ARIVX an absolute dog of a fund with terrible returns the past year compared to its peers. I know, I know, the academics say give a fund a few years before throwing it to the curb. That's hogwash! One year returns DO count and most especially in years like 2013. I am more or less (less than more) retired from the investment/trading game and I can tell you one year returns do count. My retirement nest egg would have been adversely impacted had I missed any of the bigger percentage gains years of the past ala 91,95, 98, 99, 03, 09 and so on. 2013 has been one of those can't miss years for the younger crowd here and even if you are an old timer the 5% returns of ARIVX just don't cut it.

Yep - paying off mortgages is a two edged sword, especially if it was fixed-rate and 4% or less. There's good points to be made on both sides. Without your age and circumstances, it's hard to advise. Most markets today look quite heady, so plowing a large amount into equities, junk bonds, or investment grade bonds looks problematic. Obviously the longer you have until retirement (assuming that's the purpose) the more risk you can afford to take. We did a cash-out refi 3 years ago (at around 3%) and invested the cash into our overall retirement mix. Some has done quite well in EXTAX. Some is in high yield munis. Some in cash.
The advice you received to DCA in is not bad advice. Your desire to go very aggressive needs to be considered in light of how you, or you and your significant other, would react in the event of a prolonged market downturn. Such funds could easily loose 30-40% of their value over a 1 or 2 year period. So, sort that out in your mind before taking on such aggressive investments.
Perhaps already mentioned, but doing a Roth conversion out of a traditional IRA (partial each year) and using the $$ to cover taxes is another idea. Here I'd go easy too, as conversions make more sense when markets appear undervalued. But a Roth has a great many advantages.

Hi Guys,
A pair of articles recently published by Forbes yields both conventional and unconventional investing and portfolio advice.
The conventional advice was provided in an article by Laura Shin. She erroneously titles the article “10 Investing Tricks That Will Help You Outperform Most Investors”. Her list is really not “Tricks”; they are conventional wisdom. Here is the Link to the Forbes piece:
http://www.forbes.com/sites/laurashin/2013/10/29/10-investing-tricks-that-will-help-you-outperform-most-investors/
The list was generated by the Boglehead group and directly represents John Bogle’s world financial views. They are all common sense and commonplace. The list truly does not contain any Eureka moments. Given the huge size of the Boglehead organization, it does however reflect the wisdom of the crowd.
I particularly like the cautions to “Don’t look at past returns to gauge future performance” and “Never try to time the market”. How we do asset allocation is within our control; future returns reside in the realm of fog uncertainty and are not in our control. Market timing requires both an exit and an entry timing decision to generate positive excess returns. Since market direction is not within our control, if the decision odds have roughly a 50/50 success probability, the likelihood that both components of the decision cycle are correct is only 25 %.
To expropriate an ancient market axiom, it is time in the marketplace, and not market timing that generates a healthy retirement portfolio. Consideration of the retirement portfolio leads to the unconventional advice.
This Shin article appeared in Forbes about a week ago. I believe it has been discussed on MFO earlier, but it does warrant another visit given its unconventional recommendation. Here is the Link to the Forbes article:
http://www.forbes.com/sites/laurashin/2013/10/21/the-counterintuitive-investing-trick-that-could-make-or-break-your-retirement/
The short piece references the research completed by Wade Pfau. His insights are based on Monte Carlo computer simulations. They explore the significance of the sequence of market returns during retirement, not simply the average return value, in terms of portfolio survival odds.
Pfau concludes that a downward thrust of returns immediately following retirement can destroy retirement plans since recovery is a daunting challenge. An upward thrust of equity rewards during the early retirement years makes the long-term portfolio survival prospects almost bulletproof.
Based on his findings, Pfau recommends a shift to a heavy fixed income portfolio asset allocation during the early retirement years as a defensive measure, with a gradual shift to a more aggressive equity position as retirement progresses to protect against the erosive impact of inflation.
Please visit the referenced articles. One does not offer any Eureka moments, the other does. Both are worth the minor reading time commitment, and cost nothing more. Enjoy, learn, and prosper.
Best Regards.

Howdy.
I interviewed a bunch of long/short managers last year, some quite talented. The conclusion that I reached was that ARLSX had the most thoughtful, clearly-articulated risk management discipline of them all. I talk about that in the fund profile, which is on its Featured Funds page. Here's the highlight:

The strategy’s risk-management measures are striking. Through the end of Q1 2012, River Road’s Sharpe ratio (a measure of risk-adjusted returns) was 1.89 while its peers were at 0.49. Its maximum drawdown (the drop from a previous high) was substantially smaller than its peers, it captured less of the market’s downside and more of its upside, in consequence of which its annualized return was nearly four times as great.
It also substantially eased the pain on the market’s worst days. The Russell 3000, a total stock market index, lost an average of 3.6% on its fifteen worst days between the strategy’s launch and the end of March, 2012. On those same 15 days, River Road lost 0.9% on average – which is to say, its investors dodged 75% of the pain on the market’s worst days.

Its 3Q2013 maximum drawdown was one-third of the market's while it's long exposure was above 50% of it. Mr. Moran writes in his end-of-September commentary:

The portfolio did well given that it maintained an average net long exposure of half that of the benchmark during a period of generally rising returns for the market. Both the long and short portfolios performed well. The maximum drawdown from the Fund’s “high-water mark” during the quarter was -1.53%, just 35% of the market’s -4.36% drawdown.

Since inception, it's captured about 90% of the S&P 500's return. The guys consider themselves value investors. They're unwilling to short a stock just because it's overpriced and they're unwilling to buy a stock just because it's the least-overpriced option, so they're reluctantly (and resolutely, so far as I can tell) holding cash. In general, I'm more than comfortable with that decision.
Finally, my retirement and non-retirement accounts are in entirely separate mental buckets since resources are not fungible between them. That said, it's also limited to TIAA-CREF, Fido and T. Rowe which means that you have to be a little cautious in your attempts to invest in the offbeat.
Hope that helps,
David

Yes - probably true. But like Ted's Orange Blossom Special it keeps chugging along. Dow's up about 90 points as I write. Noise and hoopla if you're 30 years old and gainfully employed. Noteworthy if you're many years into retirement. Am lighter than normal on equities and have been for couple years. But, don't - by any means - believe we've reached a total "blowoff" stage, so continue to hold fair amount of equities - mostly through allocation & balanced products. Thanks for the story Skeet. (When these Nobel Prize winners talk, it's wise to listen.) Regards

Reply to @CathyG:

"I switched from 80% bonds/20% stocks to now 70% stocks or stock funds and 30% bond funds."

I think that is a big over-reaction. I feel you are trying to catch up and that is a dangerous game.
I personally maintained 60-70% allocation in the last 5 years. But, I am much younger and have around 2 decades to retirement (hopefully). I've got a lot of time to recover.

Reply to @TSP_Transfer: I agree with the "not making any more land" quote.
The REIT that I think a lot of people don't really think about in terms of land is Equity Lifestyle Properties (ELS). That is essentially a lot of retirement communities and RV parks/campgrounds around the country.
It's not a particularly exciting REIT to say the least (although I guess more people retiring and RVing seems to be a growing trend), but you have a real estate company with a lot of land, a good portion of which is waterfront property. (Equity Lifestyle owns 80 properties with lake, river, or ocean frontage and around 100 Equity Lifestyle properties are within 10 miles of coastal US, http://seekingalpha.com/article/741871-equity-lifestyle-properties-invest-in-a-wide-moat-reit-because-they-arent-making-more-land) I don't own it, but just throwing that out there given the land mention.
Adecoagro (AGRO) is a Latin American farmland play still majority owned by George Soros. That has not done well since IPO and has political risk, but I will say that anyone who invested in it when Brazil stocks were absolutely in the toilet earlier this Summer has done quite well.
Nestle has - I believe - purchased water rights in a number of areas. If that's the case, I find that pretty appealing, although it's certainly not a big part of the giant company.

Reply to @MJG: Reply to @MJG: "Perhaps my standards are too high ..." Yep - I'm sure that's the root of your problem MJG. But I remember being still "green" to investing 40 years ago and being assigned a 403b "advisor" by the fund sponsor for our workplace retirement plan. Like BobC the guy had a real knack for the vernacular. Could really boil things down to the basics. Took me from where I started and taught me a lot over the 20+ years I worked with him. I am forever grateful.
Regarding your appraisal of BobC's "pedestrian" advice ... I'll submit that he's able to say more in one or two hundred words than you typically do in a thousand. Regards

But:
"It's definitely going mainstream," Mr. Schweighauser said of alternatives, citing the public's awareness of hedge fund managers such as David Tepper. "This should have a home in everyone's portfolio whether you're a high-net-worth individual or a factory worker saving for retirement."
http://www.investmentnews.com/article/20131024/FREE/131029936?template=printart
Probably Not for the Lunch Bucket Brigade
Early backers are being offered a so-called founders’ share class with discounted fees. Starting early next year, the fund will charge a 1.5% management fee and keep 20% of the profits earned by limited partners.
Former Soros Manager Takes Activist Route in starting a fund that takes activist positions in small-cap companies.
http://www.hfalert.com/headlines.php?hid=182755

Dear friends,
I spoke for about an hour on Wednesday evening with Zac Wydra of BMPEX. There were about 30 other participants on the call. I've elsewhere analogized Beck, Mack to Dodge & Cox: an old money, white shoe firm whose core business is helping the rich stay rich. In general, you need a $3 million minimum investment to engage with them. Partners was created in 1991 as a limited partnership to accommodate the grandkids or staff of their clients, folks who might only have a few hundred thousand to commit. (Insert about here: "Snowball gulps") The "limited" in limited partnership signals a maximum number of investors, 100. The partnership filled up and prospered. When the managing partner retired, Zac made a pitch to convert the partnership to a '40 Act fund and make it more widely available. He argued that he thought there was a wider audience for a disciplined, concentrated fund.
He was made the fund's inaugural manager. He's 41 and anticipates running BMPEX for about the next quarter century, at which point he'll be required - as all partners are - to move into retirement and undertake a phased five year divestment of his economic stake in the firm. His then-former ownership stake will be available to help attract and retain the best cadre of younger professionals that they can find. Between now and retirement he will (1) not run any other pooled investment vehicle, (2) not allow BMPEX to get noticeably bigger than $1.5 billion - he'll return capital to investors first - and (3) will, over a period of years, train and oversee a potential successor.
In the interim, the discipline is simple:
1. never hold more than 30 securities - he can hold bonds but hasn't found any that offer a better risk/return profile than the stocks he's found.
2. only invest in firms with great management teams, a criterion that's met when the team demonstrates superior capital allocation decisions over a period of years
3. invest only in firms whose cash flows are consistent and predictable. Some fine firms come with high variable flows and some are in industries whose drivers are particularly hard to decipher; he avoids those altogether.
4. only buy when stocks sell at a sufficient discount to fair value that you've got a margin of safety, a patience that was illustrated by his decision to watch Bed, Bath & Beyond for over two and a half years before a short-term stumble triggered a panicky price drop and he could move in. In general, he is targeting stocks which have the prospect of gaining at least 50% over the next three years and which will not lose value over that time.
5. ignore the question of whether it's a "high turnover" or "low turnover" strategy. His argument is that the market determines the turnover rate. If his holdings become overpriced, he'll sell them quickly. If the market collapses, he'll look for stocks with even better risk/return profiles than those currently in the portfolio. In general, it would be common for him to turn over three to five names in the portfolio each year, though occasionally that's just recycling: he'll sell a good firm whose stock becomes overvalued then buy it back again once it becomes undervalued.
There were three questioners:
Kevin asked what Zac's "edge" was. A focus on cash, rather than earnings, seemed to be the core of it. Businesses exist to generate cash, not earnings, and so BM&O's valuations were driven by discounted cash flow models. Those models were meaningful only if it were possible to calculate the durability of cash flows over 5 years. In industries where cash flows have volatile, it's hard to assign a meaningful multiple and so he avoids them.
In follow up: how do you set your discount rate. He uses a uniform 10% because that reflects consistent investor expectations.
Seth asked what mistakes have you made and what did you learn from them? Zac hearkened back to the days when the fund was still a private partnership. They'd invested in AIG which subsequently turned into a bloody mess. Ummm, "not an enjoyable experience" was his phrase. He learned from that that "independent" was not always the same as "contrary." AIG was selling at what appeared to be a lunatic discount, so BM&O bought in a contrarian move. Out of the resulting debacle, Zac learned a bit more respect for the market's occasionally unexplainable pricings of an asset. At base, if the market says a stock is worth twenty cents a share, you'd better have remarkably strong evidence in order to act on an internal valuation of twenty dollars a share.
Andy asked how Zac established valuations on firms with lots of physical resources. Very cautiously. Their cash flows tend to be unpredictable. That said, BMPEX was overweight energy service companies because things like deep water oil rig counts weren't all that sensitive to fluctuations in the price of oil.
A number of other contributors to the discussion board were there and I'd be delighted to get their take on the evening. Folks interested in listening in can get the .mp3 at http://78449.choruscall.com/dataconf/productusers/mfo/media/mfo131016.mp3.
As ever,
David

http://www.sec.gov/Archives/edgar/data/923184/000114420413054832/v357214_497.htm
497 1 v357214_497.htm 497
SUPPLEMENT DATED OCTOBER 11, 2013
TO THE INVESTOR CLASS PROSPECTUS OF
MATTHEWS ASIA FUNDS
DATED APRIL 30, 2013 (AS SUPPLEMENTED)
For all existing and prospective shareholders of Matthews Pacific Tiger Fund - Investor Class (MAPTX)
Effective at market close on October 25, 2013, the Matthews Pacific Tiger Fund (the “Pacific Tiger Fund”) will be closed to most new investors. The Pacific Tiger Fund will continue to accept investments from existing shareholders. However, once a shareholder closes an account, additional investments in the Pacific Tiger Fund will not be accepted from that shareholder.
The section entitled “Who Can Invest in a Closed Fund?” on page 74 of the prospectus is hereby revised as follows (new text is underlined):
Who Can Invest in a Closed Fund?
The Asia Dividend Fund has limited sales of its shares after June 14, 2013, and the Pacific Tiger Fund has limited sales of its shares after October 25, 2013 (each of the foregoing Funds, a “closed Fund”), because Matthews and the Trustees believe continued unlimited sales of a closed Fund may adversely affect such closed Fund’s ability to achieve its investment objective.
If you were a shareholder of a closed Fund when it closed and your account remains open, you may make additional investments in that closed Fund, reinvest any dividends or capital gains distributions in that account or open additional accounts in that closed Fund under the same primary Social Security Number. To establish a new account in a closed Fund, you must provide written proof of your existing account (e.g., a copy of the account statement) to that closed Fund. A request to open a new account in a closed Fund will not be deemed to be “in good order” until you provide sufficient written proof of existing ownership of that closed Fund to that closed Fund or its representative.
In addition, the following categories of investors may continue to invest in a closed Fund:
• Financial advisors and discretionary programs with existing clients in the closed Fund
• Retirement plans or platforms with participants that currently invest in the closed Fund
• Model-based programs with existing accounts in the closed Fund
• Trustees, officers and employees of the Funds and Matthews, and their family members
Please note that some intermediaries may not be able to operationally accommodate additional investments in a closed Fund. The Board of Trustees reserves the right to close a Fund to new investments at any time (including further restrictions on one or more of the above categories of investors) or to re-open a closed Fund to all investors at any future date. If you have any questions about whether you are able to purchase shares of a closed Fund, please call 800-789-ASIA [2742].
Please retain this Supplement with your records

Reply to @MJG: Hi MJG. Your commentary on Sharpe ratio is good. One of the most important things for investors is to determine what return they need to be able to accomplish their goals. For most investors, their long-term goal is knowing what retirement might look like: age, sources of income, no work or part-time work or volunteer work with no pay. These and other factors, including expected cash flow needs (wants), should enable the investor to determine what kind of return they need from the investment portfolio. We usually see a number in the 4-6% range. Frankly, 6% is a bit scary, but 5% is usually a pretty good number. And 5% was pretty easy the last 10 years because declining interest rates provided bond fund investors with outsized returns. Now that we are in a different climate, we believe that 'conservative' investors who need 4-5% will need to realign their thinking. Ultra-conservative might no longer be 100% bonds. While bonds will probably still be less volatile than stocks, there may be greater 'risk', at least in terms of not reaching long-term goals, than a conservative mix of stocks and bonds and alternatives.
If that is the case going forward, and I believe it will be (at least until we can once again lock in yields of 4-5% with some degree of 'safety'), then investors will be more concerned with volatility and risk factors than ever before. "Ok, I'm willing to invest in some stock funds, but I really want to concentrate on relatively low risk." This is where our efforts to find funds like I described in the previous post become prudent. Investors like the people I just described may never be able to stomach the volatility of a passive strategy, no matter that the 'average' nreturn of a passive portfolio is as good as or better than a portfolio that attempts to manage volatility. My experience over 30 years is that most 'conservative' investors will simply not stay the course when risk/volitility becomes reality. Managing risk will be key, and this is especially important when investors move from the accumulation to the distribution phase of their lives.
Since none of us knows what the future will bring, including near-gods Gross and Gundlach, I would suggest that managing risk may well be the most important part of investing. And this is where I still believe that for most people, a manager that helps them achieve their goals, that does ok but maybe not not great in bull markets, but really helps protect some on the downside, is a manager they migh retain rather than dump and run to cash when the going gets tough.

Reply to @BobC:
Hi BobC,
Nobel Laureate Bill Sharpe would be proud of your understanding of the risk/reward tradeoff. His Sharpe Ratio was one of the earliest attempts to capture and characterize both critical aspects of the investment puzzle. Later researchers, standing on his shoulders, refined his formulations.
Indeed, if your active fund manager accepts more risk in a bull market scenario, an investor would expect outsized, above average returns. Of course, the reverse would be true under bear market conditions; under those circumstances, an investor would anticipated above average downward penalties. A symmetry should exist. ( A really skilled active fund manager should operate to dampen those downward penalties. )
That is one of the essential findings that evolved from Sharpe’s early 1960s Capital Asset Pricing Model (CAPM). From that model, much to Sharpe’s annoyance, research peers and financial journalists coined the sensitivity of an investment to the overall market movement its Beta attribute. Since those early pioneering days, other factors have been identified that contribute to the investments pricing mechanism (size, value, momentum). Also various offshoots of Prospect Theory suggest that Beta is likely not symmetrical depending on either an upward or downward trending equity marketplace (like the Sortino Ratio).
I suspect, based on the CAPM concept, Professor Snowball was astonished and disappointed by the general results he reported in his chosen illustrative example between the S&P 500 Index returns and those registered by the Large Cap Blend active fund category. The Large Cap Blend Capture Ratios fell short of their benchmark targets in both directions.
Given the long-term consistency of both the SPIVA report findings and its sister Persistency Scorecard semi-annual report conclusions, the Capture Ratios did not shock me. It is yet another illustration of the daunting hurdles that active fund management continues to trip-over.
Bill Sharpe explained this compactly and convincingly in his 1960s analysis using simple arithmetic and a market-wide overall returns balance equation. Among the active manager cohort, there must be a loser for every winner. Before costs, it is a zero sum game. Given research and trading costs, and other management fees, it is a negative sum game. That’s equivalent to a racetrack that typically only returns about 85 % of the total waged in any given race to its betting public. The 15 % withheld covers operating costs, profits, and State tax largess.
So, on average, active managers do not reward their clients with above average returns. That’s impossible. On the downside, active managers again failed to protect their customers portfolios. The evidence has been accumulating for decades and has reached overwhelming proportions. Skilled managers do exist, but they are rare.
Even those who sport an excess returns average record find persistency a daunting challenge. Costs matter greatly. The near empty winners circle is populated by active managers who aggressively control costs and have low portfolio turnover ratios.
These few managers do thrive. I’m sure you hunt them out for your clients. The Vanguard Health Care fund (VGHCX) is a prime example. Over the last decade, it has outperformed its benchmark in 9 out of 10 years, including two annual downward market thrusts. Its low cost structure and low portfolio turnover rates made it a likely candidate to do so.
Even institutions are finally realizing the extreme difficulties of identifying superior active fund managers. The huge California retirement agency CALpers will likely be increasing its passively managed equity portfolios from a 30 % overall level to a 60 % commitment in the near future. The CALpers team carefully screened active managers, but these chosen Ones failed the acid market exposure over fair test periods.
The Litman/Gregory mutual fund organization, which emphasized portfolios constructed by a diligent and detailed multi-manager selection process, has not generated superior rewards. Manager changes have been made far more frequently than planned. Litman/Gregory is discovering that management selection is a tough nut.
Allow me to take exception to your assertion that folks would be satisfied with an 85 % return when accompanied by an 80 % risk statistic (undefined at this moment). I’m sure some folks would find that an acceptable tradeoff. I’m equally sure many other folks would not be so happy, especially those with a long-term investment horizon.
So I would never be sanguine over quoting any single set of target numbers for investors as a whole. It depends on a multi-dimensional set of requirements, preferences, wealth status, knowledge base, age, goals, and risk adversity attributes. I’m sure I am preaching to the choir now.
Choosing successful active mutual fund managers is a hard road. I know you try; most everyone at MFO tries; so do I. I have prospered a little but have been saddled with some poor choices as well as some successful ones. I am not sure it is worth the effort and the heartache. I hope and wish you more success than I enjoyed in this demanding and vexing arena.
Best Wishes.

The press release begins:

Morningstar ... today announced that Don Phillips will be stepping down as head of the company’s Research group after the first of the year. Haywood Kelly, currently head of equity, credit, and structured credit research, will assume Phillips’ responsibilities as global head of Research, effective Jan. 1, 2014. Phillips will be a managing director and remain a member of the board of directors. Both Phillips and Kelly will report to Joe Mansueto, founder, chairman, and CEO.

It's a "life transition," not retirement. Mr. Phillips:

I’ve often said that, to me, Morningstar is a cause as well as a company. I told Joe that I’d like to step back, but I still want to contribute to Morningstar’s success. He has always been incredibly supportive, and this time was no exception.

They describe Mr. Phillips as having "served in a variety of leadership roles at Morningstar." Indeed he has, though I'm not quite sure how to describe the trajectory of his career:

• 1986, hired as Morningstar's first funds analyst


• 1991-1996, publisher of Morningstar Mutual Funds


• 1996-1998, president of Morningstar


• 1998-2000, CEO of Morningstar


• 2000- , Managing Director of Corporate Strategy Research and Communications


• 2009-2014, president of fund research


• 2012-2014, president of the Investment Research division

I'm not entirely sure what a Managing Director does, but they make $962,768 for the effort (per BusinessWeek).
This might all be an endorsement of luck and the liberal arts: Mr. Phillips' B.A. and M.A. are both in literature.
For what interest it holds,
David

Hi Guys,
You are making a fundamental error in equating a smart, high IQ to a successful investor. Once an average IQ threshold has been penetrated, an investor is in a comfortable investment zone. There is some evidence that having an extra high IQ can do damage.
Even if John Hussman is the smartest person in the room, it is not necessarily likely that he will be the most successful investor. The first attribute simply does not automatically translate into the second outcome. Successful investing depends on multiple attributes that include intelligent money management skills. I suspect that common sense street smarts swamps high IQ smarts when making investment decisions. Here’s some evidence using the IQ dimension.
Super smart guys have been making lousy investment decisions throughout history. Sir Isaac Newton is a notorious example. He lost a fortune investing in the tragic 1720 South Sea Bubble.
Albert Einstein was certainly a brilliant scientist. He also was a social rebel. He made some very bad investments throughout his lifetime. He lost much of his Noble prize money in the 1929 stock market crash. High IQ alone does not guarantee success in the investment world.
One of the qualifications to be a member of the illustrious Mensa cohort is that your IQ must be in the top 2 % of the entire population. Long term investment studies of this elite group have discovered that these fortunate folks have significantly underperformed average investors who, by the way, typically underperform simple Indices. Apparently, the Mensa members sky-high IQs operate as a hindrance instead of an asset when making investment choices.
Why is that the case? Perhaps these smart folks over-think or are too nuanced when making their decisions.
Allow me to speculate that the smartest investing might well be the simplest investing. An army of ultra-smart people would reject that hypothesis immediately, especially those who concentrate on individual stock picking. The data suggests that these smart folks are often wrong.
On the positive side of that same coin, according to recent academic studies, moderately above average IQ individuals do seem to be more judicious and more profitable in stock selections over their low-IQ brethren. Also, they are more likely to resist wealth destroying herding pressures.
There appears to be an intermediate IQ happy hunting ground for the slightly well endowed IQ class of investors. This class is best characterized by possessing above average IQ, but not in the upper rarified stratosphere of IQ. A final resolution remains hidden in the future since study findings are a little choppy and somewhat provocative.
Just consider for how long financial institutions like CALpers used active sleeve management to achieve their long-term goals. As MFOer Ted recently posted, that agency is reevaluating their policy. They are now trending towards a more passively managed percentage for their massive portfolio. CALpers is learning the marketplace’s lessons slowly. Their decision is likely to be a watershed marker since other retirement institutions may well adopt a follow the leader approach.
I would guesstimate that most MFO participants are in the happy hunting grounds territory from an IQ measurement. I doubt John Hussman is in the Mensa range. Regardless, successful investing is more likely determined by reliable common sense and sound money management policies than by an exceptional IQ rating.
Being a committed slave to a set policy could compromise common sense and money handling acumen. There's an obvious lesson here too.
Best Wishes.

Dear friends.
Day One consisted of a keynote address and the chance for a half dozen short one-on-one conversations.
The keynote address, by PIMCO's chief operating officer, Douglas Hodge, was nearly pointless. Part love song to the ETF ("you've democratized finance!") and part pedestrian droning (did you know that many people haven't saved enough for retirement, that the retirement stool has three legs and that asset class correlations spike during a crisis?), the most startling thing was how little PIMCO contributed to the talk. Mr. Hodge has access to some of the world's best fixed-income research and ended up giving the talk that any good financial planner would give one the first night of his "investing for the long term" seminar.
There is a conference website (eventmobi.com/ETFInvest) that reproduces the slides used and might offer video. If you're feeling philosophical, you might want to look at Mr. Hodge's slides on the relationship between national income and life expectancy. There are a series of twelve, by decade from 1900. As you might expect, there's a global trend toward rising life expectancy and there's a very clear relationship between wealth and life expectancy. Except in sub-Saharan Africa (the dark blue dots) where there seems to be no linkage between the two.
Curious.
I spoke with Jim Atkinson, president of Guinness Atkinson Funds. He volunteered that he was, for what interest it holds, really impressed with the consistently high level of understanding folks on the board show - and their broad-based civility in discourse. He's interested in arranging a talk between the London-based managers of GAINX and me.
Actively-managed ETFs are under 1% of all ETF assets; MINT is the largest of them. As a result, they're not much in evidence here but I'm spending some time trying to see how the ETF providers are thinking about them - and whether the folks at Morningstar have any insight into T. Rowe's plan to launch non-transparent active ETFs. I'll pass along what I learn.
David
p.s. funniest giveaway: FTSE ("footsie") is giving away little gray footie socks, the kind that don't come up to your ankle bond. We'll post a picture once the light is good enough to get a clear shot.

Hi Guys,
Some recent research that focused on a portfolio’s fixed income holdings by financial and retirement planning heavyweights has prompted a reevaluation of the recommended bond percentages in that target portfolio as a function of time horizon.
Some of this debate raged in the MFO discussion titled “Bonds, Be Gone”. For completeness, here is the Link to that discussion:
http://www.mutualfundobserver.com/discussions-3/#/discussion/8079/bonds-be-gone
Not surprisingly, the research wizards conclude that the proper percentage is time dependent. The newer body of research emphasizes a tipping point between the accumulation and the distribution phases of a portfolio’s lifecycle.
The conventional wisdom had been that a bond allocation should increase with age to dampen volatility disruptions, especially critical soon after the distribution phase begins.
More controversial is the finding that current Monte Carlo-based research suggests that just before the retirement date, and soon afterward, the portfolio should go heavy into bonds to blunt the possible impact of any Black Swan events in this crucial timeframe. Further, these newer findings advocate an increase in equity positions as the retirement progresses to battle inflation and to augment the likelihood of portfolio survival.
Flexibility in annual drawdown rate, especially after a market downturn, remains a recommended tactic to enhance survival probability prospects. An obvious successful tactic to escape portfolio bankruptcy is to reduce withdrawal rates immediately after a market down year.
The standard portfolio wisdom almost never advocates a totally 100 % equity portfolio, except for perhaps the situation of an investor who is 30 years removed from any withdrawal needs. This is not a novel concept. It has been a constant part of retirement planning for centuries. Prudent investors like Benjamin Graham have consistently recommended this policy.
Benjamin Graham is recognized as one of the rare Wall Street masters. It is less well known that he was the teacher of many other Wall Street giants. That tiny group includes the likes of Warren Buffett, Bill Ruane, Walter Schloss, and a host of others identified in Buffett’s famous “The Superinvestors of Graham-and-Doddsville" paper.
Graham summarized his lessons from a lifetime of mostly successful investing in a little known lecture that he delivered in a November 1963 San Francisco presentation. His lessons learned are still pertinent today since the fundamental uncertainties of yesteryear are still relevant today. There is much investment sagacity in this 14 page record of his speech. Here is the Link to this Graham lecture treasure:
http://www.jasonzweig.com/documents/BG_speech_SF1963.pdf
Graham warns that “Hence a large advance in the stock market is basically a sign for caution and not a reason for confidence”. The San Francisco presentation is dense with these common sense observations.
For example, Graham notes that the higher the market advances, the more the investor should mistrust its future advance.
Graham accepts wild market price fluctuations (volatility) as a rule rather than an exception. He claimed he gave up trying to make market predictions after 1914 because it was not a dependable, prudent investor’s game; he is very humble when he proclaims that even making a one year forecast is an unreliable, unproductive chore.
Even in 1963, Graham reluctantly acknowledged the difficulties that professional money managers encountered in beating appropriate market indices. He is skeptical about the efficacy of economic, stock market, and financial forecasting. The evidence suggests otherwise; predictions are notoriously error prone.
Graham preemptively makes the global Bill Sharpe argument about the requirement to balance all returns among the investment population before Bill Sharpe himself makes an identical case. What one active investor earns above some standard metric, another less fortunate investor must sacrifice.
Graham talks about the relative dividend gap between bonds and stocks, and highlights the modeling of this gap over the years. He defends a mixed fixed income-equity portfolio asset allocation that varies between 25 % to 75 % equity holdings. Although Graham favors a higher concentration of equity positions when the price is right (cheap), bonds are always part of the Graham ideal portfolio. He favors dollar cost averaging approaches. He likes mutual funds as an easy, cost effective way to fully diversify. He doubts that many investors have the skills and discipline to invest in individual stocks.
I strongly recommend that you access the Graham 1962 presentation. Although the quoted data are stale, the basic concepts retain their vitality. Be patient; the download is slow, but well worth the wait. Benjamin Graham’s market acumen and operational rules will make you a better investor.
Graham asserts that (from page 8) “… there is no indication that the investor can do better than the market averages by making his own selections or by taking expert advice.”
That’s a significant concession from a market legend. With the exposure and absorption of 5 decades of experience, Graham observed that he knew less and less about what the market would do, but he gained perspective on what investors ought to do.
In the end, without explicitly stating it, Graham was really touting passively managed Index mutual fund/ETFs since professional managers did not advance returns above general market rewards. Remember, in the 1962 lecture timeframe, Bogle’s Index fund dream was just starting to jell.
Graham concluded his lecture, as I will this post, with the positive admonition that “by following sound policies almost any investor- even in this insecure world – should be able to eat well enough without having to loss any sleep”. Amen to that.
Your comments are always welcomed and encouraged.
Best Regards.

It has everything to do with risk/volatility tolerance, goals, and time horizon. As Investor noted, the best allocation is the one you can live with. Or, as we say, the one that allows you to sleep at night. While I see a chart that includes a history of interest rates (a 30-year period of declining rates) near my desk, and look at it almost every day, I also know that bonds in general have much lower volatility than stocks. For some investors that could be the overriding point. For some reason, investors have become complacent with strong returns from bonds, thinking they would never lose value. Now pundits have scared many people into thinking all bonds are about to blow up in their faces.
Some people do not need to generate much gain at all from their investments in retirement, since much of their cash flow may be covered by pensions, annuities, and social security. Why then would they want to be heaviliy invested in stocks? We do not and would not consider pensions, annuities, or SS as fixed-income investments, unless a client insisted, and none have. They are retirement benefits or cash flow benefits. MJG makes some good comments about the importance of keeping volatility reasonable.

Reply to @STB65: WIth an approximate 30 year horizon, my retirement funds are currently around 10% domestic/5% EM bonds. The EM is there strictly for diversification. The domestic side is there for the mild diversification/volatility mitigation, but mostly for dry powder for declines since my IRAs are funded in the beginning of the year.
I do worry about having too much in bonds right now.

Despite having been burned a few times by not having bonds in funds for relatively short-term needs, such as college tuition, I can't see the logic of even a small bond percentage for someone 15 to 30 years from retirement, regardless of expert opinion. It may make one feel better to see something go up in a declining portfolio, but the gains should occur in equities.
So far, SS seems to remain the third rail, even for the Tea Party representatives, for those within 10 years of retirement, so it represents a "bond" holding for them.
I do think the portfolio could or should contain dividend funds or a "value" tilt. If you can live on your SS income and cash savings for several years, you might get by with dividend aristocrats instead of bonds even near retirement, but I do have some bond funds since I expect to retire in 5 to 8 years. Considering the current bond market, I'm not even sure that makes sense. Hope Grundlach and Gross pull me through.