FYI: A Few Investment Lessons From Last Year’s Market
Regards,
Ted
http://www.wsj.com/articles/will-funds-outperform-in-2015-1420333696

Hi Guys,
http://awealthofcommonsense.com/
I too consider this chart one of my favorites. It presents extremely broad asset class returns over a 10-year period.
The chart once again illustrates the random nature, the patternless character, the ramblings of the various major asset classes over the last decade. Good luck on consistently picking these winners ahead of time.
This is a big reason why active mutual fund managers have such a challenging task to outdistance an appropriate benchmark. It adds another dimension to investment risk. Forecasters can’t forecast with any reliability. It’s that reason plus the additional handicap of higher expenses in several directions that dampen active mutual fund returns. There’s an easy lesson here.
Please give the chart a little time. It’s worth the effort, and just might contribute to a more profitable 2015. I hope so. Good luck and good health to all.
Best Regards.

Great chart. Now that sets up a challenge for everyone. Rearrange the blocks for 2015. Commodities are down 45% last 4 years, but I am loathe to pick them above water. I like aggregate bonds over 5%.

Below is the market cap breakdown, per M*, of the Vanguard Global Minimum Volatility Fund, VMVFX.
When the fund was announced, I think that I expected to see it filled with solid staid large cap value/blend holdings, similar to the equity sleeves of VG Wellington or Wellesley funds.
That's not what is there. Check out link, below.
In terms of capitalization at least, it is much more diverse, and less market hugging than I initially expected.
Do folks out there find the makeup of the portfolio surprising, and/or do they have any comments regarding the composition of the fund, etc?
Aside: What other fund looks like this?
Also: Check out specific holdings: http://portfolios.morningstar.com/fund/holdings?t=VMVFX
Thanks.
=================================================================
VMVFX Market Capitalization
Size..........% Fund............Bmark.......Category Avg
Giant........25.03..............51.47..........57.18
Large........20.04..............34.86..........18.49
Medium....36.73..............13.56..........18.14
Small........14.74............... 0.11.......... 5.26
Micro........ 3.45................ 0.01.......... 0.93
US Stock: 45%
Non US Stock: 55%
Avg Mkt Cap: $8.9B
-----------------------------------------
BMark: MSCI ACWI
Category: World Stock/Large Blend
M* LINK: http://portfolios.morningstar.com/fund/summary?t=VMVFX

Hi Tanpabay, Hi Mrdarcy,
Thank you for reading and reacting to my posts. I really appreciate feedback since that implies that I reached both your minds and your emotions.
But I didn’t expect the harsh nature of your highly charged replies. I suppose football does cause such sharp reactions from some loyal fans; football touches many emotions and nerves. I’m not one who is so influenced by football.
I didn’t comment or forecast the outcome of the Rose Bowl game because I simply did not care one way or the other. I had no skin in the game although I have a close relative who has both her undergraduate and graduate degrees from Florida State. I try to never forecast since that is a Loser’s game.
My primary purpose in referencing the Oregon-Florida State game was to introduce the investment reversion-to-the-mean concept in a manner that would attract MFO readership.
From your replies, I succeeded, but not in the way I wanted. You focused on the peripheral introductory football analogy, and not on the main investment regression topic. I’m disappointed.
You guys misinterpreted the extent and the thrust of my football analogy. I was surely not writing about the Florida State 2012 and 2013 seasons. They were superb and honestly earned by a superior football squad directed by a Heisman quality quarterback in 2013.
My comments centered only on Florida State’s 2014 season. The 2014 team did not dominate opponents like in previous years. They fell behind in a majority of their 2014 games by huge negative margins, and were very fortunate (lucky) to pull these games out of the fire. Their escapes baffled handicappers. Professional odds makers estimate that the team had something like a 1 in 10,000 chance of winning all those games. I wanted to illustrate how quickly luck can evaporate.
Also, the Florida State quarterback in 2014 did not play to the high performance standards he established in his Heisman trophy year. Statistically, the Oregon quarterback possessed a much more impressive 2014 record. That’s why he won the trophy this year. In the future, he too will likely suffer a regression-to-the-mean.
I’m sorry that you fellows are so sensitive to the Rose Bowl outcome. It neither pleased me or displeased me whatsoever. My posting was designed to direct attention to the random, checkerboard character of major investment classes, their non-predictability, and their reversion-to-the-mean tendency. The football commentary was meant to be merely ancillary.
By the way, I do Las Vegas about three times a year, and sometimes (rarely) leave with a fatter wallet. I also ran a small consulting firm after retiring as the head of a major research operation. The lesson here is to not make wild guesses or false assumptions. You never know who is on the other end of the exchanges.
I really take no umbrage from your comments. Once again, thanks for reading my posts.
Best Wishes.

Until the second-half of the Rose Bowl contest, Florida State had prospered from an unprecedented outlier-like string of comeback victories. No team can tempt defeat so often, and yet emerge with a late rally win in a consistent manner. Luck had to be a major factor. Florida State is just not that exceptional or talented.
And luck changes instantaneously at unpredictable, unexpected, and unwelcomed moments.
Florida State suffered their upset moment on New Year Day. Simply put, the Florida State team experienced a regression-to-the-mean. All good things must come to an end, to a reversion to more normal outcomes.

Um, what?
That was the first time Florida State had lost since November of 2012. Over the last three seasons FSU is 39-3. They were the defending NCAA National Champion and had the defending Heisman Trophy winner at QB. This Rose Bowl was competitive until FSU self immolated against another very good team who capitalized on every mistake. Sometimes bizarre results happen in sports. Ask the players from either of the NFL teams with the highest Elo Ratings since the NFL-AFL merger: The 1983 Washington Redskins or 2007 New England Patriots.
Oregon might well be a better team, but that certainly doesn't mean anything statistically relevant about FSU or their talent level. And I'm entirely unclear what it means for fund manager performance other than it might be much harder to tell when an aberration against a long term performance trend is luck-based, a symptom of a specific style, or reversion to the mean than people generally believe (2008/9 Dodge & Cox, for instance, or Matthews Asia's current under-performance). The Callen table is always cool to look at, though, so thanks for that link.

Here's a couple more:
Part 1:
investing.com/analysis/2015-market-outlook
Part 2:
investing.com/analysis/market-outlook-2015 contrarian-perspectives

I have been in VWLUX since Nov. 2013 and have been very pleased.

Hi Guys,
Here’s a quote from a recent survey of mutual fund investors: It said that “…. only 53 per cent of individual investors believed that outperformance was based on skill rather than luck. As for investment professionals themselves, the number was even lower, with only 42 per cent attributing outperformance to superior skill.”
Wow! Investment professionals do not believe in themselves in about 58 % of the instances. If an industry doesn’t trust its own proficiency, it is doom to failure in the long term. But, the same article that contained the referenced quote also offers some saving possibilities.
An indirect reference was made to this reporting in an earlier MFO post. The title of the piece is “Investment: Loser’s Game” by John Authers. Here is the Link to the Financial Times article:
http://www.ft.com/cms/s/0/f15a1f9c-876c-11e4-8c91-00144feabdc0.html
The 6 minute video that is embedded in the article provides an excellent summary if you are not now inclined to read the work.
Basically, the article reviews the recent dismal annual performance of active mutual fund management and their coupled lack of persistency. These are not new findings and need not be repeated for MFO Discussion members.
However, the article does offer 3 ways in which a performance reversal can be possibly accomplished, and with it, a directional money flow change back into actively managed funds.
The three pathways are: (1) Become more actively focused away from benchmark holdings (more concentration), (2) A reduced money management and cost fee structure, and (3) Enrollment in a money management training program directed at removing behavioral biases that compromise money management performance (like overconfidence).
The first two of these elements have been recognized for quite awhile; I was not familiar with the training program opportunity. More power to it, especially if it translates to better returns for us average mutual fund buyers.
The fees burden is obvious and demands attention. Even Charlie Munger attacked it decades ago. I’m currently reading “The Best of Charlie Munger, 1994-2013”. It is fun reading with great practical wisdom. You might want to give it a try. Here is one sample story.
In a talk that Munger gave to a Philanthropy Round Table in November, 2000, his true feelings towards the investment advisor cohort in general is harshly revealed. He doesn’t think much of that group.
Munger likes to invent words. He invented one for the investment advisors; it is “febezzle”. The “fe” portion acknowledges the high fees charged by the investment fraternity. The “bezzle” portion is a shortened form of embezzlement. Munger’s overarching assessment is that these financial wizards are mostly frauds and do not add to an investor’s wealth.
He did pontificate that these advisors and their clients did increase overall National spending. The advisors made and spent money directly from clients, and the customers were encouraged to spend more believing that they were making more market money. This hidden action increased our total economic pot in a Keynesian spending multiplier manner. According to Keynes, money need not be spent efficiently to enhance our National wealth.
I’m not sure I buy into that deep logic. Regardless……
Best Regards.

AJ and msf, tyvm!
Now I must check most of these (not the tech ones; I already excluded them in my mind) to see how they did during the two '14 dips compared with DSENX and PRBLX.
Can't believe I am researching this because on paper I give no cred to 1y performance. He said.

Tax managed funds often split munis with the S&P 500 and have exhibited low volatility and decent returns with tax efficiency.
VTMFX and USBLX are two I follow.
Here's a list of ten (BBTEX seems impressive from this list, but no muni exposure):
top-10-tax-managed-funds

When it comes to Bond strategies I like to reference Wealthtrack's interviews with Robert Kessler:
Here's one from 2014:
investmentnews.com/section/video?playerType=CMWealth&bctid=3708741801001&date=20140801
Here's one from 2013:
https://youtube.com/watch?v=d1iTkEdJXRA

FYI: Over the last three or four Januarys, the advice for investing in bonds has been remarkably consistent. It’s gone something like this: Beware of them, because inflation is going to rise, interest rates are going to spike and bond holders are going to lose enormous amounts of money. When it came to losses, comparisons were made to what happened to equities in 2008.
There were exceptions to this analysis, of course. But for the most part, this view was repeated year after year, with charts, graphs and reams of historical data marshaled in its defense. On paper it made sense.
In portfolios, not so much. In fact, the exact opposite occurred: Inflation failed to materialize, interest rates went down, and bond holders made money on their investments.
But for investors, knowing what to expect from their fixed-income portfolio is essential. Bonds serve as ballast for rough times.
Regards,
Ted
http://www.nytimes.com/2015/01/03/your-money/asset-allocation/for-bond-investors-ignoring-expert-advice-has-been-profitable.html?ref=your-money&_r=0

His Dec. 9 webcast is now available to all at www.doubleline.com.
That includes the forecasts. Well worth a listen. (1hr)

FYI: (Click On Article Title At Top Of Google Search_)
The Tax-Favored Debt Has Outperformed Corporate Bonds, Treasurys in 2014.
Regards,
Ted
https://www.google.com/search?newwindow=1&site=&source=hp&q=The+Tax-Favored+Debt+Has+Outperformed+Corporate+Bonds,+Treasurys+in+2014&oq=The+Tax-Favored+Debt+Has+Outperformed+Corporate+Bonds,+Treasurys+in+2014&gs_l=hp.3...5619.5619.0.12274.1.1.0.0.0.0.52.52.1.1.0.msedr...0...1c..60.hp..1.0.0.V7piXQf9jLg

FYI: (Click On Article title At Top Of Google Search)
It has been a magnificent year for both the stock and bond markets, even with the slight wobble in equity-market results in the last two trading sessions of 2014. But with the drop of the ball on the Year of the Horse, it’s time to look ahead to 2015.
And we could think of no one better to talk to than the widely acclaimed King of Bonds, Jeffrey Gundlach, who presides over the $64 billion asset-management complex DoubleLine. He is never shy in offering his opinion on all manner of securities in the U.S. and around the world
Regards,
Ted
https://www.google.com/search?newwindow=1&site=&source=hp&q=Jeffrey+Gundlach’s+Surprising+Forecast&oq=Jeffrey+Gundlach’s+Surprising+Forecast&gs_l=hp.3...4536.4536.0.6091.1.1.0.0.0.0.58.58.1.1.0.msedr...0...1c..60.hp..1.0.0.u5PVauchAs0

Bring on 2015!

@Tampabay
1. What investment firms THINK will happen is of no concern, and most often contradicting garbage
>>>yup!
2. that my bonds are paying better than avg. returns.......
>>>presumption: total return, yes?? You will be tracking each week then? ..... In order to find any variables changing the numbers
Catch

MY reflection: I will make money in the stock market in 2015, how much? I don't know,
What %, don't care, but I will do everything in MY control to insure I reach certain Goals, I will check on my fund managers and be sure they are doing their best (job) to make me money, I will check that my companies are making increasing profits and revenues and dividends, that my bonds are paying better than avg. returns.......
What investment firms THINK will happen is of no concern, and most often contradicting garbage

I screened exactly as I described; our difference of ONE fund (18 vs. 19) came about like this: One of the funds listed in the results showed a lower return than the Dbl fund, and I excluded that one from the count, thinking there must have been an error in the screening. I didn't notice Dbl-Shiller had come up as the I shares, so that was my error. That's the only difference in the results between my post and the last one of yours.
From your post, it sounds like you may think the six specific funds I listed are the only ones that passed the "large cap that beat Dbl-Shiller in 2014" screen. If so, that is not the case; the six are the ones that passed with the added risk screen, as described, I thought clearly, in my post.
And now I think the subject has been flogged sufficiently.