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I don't care to join in on the arguments over Weiner, and don't care to argue with Petrocelli, as I consider Petro a friend. We have differing views, and I see that as healthy when it comes to developing an investment philosophy. The problem as I see it is, one is not developing an investment philosophy when following a newsletter and/or chasing after the hot managed funds. I don't know Weiner's record, as I do not receive the newsletter, but I have honest doubts Weiner or anyone else can accomplish any more than a Do It Yourself (DIY) passive investor can on their own with a little help from their friends. I understand the complaints of the Diehards offering their short little "parables and platitudes" in answer to the managed funds postings here, and I have tried to not do so in my answers to the managed -vs.- indexing debate. In my view, it is not a matter of Weiner being able to beat the market, as beating the market is easy through asset allocation, especially in a period when pretty much every other market has beaten the S&P 500. It is also not a matter of whether managed funds offer a better risk/return than index funds, as neither of these address what the Diehards is/was about. In what is often called indexing, and is so often misidentified as the S&P 500 or Total Stock Market (TSM), managed funds do have their place. As a general rule, you choose managed funds where index funds are not available. As my friend Petro offered, when he looks at managed funds, he looks at them in a way indexers look at index funds. If I may expand on this as I think he would, he looks at managed funds with low expenses he feels fits in the market in which he invests in with a proven management record. If I may offer without overstepping my boundaries in the way Larry Swedroe might also look at this, he has offered Bridgeway fills a need in the small cap area of asset allocation Vanguard does not, while offering proven management and low costs, but costs that would send a index only Boglehead spinning. ;), What many see as the stogy limits to Vanguard Diehard or Boglehead investing, as many of the Diehards, or Bogleheads may have misinterpreted, Bogle stands for only TSM/TSB in his investing suggestions. I think this holds true as he has spoken out against Slice-n-Dice, but I think his words are generally pointed at those who use S&D, or the Efficient Frontier, as a selling point to rob investors of their investment earnings through unneeded advisory fees and/or confusion over the simple rules of investing. In fact, I have a little something stuck back Dr. Aswath Damodaran of Stern U, NY offers his students where Bogle offers some guidelines to selecting managed funds; http://pages.stern.nyu.edu/~adamodar/New_Home_Page/articles/bogleonfunds.htm Sometimes, in a well diversified portfolio, it is not even possible to use only index funds. In my Know-nothing Portfolio, I use; - Vanguard International Value (VTRIX)
- Vanguard International Explorer Fund (VINEX)
- Vanguard Precious Metals (VGPMX)
Vanguard Energy Fund (VGENX)
Vanguard Inflation-Protected Securities Fund (VIPSX)
There are no index funds that fit into these markets, and I personally feel these markets offer excellent diversification that exceeds the total market or index only approach of investing. However, I know there are always going to be those who believe fund managers can beat the index fund, but I would suggest if you are looking for a managed fund, look at the long record. Funds have done well for 5 to 10 years, just to go by the wayside, or get sucked up by another fund, because the manager failed to succeed in what the Fly by the seat of their pants 5* investors consider the long term. When looking at managed funds or the success of a newsletter portfolio, it is best not to fall into the trap of comparing apples-to-oranges. For instance, don't look at a managed fund that has the opportunity to invest in mid caps and compare it to large caps in a period when mid caps, or a combination of large/mid caps have exceeded the returns and/or risk/returns of large caps. If the fund manager is any good, they should know when to be in mid, and when to be in large to the point they would have beaten a mid cap index fund. The same would hold true with newsletters. Don't fall into the trap of thinking the portfolio of a newsletter succeeded because it beat the S&P 500 or TSM over a period when the S&P 500 and TSM underperformed all other areas of the market. Also, don't confuse balanced portfolios with Slice-n-Dice portfolios. When comparing portfolios, you must look at the international, value and size weightings of the portfolios; risk/return. As a for instance, my Know-nothing Portfolio invests heavily in value and internationals, including emerging markets. A 60/40 TSM/TSB would offer risks closer to a 50/50 blend in my Know-nothing Portfolio, or a 40/60 blend in a DFA portfolio. (I only bring up DFA for comparison) Pretty much, the bottom line statement I am trying to make here is, Don't confuse a fund manager's or a portfolio manager's record to that of the S&P 500 or blend if they invest outside the S&P 500. Compare their success to Larry Swedroe's portfolio, or William Bernstein's, or even Bill Schultheis' simple little Coffeehouse Portfolio. Both Bernstein's and Schultheis' are based purely on Vanguard funds, and Schultheis' purely index funds. Larry Swedroe has offered here in the past, and now over at the Bogleheads, what I might consider the ultimate of both passive and ‘Beat the market' portfolios. All this is free. If it's too complicated, look at what Bogle offered in the link above. I don't think you can get much simpler. The greatest control you have over your portfolio is your asset allocation. If you want to be dependent on newsletters and fund managers for the rest of your life, I must ask the question, Why are you here? Why did you come to an investment board focused on DIY if you want to stay dependent on someone else? I'm not denying anyone's right, or need to discuss newsletters and/or managed funds. I am not even saying there are not superior newsletters or managed funds, but I personally would demand one that bettered the market for a period of 30 years or more before I would take the risk of investing in a manager that cannot do what a simple 4x25 strategy has done for as long as we have data for; back to 1927. This has not proven an easy task; http://www.vanguard.com/bogle_site/sp20040413.html <SNIP> So today, three decades later, let's examine some brute evidence. Let's go back to the era in which the Samuelson article was published, and see what lessons we can learn by examining the evidence on the ability of mutual fund managers to provide market-beating returns. In 1970, there were 355 equity mutual funds, and we have now had more than three decades over which to measure their success. We're first confronted with an astonishing-and important-revelation: Only 147 funds survived the period. Fully 208 of those funds vanished from the scene, an astonishing 60% failure rate. Now let's look at the records of the survivors-doubtless the superior funds of the initial group. Yet fully 104 of them fell short of the 11.3% average annual return achieved by the unmanaged S&P 500 Index. Just 43 funds that exceeded the index return. If, reasonably enough, we describe a return that comes within plus or minus a single percentage point of the market as statistical noise, 52 of the surviving funds provided a return roughly equivalent to that of the market. A total of 72 funds, then, were clear losers (i.e., by more than a percentage point), with only 23 clear winners above that threshold. If we widen the "noise" threshold to plus or minus two percentage points, we find that 43 of the 50 funds outside that range were inferior and only seven superior-a tiny 2% of the 355 funds that began the period, and an astonishing piece of the brute evidence that Dr. Samuelson demanded. The verdict, then, is here, and it is clear. The jury has spoken. But its verdict is not "unproved." It is "guilty." Fund managers are systematically guilty of the failure to add shareholder value. But I believe the evidence actually over-rates the long-term achievements of the seven putatively successful funds. Is the obvious creditability of those superior records in fact credible? I'm not so sure. Those winning funds have much in common. First, each was relatively unknown (and relatively unowned by investors) at the start of the period. Their assets were tiny, with the smallest at $1.9 million, the median at $9.8 million, and the largest at $59 million. Second, their best returns were achieved during their first decade, and resulted in enormous asset growth, typically from those little widows' mites at the start of the period to $5 billion or so at the peak, before performance started to deteriorate. (One fund actually peaked at $105 billion!) Third, despite their glowing early records, most have lagged the market fairly consistently during the past decade, sometimes by a substantial amount. The pattern for five of the seven funds is remarkably consistent: A peak in relative return in the early 1990s, followed by annual returns of the next decade that lagged the market's return by about three percentage points per year-roughly, S&P 500 +12%, mutual fund +9%. In the field of fund management it seems apparent that "nothing fails like success"-the reverse of the threadbare convention that "nothing succeeds like success." For the vicious circle of investing-good past performance draws large dollars of inflow, and having large dollars to manage crimps the very ingredients that were largely responsible for the good performance-is almost inevitable in any winning fund. So even if an investor was smart enough or lucky enough to have selected one of the few winning funds at the outset, selecting such funds by hindsight-after their early success-was also largely a loser's game. Whatever the case, the brute evidence of the past three decades makes a powerful case against the quest to find the needle in the haystack. Investors would clearly be better served by simply owning, through an index fund, the market haystack itself. </SNIP> There is much more in this ‘One' of his many speeches worthy of a read, and yes, I know it's long, but he had a lot to say, just as must have had a lot to say, huh? ;o), originally posted here; http://socialize.morningstar.com/NewSocialize/forums/thread/2483662.aspx
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