive had a billion to spend on a new warehouse distribution system that might payoff in five years or on dividend checks and a stock repurchase that plumped the price (and their bonus) this year, the choice is clear. In 2015, S&P 500 corporations put over $1 trillion into stock buybacks and dividends - economically unproductive choices - while is more than double what they'd done 10 years before.
Both of those factors explain Grantham's observation that stocks have been overpriced about 80% of the time over the past 25 years. His current estimate is that US stocks are overpriced by 50-60% right now.
Good news: that's not enough to precipitate a market crash, though "a perfectly ordinary" bear market is likely underway. Vanguard's Extended Market Index Fund (VIEIX) hit bottom on February 11th, down 25% from its June high. That matched, almost to the dollar, the decline in the emerging markets index. Both have rallied sharply over the past 10 days. Regardless, most stocks have been through a bear. Really catastrophic declines, though, rarely occur until market valuations exceed their long-term average by two standard deviations. The current translation: the S&P 500 - about 1900 as I write - at 2800 would be bad, bad, bad.
Bad news: you're still not going to make any money. GMO's model projects negative real returns on bonds (-1.4%), cash (-0.3%) and US large caps (-1.2%). Vanguard's most recent white paper on valuations, using different methods, leaves bonds at zero real return, stocks modestly positive.
Better news: the best values are in the riskier assets, which I hinted at above. US small caps are projected to make 1.5% real, emerging debt is at 2.8% and emerging equity at 4.5%.
For what that's worth,
David

Filing for the reorganization:
http://www.sec.gov/Archives/edgar/data/935015/000119312516472686/d144281d497.htm

@DavidV: Thanks for the question which is very bond specific. As you suggest, with bonds there are many variables in terms of credit quality, duration, structure and place of issuance (in the case of foreign securities). I find it best to invest in broader income-focused or asset allocation funds and let an expert sort this all out. T. Rowe Price's summary and annual reports for RPSIX (available on their website) probably should be required reading. The fund is not for everyone, but its composition offers insights into how someone might structure an income based portfolio. There's many other fine funds with similar objectives but different approaches. Max mentioned some.
My take on RPSIX's current approach is that the fund is pretty much avoiding bonds further out than 10 years duration and also underweighting government bonds in favor of mid-grade and lower quality corporates. The near 50% weighting in BBB and lower is most interesting. I don't think Price is including the fund's near 20% equity stake in their credit analysis, so that needs to be taken with a grain of salt.
(I attempted to cut & paste some relevant features from their summary page. But the fund's approximately 20% stake in equities made presenting an accurate representation too difficult.)
View Summary: http://www3.troweprice.com/fb2/fbkweb/composition.do?ticker=RPSIX

@DavidV & MFO Members Here are some suggestions.
Regards,
Ted
Suggested Bond Time Period Allocations:
25 Years + To Retirement:
11-25 " " "
1-10 " " ":
Retirement:
:
http://www.seninvest.com/article13.htm

Hi @DavidV,
One of the newsletters that I read and I believe will be helpful, to you, and offers good information is linked below for both stock and bond allocations along with their recommended composition. See page six of the newsletter for details on the bond portfolio.
http://funds-newsletter.com/jan16-newsletter/jan16_new.htm

Monte Carlo is ok to get a broad overview of the probability of maintaining the lifestyle you want until you die. For many people, however, the use of Monte Carlo is not so great. The majority of folks (not on this board) have never saved for retirement, or if so, have done a bare minimum. They spend a lot more than they make. And they approach retirement with more baggage than will fit in their assigned overhead bin. I still maintain that starting retirement with no mortgage and no credit card debt is huge, something a lot of people should work to achieve. There are a lot of basic principles that people should use, but two of the most important are 1) spend less than you earn and 2) pay yourself first - meaning have a goal of maxing out your retirement plan contributions.

I don't get the M* commentary. Nothing has changed with this fund's structure, style, process, or philosophy since it started. I have spent a lot more time than M* talking to the entire management team at Osterweis over the past 12 years. Interesting the commentary was written only about two weeks after the same analyst praised the fund and its management for its "excellent risk-adjusted" performance and as a "shelter in the current storm", and "outshining its benchmark", "relative resilience". He goes on to compliment the managers who "are better at assessing credit risk than the rating agencies", and then said the fund's volatility "has been on par with the Barclays Agg". Given that nothing changed at the fund during those two weeks, the new commentary is hard to swallow. When I first read it a few weeks ago, I tried to get a response from M*. Of course they did not respond to my inquiry about the 180-degree about face. This for me is more evidence that the written analysis of funds is often worth a lot less than digging through the numbers and fund documents themselves.

No magic recipe. Just keep the more exotic and high yield stuff small, particularly later during work and into retirement. I took a look at their recent "Bond Squad" entries in the Morningstar Discussions. There's a whole big menu, over there. At 61, I'm 43 stocks, 39 bonds. The rest is cash or "other," held in the funds. Some might say I'm too heavy in stocks. But I do believe I'm in the ballpark of what's not overly-risky. Don't over-think it. If you are high-income, use a lot of munis, but not exclusively. ...Actually, I've chosen three separate bond funds, and after that, I let the Fund Managers do the arranging. PREMX, PRSNX, DLFNX. But I have two "Balanced" funds holding both stocks and bonds, too. MAPOX and PRWCX. But PRWCX is closed right now, unless you're already into it. Look also at DODIX. MWTRX. But these are solely open-ended. Others can clue you in to closed-end funds. I even forget whether there is such a thing as a bond ETF..... There are indeed professionals here, and they can give you something "from the horse's mouth."