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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.
  • Fairholme's Public Conference Call Today - Summary
    A while back I looked at Fairholme's numbers in a little study called "What a Difference a Decade Makes."
    It's a bit dated, but it may be of interest since I think it supports Junkster's contention:
    "Volatility is needed to prosper."
    Wrong, wrong, and wrong!
    The lack of volatility during Fairholme's first decade, while still delivering strong returns, is precisely what made it so appealing to so many.
    And, to Scott's point, on when BB may have turned. I believe it was 2011 and he went all financials.
    He got hammered that year.
    "Premature accumulation," he called it.
    He was right ultimately to focus on financials ... all of them.
    But he was out-of-step with shareholder expectations. And so, the redemptions.
    Do you think that it was growth in AUM that forced him into higher volatility situations, perhaps the only way to retain the alpha he delivered in the first decade? But if so, why does FAAFX exhibit similarly high volatility?
    Maybe he feels the investing environment has changed, fundamentally, and those days of finding superior gains with lower volatility are no more?
    I've gotten used to the volatility and remain long and heavy FAAFX. I've owned it pretty much from inception (no pity please...I hate that), lived through the MBNA gyrations ... and now the Fannie/Freddie and SHLD gyrations.
    Lost confidence? Never in his ability to seek deep value and articulate his reasons. His rationale generally seems sound to me. No, no loss of confidence.
    He's disappointed me a couple times. The open/closed/open door stuff seemed silly. He was premature to sell MBNA, but he made a small fortune on it with FOCIX. And, the Charlie Fernandez fiasco.
    I've done very well following his early advice on BAC and in holding FAIRX through most of last decade.
    Now, I just keep my FAAFX holding out of sight ... one of the few I try not to fuss. Hmmm, come to think of it, I don't fuss SIGIX or DODGX much either (unless the latter falls below 10-mo SMA =)).
  • The Closing Bell: U.S. Stocks Turn Lower In Final Minutes On Greece News
    Euro and European stock ETFs head south as ECB pulls plug on Greek debt
    Feb 4 2015, 16:01 ET | By: Stephen Alpher, SA News Editor
    The ECB pulled its waiver which previously had allowed Greek sovereign paper to be used as borrowing collateral despite its sorry credit status. GREK -10.4%, NBG -7.1% in the regular session.
    ...withdrew a waiver which had allowed the use of Greek government paper as collateral for borrowing despite its low credit rating.
    European markets are closed, but the Stoxx 50 ETF (FEZ -2.1%) - trading in New York - takes a tumble. Others of note: Spain (EWP -2.7%), Italy (EWI -2.6%), France (EWQ -1.8%), Germany (EWG -1.6%), U.K. (EWU -0.9%)
    http://seekingalpha.com/news/2272666-euro-and-european-stock-etfs-head-south-as-ecb-pulls-plug-on-greek-debt
    Earlier
    Turkey tumbles as government takes over Bank Asya
    Feb 4 2015, 12:38 ET | By: Stephen Alpher, SA News Editor
    ..(it's)about preventing the lender's failure, while others hurl accusations of political meddling."This operation is very much linked to a personal grudge and it goes down very badly with investor communities
    http://seekingalpha.com/symbol/TUR
    @catch22 A couple of week's ago I posted a couple of reads from Foreign Policy, here is another with a more populist/Keynesian bent.
    ARGUMENT
    Welcome to the Backlash Era, Europe
    From Greece to Spain to France, radical parties are making gains. And the Eurocrats have no one to blame but themselves.BY PHILIPPE LEGRAIN FEBRUARY 3, 2015 Philippe Legrain, who was economic advisor to the president of the European Commission from 2011 to 2014, is a visiting senior fellow at the London School of Economics’
    Podemos (the party’s name means “We Can” in Spanish) filled the streets of Madrid on Jan. 31 to protest against austerity, crushing debts, and the country’s corrupt political system — and demand change. The demonstrators don’t represent a fringe group, either. Podemos is leading in the polls, ahead of both the mainstream center-left and center-right parties in elections that will be held by the end of the year.
    But the likes of Podemos are also right about important things. At a time when households, companies, and banks are all trying to reduce their debts at once, austerity leads to stagnation and suffering, not “stability,” as eurozone leaders claim. Budget cuts and tax increases have often fallen on the poor and vulnerable, not the politically connected rich. The political class in many countries is corrupt and in the pockets of vested interests, not least the banks.
    More broadly, it is neither feasible nor fair for debtors to bear the full costs of the financial crisis. For every reckless borrower there is a reckless lender. In the eurozone’s case, those were primarily German and French banks, which lent vast sums to southern Europe, both directly and via local banks. While the bailouts of Greece, Ireland, Portugal, and Spain are portrayed as gestures of EU solidarity, they were in fact covert bailouts of those foreign banks that would otherwise have suffered huge losses on their reckless lending. Southern Europe’s huge debt burden — primarily private in Spain, mostly public in Greece — is stifling the economy and is unpayable in full.
    Outside the eurozone, many sensible people of all stripes would agree with it. The tragedy of the eurozone is that the policy establishment in Brussels and national elites are destroying political support for the European project by advancing Germany’s selfish and destructive agenda as a creditor. With luck, they will change course before it is too late. After all, while Syriza and Podemos want to make the eurozone fairer, the far right wants to destroy the EU altogether. Europe urgently needs mainstream alternatives to Merkelism — or it risks a President Le Pen.
    http://foreignpolicy.com/2015/02/03/welcome-to-the-backlash-era-europe-podemos-syriza-elections/
  • Fairholme's Public Conference Call Today - Summary
    Quick summary of today's call follows...
    Classic Bruce Berkowitz.
    Remains committed to investing in his best ideas.
    Deeply undervalued stocks...far below assessed value.
    Looks for large gaps between price and value.
    Investing requires as much insight into psychology as it does accounting, along with patience and courage of conviction...until the crowd finally agrees.
    Patience pays.
    He has 100% of his savings invested in Fairholme funds and ideas. Employees continue to increase their investments in Fairholme funds.
    He does not hedge. He does not short. "Not in our DNA." The closest thing to hedging is when he exits a position deemed at fair value. "Knowledge is our hedge."
    Attempts to stay course under pressure, when he know he looks wrong...through inflows and outflows. Believes current shareholders know what to expect and are in it for the long term, five years or more.
    He remains the sole asset allocator. He uses his staff of half a dozen analysts, along with outside experts to challenge his positions. His analysis staff continues to increase. He expects to remain leading Fairholme for life...at least the next 20 years.
    His job is to find "fallen angels priced to fail," expecting Mr. Market to disagree with him at times.
    He ties to focus on valuing positions. He tries to avoid predicting time-frames.
    He believes risk is not volatility, which he recognizes some see as a proxy to risk.
    Risk is potential for permanent loss of capital, adjusting for inflation.
    Volatility is needed to prosper.
    Perception and reality meet when price equals value.
    Acknowledging returns can be "lumpy, but above average" over long run, besting SP500 index.
    Remains committed to AIG, BAC, Fannie & Freddie, and yes, Sears Holdings...even, Eddie Lampert, who he knows is no longer regarded very highly by public.
    AIG and BAC will continue to get stronger as Great Recession troubles get behind them. Both will benefit in higher interest rate environment.
    He wove an amazingly detailed trail of folks once inside or now inside Treasury that likely aided FHFA take all Fannie & Freddie profits via conservatorship, though now deny Treasury involvement. He believes both agencies remain vital to nation and future growth and have made more money for government than any in history. Government can't be above legal scrutiny, and he remains confident he will win suit. The case is in discovery stage and Fairholme has been mandated to not disclose any of its material findings to public because of potential harm to government.
    On Sears, he believes the real estate remains a "once-in-a-lifetime" opportunity. He denied that he is so committed to Sears that he can't turn back now. He and every real estate expert he has brought into review continue to see extraordinary value. The REIT, which he says he did not have details on, will likely help reveal true value. He also stated that he thought the retail losses were starting to stem.
    He exits positions only when they no longer rise to top of best ideas at Fairholme.
    He intends to post call transcript on-line.
    And, if anyone has further questions, or thinks "he is full of it," he welcomes emails and opportunity to answer.
  • What Are Your Favorite Fixed Income Investments?
    @davidmoran, i see you're very active on these boards and very well spoken. your prolific inputs however often site incomplete data. i am again siding with @Mona. may be it's a 'girl thing' (insert smiley face) or may be i tend to like more factual information obtained from the source. you see, dan ivascyn is a mortgage guy and always will be - despite his promotion to the cio (just like jeff gundlach of doubleline, by the way). when a mortgage guy launches a multi-strat fixed income fund, you can bet, that it will have around 80% in mortgages in its 'neutral state' with as little as 40 when the opportunities vanish and as much as 100% when it's available (the overall gross exposure would be more than a 100% due to derivatives). when david sherman runs a high yield fund, you can bet the holdings are mostly corporates.
    you see, i too am involved with funds offering documents. in my experience, prospectus discloses very little -- just tons of risk disclosures. most US income funds will have their benchmark as barclays agg and their investment objective as current income and capital preservation, while US large cap equities will be benchmarked to spx with the stated investment objective as capital appreciation. doesn't say much, does it? i actually encourage generic and flexible language where possible as not to request a board approval every time the investment environment changes and pm's find a more attractive sub-asset class. what is important to me are the fund's investment guidelines - whether or not they are disclosed in the prospectus. for an investor, the real positioning of the fund comes from understanding the manager and studying the factsheets, financials and reading the commentary or participating in investor calls. (well, Mona went further and actually called the company.)
    to make my post more relevant to the OP, i have invested in PDI since it lost its IPO premium and am still holding a somewhat reduced position. PDI is a more leveraged and a bit spicier version of PIMIX. i recently took a little position in PRRIX since this is a bet partially that the longer interest rates will stay grounded for a while and inflation breakevens are underpriced. and of course, i am all over munis of my specific state - via cheap vanguard oef and several leveraged cef's. unlike @Junkster here, i am not a muni seller today as i am at a high tax bracket and (junkster, close your ears/eyes) tend to maintain a somewhat diversified portfolio.
    i agree with junkster however that high yield is back from the dead in the last couple of weeks (and actually outperformed equities in the last two days), and am staying in hy bonds and recently re-entered loans. i do own some preferreds - one individual holding and a cef.
    so much for favorite bond fund!
    best, fa
  • Professor Dave's Monthly Missive
    Hi Old Joe,
    Thank you for the tip on Peter L. Bernstein’s “The Power of Gold” book. I fully trust your favorable endorsement.
    I’m embarrassed to admit that I’ve owned a paperback copy of the book for years, yet never opened its cover. I bought it as part of a 3-volume set that included his “Capital Ideas” and “Against the Gods” works. I did read these titles. Later, he wrote numerous other financial books; I have read several of them. All are engaging and all act as excellent teachers.
    Both referenced works are superb. I learned much about the financial world and investing from both of them. Today, I’m puzzled why I did not finish the trilogy. Perhaps I had no interest in gold at that time; not much has changed in the intervening years. But I accept your counsel and will put Bernstein’s Gold book on my reading list.
    Thanks for your recommendation, and your advice to other MFO participants. Bernstein was a treasure and his legacy lives in this outstanding three volume set. All investors miss his wisdom, his clarity, and his wit.
    Best Wishes.
  • Dan, Dan The Vanguard Man: Buy at the Worst, Sell at the Best
    FYI: After a decade fraught with manager turnover and miscues, it appears that, in at least one respect, Vanguard Capital Value Fund (MUTF:VCVLX[1]) is on a steady course.
    Regards,
    Ted
    http://investorplace.com/2015/02/buy-worst-sell-best/print
  • What Are Your Favorite Fixed Income Investments?

    I don't know how low yields will go ... but, they are now low enough for me to start to make some changes within my portfolio's overall asset allocation. Some of my past favorite fixed income investments are now becoming suspect.
    From a capital appreciation point of view you might have captured a large part of it.
    From an income point of view, yields could remain low for several years and you might miss those yields.
  • What Are Your Favorite Fixed Income Investments?
    Not to keep beating the same drum but since January of 2014 (13 months ago) it's been junk muni bond funds. But for some unfathomable reason, and much to my delight, investors have always (like forever) seemed to have had a problem embracing anything termed junk - be it junk munis or junk corporates. By the way, it has been something like 9 or 10 consecutive trading days that junk corporates as measured by the Merrill Lynch High Yield Master II Index have risen, albeit at a snail's pace. Could that be the next big thing in Yieldland?
    A bear market in equities won't be good for corporate junk bonds. A rebound in stocks and they could really be off to the races. A bit vague maybe but you put your money down but be ready to take it off the table real quick if proven wrong. Unfortunately that is a mindset foreign to most investors. Like my friend here who bet on SUBFX early last year as a bet AGAINST lower yields. For all I know he still holds that fund and it may indeed work out someday. But in the meantime, what a waste of time and capital sitting on such a loser while he could have been making money in something that was working instead (kind of like the MFLDX aficionados) Hold for the long run has been the conventional pablum shoved down investors throats since the beginning of time. I don't know about you, but in the long run I am dead.
  • Any thoughts on adding small position LT Tips Fund to a fixed income portfolio?
    Hi @ron
    Just my opinion at this time. We have held active managed TlPs funds, including LTPZ.
    These funds have their periods of in and out of favor, not unlike equity funds. I have not performed a chart study recently, but one will likely discover more swings with the TIPs funds area than with corporate bond holdings. Obviously, these two bond types are supposed to provide somewhat different functions.
    I have noted here several times in the past years that the greatest impact in pricing for TIPs that remains in place is the yield of other gov't. issues and that these bonds also become a flight to safety device when folks are not happy with other market sectors.
    This is only my opinion, of course.
    We have not invested in TIPs for any relation to receiving income from the investment; but to obtain capital appreciation from pricing. We have not used this area as a long term holding; and from my recall, we have not held TIPs for more than a year, during the last 5 or 6 years.
    EDV ,TLT ,LTPZ follow the long term gov't. bond pricing. TIP and other TIPs active managed funds tend to follow the middle dated yield/pricing of gov't issues.
    All of these had a bad 2013 period, as they followed the gov't longer dated issues.
    EDV is the hot dog in this area for both the up and the down, slightly followed by TLT and LTPZ. EDV would be my choice, next would be LTPZ in the TIPs area.
    As to active managed TIPs funds, they are pretty much in line with TIP for the longer term, but vary on a shorter term as the managers move around the duration ranges and in many cases also hold corp. bonds as well.
    Ron, you noted LTPZ in particular; so I presume you have access to EDV as well.
    For our house, we do our best to either purchase a 5% position on day one or at least obtain this percentage within a month's time with an average in once a week. Otherwise, we don't feel the holding has enough effect upon a portfolio.
    Lastly, is how long is this down trend going to stay in place relative to bond yield? A real head scratcher. And that the etf's discussed above can and do move as much as a speciality equity sector. One should watch them for price movements, IMO. These will not neccessarily behave like a smoother, well managed corp. bond fund.
    I probably forget something........will add later if needed; as I have to be away for a few hours tonight.
    Don't forget, lest I get dragged across the carpet. These are only my views/opinions.
    Take care,
    Catch
  • Frontier Markets
    I think you'll find a lot of different opinions about the "ideal" number of funds and I think the real answer depends largely on your style. For instance, if one is mostly a passive investor, then I would think that person wouldn't need more than 5 funds/etfs. On the other hand, there can be good reasons for having more funds, such as not putting all your eggs in one basket, or because you want both growth and value within your global funds, for instance. Of course you have to worry about becoming a closet indexer at higher cost.
    I have 6 large cap funds to cover the world right now (1 of which is in the process of being eliminated so I won't discuss it). Three of those funds are very focused and have a total of 80 positions among them so I'm in no danger of becoming an indexer. These are mostly a 'not all my eggs in one basket' approach. Two others are specific bets that Europe and Japan will experience significant gains thanks to their central bank's QE program and they are hedged etfs. The last one would most likely be eliminated too because it is largely duplicated by one of the etfs (except without leverage), but its closed to new investors. Because of that I've reduced it to a very small position but I don't want to totally exit and at some point, maybe years from now, I'd expect I'll get out of the hedged etf and rotate back into the fund. Do I really need all of those? Maybe not, but I'm comfortable with my approach and I think everything has a clear purpose.
    Finally, there are some other cases where I have multiple funds doing essentially the same thing, but for example Grandeur Peak International Opportunities is hard closed, so I have another small-cap international fund that I like as well and use to balance my allocation when its needed. Again, maybe not totally necessary but I'm happy with the approach.
  • Frontier Markets
    Thanks for your thoughts @LLJB. I too am a big believer in the market segment. Huge growth potential with an emerging middle class and starting from a low base. I really do consider them, as others do, as the "emerging emerging markets." It'll be interesting if/when Saudi Arabia opens up to foreign capital, though it may go directly to being classified as "frontier." Either way, it will probably be in the investible universe for these frontier markets managers as they also invest in the less established emerging markets countries.
    I understand your concerns with the concentration of MFMPX in financials, but from what I hear, Tim Drinkall is "the man" when it comes to frontier markets investing. I would definitely like to see the fund transition more into some other sectors though!
  • Final 2015 Barron's Roundtable: 33 Savvy Picks: Faber, Herro, Schafer, And Gabelli
    I'd say Marc Faber is doubling down. Sure he's been a little wrong - since the dawn of time - but he makes up for it in confidence. Same for Peter Schiff and John Mauldin.
    Faber: If I could find a way to short central banks, that is what I would do. This is the year that people will lose confidence in central banks, mostly because of the failure of Abenomics in Japan. [Abenomics, the economic policies advocated by Japanese Prime Minister Shinzo Abe to reignite Japan’s economy, encompass monetary easing, fiscal stimulus, and structural reforms.] One way to short central banks is to go long gold. I recommend buying physical gold, silver, and platinum. If you are looking for bigger gains, I suggest either mining-company stocks or the Market Vectors Junior Gold Miners [GDXJ] exchange-traded fund. In last year’s first half, when gold rebounded by 15%, the Junior Gold Miners ETF rallied by more than 40%.
  • Frontier Markets
    I'm a believer in frontier markets because I believe we will see better growth rates and I think there's a lot of room for businesses to grow, especially ones with more and more access to foreign capital, as the middle class grows substantially.
    MFMPX and HLMOX were historically very focused on the banks/financial institutions in the MIddle East and they did very well as UAE and Qatar ultimately moved from frontier to emerging market status with MSCI. I get the impression HLMOX has moved geographically since then but both are still heavily weighted towards financials.
    WAFMX is far more focused on consumer defensive based on what they say is a bet on the rising middle class and the local economies rather than being tied to the global financial markets and its done well since its inception also.
    According to Driehaus' registration statement and if I understand correctly, the fund should be available around February 14th. It carries a very large minimum investment so I'm not sure how accessible it will be for retail investors, but when I asked a few months ago I guess they weren't really able to answer and they just said more information would be on their website when the fund is available.
    MEASX also has a pretty big focus on frontier markets in Asia and they are also far more focused on consumer defensive and consumer cyclicals and sports a similarly high but slightly lower expense ratio than the others.
    I own both WAFMX and MEASX now and will be paying close attention to the Driehaus fund to see if their approach is one I like as well as whether there are any opportunities to invest much smaller amounts of money.
  • FT Article: 'A multi-asset generalist is the kiss of death' - Jon Little
    Cannot pull-up the Little (little?) article. When I close the overlaying subscription ad, the entire article disappears.
    Should I pay a buck to purchase copy of FT at Amazon? Is it that good?
    Sounds intriguing. Suspect the article argues against diversification and promotes assets that are currently in vogue. That would currently mean certain equity and bond sectors, mostly of U.S. domicile, I presume.
    If you view investing with a broader sweep - say in 25-40 year time spans, you may be surprised how different sectors come and go. That's true of equities, high grade bonds, junk bonds, houses, rental units, ocean-front property, farmland, oil, gold, Swiss Francs and other foreign curriencies - as well as of railroads, technology, banks and airlines. Things change. Diversification won't get you the best returns on capital at any particular time in history. It may however help even-out the bumps longer term.
  • FT Article: 'A multi-asset generalist is the kiss of death' - Jon Little
    Interesting read in the financial times (FTfm) about a UK firm (Northill Capital run by Jon Little) that buys majority stakes in boutique investment companies, including one offering US mutual funds (Riverbridge Partners). Their strategy seems to remind me of some individual investment strategies at MFO.
    http://www.ft.com/cms/s/0/a18d69ee-9b1a-11e4-b651-00144feabdc0.html#axzz3QJc2gXKl
  • Vanguard Warns Advisers On Stock Risk In Client Portfolios
    Gross'Latest
    The Federal Reserve has finally understood the damage its zero interest rates policy has caused but won’t appease markets with a sudden rise in rates, according to bond veteran Bill Gross in his latest investment outlook.
    Gross, who joined Janus Capital at the end of 2014, said capitalism had been morphed into a new entity since central bank policies, notably zero interest rates, had created ‘distortions’ and left markets in a precarious position.
    Gross, however, said the advantage is currently with equity investors, albeit only slightly. He said the bulk of investors will need to accept future low and, in some cases, negative total returns in 2015 and beyond.
    http://citywireglobal.com/news/bill-gross-fed-finally-grasps-zero-rate-policy-folly/a795683
    Full Read From Janus
    https://www.janus.com/bill-gross-investment-outlook
  • FPACX off to a slow start
    From FPACX 4Q Commentary
    Given the market’s run,
    you may wonder if we were wrong to have not been more fully invested.
    You would have been much better off investing in an index fund rather than with an active manager,particularly one with our conservative bent. In fact, 2014 was the worst year for active managers since 1997. Part of the reason just 14% of managers outperformed the market is that there was little breadth.
    Large-cap stocks dominated
    Apple alone, the largest market cap company, rose
    40% and added 1.3% to the S&P 500’s return. However, the average stock didn’t fare nearly as well, returning more than eight percentage points less than the S&P 500.
    The narrow breadth didn’t break any records but it was reminiscent of 1999 when the S&P 500 was up 21.04% and yet more than half the stocks in the index declined in price.
    High Yield
    Oil has declined by more than half in the last year. With energy companies representing
    14 %-15% of the high-yield bond index, it shouldn’t come as a surprise that we are beginning to troll the energy sector. We have a few prospective investments on the table but have only pulled the trigger on one thus far. We’d like to be assured of a return of our capital without having to make too large a wager on the price of oil
    Should oil prices remain low for some period of time, we expect additional opportunities to increase our investments. Our chosen path is littered with the bonds of the forced seller, which is how we ended up with large exposure to the debt of finance companies in 2008/9. The bonds of oil-related businesses have yet to reach prices that offer the best combination of yield and collateralization and a significant margin of safety given conservative expectations for the price of oil.
    Not only is the stock market at a new high but so is the dollar and that’s despite continued low interest rates. It does beg the question: Are stocks in developed economies only as good as their respective central banks allow them to be?
    At some point, the market intervention will end, hopefully plying us with
    opportunity, but we are careful for what we wish for.

    http://fpafunds.com/docs/quarterly-commentaries-crescent-fund/2014-q4-crescent-final.pdf?sfvrsn=2
    FPACX 4th Q Fact Sheet Cash & Equivalents 45.1%
    http://fpafunds.com/docs/fund-fact-sheets/cre-fact-sheet-q4-2014.pdf?sfvrsn=2
    TOTAL NET ASSETS:
    19,983,836,378.33

    http://fpafunds.com/docs/funf-holdings/crescent-2014-q4.pdf?sfvrsn=4