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.