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.

 

Gaudy Numbers for 2012

    The numbers for 2012 are pretty gaudy. Everybody feels like a genius when we have a year like this one. Even the Moron feels a little smarter. The range goes from the big winner, Fairholme, all the way down to the worst performing fund, Oakmark Balanced, which still made 9%.

    Vanguard Total Stock Market finished relatively high for 2012, 12th out of 30 funds. The last time we ran the 10 years numbers, it finished 20th out of 28th.  All but one of our funds that trailed VTSMX in 2012 have equaled or  beaten it over the trailing 10 year period. Comments are offered for Jenson, the only fund to trail it both for 2012 and the trailing 10 year period. (For this purpose, 10 year numbers as of  2/12/2013 were used.

    It became obvious quite early in the year that Fairholme was going to run away with the race in 2012, this after a terrible 2011. So props to our first MFM fund of the year, Fairholme!

    And here are the gaudy numbers we are talking about for the MFM30:

1. Fairholme                                 +35.81%
2. Third Avenue Value                   27.48
3. Janus Contrarian                        23.83
4. Mairs & Power Growth Fund     21.91
5. Kinetics Paradigm                       21.78
6. Bridgeway Agressive                  21.58
7. Templeton Growth                      21.54
8. Dodge and Cox Foreign              21.03
9. Ariel                                             20.32
10. Litman Gregory Masters Int'l    19.96

11. T. Rowe Price Spectrum Growth         18.13
12. Vanguard Total Stock Market Index     16.38
13. Fidelity Contra                                    16.26
14. Sequoia                                              15.68
15. Franklin Balance Sheet                        15.65
16. Royce Special Equity                           15.36
17. Mutual Shares                                     15.14
18. FMI Large Cap                                  14.86
19. T. Rowe Price Mid Cap Growth         13.91
20. Columbia Value and Restructuring       13.90

21. Franklin Income                                 13.68
22. Osterweis                                            13.66
23. Jenson                                                 13.54
Highest quality stocks only, much of the 10 year underperformance is attributable to fees and expenses. Much but not all of it. True, it has beaten VTSMX over the trailing 15 year period, but still, the results on this one have to be considered a disappointment, so why does Morningstar rate it a "Gold"?

24. Vanguard Dividend Appreciation Index  11.50
25. Yacktman                                                 11.47
26. Franklin Small Mid Cap Growth             10.78
27. FPA Crescent                                           10.33
28. Perkins Mid Cap Value                           10.32
29. Wasatch Heritage Growth                         9.45
30. Oakmark Balanced                                    9.05


Quite a good year.

But even a Moron knows not to get used to it.





    

August 2012 Performance

  

 The Moron has already mentioned how silly and pointless it is to track short-term performance. So
if that applies to our year-to-date performance, how would one describe the practice of tracking performance for a single month? We can't even say with confidence whether 2012 will be an up or down year for our funds or the market  -- any inferences drawn from the performance in August alone are likely to be bad ones.

    Nonetheless, we just can't help ourselves. Poring over results in good months and ignoring them in bad months is one of MFM's coping strategies. So, we'll try not to make a habit of it, but here goes a look at the top and bottom quintiles for last month.

Top Quintile

1. Fairholme                                    + 8.08%
2. Ariel                                                5.38
3. Bridgeway Agressive                      4.51
4. Royce Special Equity                      4.26
5. Templeton Growth                          3.80
6. T. Rowe Price Mid-Cap Growth     3.66

Bottom Quintile

25. Yacktman                                 + 2.06%
26. Third Avenue Value                    2.00
27. Janus Contrarian                          1.86
28. Vanguard Div. Appreciation       1.82
29. FMI Large Cap                            1.54
30. Franklin Income                            .99