bilperk:

Hi Chin:

Now do the same calculation for 96-2000.  Balanced index and un-rebalanced seperate funds.

Hi Bill,

I looked at 1995 - 1999, and the unbalanced portfolio came out 7.5% larger after 5 years, and even with slightly lower volatility, but with a mix of 79/21 by the end, from a starting mix of 60/40. Without looking, I would figure the 10 yr. returns would be lower, and the standard deviation higher if you did not rebalance for the entire period. 79/21 brings down your volatility protection.

You did recognize I said rebalance in bull markets and not in bear markets, right?

Chin

"You did recognize I said rebalance in bull markets and not in bear markets, right?"

Yes, and I was testing that.  So I'd like to see the results for the whole period.  Not the % results, the growth of 10K results for the two different portfolios from 1995 thru 2004.

I think the unrebalanced will come out higher. 

best,

Bill

double post

bilperk:

"You did recognize I said rebalance in bull markets and not in bear markets, right?"

Yes, and I was testing that.  So I'd like to see the results for the whole period.  Not the % results, the growth of 10K results for the two different portfolios from 1995 thru 2004.

I think the unrebalanced will come out higher. 

best,

Bill

For the entire 10 yr. period, rebalanced would have come out $27,748.19; not rebalanced, $26,856.76. Doing it the way I suggested, rebalanced during the bull years and not during the bear years came out $26,611.12.

Actually this suprised me, as I thought it would have come out a lot lower the way I was suggesting doing it. I was thinking you would have to pay a higher price (lower returns) for the lower volatility.

Chin

tar42:

Explain then why Vanguards only Balanced Index fund(VBINX), and ovbviously a fund that should represent the best offerings for a passive, moderate balanced fund done so poorly against a managed fund like Oakmark E/I.

Hi Tim,

Beyond the fact the S&P 500 has been the worst performing sector of the market recently, what do you think about what I offered? Is it possible Oakmark and other funds are gaining some alpha by doing nothing or hunkering down to protect over the possibilities of panic selling by investors?

This also still begs the question -- If Oakmark is so good at what they do, why would one choose to increase cash beyond what they allocate, or buy stocks beyond what they select in the trying periods?

As far as the results for the balanced index fund, would different periods not offer different results. How did Oakmark do during the 1973 - 74 bear market?

Why should the balanced fund " . . . represent the best offerings for a passive, moderate balanced fund?" This sounds like the EMH statement that since those smart institutional investors price all information into the stocks, throwing a blanket over the market would be the optimal portfolio.

Being a passive investor, I am not placing faith in the managers of the index funds or managed funds I invest in. The performance of a balanced index fund or a few managed funds does not effect the asset allocation I choose, and I don't have to depend on the S&P 500, huh?

Chin

Oakmark E/I has about 5% in cash, but the point I made on past thread was that a managed fund has the opportunity to decrease their holding when 'they' deem it beneficial for the good of the investor, we as index funds must hold everything regardless of stock quality.

I might ask you, Chi, how Vanguard's Target funds did in the 1973-74 bear market?

"This also still begs the question -- If Oakmark is so good at what they do, why would one choose to increase cash beyond what they allocate, or buy stocks beyond what they select in the trying periods?"

It seems to have worked well vs VG's Balanced fund since OAKBX's inception in 1998.

Being that my core fund(OAKBX) is a managed fund and VG's balanced fund represents core index holdings I would think it would stand out for the average passive investor seeking what the Diehards proclaim. I'm well aware that you proclaim a much more complex portfolio and apparently chose not to hold a balanced fund, Chin, but the fact remains that the VG Balanced index fund offers a poor example of why one would invest in VG's passive balanced holding.

http://moneycentral.msn.com/investor/research/wizards/FRWCompare.asp?company2=VBINX&company3=&Symbol=OAKBX&DoCompanyLookup=

VBINX >Vanguard^® Balanced Index Fund seeks —with 60% of its assets— to track the investment performance of a benchmark index that measures the investment return of the overall U.S. stock market. With 40% of its assets, the fund seeks to track the investment performance of a broad, market-weighted bond index.

 It appears that 'some' managed funds can be successful investments without absorbing the losses that appear in such a investment strategy. According to VG their fund has more than 7,000 holdings.....I'm guessing that VBINX holds more than just the 500, Chin.

"hunkering down", Chin, may just be the reason why many passive funds haven't(past history) substained the losses we saw earlier this century.

Sleep beconds

Take care

Tim

tar42:

Oakmark E/I has about 5% in cash, but the point I made on past thread was that a managed fund has the opportunity to decrease their holding when 'they' deem it beneficial for the good of the investor, we as index funds must hold everything regardless of stock quality.

I might ask you, Chi, how Vanguard's Target funds did in the 1973-74 bear market?

Hi Tim,

This is pretty much the point I am making. Are the managers seeing the market coming, or are they just allocating more to cash in fears of redemptions after the market starts going down? What I have shown is doing nothing during a bear market in a balanced strategy wouldn't be a bad idea, so what they are doing may not be such a bad idea, but they may not deserve credit for this.

The Target Retirement fund would not have done as well as the balanced fund1973 - 74, but would have done better 2000 - 2002, and to date. This is part of the point I am making that looking at only one 10 year period doesn't offer much in the way of identifying the worth of an investment strategy.

"This also still begs the question -- If Oakmark is so good at what they do, why would one choose to increase cash beyond what they allocate, or buy stocks beyond what they select in the trying periods?"

It seems to have worked well vs VG's Balanced fund since OAKBX's inception in 1998.

Perzactly what I am asking. If Oakmark has done so well, and past performance offers security of future performance, why would you choose to hold higher percentages in fixed than they see fit, or buy individual equities over what they find as bargains?

Being that my core fund(OAKBX) is a managed fund and VG's balanced fund represents core index holdings I would think it would stand out for the average passive investor seeking what the Diehards proclaim. I'm well aware that you proclaim a much more complex portfolio and apparently chose not to hold a balanced fund, Chin, but the fact remains that the VG Balanced index fund offers a poor example of why one would invest in VG's passive balanced holding.

Well, first off, the balanced fund is not a representation of Diehard's holdings. Taylor, probably the most Diehard of the Diehards has offered his simple 4fund, Total US, Total Intl., Total Bond, and Inflation Protected Securities. He would suggest something like 60% fixed and 40% equities for the retiree, or even less for someone with the risk aversion you appear to have.

The balanced fund would be for the truly ‘Know-nothing' investor who might follow Wall Streets offerings and performance chasing such as what caused them to lose 80% of their holdings 2000 - 2002. 100% S&P 500 wouldn't have caused them this much grief. The Target Retirement funds would put those with the most to lose in a market such as this in higher percentages of fixed than the balanced fund. Obviously, these are not bad holdings for the average investor, considering what they could have been in. And, once again, even at that, you are only looking at one 10 yr period to draw your conclusions.

VBINX >Vanguard^® Balanced Index Fund seeks —with 60% of its assets— to track the investment performance of a benchmark index that measures the investment return of the overall U.S. stock market. With 40% of its assets, the fund seeks to track the investment performance of a broad, market-weighted bond index.

 It appears that 'some' managed funds can be successful investments without absorbing the losses that appear in such a investment strategy. According to VG their fund has more than 7,000 holdings.....I'm guessing that VBINX holds more than just the 500, Chin.

It ‘Appears' so, as you are looking, once again, at one 10 yr period to draw your conclusions. You would have had no reason to believe Oakmark E/I to be a superior fund 10 years ago, as it had no history, no evidence of management superiority. If you had been invested in the funds that appeared to have management superiority back then, you would have suffered the same as all the other investors who chased after past performance as a sign of superior management.

The S&P 500 is a proxy, and a good one of the market. TSM is 99% correlated to the S&P 500.

"hunkering down", Chin, may just be the reason why many passive funds haven't(past history) substained the losses we saw earlier this century.

I think you meant to say "managed funds" as opposed to "passive funds," but this goes back to what I am asking. If you have faith in these managers to hunker down, why would you adjust your holdings beyond their adjustments.

If one had confidence in their own abilities, she would be better served in index funds, as she would know what the index funds were going to hold. If you adjust upward in cash, then the fund manager adjusts upward in cash, you have just added double the cash you thought you should hold. Then, if you increase your equities to adjust for this, and the fund manager adjusts their equities upward, you just doubled the equity changes you intended.

If you don't have faith in the managers, you would be better off in index funds and Vanguard funds using quantitative strategies, so you do not suffer double indemnity in the temporary movements of the market.

What you think?

Chin

>"It ‘Appears' so, as you are looking, once again, at one 10 yr period to draw your conclusions. You would have had no reason to believe Oakmark E/I to be a superior fund 10 years ago, as it had no history, no evidence of management superiority. If you had been invested in the funds that appeared to have management superiority back then, you would have suffered the same as all the other investors who chased after past performance as a sign of superior management."

Granted OAKBX had no history prior to opening the fund, but obviously I bought into the fund and was not chasing performance. LOL, Chin, an investor has to start somehere. I use a 10 year comparison since OAKBX is MY investment. Since I prefer balanced funds I have made a comparison with the best balaced index fund offering VG had. VBINX did not hold up well during the past downturn when compared to OAKBX. After another decade we can use a 20 year comparison of the two funds.

.

"I think you meant to say "managed funds" as opposed to "passive funds," but this goes back to what I am asking. If you have faith in these managers to hunker down, why would you adjust your holdings beyond their adjustments."

Correct on meaning ".managed". I do have faith in some fund holdings and have not sold any OAKBX shares. Several other funds were reduced with the cash going initially to the MM....and then some MM cash has gone into individual stocks that I feel represent value. Rather than hlding  additional bonds(outside my balanced funds) I elected to other investments with dividends and or appreciation possibilites.

"What you think?"

I think I like what I have been doing.

Tim