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  • My Attempt To Find The Best Healthcare Mutual Fund Since 2007 [View article]
    Dane: Don't think I will. Partially because after 15 years you can imagine the capital gains I would have to pay in the taxable account. Partially because I still think the Vanguard fund is a good one even though it might no longer be the best performer. What I have been doing is supplementing the Vanguard fund with individual health stocks--mostly in the biotech area--VGHAX seems a little heavy on pharma and light on biotech and maybe that accounts for some of their under performance in recent years. They might be right in the long run if biotechs correct.
    Jun 3, 2015. 03:54 PM | Likes Like |Link to Comment
  • My Attempt To Find The Best Healthcare Mutual Fund Since 2007 [View article]
    Dane: Great idea for an article. I also own the Vanguard Fund (since 2000) and it has been a great one but the assets have exploded. They now have some $52 billion and Morningstar says that is what will make it difficult going forward--they can't buy the small caps and have any impact on performance. Assets for your three picks range from $2 billion (FPHAX) to $10 billion (FSPHX). The Vanguard has 86% in large cap and your choices have between 64% and 83%. Am surprised that Vanguard hasn't closed their fund years ago
    Jun 3, 2015. 12:26 PM | Likes Like |Link to Comment
  • Busting The Myth About Size [View article]
    bjb57: Sure, starting points matter--that's why I mentioned not only the 15 year numbers but pointed out the 3, 5 and 10 year out performance of small caps. For large caps the best you can do is point out the internet bubble period where the Cisco's of the world had PEs approaching 200--of course the two are related--the big large cap run up of 95-99 was undone in 2000-2002--so the latest 15 year numbers are a little overstated in favor of small cap. But that shouldn't affect the 3 and 5 year numbers. I don't think the author comes close to making a case about the small cap "myth", although I am guessing the impact of size has been reduced as investors pile into small caps (on the other hand they have piled into large cap looking for dividends).
    Jun 3, 2015. 12:01 PM | Likes Like |Link to Comment
  • Busting The Myth About Size [View article]
    Here's some real numbers--not from the 1930's but from the 21st Century.




    Jun 2, 2015. 11:31 AM | Likes Like |Link to Comment
  • Berkshire Hathaway - Sell-Off Stress Test [View article]
    Gary: I think the tax advantage is not the difference between the tax rate for long term capital gain versus dividends--the rates are almost always the same over the last 12 years. The big difference is that all of the dividends will be taxed (for most investors in a taxable account) whereas with selling shares a good chunk is return of capital which is not taxed. So that $40,000 sale used in the example for 2006 is almost all return of capital. Of course, return of capital reduces your basis which might increase your long term capital gain down the road--unless you hold the stock till death and then that tax liability disappears. Both dividends and sale of stock reduce your book value in a company but dividends get the rotten tax deal.
    May 30, 2015. 02:48 PM | 3 Likes Like |Link to Comment
  • The Real Bubble Market: Avoid Treasuries And Lending To The U.S. Government For Zero Real Return [View article]
    Robert : You say "Grexit has been priced in by markets". How is it that the market is wise enough to do that but hasn't priced in what you think is a given--rising bond prices?
    May 29, 2015. 11:54 AM | 3 Likes Like |Link to Comment
  • Why The Efficient Market Hypothesis Is Useless [View article]
    Yes, a good definition of total return is stock market return minus taxes and fees but the taxes vary dramatically among investors. The investor in the 10-15% marginal tax brackets pays no Fed tax on dividends and long term gains. The actively managed fund that invests in low/no dividend stocks and limits turnover will be more tax efficient than an index fund that will include a chunk of dividends. The investments held in a Roth pay no taxes at all. That is why all comparisons of active versus passive (that I have seen) ignore taxes. Fees are important so maybe you should stick with that argument--a recent article on Morningstar made the case that Vanguard's actively managed funds outperformed their passive funds (I know you don't buy the definitions of active versus passive but you are just about alone in that debate). My take is that actively managed funds can (and often will) outperform if they keep their fees low.
    May 27, 2015. 07:49 PM | 2 Likes Like |Link to Comment
  • Why The Efficient Market Hypothesis Is Useless [View article]
    Not clear what you refer to in saying that investment managers incur 2% in taxes. At least with mutual fund managers they incur no taxes--the tax liability is passed to the customer (or avoided by the customer depending). Index funds generally (but not always) have a tax advantage over actively managed mutual funds but I have never seen it addressed in any comparison of the two. So when you see a Bogle comparison that says x percentage of actively managed funds under perform their index over some period of time, taxes are not a factor in that under performance.
    May 27, 2015. 10:07 AM | 2 Likes Like |Link to Comment
  • The Risks Of Owning An Individual Stock [View article]
    Keith: Maybe that is the point of the article but the conclusion paragraph is very fuzzy if that was the intent. And what investor has only one stock? Especially on SA. My guess is that the typical investor problem is the exact opposite--way to many positions that don't focus on our best ideas. When in the conclusion he says " individual stock picking can result in large drawdowns..."sounds to me he is advising not to buy stocks at all, no matter the number.
    May 23, 2015. 12:36 PM | 1 Like Like |Link to Comment
  • The Risks Of Owning An Individual Stock [View article]
    Probability theory: The branch of mathematics that studies the likelihood of occurrence of RANDOM EVENTS. Flipping a coin is a random event, picking a stock isn't. If Tiger Woods (during his prime) and I played a par 5, his chance of getting an eagle is far greater than mine. Without a large handicap it would be foolish for me to bet on my chances.

    As golfers and stock pickers, before we bet we need to know what our skills are and your "probabilities" are worthless until we do that.

    Isn't Alpha Architect in the business of picking individual stocks in an effort to beat the market?
    May 23, 2015. 08:28 AM | 2 Likes Like |Link to Comment
  • The 'Great Fund Debate' About Indexing Isn't Much Of A Debate [View article]
    Web; A perfect index team. None of those pesky injuries and salaries. Of course no ticket sales or TV revenue since you have no fans--in fact no revenue of any kind so a pointless exercise. My baseball analogy might not be perfect but to me it makes the important point that if you want to go the index route at least understand your chances and they aren't what Bogle tells you. If your chances of success are only 20% to beat the market you have to decide if you will be in that 20% and most will be better off in index funds. But what if they are 35%? 40%? At what point do you decide that the chances of outperformance are large enough to go active? One of the comments below tells us that the "math doesn't lie" but of course it does--happens every day. Listen to most politicians and salesmen. Whoever does the analysis comes up with the assumptions and the assumptions largely determine the outcome of the analysis. So if you look at the number of active funds that outperform versus the amount of assets that outperform you get two very different numbers. That is math lying.
    May 15, 2015. 12:05 PM | Likes Like |Link to Comment
  • The 'Great Fund Debate' About Indexing Isn't Much Of A Debate [View article]
    I see a lot of arguments that are based on the Sharpe statement, that as a group actively managed money must under perform--duh! You could say the same for professional baseball (or any other sport). After playing 162 games during the year the average team will win exactly 81 games. So your philosophy must be-- why bother playing? But some teams will win far more than 81 games just like some small investors, endowment funds and pension funds will grossly under perform the markets and others will outperform.

    Another meaningless statistic thrown around in the active/index debate is that x percent of funds under perform their index (instead of comparing actively managed results to the return of the average index fund which would be far more meaningful). The percent used, always shown as the number of funds under performing as opposed to the more meaningful "percent of assets that under perform", is typically in the 70% range. What isn't mentioned is that 100% of index funds under perform their index.

    I suggest that we not automatically take the statistics in the active/passive debate as gospel. John Bogle (as with most of us) has an agenda and biases and distorts his case accordingly. Jim Grant is the rare contrarian who doesn't roll over.
    May 15, 2015. 09:08 AM | Likes Like |Link to Comment
  • Fink And Capitalism: Need 4 Kitchens In Your House? [View article]
    If you are right about US companies having $1.4 trillion in cash, they also have $2 trillion in cash trapped overseas. That tells me they have a negative usable cash position of $600 billion. That shortfall is being funded by cheap borrowing. GE, which can't seem to do anything right, has finally capitulated and will bring back some of that overseas cash--most corporations are too smart to do that.
    Apr 19, 2015. 07:34 PM | Likes Like |Link to Comment
  • REITs: FFO And AFFO And Other Fun Acronyms [View article]
    Reuben: Good start for REIT valuation but you might want to take it a few steps further. What I see is a lot of investors looking at the FFO of a REIT, say 16, and comparing that to a PE of 16 for a C-Corp, figuring they are comparable. Don't see all that many AFFO comparisons but I would guess that happens to. But are they comparable? C-corps have depreciation also, some of them like MCD might have huge real estate depreciation charges. All C-Corps have some real estate depreciation (not to mention that some REIT depreciation is real--how often do we see an empty outlet mall or normal mall that has died from old age?). So if we were to remove all the real estate depreciation from C-Corps, what would the adjusted PE be? Then there is the tax issue--REITs generally pay no income tax but the dividends are taxed at full marginal rates. C-Corps pay tax so to avoid a full double taxation we get a "qualified dividend" of 15% in most cases. That tells me that an FFO of 16 for a REIT is much more expensive than a C-Corp PE of 16. I am always surprised that no SA author has tried to make the comparison between REIT FFO and C Corp PE.
    Apr 16, 2015. 07:45 PM | 2 Likes Like |Link to Comment
  • 3 Costs Investors Must Control [View article]
    Rick: Good idea for an article but with mutual funds being mostly new to this site you might want to expand and explain in a little more detail. Most investors think commissions and related costs are included in the expense ratio--they are not. Look at the Morningstar breakdown of expenses into sub categories and you will see there is no item for commissions. So there are at least four costs investors should be aware of. You mention that "security law" requires that commissions be identified--I think you are wrong--if they were identified they would be included in the expense ratio. Another cost for some funds is the foreign tax withholding, which can be very important if a fund is held in an IRA/401k--since if paid it is lost and can't be recovered as it can be in a taxable account.
    Mar 29, 2015. 06:18 PM | Likes Like |Link to Comment