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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
  • Are you checking your portfolio too often?
    image
    Warren Buffett doesn't have a computer on his desk ...
    “Nicholas Taleb, in his profound book, 'Fooled by Randomness', talks about the difference between noise and meaning. He uses the example of the happily retired dentist who builds himself a nice trading desk in his attic, aiming to spend every business day watching the market while sipping decaffeinated coffee. He watches his inventory of stocks via a spreadsheet with live price updates.”
    Chart shows that near-term “gains” or “losses” are relatively insignificant when compared to a portfolio’s longer term probability of success. (Cannot vouch for the accuracy of the statistics - but they appear reasonable.)
    image
    Read full story here
  • 2% swr
    For the most part I agree and have been incremental Roth conversions for years. But there are also reasons to retain some traditional pre-tax funds. Two charitable issues come to mind:
    - It is much more tax efficient to leave T-IRAs to charities than to leave other assets to charities. Compare bequeathing $100 in a T-IRA with converting that $100 to a Roth (leaving, say, $88) and bequeathing that to charity. The direct T-IRA donation does better even than donating appreciated assets. Sure you avoid the cap gains tax on appreciated assets, but you still purchased those assets with post-tax dollars. So those assets cost you more than what you paid for assets in a T-IRA.
    - If you're older than 70½ you can donate up to $100K/year to charities from a T-IRA without having to pay any income tax on the withdrawals. If you are already itemizing it is close to a wash, because then you can add the contribution to your deductions and that balances out the extra income generated by withdrawing the T-IRA money. But most people can't itemize, and even if you are itemizing, that two step process (withdraw and then contribute) increases your AGI which can impact other things (e.g. increasing income subject to 3.8% Medicare surtax, increasing IRMAA, etc.).
  • 2% swr
    With an annuity, one gives up capital and potential capital appreciation in exchange for a steady (usually fixed) income stream for life. A SWR provides an alternative.
    @Old_Joe, my understanding of "SWR as a percentage" is that it's not based on a fixed dollar amount (plus inflation). It's a percentage based on the yearly value of the portfolio balance. @MikeM, it is not a "set it and forget it approach". When your capital takes a hit, so does your SWR calculation (for that year's withdrawal).
    The challenge is to simultaneously withdraw capital at a rate that is equal to or lower than your capital appreciates. Here's an example using FBALX and Portfolio Visualizer. A retiree starts withdrawals from a $100,000 portfolio in FBALX. The retire takes 4% SWR. In year one she withdraws 4% of her year end balance or $4,359. In 2008, the portfolio sustains a loss of 31.31% and as a result 2008's year end balance falls to $68,994. So, this year's 4% SWR is $2,875.
    image
    Over time, things improve. This is the challenge newly minted retirees are facing today. Some will choose a 5% fix annuity (set it and forget it). But inflation will eat away each year at their $5,000 fixed income payments.
    In my 2007 - 2021 FBALX SWR scenario (see above), the retiree started with a SWR of $4,359 in their 1st year of withdrawals. By 2021, 4% SWR was $8,138. More importantly, the initial investment of $100,000 in 2007 is now worth $152.053 (even after yearly 4% SWR withdrawals). That would equate to $103,604 (adjusting for inflation). Capital preservation along with income seems as good or better than an annuity.
    In 2022, FBALX will be down for the year (-22% right now) so the retiree should be prepared to receive 22% less than last year's $8,138 or $6,347. Still better than the fixed annuity payment of $5,000. That is the nature of SWR, it adjusts (it's dynamic) yearly...both up and down.
    References:
    Using Fidelity Balanced Fund for SWR
  • CGM Funds to liquidate
    I echo all of the above statements. Michael Price ran the first mutual fund I bought (Mutual Shares) in 1989. I hung on to it and Mutual Discovery until David Winter left. The capital gains were a problem, but not unlike other long term positions in individual stocks. But with the latter if you pick correctly, it is unlikely they will go out of business (ie BRK.B)
    I was fortunate enough to somehow avoid Bruce, and while I bought the hometown boy Nicholas ( we lived in Milwaukee then) I left when Al turned it over to his son. Nepotism in investment management is never good.
    It is too bad that funds that liquidate can't just transfer the positions to the sharehoders.
  • TBO Capital
    So, looks like TBO Capital is a scam. I invested some money 2 months ago and now the site vanished along with all the LinkedIn info. Unfortunately I only found this platform after.
    That IS unfortunate, but welcome. Welcome to MFO.
  • TBO Capital
    So, looks like TBO Capital is a scam. I invested some money 2 months ago and now the site vanished along with all the LinkedIn info. Unfortunately I only found this platform after.
  • Devesh Shah's Article on RE Funds
    I was trying to understand how the seemingly open-end funds listed in this month's Commentary article are not for sale in the same way that close-end funds do trade on equity markets. The following explanation on Schwab's website cleared things up for me:
    "Interval funds are not available for purchase by individual investors.
    Interval funds are closed-end funds that offer daily purchases and redeem shares by periodically offering to repurchase a certain portion of shares from shareholders (“tenders” or “redemptions”). Rules and regulations related to interval funds enable fund companies to create portfolios with less capital volatility while holding a greater percentage of less-liquid, longer-term investments, often with higher risk-return opportunities than may be readily achieved in open-end mutual funds or exchange-traded funds (ETFs).
    Although interval fund purchases resemble open-end mutual funds in that their shares are typically continuously offered and priced daily, they differ from traditional closed-end funds in that their shares are not sold on a secondary market. Instead, periodic repurchase offers are made to shareholders by the fund. The fund will specify a date by which shareholders must accept the repurchase offer. The actual repurchase will occur at a later, specified date. If repurchase requests exceed the number of shares that a fund offers to repurchase during the repurchase period, repurchases are prorated (reduced by the same percentage across all trades) prior to processing. In such event, shareholders may not be able to sell their expected amount, and would potentially experience increased illiquidity and market exposure, which could increase the potential for investment loss."
    FWIIW, I own QREARX in my retirement account at TIAA. It's up about 12% YTD, offering nice ballast.
  • CGM Funds to liquidate
    @BennyB, the main reasons we made the change were two folds. First, there were no managers quite like Micheal Price (solid return with lower risk). Donald Yacktman came the close. The other was the capital gain tax incurred when we had them in taxable account. Indexing small caps does not work well and we still use active managed funds.
  • BIVIX
    Thanks, @staycalm.
    M* could be wrong but it shows "Open" Status.
    For those interested to dig into the fund details, the monthly commentary and other resources (incl archive of commentary) are listed on the right hand side about mid point on their home page.
    The fact sheet says the fund's typical exposure is 20-80% net long. I checked out quite a few months in each year, and I do not recall the fund ever going above 30% net long and has generally stayed within 20-30% net long. I think in June 2020, the fund was 10% net long. One has to figure out the suitability of entering into this fund at a particular time and whether one is capable of holding the fund when it underperforms the market. For me, given its 20-30% net long position, if the fund can perform against a conservative allocation fund (e.g., VWINX) over whatever time frame one chooses to compare, then the fund is acceptable.
    I have never invested in a long-short fund as I was always apprehensive of potential for whipsaws in the fund portfolio, but I think I can get behind this fund. I added it to my watch list.
    Hopefully, you guys talk about it often or will mention in the Buy, Sell thread when you transact in it so we can follow it.
  • Wealthtrack - Weekly Investment Show
    A year ago on WEALTHTRACK, in September of 2021, Research Affiliates’ Rob Arnott made two macro observations. One, he predicted there were “very high odds” of a resurgence in inflation. Two, that the multi-year outperformance of growth over value stocks was probably finally over. He dated the turn to August of 2020.
    He proved prescient on the inflation call and so far seems to have gotten value’s comeback right.
    Rob Arnott is Chairman of the Board and Founder of Research Affiliates, which is celebrating its 20th anniversary this year. Research Affiliates describes itself as a “research-intensive asset management firm that focuses on innovative products.”
    Among the many funds that Arnott created and now co-manages is the PIMCO All Asset Fund, also celebrating its 20th anniversary this year.
    In this interview, Arnott shares his outlook on inflation, value stocks, and his cheap diversifiers strategy.


  • What is a “Blood in the Streets” Moment?
    And now there's this possibility. Can you begin to imagine the effects on the financial markets?
    Vladimir Putin’s latest frightening gambit lies at the bottom of the ocean
    "Once is happenstance, twice is coincidence... three times, it’s enemy action.” As European politicians and security agencies ponder the explosions in the Nord Stream pipelines they may find this adage of Ian Fleming’s helpful in resolving their doubts about who was responsible.
    The strange thing about Putin’s assault on Ukraine was that he clearly hadn’t consulted Valery Gerasimov, the guy who in 2013 had radically reconfigured Russian military doctrine at his behest (and is now chief of the Russian armed forces). Gerasimov’s big idea was that warfare in a networked age should combine the traditional kinetic stuff with political, economic, informational, humanitarian and other non-military activities.
    Putin’s invasion in February ran directly counter to this doctrine. Instead the assault was a 1940s-style blitzkrieg. And it hasn’t worked. So as he returns to the drawing board, it’s conceivable that the Russian leader has, finally, been talking to Gerasimov. If that’s the case, then their conversations will have rapidly turned to topics such as deniability, asymmetric warfare and identifying the critical weaknesses of their western adversaries.
    Which in turn means that they will be thinking less about pipelines and much more about the undersea fibre-optic cables that now constitute the nervous system of our networked world. There are now about 475 of them and they carry more than 95% of all the data traffic on the global internet – $10tn money transfers and at least 15m financial transactions every day. The Telegeography site maintains a terrific up-to-date map of them all.
    These cables are the critical infrastructure of the western world. They are funnelled into the sea via often poorly protected entry points on remote ocean coastlines. The cables mostly belong to a largish number of private companies, and so – up to now at least – have been largely neglected or ignored by governments.
    Lying on the ocean floor, cables are obviously vulnerable to accidental damage. One industry source claims that only about 100 breaks a year are caused by fishing boats and trawlers. Until 2017 it seems that malicious attacks were rare. In that year there were two on transatlantic cables – UK to US and France to US – which were, er, under-reported at the time, but which may have been the trigger for a study written by none other than Rishi Sunak for the thinktank Policy Exchange, which concluded that the vulnerability of the undersea cable network was deeply troubling and that the danger of an attack on the system was “nothing short of existential”.
    In his foreword to the report, Admiral James Stavridis, a former Nato supreme allied commander, pointed out that “Russian submarine forces have undertaken detailed monitoring and targeting activities in the vicinity of North Atlantic deep-sea cable infrastructure”. Which is interesting for two reasons. One is the conversations that are now doubtless going on in the Kremlin. The second is that Stavridis is the co-author of a fascinating thriller, 2034: A Novel of the Next World War, in which the trigger for catastrophe comes when a Russian ship severs 30 undersea cables, thereby cutting the US off from the world. I doubt that President Putin has read it. But I bet General Gerasimov has.
    Preceding are abridged excerpts from an article by John Naughton in The Guardian.
  • CGM Funds to liquidate
    https://www.sec.gov/Archives/edgar/data/60335/000092963822001509/form497.htm
    497 1 form497.htm
    CGM FOCUS FUND
    CGM MUTUAL FUND
    CGM REALTY FUND
    (each, a “Fund”)
    SUPPLEMENT DATED SEPTEMBER 30, 2022
    TO EACH FUND’S SUMMARY PROSPECTUS, PROSPECTUS
    AND STATEMENT OF ADDITIONAL INFORMATION
    DATED MAY 1, 2022
    Capital Growth Management Limited Partnership, the Funds’ investment adviser, has determined to cease operations. Accordingly, the Funds’ Board of Trustees has approved a proposal to terminate and liquidate each of the Funds.
    The Funds are expected to cease operations on or about November 30, 2022 (the “Liquidation Date”). Before that date, each Fund’s assets will be liquidated at the discretion of the investment adviser and the Fund will cease to pursue its investment objective.
    The Funds will be closed to new purchases as of the close of market on the date of this supplement, except for the reinvestment of dividends and distributions, if any.
    Shareholders who elect to redeem their shares prior to the Liquidation Date will receive in the ordinary course redemption proceeds equal to the net asset value per share of the Fund as of the redemption date.
    Shareholders who remain in a Fund until the Liquidation Date will receive promptly following the Liquidation Date a liquidation distribution equal to the net asset value of the shares of the Fund that such shareholder then holds.
    The liquidation of the Funds may result in one or more taxable events for shareholders subject to federal income tax. The redemption of shares prior to the Liquidation Date will generally cause a redeeming shareholder to realize a capital gain or loss depending on the shareholder’s tax basis in the shares. Similarly, liquidation proceeds paid to a shareholder as of (or prior to) the Liquidation Date will generally give rise to capital gain or loss depending on the shareholder’s tax basis in the shares. In addition, on or prior to the Liquidation Date, a Fund may declare taxable distributions attributable to its net investment income and net short- and/or long-term capital gain (including capital gains, if any, from the liquidation of the Fund’s assets) in advance of the Fund’s regular distribution schedule. All or a portion of any such distributions may be taxable as ordinary income.
    Shareholders should consult a personal tax adviser with respect to the effects of the liquidation and of any associated distributions.
    Shareholders who hold their shares through an IRA should consult their tax advisers concerning the tax implications of a distribution, their eligibility to roll over a distribution and the procedures applicable to such rollovers. Caution: If you hold shares through an IRA and do not reinvest liquidation or redemption proceeds through your IRA (i.e., if you cash a check representing those proceeds or deposit or reinvest them in a different account), such proceeds may be subject to a 10% penalty and taxed as ordinary income in the year of receipt. Additional information relevant to shareholders who, to the knowledge of the Funds, hold shares through IRAs or other tax-advantaged accounts will be sent separately.
    If you have any questions, please contact CGM Shareholder Services at 800-345-4048 between the hours of 8:30 a.m. and 6:00 p.m. ET.
    Please retain this supplement for future reference.
    From CGM's website:
    https://cgmfunds.com/
  • Laddering Short-Term Treasury Purchases
    Thanks, @msf.
    "There are some elections - basically how accretion is calculated (there are multiple methods) and whether one chooses to declare income annually or upon sale."
    If the above applies to OID as well, I would be interested if you have a citation on top of your head to be able to defer income inclusion annually, allowing an investor to include in income the entire OID amount when the bond matures or when sold. This is particularly useful to a cash basis taxpayer (like us) who does not receive the OID interest until maturity. This can also be very useful if one is buying OID bonds issued by foreign entities / governments. There can be a lot of change in exchange rates after issue date. If the dollar appreciates, one may actually end up losing money on the investment, notwithstanding high OID. It would be worse, if one is required to pay tax on accrued interest each year just to get a big loss at the end when one's tax rate could be lower. (I remember once when I invested in a CD with early withdrawal penalties, the bank issued me a 1099-OID every year even though I did not get the interest until the CD matured.)
    Edit: From an earlier post from you - § 1278(b) Election To Include Market Discount Currently. (Without this election, it appears market discount is included in income only upon sale or maturity of the bond.)
    You had also included this useful link related to that election - https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/fixed-income-reporting-instructions.pdf
    Most of the bonds I am currently buying have massive market discounts. If I do not make the section 1278(b) election, it seems Fidelity will include the market discounts at the time of maturity. Not making the election will defer the tax liability to a later year. This election needs to be made by December 31. I may make this election if the brokerage is going to report (without the election) the market discount as capital gain on Form 1099, notwithstanding what they are supposed to do - I spoke with three different Reps and got three different answers.
    The statutory text of the deminimis rule you mentioned -
    "I.R.C. § 1278(a)(2)(C) De Minimis Rule — If the market discount is less than 1/4 of 1 percent of the stated redemption price of the bond at maturity multiplied by the number of complete years to maturity (after the taxpayer acquired the bond), then the market discount shall be considered to be zero."
    I added the above Edit info so it may be useful to others.
  • 2022 year-end capital gains distribution estimates (Vanguard's Final estimated year-end posted)
    This was a surprise to me. Baron Funds made spillback distributions on 9/27. I thought I needed to worry only about tax year 2022, but 2021 is still taking a bite out of me. Here’s Baron’s explanation:
    “Spillback distributions are distributions of ordinary and/or capital gains from the previous fiscal year that were not distributed by the end of that year. Spillback distributions must be declared within 9½ months (the fund’s extended tax return due date) of the end of the fund’s fiscal year. The extended tax return due dates are July 15th and October 15th for the September 30th and December 31st fiscal year end funds, respectively. Even though they represent ordinary income and/or capital gains earned by the fund in the previous fiscal year, they are taxable in the year in which they are paid.”
    I was thinking I had plenty of time to sell BWBFX before distributions, but I was asleep at my iPad. Now I wonder what Baron will do for tax year 2022. Feeling like taxes fall on the middle class and me especially. Does baying at the moon do any good?
  • Cathie Wood’s ARK Invest unveils new actively managed Venture Fund
    “Cathie Wood and brokerage platform Titan partnered together to launch the actively managed ARK Venture Fund (MUTF: XARKX). The new ARK Venture Fund aims to democratize venture capital by providing all market participants access to innovative organizations throughout the private and public markets with a minimum investment of $500.”
    Read story here
  • Laddering Short-Term Treasury Purchases
    Have you guys looked into the tax treatment of holding and later selling Treasuries in the secondary market?
    Let us assume the coupon is considerably lower than the yield to maturity (YTM) on the date of issue and the YTM is higher at purchase than at original issue (like in the current yield environment).
    There is original issue discount, market discount, and then there is capital gain or loss for consideration.
    Does the brokerage calculate and report any or all of these? (I know the investor is responsible for correctly reporting for tax purposes, notwithstanding what the brokerage does but I still want to know what the brokerage does. Taking a position contrary to how the brokerage reports is not fun, even if the brokerage is wrong.)
    Is it possible to treat any part of the market discount as capital gain or to treat capital gain /loss as interest income / expense (i.e., reduction of interest income)? Is such a treatment automatic or by a tax election? Does the treatment differ depending on how long one holds the instrument before selling?
    (Capital gain may be subject to state income tax but interest on Treasuries is generally not subject to state income tax.)
    I will check the Treasury Direct website but I do not expect them to have answers because the situation posed here is buying Treasuries in the secondary market and later selling the same in the secondary market.
    I put in an effort to write the above but if any of it is not clear, please ask questions before writing an essay on why you think I am an idiot.
    Thanks for your help.
  • Bank of England Will Buy UK Government Bonds in Bid to Calm Markets
    In reading about central banks recently, I found that the Treasury in the UK contractually indemnifies the BOE on its QE operations, i.e., any profits net of expenses go to Treasury, and any losses will be absorbed by the Treasury. BOE uses Treasury offsets to nullify the QE impact on its balance sheet.
    My curiosity was from the recent news that Bank of Australia (BOA) had negative equity due to mark-to-market losses from its QE. But it said not to worry as the government will cover them, so it wasn't bankrupt like a commercial bank would be. That the BOA just has the accounting practice of carrying QE gains/losses on its books and doesn't use offset like BOE.
    I don't know what the US Fed does on this. I know that Fed does send profits from its entire operations to the US Treasury. But I am wondering if the mark-to-market values show up on the Fed balance sheet, or like the BOE, it uses Treasury offsets.
  • Vanguard Primecap Core Fund
    VPCCX has been closed to most new investors for a while.
    Vanguard Flagship/PAS customers can open new accounts in VPCCX without any purchase limitations.
    Vanguard Flagship customers can open new Primecap (VPMCX) or Capital Opportunity (VHCOX)
    accounts and invest up to $25K per fund account per year.
    Vanguard PAS customers can open new Primecap (VPMCX) accounts and invest up to $25K
    per fund account per year; they can open new Capital Opportunity accounts without any purchase limitations.
  • Any Funds You're Hoping Will Reopen Because of the Bear Market?
    Following up on @TheShadow: I have kept a small position in BCSIX and added a smidgeon to it fairly recently. I was a faithful investor in 3 of Brown Capital's funds and I thought they were making a laudable effort to bring in some new talent to help Eddie Brown and others who've been there a long time. However, from my perspective, relative performance has declined and I hold only the small-cap fund.
  • What is a “Blood in the Streets” Moment?
    I may inject my typical cautions about ST-HY. Many think, mistakenly, what can go wrong in few months. Plenty, if credit conditions tighten. Then the rollover/re-fi of maturing HY becomes difficult. Defaults don't have to happen. Investors then wonder what the heck happened.
    And remember that FR/BL is really ST/IT-HY if rates stop rising. So far so good, but at some point, rates may stop rising and credit conditions may remain tight.
    I think that GFC showed that ST-HY and FR/BL shouldn't be treated as low-risk options. Of course, GFC couldn't happen again, but then 2020 pandemic happened, and we are so soon in 2022 with credit conditions tightening again. So, be careful.