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  • On Sale Now: Tax-Free Income Over 6% [View article]
    Left Banker: You mention that muni CEFs are "beginning...a year end sale". At first reading I assumed you were saying that year end tax selling might be involved. But since all these funds seem to have had good years, appreciation and income wise, there wouldn't seem to be any tax loss selling in 2014. So, other than the fear of rate increases that might occur next year is there anything specific about year end to the muni discount action. Another way of phrasing the question--is there any reason to think discounts will be reduced starting on January 1?
    Oct 7, 2014. 08:13 AM | Likes Like |Link to Comment
  • Forget Active Vs. Passive: It's All About Factors [View article]
    GestaltU: Took a quick look at the Morningstar data for the two funds. They don't have comparable numbers for 1998-2014 but looking at the 5 and 10 year numbers the Dodge and Cox Stock fund (DODGX) had better results than the I shares Russell 1000 Value ETF (IWD). For 10 years it was 7.96% to 7.52% and for 5 years it was 16.83% vs. 15.79%. Both funds handily beat the S&P 500 Index. Of course, I will choose the 5 year numbers to make my case--1.04% per year advantage for the Dodge&Cox. DODGX has a much greater share of their holdings in the "Giant" and "Large" categories (91%) versus 78% for the ETF. If your 16 year number shows an advantage for IWD that might tell us that mid and small cap value is losing some of its advantage as a factor. I will also mention that DODGX has some European exposure and I don't think the Russell 1000 does so they are not totally comparable, especially in a period where Europe has struggled. I will avoid your issue of risk--as a long term measure I don't think there is any valid measure of risk.
    Oct 5, 2014. 11:58 AM | Likes Like |Link to Comment
  • Forget Active Vs. Passive: It's All About Factors [View article]
    Alpha: Good points about closet indexers. There are many poor active managers who underperform. High expense ratios are difficult to overcome. We have all heard about "window dressing" where a fund will buy or sell stocks to make their portfolios look more attractive at quarter end. The late trading scandal of a few years back and the rumors about funds overpaying for stock commissions raises the question of fund integrity. Those flaws don't tell me that active management can't outperform but it does tell me that due diligence is just as important in selecting a mutual fund as it is in selecting a stock.

    Morningstar had an excellent article on August 25 entitled "Active versus Passive is the wrong question" by John Rekenthaler. I will quote just one line and readers can find and read the article to get the background. "Quietly, Vanguard's actively managed funds have outperformed their more famous index siblings".

    I think if you buy actively managed funds with reasonable expenses and managers of high integrity you can outperform. I think Dodge and Cox funds qualify, as do Vanguard, Prime Cap and Matthews Asia (and many other fund families). I own the Dodge and Cox International (DODFX)--it has outperformed their benchmark (not saying the benchmark is perfect) for their 15 year life and I have confidence it will continue to outperform for the long term. To avoid actively managed funds based on flawed academic studies of the average fund seems to be a shallow way to invest.
    Oct 5, 2014. 08:24 AM | 2 Likes Like |Link to Comment
  • The Importance Of TAF To Gilead [View article]

    What does PT stand for? And what is the time frame of your $200+ price estimate?
    Oct 4, 2014. 02:37 PM | Likes Like |Link to Comment
  • Forget Active Vs. Passive: It's All About Factors [View article]
    Its not clear to me, from reading your article, why active managers can't adopt "systematic factors or tilts". I am guessing that many of them do.

    On your point that "even the most optimistic fan of active management would struggle to find evidence of outperformance" of active management. Academic literature on this topic seems to consistently make the same flawed assumptions. (1) comparing active manager results to an index instead of the average performance of index funds for that fund category (thus ignoring expenses, transactions costs and the need to maintain a cash balance (2) ignoring the fact that no active fund fits into one style box which means any comparison to a single index is flawed (3) comparing the number of active funds that outperform instead of comparing the active AUM that outperforms (thus treating a $200 million fund equally to a $50 billion fund) and (4) not adjusting risk for the cash balances of active funds.

    In all financial analysis, whomever determines the assumptions of the research largely determines the outcome of the analysis. It is easy to understand why John Bogle and academia adopt flawed (biased) assumptions in their research. Not so easy to understand why Morningstar does the same.
    Oct 4, 2014. 11:44 AM | 2 Likes Like |Link to Comment
  • Daily State Of The Markets: Repeat After Me: I Will Not Make... [View article]
    David: You might want to expand on the explanation of your investing system. I'm confused so I am guessing many other readers will be. You claim to be an "active risk manager". That tells me that instead of low cost index investing you are generating higher expenses for your clients in an effort to beat the market. But you "don't make predictions". How do you beat the market without making predictions? You tell us that you use "models, indicators and systems". But who selected those models, indicators and systems and how is that different than "making predictions"?
    Oct 1, 2014. 08:55 AM | 5 Likes Like |Link to Comment
  • Lessons From The Past [View article]
    Maybe it's just terminology but it might confuse anyhow. With market cap weight index funds they don't need to buy more of the expensive stocks when the price goes up (and sell stocks that are dropping in price). That action happens automatically in the market. Price of GILD goes up 20% and an index fund automatically has an increase in the value of their GILD of 20% (same number of shares). Of course, if new money comes into the fund then they will buy more GILD, regardless of how expensive it is and I think that is the point you are making.

    There are ETF and open ended index funds that do consider valuation and other factors (size, volatility, etc) and I think the latest term used to describe them is "smart beta". So they might, for example, own the lowest 200 PE stocks of the S&P 500. I think of them as halfway between active and passive.
    Sep 25, 2014. 11:35 AM | Likes Like |Link to Comment
  • 7 MLP Closed End Funds On Clearance Sale [View article]
    Anonymous: You raise a question I have always had on the MLP CEF concept. If I understand these funds, they agree to pay corporate taxes on the MLPs thus avoiding issuing K-1's. Many investors don't want the hassle of a K-1 but to avoid the hassle they give up one of the main benefits of MLPs--tax deferral as long as the MLP is held. I assume the market is pricing that tax benefit into the MLP (the same way they price muni tax benefits into the price of the muni). That tells me that the price of an MLP without tax deferral would be considerably lower. Thus CEF investors are overpaying for the holdings. Maybe investors are finally understanding this and that is why the funds are dropping.
    Sep 24, 2014. 11:33 AM | 2 Likes Like |Link to Comment
  • Buffett's Passive Can Of Worms [View article]
    Chipp; Very good point that you would think the efficient market types would make. We wouldn't look at the success of a typical C-corp (pick Gilead as an example) and say the success of Gilead shows that the market is inefficient because over x number of years Gilead outperformed the market. On the other hand, the typical mutual fund doesn't pay income taxes. Berkshire's results have been impacted greatly by the taxes they pay, both on their stock holdings and the operator assets. It would be interesting to see how Berkshire's stock holdings have performed over the years compared to the S&P 500.
    Sep 24, 2014. 11:11 AM | Likes Like |Link to Comment
  • Buffett's Passive Can Of Worms [View article]
    It seems like you want to ignore what Buffett is saying in recent years (invest in index funds) and focus on what Buffett said in 1984 or what Munger said in a undated quote. People change, markets change. Give us a current quote from Buffett that makes your point.
    Sep 24, 2014. 08:20 AM | 1 Like Like |Link to Comment
  • Circle Of Competence, Fat Pitches, And How To Become The Best Plumber In Bemidji [View article]
    John: Thanks for your response. Here is a quote from the latest Berkshire annual report, page 20 "the goal of the non-professional should not be to pick winners". No qualifications about not wanting to evaluate businesses. Seems pretty basic--my take is that he no longer thinks investors should wait for the fat pitch. Maybe the change is a result of his age, maybe it is a result of what he sees as a more efficient market over the last 30 years, or maybe he has just changed his mind. Personally, I think he is right for the vast majority of non professionals and many professionals also. But like many readers of this site, I still want to be the exception. But I'm hedging my bets by moving a growing percentage of my portfolio into smart beta ETFs and focusing my fat pitch funds into just a handful of stocks.
    Sep 21, 2014. 11:32 AM | Likes Like |Link to Comment
  • McDonald's: What To Do About A Stagnating Long Position [View article]
    One of the many things I don't understand about DGI. You have no problem paying the double taxation on dividends of a C Corp. You want those dividends to grow which will increase those taxes. Yet you don't want to pay exactly the same tax rate on capital gains? Why do capital gain taxes "hurt significantly" and dividend taxes don't?
    Sep 21, 2014. 08:32 AM | 4 Likes Like |Link to Comment
  • Circle Of Competence, Fat Pitches, And How To Become The Best Plumber In Bemidji [View article]
    John: I have been reading Buffett, in his annual reports and later with the TV interviews for some 35 years. He has a lot of what sounds like wise old sayings, almost proverbs. He has used the "waiting for the fat pitch" for many years and the "know your area of competence" just as long. The problem is he has made many statements that are in direct conflict with those proverbs. Lately he has been telling us investors that most of us should be in index funds. What do we make of that--wait for the fat pitch and invest in an index fund? He tells his family, recently as a codicil to his will (I think) that they should invest in an S&P 500 index fund after his death--not a broad based index, no foreign stuff, just the one index fund. Now his family includes his son, Howard, who will be (apparently) the next CEO of Berkshire, and I guess he his telling his son he doesn't have an area of competence--just buy an index fund.

    My guess is we are paying way too much attention to the words of Buffett. He is speaking to different groups and we are assuming he is talking to us. We each, including you John, are cherry picking his proverbs--I guess you could call it confirmation bias.
    Sep 20, 2014. 02:06 PM | Likes Like |Link to Comment
  • The Fed: There Is No Bubble, There Is No Timeline, There Is No Exit Strategy [View article]
    Kevin: Excellent article but let me get your response on your favorite chart/bubble measure. Market Cap to GDP. I have asked this question many times and never received a response so maybe you will be the first. GDP, I assume is a U.S. number. Market cap, I assume, is the value of all U.S. corporations (excluding ADRs). In an era of globalization, many US corps do much of their business overseas. The market cap shows up in the graph but much of the GDP does not. Take McDonalds--if you include all of their market cap in your chart but exclude all of the GDP for their foreign operations why is the comparison meaningful?
    Sep 18, 2014. 06:29 PM | 2 Likes Like |Link to Comment
  • Combining Momentum, Value And Profitability [View article]
    Smurti: Thanks for that but with thousands of ETFs you would think there would be a few that combined all factors into one ETF. ( assuming the combo makes sense) I think Wesley Grey has something coming out in about a month--an actively managed factor ETF--I will wait for that but would be good to have others to compare it with.
    Sep 17, 2014. 12:47 PM | Likes Like |Link to Comment