With that said, I have almost 80% of my invested assets with BRAGX and BRAIX.  51 yr old manager.  I would rather rely on a computer that a person (although the person must maintain and tweak the model to keep it a sound strategy) and he pays a lot of attention to taxes. 

Hi valu,

May I ask what you own for international equity exposure?  I am trying to simplify my portfolio and for my taxable account am wondering if I should just pair BRAIX with VEU (and that's all!).  I am satisfied with Bridgeway solely covering me domestically, but have yet to find an equivalent for the international side.  Like I said, I may just settle for VEU.

At 80%, you don't believe the world economy will decouple from the US's?
     

 

You are assuming that all other funds are likely to underperform the ones that you own, right?  If an investor owns 10 funds and there is an 11th fund out there that reasonably has the ability to perform better than the first 10 over some period of time, than by adding an 11th fund you are not diluting performance.

Yes, but several things: 1. your initial search should have uncovered this 11th fund if it was adequately thorough; 2.  if something has changed that makes this 11th fund superior to your existing 10 funds, it might be worth considering whether one of the 10 funds should be dropped in favor of the 11th fund. 

The question the investor needs to ask is: "at what point" does that additional fund no longer has the ability to equal or add to the performance and if it is not likely to equal or add to performance is it (because it better) going to lower the risk profile of the overall portfolio because of correlation.

I don't have a strong preference regarding portfolio volatility as the probability that I will need to withdraw significant money from my investments in the short-term is effectively zero.  This is completely dependent on your individual circumstances, however, so I can sympathize with the point. 

 

Best,
Oildog

I do not own an international manager.  I am not recommending that others follow my lead on this point but I will explain why I have decided to invest in such a way (for myself).

With that said if you were set on owning international I would look at funds like JETIX/JETAX and ANJIX.  As you will see below, there are reasons I will not own either.....owned by big public banks/insurance companies, etc but they are the "type" of international fund I would own if I was going to.  They are unique, proven disciplines, either team managed or by a young manager and they are truly different than the index. 

1)  I have not been able to find a manager outside of the US that fits the criteria that I look for as BRAGX/BRAIX does on the domestic side.

        - young manager or team approach, private firm, proven discipline, no asset bloat, not index hugger/closet indexer, tax aware


2) I do not like dealing with Foreign Taxes as it further hurts long term after tax returns and is an April headache

3) International Indexes are flawed because of country weightings that make for easy active management outperformance.  EAFE is one of the easiest benchmarks to beat.  That is statistically proven.  FTSE All World, etc are all very similar...

4)  Most international managers have heavy weightings to Western Europe and Japan.  That is not good diversification from the US.  If you are going to invest overseas find a fund that is truly different.  (EG Allianz NFJ International Value: I will not buy for reasons listed above but that is a good example of a team approach and different kind of an international fund that can provide diversification and outperformance.)

5) Lastly, I believe that even if the US is to underperform that rest of the world a fund like BRAGX/BRAIX can still give great returns regardless.  They hold 40-70 stocks that look nothing like any index and therefore I believe over the long term, even in a difficult US market, it can provide wonderful returns.  I understand it is backward looking but the last 10 years are good example of that).  In essence, I can get the returns I am looking for over the long term (not 1,2,5 or 7 yrs but 10+yrs/15+yrs) with such a stock picking strategy that BRAGX/BRAIX implements.  That is the educated guess I am willing to live with understanding that my portfolio can potentially have less volatility and do better shorter term if other asset classes were part of the overall portfolio.

 Not sure this helps but it the approach I have decided to take until something comes along that fits all of my above listed criteria.  I just don't see that happening. 
 

Totally agree with your second point.  Unless you are in your distribution years, volatility does not play a factor except to help with the "sleep at night" factor many investors need.  That is why I own so much BRAGX/BRAIX.  I am not planning on withdrawing for 17 or so years (if ever) so I could care less about the volatility.  I am looking for what I believe is the best strategy to deliver the best long term returns.

 
To your first point, I would agree with it assuming that the individual is actually able to pick the best 10 funds for the next 10 years.  We are dealing in theory only here and since noone can accurately predict which funds will perform best over the next 10 yrs (arbitrary number) there is no way to know if adding the additional fund will help or hurt.  Therefore, there is no way to know if you are going to dilute or enhance your returns.  It is simply an educated guess.  That I think we can agree on?

 

Warren Buffett's oft-quoted line to the effect that "if you're clueless, pursue diversification; if you know what you're doing, pursue concentration" stands in notable contrast with the large collection of diverse companies (everything from carpets and candy to jewelry and insurance) he has assembled under the umbrella of Berkshire Hathaway.

the way buffett and soros invest is by buying the market space, betting against something and in general doing this that someone without their $$ can not play.  The can make move and a number of sheep will follow..  I'm sure it is nice, but not very many people can play that game.  Not a good analogy.

Both of these points are off the mark and reinforce my point that most investors are not willing to do their homework. 

1. Berkshire's current wide diversification is a function of a huge asset base that Buffett has accumulated over many years.  He has said many times that this is a liability and will reduce his performance.  Buffett's historical outsized returns were established through very concentrated bets in securities such as AXP, Geico, WPO, and KO, e.g. as high as 60% of the portfolio in AXP alone in the 1950s. 

2.  Buffett's strategy is completely different from Soros and does not depend on shorting.  He has taken advantage of Berkshire's heft to attract private sellers in recent years, but the returns from the initial 20-30 years were primarily based on long-only bets in individual stocks based on information gained from publicly available material. 

Best,
Oildog

Sorry for all the posts....I forgot to answer the last question of your post though.  I do think that "certain" parts of the world can and already have decoupled and that a manager that thinks outside the box (as mentioned in my prior post) can enhance returns and create the kind of diversification you are looking for.  The problem is that most managers do not think outside of the box and even for those that do, most do not fit my search criteria and I believe that my current managers can provide the returns I am looking for without going overseas (again, over long periods of time).

Thanks for the reply, valu. 

I too avoid bank-owned funds, so I would not invest in the funds you suggested.  One fund I would pair with BRAIX in a heartbeat if it were more tax-efficient is TAVIX.  Otherwise, there is no international fund I have found to be satisfactory and which I could trust that I could keep for the long haul. 

I believe BRAIX can own up to 10% in foreign equities.  Right now M* lists it at around 15% though.  At the top of my wishlist is an Aggressive 3 global fund.  I have tried to email Mr. Montgomery about this but received no reply.

 

the way buffett and soros invest is by buying the market space,

Both of these points are off the mark and reinforce my point that most investors are not willing to do their homework. 

okay, so what is this:

Over the past three years, Berkshire has spent $27.3 billion to buy seven companies in industries as disparate as aviation, fast food, and home furnishings. The $22 billion purchase of reinsurer General Re Corp., which closed late last year, was Buffett's largest ever.

He doesn't invest in stocks, He buys companies...  Most investors/ investment companies don't go around an buy the company..  ie,  not everybody can invest like this,  he changed the rules, and it worked for him..  Great job,  Soros did likewise, they played a different game an came out winners..

Buffett 'quotes/ rules' won't steer my way of investing because I can't play his game..

 

To your first point, I would agree with it assuming that the individual is actually able to pick the best 10 funds for the next 10 years.  We are dealing in theory only here and since noone can accurately predict which funds will perform best over the next 10 yrs (arbitrary number) there is no way to know if adding the additional fund will help or hurt.  Therefore, there is no way to know if you are going to dilute or enhance your returns.  It is simply an educated guess.  That I think we can agree on?

Two different issues: 1. You are uncertain about which fund has the highest expected returns.  2. You are uncertain about which fund will have the highest realized returns in the future.  Uncertainty about #2 is a given.  It's possible that A-Rod will hit fewer home runs than an average player in any given baseball season.  However, you will maximize your expected home runs by choosing A-Rod over the average player. 

Best,
Oildog