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  • Safe And Sound: The Tale Of Plumb Creek Lumber [View article]
    Michael: Maybe you mean it as a joke but the company you are writing about is Plum Creek not Plumb Creek.
    Nov 10, 2014. 08:09 AM | 3 Likes Like |Link to Comment
  • SEC Gets One Right Putting Kibosh On Nontransparent ETFs [View article]
    We'll have to disagree. My guess is that transparency has almost nothing to do with the success of ETFs. It surely isn't a factor in my buying them. I think most people buy the index variety of ETFs for their low cost and ability to trade throughout the day at a price known at the time of purchase. Being able to buy at NAV would seem to be a minimal advantage since open end funds provide that at an absolute level (and many investors buy closed end funds partially because they don't trade at NAV). With actively managed ETFs we can add tax efficiency to the benefits but give up some of the cost advantage. I also don't think most investors really care what initials you use to refer to them. If you want to separate ETFs into actively managed, index style and hybrid, each with their own set of benefits go for it--I wouldn't be surprised if that happens over time as the number of ETFs grow.
    Oct 27, 2014. 10:17 AM | 1 Like Like |Link to Comment
  • SEC Gets One Right Putting Kibosh On Nontransparent ETFs [View article]
    Ron: You make a lot of bold statements and obviously feel strongly about the issues but maybe you are ignoring the reasons that some ETFs want and need at least delayed transparency. I think you are wrong also in assuming that transparency always helps the small investor.

    Transparency isn't an important issue in the vast majority of ETFs--those that are passive. Their holdings are known because they are based on a published index so publishing the holdings every 15 minutes does no damage. But coming to the ETF world are actively managed ETFs. Actively managed ETFs typically charge higher expenses (sometimes much higher) because their stock selection is not based on an index but is instead based on either management research or a proprietary algorithm used to select stocks. If those stock selections need to be published every 15 minutes anyone can jump in front of the ETF and buy those holdings (without paying anything for the research done by the fund). Who gets hurt by that--the ETF customer.

    That need for delayed transparency is the same for open end mutual funds and the same as that obtained from the SEC by Warren Buffett when he is building a position.

    You might argue that ETFs should not be actively managed but if there are actively managed ETFs and they are forced to publish their holdings every 15 minutes then that will damage their small investors. I don't know what the solution is--as you say keeping prices close to NAV would seem to require transparency but total tranparency will kill actively managed ETFs.
    Oct 26, 2014. 09:57 AM | 1 Like Like |Link to Comment
  • Improving The Performance Of Quant Value Portfolios [View article]
    You mention Wesley Gray. He has had an actively managed ETF in process for what seems a year or more. From his site it appears the ETF will become available in the next week--although apparently the SEC doesn't allow any discussion by the managers before the IPO date. Any thoughts on how the factors being used compare with your analysis?
    Oct 12, 2014. 05:46 PM | Likes Like |Link to Comment
  • 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