Happy Anniversary

    March 11, 2013 was the 10th anniversary of the stock market low hit in 2013. Technically speaking, this was a secondary, higher low than that reached a couple of months earlier, but this was the point when the market finally turned around, after dreadful years in 2000 and 2001, and the bloodbath that was 2002.

    Numbers are a wonderful way to lie, and the high annualized 10 year returns listed below should certainly be taken with a grain of salt. These are the highest annualized 10 year returns we will be able to report for at least a few years, very possibly for many years.

    These returns absolutely exclude all of the extreme losses of that extended bear market, and begin their sample period with the robust, bounce-back gains of 2003. As the days tick by, the outsized gains of 2003 are falling off of the back end of the ten year period, and the 10 year annualized gains of virtually all funds will be dropping.

    This listing rewards funds that may have had huge losses in the bear market but that snapped back sharply when the upturn began. By the same token, relatively speaking, it seriously understates the value of funds that may have preserved capital during the bear market, but that exhibited more modest returns in the period following.

    Anyway, it is what it is, and here are the numbers (annualized), for the 28 funds from the MFM30 that have 10 year returns (Value in parenthesis is value of $10,000 invested at the beginning of the period:

1. Dodge and Cox International     13.96%      ($36,942)

    Somehow snuck into the 10 year lead when the Moron wasn't watching. As its nearly 50% gain of 2003 falls off of the sample period, it will be awfully hard for it to maintain its perch atop the list.

2. T. Rowe Price Mid-Cap Growth    13.72

    Our former leader, edged out of the #1 for now.

3. Yacktman                                       12.98

    Maybe the most impressive of all, because we know it held up well during the bear market that preceded this 10 year period.

4. Litman Gregory International        12.41

    Up 15 positions since our last 10 year list!

5. Janus Contrarian                             12.32

   Up 7 positions from our last list. This number will most likely be dropping like a rock.

6. Janus Mid-Cap Value                    11.97

    Another fund that held up well during the preceding bear market.

7. Fairholme                                     11.91    ($30,810)

    Bruce Berkowitz has strongly implied that he expects to be able to compound in the high teens. We need some awfully good years ahead to achieve this.

"My favorite mutual fund has been compounding my capital at over 11% per annum!"

8. FMI Large Cap                            11.77    ($30,427)

9. Kinetics Paradigm                       11.73

10. Fidelity Contra                          11.43

11. Royce Special Equity               11.10

12. Columbia Value & Restructuring    10.94

13. T Rowe Price Spectrum Growth    10.86

14. Franklin Small-Midcap Growth     10.65

"I should have invested in the Yacktman fund...."

15. FPA Crescent                               10.53     ($27,215)

    Certainly achieved its goal of equity-like returns, with less risk than the overall stock market. The Moron is impressed.

15. (tie) Mairs and Power Growth           10.53

17. Osterweis                                     10.19

18. Third Avenue Value                   9.99

19. Vanguard Total Stock Market     9.83       ($25, 539)

    This is what the market was willing to give you, minus just a teeny tiny bit.

20. Franklin Balance Sheet               9.82

21. Franklin Income                         9.47

    Certainly helped by falling interest rates, but a nice showing for a balanced fund nevertheless.

"Just what IS a mutual fund anyway?"

22. Oakmark Balanced                     9.40

23. Ariel                                      9.38

    In contrast to its abysmal performance in 2008, Ariel actually did very well in 200, 2001, and 2002. So we can live with this showing.

24. Sequoia                               9.33

25. Bridgeway Agressive Growth   8.70

    Probably the biggest disappointment on the list. This low number will only be falling as the 54% gain of 2003 fall out of the sample period.

26. Templeton Growth               8.46

    Up from last place. Held up great during the Bear Market of 2000-2002, so that makes this number more acceptable. We'll put this somewhere on the borderline between acceptable and disappointing. Looks like a good management team is now in place. Past few years have been encouraging. Looking for better days ahead.

27. Mutual Shares                8.38

    A risk-averse fund one would expect to find near the bottom in a sample period such as this one.

28. Jenson Quality Growth   7.83    ($21,252)

ditto

          

   

Time To Get Back In??? .......(lol)

    I guess if the Moron took the time to comment on all the stupid articles out there, there would be no time for anything else, but Kiplinger's sends their magazine to my office unbidden, and I do love the illustrations!

    The cover story of the current issue gives instructions on how to get back into the stock market. Of course the Moron was never intelligent enough to get out in the first place. We just keep plodding along.

    What is there really to say about this inanity? It is troubling indeed to believe that there may be people using articles like this as true sources of information and counsel rather than just as simple entertainment.

    The article mentions an "investor" who fled the market entirely after losing "half of his portfolio". He's been out of the market for the past 3 years. Now that prices are far higher, he has met an "advisor" who has made him "feel better" about getting back into the market, by recommending super special funds that aim to reduce volatility by "adjusting their exposure to stocks".

    So now he's willing to "give stocks another go" as the article puts it. This is really sad. He lost half of his portfolio value, sold out, and he's buying in now that prices have doubled. He is doing this with the "help" of an advisor, which takes another chunk out of his investable funds. But at least the advisor has made him feel better. And at least the advisor has made some money.

    "I'd like to see how this goes, then reevaluate" says the investor. In other words, if market prices decline, he may have to sell out again.

    Midway through the article our expert author writes "Perhaps the best reason of all to buy stocks now is that the four-year-old bull market appears to have plenty of life left." Then she cites all of her best reasons for believing so. It appears to have plenty of life left??? Can we tell? With what level of certainty? What will be the magnitude of the declines if it doesn't have plenty of life left even though it appears to?

    Is there a positive correlation between the future of this market and the authors perception that it "appears to have plenty of life left"?

    Dumb-dumb-dumb-dumb-dumb......

    She covers all her bases though: "That doesn't mean stocks won't pause or even stumble along the way."

    Well. I guess pausing might be okay, if they don't pause for too long. And I guess even "stumbling" might not be all that bad. Just pausing and stumbling is the worst that could happen. Sounds good. And then Kiplinger's will tell us when to get back out of the market when it appears that the bull market doesn't have much life left? Great.

    And I do love those illustrations!

   


   

2013......So Far

    Ariel Growth Fund, our first fund in alphabetical order, has opened a little lead on the rest of the pack with a gain of around 11%. OSTFX, BRAGX, YACKX, and MPGFX round out the top five.

Being fully invested in US stocks has helped.

Foreign exposure, cash, bonds, and Apple stock have been factors holding other funds back.

Last year's winner, Fairholme, is running below average so far in 2013, with a gain of around 5%. Of course, nobody is out of the running with ten months of the year left.

    Bringing up the rear is a wonderful fund, Franklin Income.

   

An Interesting Tidbit

    I got this from Mark Mulholland, manager of the Matthew 25 fund:

    Going back 60 years, the stock market has been down at some point in the calendar year in each and every year except for 3. Those years were 1958, 1975, and this past year 2012.

    The weird thing is that we came flying out of the gates in 2013, and the market has not been in the red at all for this year either. Are we going to see 2 years in a row of this unusual phenomenon.......or are we going to see some significant declines?

    We'll be able to say with certainty by Christmas time. And maybe much, much sooner!

    Stay tuned.

Sentiment Cycle

Don't remember where I found this or I'd be happy to give credit. The Moron figures we're probably somewhere between excitement and euphoria at the moment.

Franklin Income Fund Manager on Wealth Track

    Edward Perks, manager of Franklin Income Fund, was a recent guest on Wealth Track With Consuelo Mack. Here's a brief synopsis of a least part of what he had to say.

•     Franklin Income Fund is first and foremost about income and capital preservation.
•    It has paid a dividend monthly since 1948.
•    As a secondary goal it seeks value, which should in time lead to capital appreciation. It is able to maximize its ability to seek value by selecting investments from a very broad opportunity set. In fixed income it can purchase all the different types of bonds. When choosing equity securities, it can select from common stocks, preferred stocks, and convertible stocks.
• In response to a question from Consuelo, as to whether there exists now a "new normal" in which investors must be willing to accept a lower rate of growth, Perks acknowledged that lower bond coupon yields will lead to lower returns on bonds. He calls that fact "simple mathematics". He explains that he has been shifting his asset mix from bonds to stocks. He has gone from 55% bonds down to 40%. Because of higher stock dividends, he is now able to shift from fixed income to equity without sacrificing yield.
• Merck is cited as an example. Its current stock dividend is now greater that the coupon on its debt securities.
• Cash in the portfolio is held as close to zero as he can get it. He considers cash a drag on income.
• On an optimistic note, Perks believes that the ability to find income is actually improving. Lots of companies are increasing their dividend or initiating a dividend.
• Payout ratios are at multi-decade lows. Companies have been focused in recent years on building cash to shore up their balance sheets.  Now they are in a great position to increase dividends.
• Due to compelling valuations, he is beginning to look at tech. He has taken a position in Intel, for example.
• Top 5 Holdings in the fund are Merck, Wells Fargo, GE, Duke Energy, and BP.