Fifteen Year Numbers as of 3/4/14

    Running the 15 year numbers for the MFM30 yielded a most unexpected result. The Moron is truly mystified. Dear Reader, please help if you can.

    We are not trying to prove anything or make a point. This is not a rhetorical question, but a real one.

    "Why is Vanguard Total Stock Market Index dead last -- and last by a large margin? And why is the quasi- index fund Vanguard Dividend Income Fund next to last?

    Why? Why? Why? Why? Why?

    These funds enjoy ultra-low costs and due to low turnover, they enjoy reduced trading costs as well. It is very difficult to identify in advance funds that will beat the indexes. One would expect these funds to be somewhere in the middle of the pack, probably a little higher. And yet, everything beat them.

    Growth Funds beat them, Value Funds beat them. Hybrid Funds beat them, Eclectic Funds beat them. Balanced funds, foreign funds, world funds, small caps, large caps, mid caps -- everything beat them. Just what is going on?

    Was there something special about this 15 year period? Was the Moron just lucky? It seems far too unlikely to be luck.

    Okay, it is true that the MFM30 was only put together within the last couple of years, and naturally, funds were selected that had performed above average.

    However, the Moron has continuously owned 10 of these funds over the past 15 years (indicated with an asterisk, and each and every one of them beat the Index. The Moron has no special powers or knowledge. So why was each and every one able to beat the Total Stock Market Index?


26 of the MFM30 have 15 year records. Here are the annualized 15-year numbers as of 3/4/14.

1. Perkins Mid Cap Value *                  12.25%
2. Royce Special Equity                       11.88
3. Bridgeway Agressive Growth *           11.42
4. TRP Mid Cap Growth *                    10.79
5. Yacktman                                        10.74
6. TRP Capital Appreciation                 10.61
7. Oakmark Balanced                          10.13
8. Mairs and Power Growth                 10.02
9. FPA Crescent                                    9.94
10. Osterweiss                                       9.88
11. Ariel *                                               9.64
12. Franklin Balance Sheet  *                  9.57
13. FMI Large Cap                               9.04

14.Litman Gregory MS Int'l                  8.85
15. Col. Value & Restructuring             8.71
16. Franklin Small Mid Growth *              8.63
17. Franklin Income *                               8.49
18. Third Avenue Value                         8.47
19. Sequoia                                           8.03
20. Fidelity Contrafund *                         7.98
21. Mutual Shares *                                7.85
22. Templeton Growth  *                         7.76
23. TRP Spectrum Growth                     7.29
24. Jenson                                              6.98
25. Vanguard Dividend Growth               5.70
26 Vanguard Total Stock Market Index  5.55              

Follow Up on Letter to Charlie Dreifus

    Haven't heard back from Charlie Dreifus yet, but the offending ad seems to have vanished completely, and as it did, the stocks in Charlie's portfolio seemed to blast upward with renewed power. 2% and 3% moves per day in his companies were commonplace.

    Royce Special Equity launched out of last place, as the Moron has been promising it would.

    Looks like we're back on track. No "Brilliant Investor" ads and no most Last Place-ism.

    The Moron asks for no credit for any of this, and certainly will not receive any, but is glad to help when he can.

The Headlines vs. the Numbers

Here are the Headlines on morningstar.com this evening:

U.S. Stocks Tumble; 
Dow Slides By Triple Digits

and

Stocks End Sharply Lower
as Ukraine Fears Mount

Here is the stock photo they trotted out:

Here are the actual numbers:

NASDAQ      - 0.72%
S&P 500        - 0.74%
DJIA              -0.94%


(The Moron senses a bit of a disconnect.)

An Open Letter to Charlie Dreifus

( Charlie Dreifus is the portfolio manager of the Royce Special Equity Fund and the Royce Special Equity Multi-Cap Fund)

                                                                                                   February 23, 2014

Dear Mr. Dreifus:

    First of all, you have been wearing very pretty ties recently. But my compliment, although sincerely offered, is not the purpose of this letter, so I shall proceed to the substance at once.

    A very substantial percentage of my personal IRA is invested in The Royce Special Equity Fund. Indeed, it is an inordinate percentage. Indeed it is a percentage so outsized, so imprudent, so reckless, that it would cause any level-headed adviser to advise in favor of its immediate reduction. At this time, however, I do not choose to reduce it, as I feel so comfortable with your approach, so confident of you taking care of my assets.

    You have said that appreciation of your fund is an acquired taste. Let me say then that I have acquired it, and that I am one of your biggest fans.

    Having said that, which is my rather artful way of avoiding that most unpleasant word "but",  I should like to state a concern that has recently arisen.

    While I was not altogether pleased with your decision to launch the Multi-Cap Fund, I understand and respect it, and I am certain that you would not have created the fund had you felt that there was any possibility that its creation would detract from the performance our our beloved RYSEX.

    My concern is that in your desire, and in Royce Funds desire, to gather assets for your new fund you have permitted Royce Funds to present you as a "Star Manager". Please talk to Mr Royce immediately, and tell him to stop it!

    There is nothing wrong with giving interviews or in explaining your investment process. In fact, I am very glad that you give interviews. I have learned from them and have gained confidence in my investment with you. Interviews are not the problem. I have enjoyed your stories about how you asked your mother to tell you numbers instead of bedtime stories as a child, about how you are the kind of man who would wear a belt AND suspenders, about your mystical connection with financial statements. How you are able to tell what kind of furniture is in the corporate office, just by looking at the balance sheet. All wonderful, and amusing.

    But these stories, given in interviews in niche media, are now being synthesized, essentially for marketing purposes, into the myth of Charlie Dreifus, Super-Investor. Royce is currently running banner ads, which I have repeatedly seen on the Morningstar site, touting you, in bold letters as "a brilliant investor", crafting your image as an accounting geek, and proclaiming rather impishly "Sorry Folks, He's Ours!"

    Mr. Dreifus, please tell Mr. Royce to stop this. Please. It is as if you are asking, pleading even, with the Universe to send you bad luck and a reversal of fortune. It is as if  you are tired of doing well, and wish to run into trouble.

    It is understood that you are far too modest to say these things about yourself. That's a given. It is also a given that these things may not in fact be false. (Indeed, the quote about you being a brilliant investor is from a piece written by Russ Kinnell, an analyst for whom I have profound respect.) Yes, okay. You are a brilliant investor, but I believe you are also wise enough to know that we must not say these things out loud. We must not paint them in bold letters.

    Certainly, you have read some of the writings of John Bogle. One of his rules for investing in Mutual Funds is to not invest with the "Star Manager". Don't be a star manager, Mr. Dreifus. Please just do your work, and tell your boss to take down those horrible ads.

    On my blog, I follow 30 mutual Funds. For the year-to-date Janus Contrarian leads with a gain of 5.31%. Your fund, Royce Special Equity is currently #30, dead last, with a loss of 3.56%. I have assured my devoted followers (both of them) that you will not finish the year in this ignominious position, and as my few prognostications are always correct, I am certain that you will not in fact finish there. I do believe however, that the recent rough sledding has been a gentle hint from the Universe to tone it down a little. As is written in the Book of Proverbs: "Pride goeth before destruction, and an Haughty spirit before a fall."

Your Friend,

M.F. Moron

P.S. You may reply to askmfmoron@gmail.com

 



                       Charlie Dreifus, manager of the MFM30 fund, Royce Special Equity.

THE NEW MOON STOCK MARKET INDICATOR tm

 

The New moon Stock Market indicator has failed only once in well over 100 years.

    Especially for those who find themselves disheartened or trepidacious because of the negative prognostication of the January Indicator, or the even more negative prophecy of the "Revised and Improved January Indicator", or because of our current market's "eerie similarity to 1929", the Mutual Fund Moron proudly presents, for the very first time, from deep within the vaults of the MFM research center:

THE NEW MOON STOCK MARKET INDICATOR tm


.....and the results are very encouraging!

    The New Moon came on New Year's Day this year, a phenomenon which occurs every 19 years. How has the US market performed in those years?

    We are able to trace the performance of the DJIA, an index which extends back over 100 years, to find the answer. Here are the results:

Annual Performance of the DJIA for years in which a NEW MOON occurs on New year's Day:

1900                  + 7.6%

1919                  + 30.5%

1938                  + 28%

1957                  - 12.8%

1976                  + 17.9%

1995                  + 33.5%

    In well over a century, the NEW MOON STOCK MARKET INDICATOR tm has failed to predict a positive result in the stock market in only one year, 1957, a year which saw only a modest decline of 12.8%.

    The average gain correctly predicted by the NEW MOON STOCK MARKET INDICATOR tm over the past 100 years, is 27.5%.

    The NEW MOON STOCK MARKET INDICATOR tm has an accuracy rate of over 83%.

Ergo.....we may state with exceeding certitude, that the stock market in 2014 has over an 83% chance of enjoying a positive year.

    Remember, dear readers, you read it here first, on the Mutual Fund Moron blog. Take heed now, and be ready again in 2033.

Weekend Review of the Week that Was -- 2/9/14

 

We were hoping for a better start to the week on Monday.

     Those who watched the Super Bowl this year will understand why we felt somewhat like the Denver Broncos as the week began. We had a rather poor start to the year in January, but having closed out that month, we were hoping for a better start in February. It's sort of the way the Broncos, down 22-0 at the half, must have regrouped, hoping for a better second half.

    Instead, they experienced a kick-off returned for a touchdown as the first few seconds of the second half unfolded. In like manner, Monday turned out to be the worst day we've had in about a year and a half, with most funds declining by well over 2%.

    At that point we stood at the edge of the abyss. Oh, not the really big dark abyss --- not like the Grand Canyon or something. More like a cute, little abyss  -- maybe like the hole you dig when you're gonna put in a tomato plant, maybe with some manure at the bottom. If we had fallen just a little more, most of our funds would have started sporting double-digit losses for the year, and it surely would have been a long way up out of that tomato hole.

    For the hapless Broncos in this year's Super Bowl, things just got worse and worse, but that's where the analogy breaks down, because on Tuesday, we got a little bounce, maybe a "dead cat bounce" we were thinking, but a bounce, with most funds up maybe .5% to .75% for the day. Wednesday, things were flat and smooth, hardly any movement. Thursday, some reports came out that the Moron doesn't really understand, and the buying kicked in with some energy, most funds up over 1% on the day. Friday was even stronger, and our best performing fund for the day, Fairholme was actually up over 2%.

    So despite the over-dramatic financial headlines, no manured tomato hole abyss for now. In fact, for the year, there are actually 4 funds (JSVAX, SEQUX, RPMGX, and FKINX) showing small gains, while 26 MFM funds are still showing losses -- the average being about -2.5%.

    Royce Special Equity still has the biggest negative for the year at minus 5.84%, as we head into the middle of  the second inning of the 12 inning game that will be 2014. Of course the Moron's good-as-gold promise still stands, Royce Special Equity will not be #30 by the end of the year.

    Voila! there it is: the week in a nutshell. Football, gardening, deceased pet, and baseball analogies included at no extra charge!

Idiot on the Radio

    The Moron is of course quite proud of having risen to the level of moronity, so every time he hears some idiot talking about investing (and sadly, it is quite often) it just triggers a certain sense of righteous indignation at the very thought that some poor individuals may be paying attention to these so-called experts.

    Today's Idiot is a guy the Moron heard on the radio decrying the fact that a recent study revealed that a large percentage of workers made no changes whatsoever to their 401K accounts during the past year. Not one single change! He considered that a problem. It seems he would have these workers "make adjustments"  -- selling some funds (the ones poised to go up of course) and selling others (the ones that have gotten "too risky"). It seems that this process, to his way of thinking is, is something that should go on during every single 12 month period. He felt it was sad that so many workers showed such apathy that they simply did nothing.

    Dear Idiot, doing nothing for years on end is the surest path to reap the rewards that the stock market offers. Doing nothing! Something we are really good at around here.

January 2014 -- Not the Best of Months for Mutual Funds

All 30 of our funds are underwater for 2014.

     Yes, January 2014 was the worst calendar month we've had in a couple of years. One can say that, but really, it was a WONDERFUL month. It just happened to be a month in which mutual fund prices declined/ were under pressure/ headed south/ went down/ were trimmed/ corrected. (Choose one or more) The Vanguard Total Stock Market index Fund was down 3.1%. Not really such a big deal. We had 16 funds do better and 14 funds do worse.

    Five of our funds: JSVAX, SEQUX, RPMGX, FKINX, and PRWCX lost less than 1% for the month. Janus Contrarian is our YTD leader with a loss of .14%. These funds held up so well either because they are balanced funds with  a large percentage of their assets invested in something other than stocks, or because they held stocks in a few big winners, some up 20-30% or more.

    Bringing up the rear are last years champion Ariel (ARGFX) at #28, FRBSX at #29, and RYSEX losing 5.24% at #30. The Moron reiterates his promise that Royce Special Equity will not be in last place at the end of 2014.

    This is the time of year when the old saying "As goes January so goes the year" is trotted out for the amusement of the clueless public. The Moron considers this "January Indicator" to be possibly even more valuable than the "Superbowl Indicator" as a method to profitably prognosticate the direction of future stock prices.

    Just as the Superbowl Indicator was modified at one point to bring it more in to conformity with market performance, it appears the January Indicator has undergone some tinkering. According to the Mutual Fund/ETF Research Newsletter:

When both a negative result for all of January is combined with a negative first week of the year for stocks, as we had at the beginning of this year, then approximately 73% of the time the result for the entire year was indeed negative.

    At this point the newsletter editor, Tom Madell, makes a preposterous logical leap and states:

In other words, there now appears to be a nearly 3 times greater chance of a negative year than a positive one!

    And yes, that is his exclamation point. Mr. Madell is much smarter than that, and the Moron does expect him to retract that assertion upon cooler-headed reflection.

    BTW, Mr. Madell's interesting and valuable newletter is available for free at funds-newsletter.com

     Should the market indeed go down this year, Mr. Madell still does not "win the game". At this point in time, the statement he made is simply incorrect.

    The Moron continues to have no opinion on this year's direction in the stock market. Or, to be more precise, he feels very strongly both ways. And if he did have an opinion, it would not affect his investment behavior, because he does not believe there is any positive correlation between his opinion of what will happen and what actually will happen.

 

Going Negative

    Friday's fun put all 30 of our funds into negative territory for the year-to-date. Coming into Friday, we had a handful of our funds holding onto year-to-date gains, but that was all washed away in Friday's losses. Friday was the worst single day for the markets since 2011.

    Janus Contrarian still leads the pack with a loss of only .24%.

    Monday is carrying prices still lower, so we may need to get used to seeing red for the calendar year, at least for a while.

Charlie Dreifus on Wealth Track

    Charlie Dreifus, manager of Royce Special Equity Fund (RYSEX), gives his usual amusing interview on this week's edition of Wealth Track with Consuelo Mack. To a large extent he talks about his newer fund, Royce Speacial Equity Multi-Cap (RSEMX).

    We're also starting to see ads for RSEMX. Charlie and Royce Funds seem to be wanting to pump up the AUM for this newer fund. It's not hard to understand why. Charlie is currently managing 3.5 billion in his small cap fund, but only 180 million in his mid to large-cap fund -- (roughly 20 times more money in the small cap fund).

    He rightly states in this interview that the management fee (for RSEMX) has been lowered to a very fair .85%. However, that doesn't tell the whole story. According to the Royce Funds website, there is also a "distribution" (12-b1) fee, plus a fee of .26% for "other expenses". A fee waiver at present keeps current fees at 1.24%, but that is still too high. An investor needs to understand that these fees do not include trading costs. Even with the waiver, total fund expenses are going to be around 1.5%.

    12b-1 fees are essentially evil, but tolerable if the management fee is low enough. The fee for "other expenses" is uncommon, although it is also levied for other Royce funds. All told, 1.5% is a heavy burden to have to drag along. It's not easy to beat any benchmark by 1.5% over time.

    Despite the fees, the newer fund is intriguing, and should do well. It is troubling, however, to see ads trumpeting Charlie Dreifus as "a brilliant investor". Does the Moron believe him to be a "brilliant investor"? Well......yes, but it's still disturbing to see it writ large in advertising.

   

Put Me in Coach!......COH

    If the Moron had any money to put into an individual stock, he would gladly buy Coach (COH) here at under $50 a share. Everyone says the market is expensive. Maybe it is. But give me COH here at <$50 and five years, and we'll just see where we are in January 2019.

    (Since this isn't exactly a 100%er, we won't make it an "official prediction")

Out of the Starting Gates in 2014

    Our Year-to-Date leader has held the spot for 12 calendar days now, and leads its nearest rival by over a full percentage point, so it's time to announce it:

    It is Janus Contrarian, up 3.40%.

    In last place at #30 is Royce Special Equity down 1.96%.

    We currently have 15 funds up, 14 funds down, and one unchanged for the year so far.

    The Moron is willing to make one sure-fire, absolute, can't miss prediction to his loyal followers (both of them):

    By the end of the year, Royce Special Equity will NOT be in last place. (You heard it here first and you can take it to the bank.)

    And remember, the Moron always bats 1.000 on his official predictions!

Final Numbers for 2013

    And the Moron called the results in 2012 "gaudy"? 2012 pales in comparison to the gains we saw in 2013.

    2013 was a year in which stocks hugely outperformed bonds or cash, so funds that were fully invested in equities show up at the top. It was a year in which domestic (USA) stocks outperformed foreign stocks, so foreign and international funds are found low on the list. It was a year in which small and mid-cap stocks outperformed larger stocks. Finally, it was a year in which quality shares tended to underperform, and in which more speculative fare tended to outperform.

    All in all, it was the best year for US stocks in nearly 20 years.

    MFM Fund of the Year? Ariel Fund. Congratulations to John Rogers and the team.

2013 Final Standings

Top 10

1. Ariel                                +44.68%
2. Kinetics Paradigm              44.07
3. Bridgeway Aggressive        42.21
4. Franklin Sm-Mid Cap        38.58
5. Janus Contrarian                38.51
6. TRP Mid Cap Growth       36.89
7. Franklin Balance Sheet      36.61
8. Col. Val. & Restructg        35.96
9. Mairs & Power Grwth       35.64
10. Fairholme                        35.54


The Great Unwashed (#11-20)

11. Sequoia                           34.58
12.Fidelity Contra                  34.15
13. Osterweis                        33.84
14. VTSMX                          33.52
15. Jenson Qty. Grwth           32.33
16. VDIGX                           31.53
17. FMI Large Cap               30.48
18. Templeton Grwth             30.15
19. Royce Special Equity       29.36
20. TRP Spectrum Grwth      28.59

The Bottom Ten

21. Mutual Shares                 28.10
22. Yacktman                       27.74
23.Dodge & Cox Int'l            26.31
24. Perkins Mid Cap Value   25.92
25. Oakmark Eq & Income   24.25
26. TRP Cap App                 22.43
27. FPA Crescent                 21.95
28. Litman-Gregy MS Int'l    21.47
29. Third Ave. Value            18.84
30. Franklin Income              14.23