Some quotes:
“The compelling simplicity of a 60/40 strategy is very hard to beat,” Timothy J. Keating, president of Keating Investments in Greenwood Village, Colo., and author of two reports on endowment performance, told me this week. “Many investors would be much better served with a simple 60/40 strategy, or at least a core where you have low-cost index funds. When you understand the role of transaction fees, it’s a very high mountain to scale.”
Simon Lack, a founder of SL Advisors in Westfield, N.J., and a hedge fund insider — he allocated capital to hedge funds during his 23 years at JPMorgan Chase — caused a stir earlier this year with his book, “The Hedge Fund Mirage,” in which he calculated that the hedge fund industry as a whole lost more money in one year (2008) than it had made in the previous 10 years. “If all the money that’s ever been invested in hedge funds had been put in Treasury bills instead, the results would have been twice as good,” he asserted. And he maintained that nearly all the hedge funds’ gains had gone to hedge fund managers rather than clients.
It is a very good article.

it is NET equity exposure that should concern you from the asset allocation perspective. 51% should not be added to cash. When the stocks are sold short, the resulting proceeds are kept as collateral. the possibilities of underperformance of longs vs shorts and therefore larger losses or gains compared to the net exposure is the manager's ability to pick the right stocks to buy and sell, i.e. alpha, not beta.

Hi Scott,
With having to devote more time to work ... I am not able to get to the board as I have in the past. I take a good bit of the summer off and my boss takes a good bit of the fall off. With this, I have more things to do during the day at work. So it is now about 3;30 AM Eastern and from a quick check of the foreign markets I am finding most of them are soft.
On to earnings season and the states side market. From what I have been able to research and read I am finding that anticipated full year 2012 earnings will most likely come in beween $98.00 to about $103.00 range for the S&P 500 Index. So let's just round it to $100.00 for this excerise.
Currently, the S&P Index is about 1440 as of 10/09/2012 market close. I am thinking though I'll become a buyer around S&P 1400 and with this I'll be buying towards the lower range of what many consider a normal P/E Ratio of 14 to 16. On trailing earnings I am finding that the index is currently selling on about a ratio number of 16. So it has now worked its way back into the upper range with this modest pull back from a recent high of about 1475 and with this as it was selling at about a 16.4 trailing P/E Ratio number.
Going to get my buying britches on soon ... if we see somewhere around 1400 on the Index ... might have to step up and pay more than I want inspite of knowing stormy seas might lay ahead as we still have a lot of issues to transverse through this quater and into 2013.
Still, many from what I have read feel equities are the only game in town right now.
Even so, I'd say govern with caution and be mindful of one's risk tolerance. I know I plan to keep within my asset allocation as I plan to raise equities from about 45% (last Xray review) to about 50%, or so, and from there let capital appreciation work and get them to about 55%, or more, through anticipated appreciation going forward. Then trim them back booking some profit as they become more fully valued. Still I feel it is a time to walk softly.
Have a great day and ... Good Investing.
Skeeter

American funds:
https://www.americanfunds.com/resources/tax/capital-gains/index.htm

Earnings are likely going to disappoint, but I think there's still going to be elements of hedge funds playing catchup and money having to go somewhere (and more printed money on the way) taking stocks higher. I'd say there may be money coming out of fixed income and into stocks, but that continues to not happen. Over time, I think there's going to be nominal gains and those selectively in equities will likely benefit from some degree of protection as purchasing power declines.
As I've noted in other threads, I continue to think that various sectors will continue to do well - agriculture, infrastructure/hard assets and mobile-related, etc. The other key sector that I think will do well is financial services/tech, as I believe more and more basic banking will be done via mobile and online.
There are 1.7B people with a phone and no bank account (and probably millions who are unsatisfied with their bank for basic banking due to monthly fees and otherwise), and Amex, MC and Visa are going after them. There will be - I think - a lot less bank branches over time. While I think it won't happen overnight, it will be interesting to see companies like Visa trying to move more into offering basic banking services.
American Express just launched their new Bluebird bank account alternative at Wal-Mart yesterday.
http://www.cnbc.com/id/49327154
"A prepaid debit card called Bluebird, created through a partnership with American Express Co. (AXP), will be available in more than 4,000 U.S. Wal-Mart stores and online next week, the Bentonville, Arkansas-based company said yesterday in a statement. Services include direct deposit, automatic bill pay and remote check capture using a smartphone application. The card has no monthly or annual fees, and doesn’t require a minimum balance.
“Bluebird is designed as a checking and debit alternative,” Daniel Eckert, vice president of financial services for Wal-Mart U.S., said in an interview. The product is for “those customers who are waking up to the skyrocketing costs of having a checking account.”
http://www.businessweek.com/news/2012-10-09/wal-mart-offers-bank-account-option-with-american-express
Again, earnings are going to disappoint to some degree - I think - in many instances, but while the overall market may become more volatile again, I think there are a lot of big changes going on in (or due to) technology (big names like HP just unable to catch up), finance ("financial inclusion" as Visa and others go after over a billion people with a phone and no bank account) and elsewhere that may provide opportunities.
Additionally, I'm finding it rather curious that Amazon and Google are now essentially offering a variation of vendor financing.
http://www.zerohedge.com/news/2012-10-08/online-retailers-launch-vendor-financing-apple-credit-corp-imminent
Finally, as for bond inflows, from Marketfield's August letter:
"Week after week, billions of dollars leave domestic equity funds and relocate in fixed income vehicles, despite the apparent lack of return
potential in the latter. The rationale, as far as we can determine, has nothing to do with prospective returns and everything to do with a combination of hindsight and emotion.
People are fed up with stocks not because they believe the return characteristics to be inadequate, but because they cannot tolerate the emotional impact of equities’ volatility. The present day volatility of publicly traded companies is a function of regulatory failure as pertains to market structure and not anything intrinsic in businesses. We don’t dismiss the real, emotional pressure of dealing with seemingly random, violent
moves in quoted prices. It is a constant factor in our daily lives as fund managers. We do, however, see enough of it first hand to realize just
much of it has to do with failures of market structure and how little with real business or economic results. Bonds have become the favored retail asset because of their historical results and apparent lack of volatility. "
http://www.nylinvestments.com/public_files/MainStay/PDF/Marketfield/MFLDX201208.pdf

'Tis the season, Thanksgiving, Christmas or Hanukkah or other holiday, and capital gains/dividend distribution day for mutual funds has come around again this year. If anyone sees any mutual fund families' distributions not posted, please post them.
Here are some links for mutual fund families:
First Eagle: http://www.firsteaglefunds.com/downloads/all/Distribution estimates_publicwebsite2012 08 31.pdf
Wasatch:
https://secure.wasatchfunds.com/Our-Funds/~/media/Docs-Fund/Regulatory/2012_Est_Cap_Gain_Dist_Notice.ashx
Columbia:
https://performance.columbiamanagement.com/content/columbia/pdf/2012_ACORN_FNDS_YEAR-END_CAPITAL_GAIN_EST.PDF
Franklin/Templeton:
https://www.franklintempleton.com/share/pdf/Cap Gain Indications Comm 2012 FINRA.pdf
or
Franklin/Templeton
https://www.franklintempleton.com/funds/fund-capital-gain-distributions
Janus: https://ww3.janus.com/SiteObjects/published/FFFFFFFFA8347B540106A689CB6E5086/3760F35C6A4E5B8032A0C29AE7FE9908/file/Janus Funds Preliminary Distribution Estimates 2012 v2.pdf
Hartford:
https://financialprofessional.hartfordinvestor.com/planco/om/MF5753_12.pdf
Nuveen:
http://www.nuveen.com/Home/Documents/Viewer.aspx?fileId=49964
Schroder:
http://www.schroderfunds.com/staticfiles/Schroders/Sites/Americas/Schroderfunds/documents/EstimatedDividendDistributions.pdf
Barons:
http://www.baronfunds.com/mutual-funds/distribution-information---2012/
MFS:
https://www.mfs.com/wps/portal/mfs/us-advisor-pub/products/mutual-funds/!ut/p/c5/04_SB8K8xLLM9MSSzPy8xBz9CP0os3j_QKNAf3MPIwMDdyNTAyM_D0M3Ew8DQwtXU6B8JJK8u4-Fo4GRi79bmLdZgIG7pSExug1wAEcDArr9PPJzU_ULckMjyh0VFQHzHnrl/dl3/d3/L2dBISEvZ0FBIS9nQSEh/?PC_7_OQ2QO7H200G2502NH1F4H018U4000000_shareId=19&PC_7_OQ2QO7H200G2502NH1F4H018U4000000_viewMode=summaryYearEndEstimates

Interesting that Jaffe uses Vanguard to extol the virtues of ETFs. (Never mind Bogle's thoughts on ETFs, that's not where I'm going.)

With the exception of a few cost leaders — mostly institutional funds requiring big holdings — ETFs are dramatically cheaper than traditional funds covering the same indexes.

Vanguard index funds are the exception that proves the rule - for a $10K min - not institutional, and not an outrageous amount - Vanguard's Admiral shares generally carry the same expense ratio as their ETF shares. S&P 500 - 0.05%, FTSE All World ex-US - 0.18%, Extended Market - 0.14%, Total Bond - 0.10%, Total Stock - 0.06%, etc.. And because these are just two different share classes of the same funds, the reduction in costs that Jaffe is lauding on Vanguard's ETFs will show up in the Admiral shares also.

The one advantage traditional funds have is that an investor can dollar-cost average into the fund without paying repeated commissions, but no-transaction-fee ETFs offset this advantage.

This means that Admiral shares are only somewhat less expensive to buy and sell - you get them at NAV, rather than getting penalized by a bid/ask spread whenever you buy or sell, as you would with an ETF.

Index ETFs have a slight edge in tax efficiency over traditional index funds too.

Obviously not true for two shares classes (Admiral, ETF) of the same portfolio. Dividends and capital gains get distributed pro-rata to all shares, whether they are ETF class or other class.
There are other differences between ETF class shares and Admiral class shares, but they're not ones that Jaffe chose to discuss. He's focusing on costs.

Disappointing to me that folks like Christian Wagner, founder and chief investment officer of Longview Capital Management LLC, get portrayed as modern day risk managers.
Here's strategy from the Longview site, emphasizing "Downside Management."
A Flexible Strategy for A Changing World
The Longview Global Allocation Fund seeks to preserve and grow capital by producing absolute returns with reduced volatility. At Longview, we believe the changing global landscape presents investors with an unprecented opportunity to shift their investment perspective, establishing a global allocation strategy as the core of their investment portfolio.
Here is the performance of their showcase fund Longview Global Allocation LONGX, which I believe shows they captured most of the downside and little of the upside:

And, for the privilege of owning LONGX, investors get to pay 5.75% front load and 2.72% ER.
Can you believe?

Impressive short-term record, for sure. They have really loaded up on financial sector bonds, and clearly they will stretch for total return. Investors need to consider these things when deciding on whether to invest in the fund. Have the big gains already been achieved with the bonds they own? How much more capital appreciation can the managers squeeze out of them? The fund has a very high STD which could be problematic. Scout is a good shop, though. We would probably sidestep this fund in favor of a less high-octane option, like OSTIX.

Yup. Volatility is not risk. Permanent loss of capital is list. Case in point (while I hope not) - HSGFX. It keeps bleeding with low volatility.
However, I'm wondering if we are making things too complicated.
Long/Short = Bet on stocks that expected to rise. Short stocks expected to fall. Prospectus decides how much of portfolio is long and how much is short
Market Neutral = Half long, Half Short. Expect differential to provide return
Hedged = Decide on portfolio % to hedge against remaining long portfolio.
I don't think HSGFX is Long/Short fund. It is Hedge.
I don'g think FVALX is Long/Short fund. It is Hedge.
I think M* sucks. It does.

Reply to @LarryH: banks buy treasuries hi qual munis which count towards capital - demand for which has been greatly increased due to recent regulations. banks do not buy equities -- your mutual funds buy equities.

This is a test to see if it is possible to design a semi-automated weekly portfolio report, along the lines of Catch 22's. Our spreadsheet has been modified to collect the weekly data, and to automatically format it for posting. The report period is Monday-to-Monday, as we usually do not have computer access on Friday.. we'll see how this goes with respect to future weekly updates.
Following is the present portfolio percentage distribution, showing one-week changes (Monday-to-Monday).
Cash positions are not shown, but approximate portfolio distribution currently is:
Equity Funds: 17% / Bond Funds: 32% / Cash: 51% • (May not equal 100% due to rounding error.)

		10/1/12		
Change		AF = American Funds
% of	Since		AC = American Century
PF	9/24/12		S: = Schwab Account
ANCFX	7.1%	-0.36%		AF Fundamental Investors
SMCWX	3.8%	0%		AF Smallcap World Fund
CWGIX	2.2%	-0.14%		AF Capital World Growth & Income
ANEFX	6.9%	-0.31%		AF New Economy Fund
GABAX	2.5%	-0.76%		S: Gabelli Asset
MAPIX	0.9%	-0.43%		S: Matthews Asia Dividend
GASFX	0.9%	-0.27%		S: FBR Fund Advisors
MFLDX	2.1%	-1.52%		S: Marketfield
ABALX	16.2%	-0.29%		AF American Balanced Fund
GBLAX	0.1%	-0.46%		AF Global Balanced
TWSMX	9.1%	0.01%		AC Strategic Allocation (Moderate)
ABNDX	9.5%	0.35%		AF Bond Fund of America
AIBAX	7.5%	0.07%		AF Intermediate Bond Fund 
CWBFX	0.6%	0.23%		AF Capital World Bond Fund
AHITX	10.6%	-0.36%		AF High Income Trust
ABHIX	4.7%	-0.17%		AC High Yield Bond Fund 
BGNMX	1.1%	0.24%		AC GNMA Bond Fund
ADFIX	2.8%	0.45%		AC Diversified Bond Fund
ACITX	8.4%	0.37%		AC Inflation Adjusted Bond Fund
RPHYX	0.8%	0.05%		S: Riverpark Short Term HY
PONDX	2.2%	0.6%		S: PIMCO Income Fund (D) 
Total Weekly Portfolio Change:		0.1%		

-

Own 24 ETF's and 45 mutual funds, for many of Accipiters reasons but also for 2 other important reasons. Even great funds tank. One example is Janus Worldwide. By having multiple "great funds in a similiar class when one tanks or is doing poorly it is sold and the tax hit is much lower than otherwise. It is a great tax planning tool! Capital gains are lowered. Also in retirement it is much easier to sell one position fully and use its proceeds for living expenses than having to choose specific shares in large holdings. My portfolio is very substantial and many may think this is ludicrous but it works for me and I manage it myself with great tax savings.

Hi Scott and others,
Currently, for me, my risk tolerance is right so I am sitting tight within my asset allocation which roughly bubbles at about 50% equity, 30% bonds and 20% cash. Within equities I am overweight the defensive sectors of utilities, healthcare and consumer staples along with communications, real estate, energy and materials.
Those that have been reading my post know I feel a storm is brewing and in spite of the efforts of the central bankers I see the equity markets becoming stormy in the near term as earning season soon approaches and I feel investors will be disappointed. Then there is the fiscal cliff along with Europe that is still much broken from my thoughts plus a gaggle of other things which include the Presidential election.
My investment strategy is to buy low and when I sell … sell towards 52 week highs. Since, I have already sold equities down to the mid point in my equity allocation I am sitting tight while I await a new buying set up to where I can reload equities at more attractive prices. In addition, I tend to buy investments that in some form or fashion kick off an income stream while I await appreciation.
Currently, I am finding the most value in financials, energy and communication services but have yet to deploy any new capital to these areas. In review of the S&P 500 Index I am finding it to be fully valued and selling at a Price to Earnings Ratio a little North of 16 on trailing earnings. My buying philosophy is to buy value so I will not become a buyer until the P/E Ratio retreats. Perhaps the anticipated approaching storm will blow some value back into the market.
I have linked a song called "The Whipsaw Song" produced by the Trading Tribe … and, one of its lyrics might be fitting ... "When your stops are in there is noting to do.”
Hope you enjoy ...
http://www.seykota.com/tribe/essentials/index.htm
Have a Great Day and Good Investing,
Skeeter

Hi Yugo. RYSEX is a wonderful fund. I actually thought it was closed which would be a reason it is not talked about much (I see M* says it is "Limited" what ever that means).
Another reason might be because this fund, I think, is in the mold of other conservatively managed funds like ARIVX, ICMAX and to a lesser extent, the Forester funds. These types of funds excel at capital preservation in down markets and win over longer market cycles. Buy and hold, sleep easy type funds.
What I've learned from reading FundAlarm and now MFO, is that people like to talk and learn about new funds and often hot funds. I like to hear about new ideas. But funds like RYSEX, PRBLX and SEQUX and many other well managed funds that don't get much discussion certainly don't go unnoticed by those doing their homework- like yourself.

Reply to @MaxBialystock:
I also own stock funds (about 40/40/20 stocks/bonds/cash). My objective with the bond funds has not been income but capital appreciation with less volatility. My concern is trying to understand what type of bonds I actually own and how much overlap exists, particulary since I have a lot of balanced/flexible portfolio funds like PRPFX, VWINX, FPACX, PRWCX, etc.
Actually PRAIX (TIPS) is one that I was thinking of eliminating but it's 12.37 ytd performance is not a bad return.

So if we want a Vanguard fund that has 50% stock and 50% bond we need to buy Wellesington or Wellingley. God knows how they came up with these names. Morgan Growth my foot.
Will DCA in Wellington as I harvest capital gains for the rest of the year.
Thanks all.

Reply to @Archaic: Happy to help. The other fund I'd suggest - and which David will profile next month - is Whitebox Tactical Opportunities, a long/short aggressive allocation fund whose very detailed discussion of the philosophies behind its hedging strategy can be found towards the end of the 2Q letter.
http://www.whiteboxmutualfunds.com/content/assets/docs/newsletters/Whitebox-Tactical-Op-Newsletter_Q2_2012.pdf
The entire last page has a lengthy discussion of their approach.
This fund does not have a long history, although from all accounts it would appear to be a lite version of one of their hedge funds. The long/short aspect is summarized: "Our fund is not currently “market neutral.” We have a strong “long-bias”. At
other times we may have a strong short bias. Our returns will reflect at least a
portion of day to day, normal market volatility. Our goal is to outperform not by
delivering smooth returns all the time. Our goal is to outperform by doing two
things. (1) Avoiding catastrophic capital losses that can derail an investment
program for years, or forever. (2) Being invested in areas of exceptional
opportunity wherever in securities markets those opportunities arise. And - "We
hedge against disaster, against tornadoes, not blustery days." There is much more in the letter, but the general philosophy would suggest a fund that is likely going to be long-biased to some degree much of the time, but has the capability to go strongly short if the situation warrants.
It's an interesting little fund from a well-regarded hedge fund firm and I'm eager to see David's profile of it soon.
Edited to add:
It's overbought at this point, but I'll also throw in Brookfield Infrastructure (BIP) as an alternative suggestion, as it's effectively a company operating private infrastructure assets globally. It's done quite well, but it's done quite well while often seeming to - to quote a U2 song - to move in mysterious ways. It's definitely not highly correlated to markets, or at least has not been for quite a while.
That would be not a way to invest like the 1% in terms of an alternative strategy like "long-short", but an alternative asset class in terms of a company that can opportunistically buy private real assets. It does yield 4.25% as well, but one warning is that it is an MLP and does result in a K-1 form at tax time.

Here's the transcript of that Sept conference call...
http://ivafunds.com/sites/default/files/downloads/IVA Funds Conf Call Transcript September 13 2012 - FINAL.pdf
Here was a good question by a listener:
Hi, Charles. Hi, Chuck. First, I appreciate your openness and honesty about
explaining what's been going on and reasons for the underperformance.
Charles, one of the things you were talking about was some of the U.S.
names -- HP, Staples, Dell, and a pattern. And you had said that part of that
pattern was that the stocks were trading with free cash flow yields of 7-13%.
And versus cash, that seemed to be attractive. Yet it obviously didn't work.
So I'm just trying to understand what the takeaway is or what the lesson
learned is, if there is one, to try and avoid that type of thing in the past -- in
the future.
Charles de Vaulx: Thanks for your earlier comment and, by the way, as you know, all of us at IVA own quite a bit of the fund, and so we, too, have to explain ourselves to
our spouses as to why we are not up 10 percent this year!
{...See transcript for their full response...}
Also from elsewhere in the Q&A:
It's really just so far this year, especially for the Worldwide Fund, that
performance has been disappointing. One, because we, rightly or wrongly,
did not want to be fully invested in light of all the risks described by Chuck,
and also we made a few investment mistakes. We went through those earlier
on the call, and we hope we've learned from those mistakes and will try not
to repeat them.
I think what has been very pleasing is the fact that when we started the firm,
we went on record saying that we were mindful of capacity constraints. We
want to remain multi-cap investors. If one day the best bargains are in small
stocks, we want to be able to buy them. We think it's the case today in Asia.
In Asia today, the best values are among small stocks.
It was very pleasant for us to be able to close our Funds to new investors a
year and a half ago. And I think what's even more pleasant is our realization
that we have attracted, by and large, money from very sophisticated advisors
and institutional investors out there.
If you think about it, our investment strategy is unique. It's somewhat
unorthodox. It's very eclectic. We oftentimes will deviate from the
benchmarks. We can lag quite a bit in an up market and so we need clients
that truly espouse our investment style -- global, flexible; an investment style
whose core premise is that if you can minimize losses, if you can minimize
drawdowns, gains will take care of themselves, and that is one of the most
powerful ways to compound wealth over time.

Reply to @Investor: Hi Investor. Thanks for your input. I don't see how LT Treasuries could go any lower.... but that's what I thought a year ago. But I guess the thought of "safety" is what continues their input. I have quite a few ETFs on my Watch List... but I really dislike their inability to auto re-invest dividends (at least in Scottrade). With my current fairly significant amount in BOND, that means I have to make monthly dececisions on re-investments... and pay the $7 if I want to just put back to BOND.
At least one of the MF I've narrowed it down to has decent amount of treasuries, so that combined with a couple of the others I mentioned to AndyJ should allow good managers to decide and let David feel comfortable with steady small gains that won't collapse during the next extended downturn (hopefully).