Group Think Funds

MikeM

I've been thinking about the Junkster coined term,

MFO Group Think Funds

. I believe he is absolutely right with that phrase. But I don't think it is necessarily a bad thing. Some really good funds appear here on MFO that I may not have heard of any place else. But I have bought into funds that didn't feel right after I brought them into my line-up. At least they didn't feel right as long term holdings after purchase.

So, I thought I would list the GTF (group think funds) that have been talked about here on MFO over the years, the ones I've tried that worked and the ones that didn't fit so well.

My GTF's that worked out well:
YAFFX, MACSX, FPACX, PRHSX, FAAFX, LSBRX, ODVYX,
And though I only bought into these funds this year, GPGOX and RGHVX are becoming favorites.

Some that didn't work out:
ARIVX, yes, all managers miscalculate at times, but this one felt Hussman-esk
USAGX, TGLDX, worst buys I ever made. not for a buy and hold portfolio imho, Vegas betting only
MAINX, why? it fills such a small nitch
HSTRX, HSGFX, huge alkaloids before and after 2008. but the manager's (lack of) skills became evident.
PAUIX, just wasn't right for me. In fact PIMCO's derivative games just don't set well with me.
PRPFX, great when gold and long treasuries were strong, but that static portfolio for the next 10 years?

Anyone else want to give there best and worst

Group Think Funds

mohan

I would certainly include RPHYX as a GTF that has more than proved itself. Hopefully, RSIVX will follow its sibling's footsteps.

Junkster

And don't forget AQRNX. But you are right, a MFO groupthink fund is not necessarily a bad thing. As mohan pointed out, RPHYX is a good example. Albeit with that one, some seem to have bought it for reasons beyond what it is intended for - a consistent 3% to 4% per annum.

Don't get me going on the granddaddy of groupthink funds, PRPFX. That one goes back to the Fund Alarm board days and has quite a backstory.

Of course, when any groupthink fund doesn't pan out, you get all sorts of rationalizations. The primary being it's in my portfolio to act as a buffer for the next down market/cycle or at least it's not losing me money (unless of course it's Hussman's fund) or give it a few more years.

Edit: Groupthink funds seem to arise from *prolific* posters here who are seemingly articulate, intelligent, and research driven or simply have a magnificent and engaging online personality.

Edit #2 the only drink the kool-aid fund I ever bought from this board was PONDX (because it fit my trading style at the time) and that worked out well, albeit long gone there.

Swede

Here is a list of funds that I purchased after reading about them ( or confirming my own research) on this forum:

ARTGX
ARTWX
SEEDX ( just started my position .... time will tell )
MAPOX
MAPIX
MACSX
FMI FUNDS
ARIVX ( I held shares in Eric's other fund before he moved over ) I guess it could be said that I was a fan when it wasn't cool.

I have several other funds that were purchased long before I found this forum ( been reading for awhile but just joined last week ) such as OAKBX, FPACX, PRWCX, ARTQX, ARTKX, FLPSX, AUXFX, etc

ARIVX is the only fund that leaves me scratching my head. In fairness, I drank out of the same punch bowl as the manager heading into 2013. I believe the folks over at GMO had a few sips... then small caps shot up another 30/+ %

AndyJ

Swede: " I believe the folks over at GMO had a few sips ...."

The difference is that while GMO has let cash build somewhat in their funds, they've stayed mostly invested.

Vert

I don't think there's much 'groupthink' around here. Mostly I think it's a matter of the old saying: 'Victory has a thousand fathers, failure has but one.' In a roaring bull market, the most aggressive funds do best, the most defensive do relatively poorly. When gold's been up twelve straight years, it shocks a lot of people when it goes down the thirteenth. After the fact, things look very clear and you can hardly believe you didn't see it before it happened.

People get enthusiastic about various funds for various reasons. How could it be otherwise? If it's Groupthink for the ones that don't pan out (at least temporarily), then it must be Groupthink for the ones that do. But if the reasons for the enthusiasm are reasonable, then what?

For example, people are pretty enthusiastic about Grandeur Peaks around here, I think. I know that I am, I see darn little wrong with the company, but if they broke through that $3 billion AUM barrier my enthusiasm would evaporate whatever the rest of you felt about it. My guess is that people had perfectly logical reasons for liking ARIVX and that most of the groupthink involved here comes in trying to find a rationalization for those reasons not working out the last couple of years.

cman

@Vert has some good points.

I don't know the history of the funds mentioned in my brief participation here or why people fell into "group think".

So far it seems like a great place for fund discovery. I have been exposed to funds that I might never have noticed otherwise. People discussing will let interesting funds get better attention amongst so many funds out there.

But people buying it for their own portfolios is a personal decision, why would anyone blame "group think" for it unless group think factually misrepresented the fund.

One thing I have noted recently is that the discussions about a fund seems to happen with very little context of the portfolio strategy/philosophy to see its applicability. Whether a fund works or not in a portfolio depends on how the portfolio is constructed, not just how that fund performed and the role of that fund in that portfolio - hedge, beta exposure to an asset class, lower volatility, leverage, etc. Perhaps, the problem is not so much the group think as the portfolio construction that is different for different people.

I really don't know how other people construct their portfolios and how they decide whether a particular fund fits their requirements/strategy.

Other than that possibility, some funds will succeed and some will fail. Not sure any forum is able to consistently pick winners for the future.

Junkster

Reply to @Vert: I never considered Grandeur funds groupthink, but regardless, as you say, they are super funds. SFGIX though is most definitely groupthink. Maybe this is much ado about nothing and I am sorry for even bringing up the term. All I know is I see a lot of funds embraced by so many here that have negative or single digit returns. If you are are younger investor, you sure don't create long term wealth in a world of double digit returns like we have been in the past five years.

Mark

Could someone please link me up to the original conversation(s) where this group think business was first or previously discussed. I'd also like to know if Junkster was or is a trader by profession. Thank you

expatsp

What an interesting thread. Thanks Mike for starting it. Because of this site I've bought over the last 2 years SUBFX, RPHYX, RSIVX, RNCOX, GPIOX, HUSIX, MAINX, ARIVX and SFGIX -- half my fund portfolio. (My other, older positions, mostly due to M*, are ARTKX, FAIRX, FAAFX, MPACX, BRAGX, BRUSX, CIPSX and VPCCX -- all great funds.) I dropped ARIVX after six months and replaced it with half HUSIX and half RPHYX, a decision I feel has both increased my returns and lowered my risk. Aside from ARIVX, about which I've posted a few times already (I lost faith not because of poor performance, but because his management reports convinced me he was a tea partier, convinced that government debt was going to smother the recovery before it started and that the thing to do was load up on miners and precious metals) I've been happy with all these funds. Sure, MAINX is down a few points since I bought it, but it's way overperformed its category, and I do think you need to give a fund at least 3 years if its management seems talented.

In retrospect, like Mike I probably didn't need an Asian bond fund, but the excitement/groupthink about MAINX drove me into it. But MAINX is doing what it is supposed to (not its fault that I chose to buy right before mon pol tightening in the U.S. came into view), it is a small position, and I will probably hold on to it at least through the next cycle of irrational exuberance about Asia.

MarkM

Poor performance of a strategy is not a reason to label it a product of MFO groupthink, whatever that pejorative phrase is designed to accomplish. EVERY active strategy has a bear market waiting for it.
This is a First Principles matter in investing. Performance chasing kills returns. This is a also First Principles matter in investing knowledge. Ignore these at your peril.

Vert and cman, thank you for getting this thread back on track.

ron

When I see investors holding a dozen funds or more, I think they might find just a few index funds that will accomplish more.

MikeM

Reply to @MarkM: First of all, "group think funds" is just a fun phrase Junkster has used a few times in previous posts, mostly in reference to ARIVX, AQRNX. I found the phrase interesting and could see where he was coming from. Since it is a made up phrase, there is no specific definition, just interpretation. So I opened it up to the idea group think funds could be a good thing too, RPHYX, FPACX, MFLDX and maybe SFGIX are good examples. I found the phrase interesting because I have been swayed to funds after being mentioned here. Some ended up great additions and some were - not so much. Call it jumping on the band wagon or discovering a new gem. But the more a fund is talked about in positive terms, the more we are inclined to buy, hence GTF.

In my own opinion, I think group-think-funds originate on every discussion board. That is a good thing. I think they are usually introduced when a highly regarded poster brings them to the attention of the board. In the 'fund alarm' days it was often guys like rono with precious metal and Asia funds and a guy named Fundmentals with funds that strived to limit down side risk. Make-More-Lose-Less was his phrase. Later it became people like scott, introducing new 'concept' risk parity or long/short alternative funds. And most of us come to this board to learn and get ideas from David's wonderful research of new and less notarized gems.

So, don't take offense to the 'group think' phrase. It really isn't any different than 'fund discovery'. Some of those discovered gems are going to fall short of expectations. Some will work out perfectly.

expatsp

Reply to @ron: Good point. You made me go back over my fund list to look for overlaps and likely funds to sell if the market keeps rising. I guess the question for me is that although it clearly does not make sense to hold, say, two small value funds, does it make sense to hold a small value and a small growth fund? How about a small value, a small growth, and a microcap fund where the three funds have hardly any overlap? Or should one simply have a single small cap fund (or maybe even a single all-cap fund) and trust a manager to move amid the different styles and market caps? I've obviously chosen to choose a specialist for each category but I am not confident about that choice. I've done well so far with my overall portfolio, beating the market and all that over the last 7 years, though there is surely a large dose of luck in that relative success.

Ted

Reply to @expatsp: Remember the "Linkster's" motto, "the fewer the better".
Merry Christmas,
Ted

Junkster

Since we are on the subject of groupthink, the link below, for better or worse, pretty much sums up its definition. I guess I am a disruptor of the unifomity of the crowd here. Albeit, I have always agreed with Ted that the fewer the better.

As for performance chasing, had I not been a performance chaser, I would be looking at a meager to non existent retirement nest egg and most likely working as a parking lot sweeper at my local Walmart in my old age.


http://psychology.about.com/od/gindex/g/groupthink.htm

MarkM

Reply to @Junkster: Of course, striving for good performance from your investments is not "performance chasing", but I think you knew that and wished to make a different point.

For those unfamiliar with the term, a simple explanation can be found in this article:
http://beginnersinvest.about.com/od/mutual-fund-performance/a/Do-Not-Chase-Past-Mutual-Fund-Performance.htm

MikeM- Agree wholeheartedly that David does a TREMENDOUS service to the average mutual fund investor through this site.

Junkster

Reply to @MarkM: Mark, what I like best about David is he is not heavy-handed and allows dissent against the norm here.

As for your link about chasing performance, here's one that runs counter to that. Back in the 90s I was always a fan of Sheldon Jacobs and his persistency of performance studies. Albeit, I haven't kept up with him since that period, preferring to do my own thing when it came to fund performance persistency.


http://www.moneyshow.com/investing/article/1/msd020405-2117/Persistency-of-Performance/

MarkM

As I read it, this appears to be an article dated 2005 about a strategy Mr. Jacobs sells to subscribers that, backtested to the bear market low in 1975, shows 20.3% average annual gains during the period selected. Mr. Jacobs called his fund momentum strategy "Persistency of Performance". Interesting.

cman

Reply to @MarkM: You two seem to be talking apples and oranges. If I understand @junkster correctly, he is refering to an active portfolio management style that is a buy-hold-sell to exploit momentum or persistence (as long as and only as long as it lasts for each asset) of performance. The existence of persistence has been well documented and forms the basis of all momentum trading.

However, that is not a good strategy for fund selection for a long term buy and hold investor because eventually persistence ends (may be in months or in years depending on asset class) and leads to what is well documented as performance chasing with poor results. You seem to be talking about this.

Two very different approaches/contexts for investing and both of you are correct within those different contexts.

MarkM

Reply to @cman: Yes, I am well aware of momentum strategies based upon a rules based trading of asset classes. ETFs are widely used for this purpose because of their low costs. Mutual funds? Possible, but not so much.

This thread originated from comments made about "groupthink" in the selection of mutual funds by Board participants. I daresay, it's hard for me to envision that in the context of a discussion about mo-mo strategies.

PRESSmUP

One man's "group think" is another's collaboration. I would not like to see discussion stifled in this forum...and frankly, I don't interpret junks' comment as suggesting this. So, ARIVX may not have been the perfect fit for THIS market...but I am quite comfortable with other funds I dipped a toe into based upon discussion on this forum...GPGOX, SUBFX, ARTGX, and VVPSX specifically. For many small caps, by the time the public learns about funds which merit consideration, they are closed. THAT is why I like this forum. 3 of the 4 funds I mentioned don't even have a review on M*, and 2 of the equity funds are closed.

Nobody puts a gun to our head to put our money at risk here.

By the way....here is my favorite thread which I have bookmarked....and have referred to many times. The perfect group-think exercise....

http://www.mutualfundobserver.com/discussions-3/#/discussion/5469/small-and-mid-cap-fund-recommendations

Junkster

Reply to @MarkM: I'm waiting for Ted to say it's time to close this thread. In the meantime, back in the 90s you could trade in and out of mutual funds on a daily basis (if needed) at fund families such as Strong and INVESCO. I took full advantage of the liberal fund policies back in the days. You could also "dateline" mutual funds back in the days with impunity and with no redemption fees etc. As those who were around then and actively participated, datelining was the closest thing ever to a free luch on Wall Street. Much different landscape today. I always felt it best to be a hybrid trader/investor. An investor when the position is moving in your direction, a trader when it stalls or reverses.

Edit: I believe I mentioned this before and *not* meant in a "pejorative" manner, this is a very, very, conservative group of investors here. I just never had the luxury of being conservative because I got such a late start trying to build my limited capital back in the days. I was forced to think outside of the box.

MarkM

Yes, "Junkster" I recall such things. I have been an investor since the 1970s and a manager of others monies since the early 1990s. Now I head a multi family office.

I was an early lurker at Fund Alarm and greatly, greatly admire David's efforts here to inform, educate and hopefully allow the individual retail investor to accumulate capital through intelligent investing in mutual funds.

Here's hoping for a prosperous New Year for all. If "Ted" wishes, he can close this thread now. It has probably outrun its usefulness.

MikeM

Reply to @PRESSmUP: Pressmup, great example of the positive aspect of "group-discussion" on this board. Thanks for posting.