[quote=mikebutler222]Ahhh, there's the rub. Those of us honest enough with ourselves to know we aren't the Ms. Cleo to the investment world realize we WON'T KNOW until after the rear-view mirror performance data tells us. OTOH, [/quote]

Is Ms. Cleo the best you can do? That's a cop-out and a cheap shot which demonstrates what we (at least I) know: that you're small-minded and an agitator who has an inferiority complex and tries to compensate for it by ripping into everyone on this forum.

Keep looking into the rear view mirror Mike. 

[quote=skeedaddy2]

[quote=mikebutler222]Ahhh, there's the rub. Those of us honest enough with ourselves to know we aren't the Ms. Cleo to the investment world realize we WON'T KNOW until after the rear-view mirror performance data tells us. OTOH, [/quote]

Is Ms. Cleo the best you can do? That's a cop-out and a cheap shot which demonstrates what we (at least I) know: that you're small-minded and an agitator who has an inferiority complex and tries to compensate for it by ripping into everyone on this forum.

Keep looking into the rear view mirror Mike. 

[/quote]

Sounds like you need decaf. I had no intention of likening you to Ms. Cleo (although there are plenty of people that are convinced than can predict the market). If that's what it sounded like to you, my apologies.

Now, how about re-reading that post, minus the Cleo reference.

[quote=SonnyClips]Yea what he said.
[/quote]

Hey, newb, stay out of the way when grownups are talking, ok?

Isn't there a test you should be studing for? A $2k IRA you should be opening?

Hey Clipper...ease up a bit and face facts; given that you just cleared your seven, you're going to get some abuse just like you did as a freshman in high school...

...and given the fact that you're at Kamp Kool-Aid, you might even get a double dose of abuse occasionally...

Fine.



Now, lets examine the issue you raised about growth vs. value. I’ve

noticed that during the same market periods some “value” managers

outperform “growth” managers and vice versa. One could conclude then

that your argument isn’t supported. If an investment style is in fact in

vogue, then the other style can’t do as well. So the argument could end

here.



Or you could start defining what is meant by “value”. Russell defines it as

low price-to-book ratio and a lower growth rate. I define value as buying

deep discount, out of favor, or turnaround situations. My problem with

that approach (and yes you can make money at it), is that these

investments take time to work out. I don’t have the patience to sit on

dead money while Apple, for instance, is on fire and setting new highs

every week.



My point is that it comes down to stock selection. Some managers

whether they call themselves growth, GARP, or value are better than

others regardless of the market environment. The approach I use does

well in an uptrending and flat market. So at least I’m covered 2/3 of the

time.    



      

MikeButler wrote:

I appreciate that.  I'm just beginning to be sceptical of the trend to wrap people up with a grossly overdiversified and expensive index fund (90% of all wrap programs i've seen) ....

You've been looking at different wrap accounts than I have. I've yet to see a single one that fits that description.

I am referring mostly to the wrap accounts which include8 to 10 mutual funds, each with 100 to 300 positions all weighted relative to their respective competitive index, charging 80 to 150 bps.  In my humble opinion any mutual fund owning more than 50 (ideally 25-30) stocks is overdiversified.  The research I've followed suggest that you get diminishing returns on diverisfication over about 16 to 20 stocks.  I guess that my insight (for whatever it's worth, maybe not much?) is that manager's who own over 100 stocks are hedging against the risk of underperforming the benchmark by a wide margin on a short term basis (maybe a year?) and therefore diluting their potential.  Perhaps they don't want to look too different from their benchmark so they can keep their jobs.  Sounds like an expensive index fund to me.  Now wrap it all in a 100 to 150 bps fee to feed my family and I've got a beautiful, overweight pig ready for slaughter.  I think the hordes of Financial Advisors, Brokerage Firms, Regulators, Mutual Fund companies, Index Fund companies and ETF companies following this investment approach will cause too many $$'s to chase down the same investments in close to the same proportions and rebalance roughly in the same ways around the same times (quarterly, yearly whatever).  Doesn't this concern anyone else?  I don't know maybe I need to go back to cleaning out toilets for a living. 

Cheers

[quote=skeedaddy]Fine.

Now, lets examine the issue you raised about growth vs. value. I've
noticed that during the same market periods some "value" managers
outperform "growth" managers and vice versa.

[/quote]

When you see value managers doing as well as growth managers during a growth market, look deeper into what they're actually buying and holding. As often as not you'll find they're not sticking to their style. A great example is the Legg Mason "Value" fund where the manager was buying bigtime growth stocks in 1999 and calling it value.

[quote=skeedaddy]One could conclude then that your argument isn't supported.

[/quote]

It's well supported, review MPT.

[quote=skeedaddy]

Or you could start defining what is meant by "value".

[/quote]

That's a fair enough point, there are many investment schemes that fir the broad descriptions of growth and value. Things are a tad clearer when you're talking about capitalization levels, or domestic versus international, which matters every bit as much as styles.

[quote=skeedaddy] My problem with that approach (and yes you can make money at it), is that these investments take time to work out.

[/quote]

Not so. In fact, deep value (Brandes, for example) made buckets of money in 2001 ans 2002 while the broader indexes treaded water.

[quote=skeedaddy]

My point is that it comes down to stock selection.

[/quote]

Nah, less than 6% of your success has to do with stock selection. You could be the best stock picker known to man, but if you're buying LC value in a LC growth market, well, you'll look like Warren Buffett during the late 1990s. Exactly like Warren, as  a matter of fact.

[quote=skeedaddy]

Some managers whether they call themselves growth, GARP, or value are better than others regardless of the market environment.

[/quote]

There's no doubt that that 6% makes a difference when you're comparing managers working in the same space.

[quote=Indyone]

Hey Clipper...ease up a bit and face facts; given that you just cleared your seven, you're going to get some abuse just like you did as a freshman in high school...

...and given the fact that you're at Kamp Kool-Aid, you might even get a double dose of abuse occasionally...

[/quote]

Sonny's a Joneser? Just when I thought the kid couldn't get lower... 

[quote=SonnyClips]I was just playin with the old crank. I'm a peaceful liberal and your man butler knows this. He's just such a dick. I was a fat kid in high school so don't worried I know how to take some good natured ribbing Brotha. Word to the wise duly noted and cataloged.[/quote]

You're "peaceful"? LOL, only if "peaceful" means "full of extrainious gas" 

BTW, it's obvious you were the fat kid in school, your attitude reeks of it 

[quote=dude]

I am referring mostly to the wrap accounts which include8 to 10 mutual funds, each with 100 to 300 positions all weighted relative to their respective competitive index, charging 80 to 150 bps. 

[/quote]

I'm not a fan of fund wraps, (and I wasn't thinking fund wraps when I read your post) but I wouldn't be so quick to assume that a fund having 100 (althought that's too wide for my taste) or more positions means it's weighted relative to an index. I also have to say I haven't seen fund wraps using that sort of fund, but I suppose it's not as uncommon as what I first thought when I read your post and assumed you meant SMAs.

[quote=dude] In my humble opinion any mutual fund owning more than 50 (ideally 25-30) stocks is overdiversified.  The research I've followed suggest that you get diminishing returns on diverisfication over about 16 to 20 stocks. 

[/quote]

That school of thought's pretty common. There's probably something to it.

[quote=dude]

  Doesn't this concern anyone else?  I don't know maybe I need to go back to cleaning out toilets for a living. 

Cheers

[/quote]

If there was such an impact, I don't think the few fund wrap accounts using that approach will make it any worse. OTOH, it's an interesting thought.

Mike,

I've seen soooo many iterations of the described product it makes me sick.  Fund of Fund products, lifestyle funds, mfund wrap programs.  In 401K's, VA's (you know my favorite!), 529 plans, etc.....  Maybe all the funds in the wrap program don't have 100 plus stocks, still..... there's a lot of stocks in those bloated pigs.  Also, if MPT is the governing factor of all these programs and they are all investing in the same manner what's it mean for the markets, especially as sh*tloads of $$$ come raining from above from all the retirees rolling over their pensions, 401K's etc... all falling into their appropriate MPT buckets in relatively the same %s (80/20,60/40,40/60: 40%LC value/growth,10% MC value/growth, 5%Sm Cp value/growth, 5% Reits, 20 Intemediate FI, 15% short term FI, 5% cash as an example) Just like the end of the 90's saw all the $$ chasing down the prominent paradigm then (New Economy, no rules, Sex drugs and rock and roll....Ooops wrong era) and wall street responded to the "need" we were blind then, what about now?  Maybe the result will be mediocre returns?  I don't know, I'm just trying to stimulate some thoughful ideas as to what it all might mean.

May the force be with you.

Mike,



Style drift doesn’t bother me if in the end my money is worth more. I

think too big a deal is made by that term. GARP, value, its all about

branding and promotion.   



Brandes is a fine shop, decent track record over the long haul, but don’t

forget your barf bag. Huge swings quarter to quarter, +15% then -18%.

Also, I don’t see enough of a negative correlation to the market. There

were a couple of instances when they were up when the market was down

but that is all. BTW, 2001 US Value was up 16% and then 2002 was down

22% in line with s&p 500.



If you’re convinced that you should have an allocation in deep value, and

don’t mind having that drag on portfolio performance then so be it. For

instance, Lg. Cap Value outperformed in 2 of the last 15 years. So if you

don’t mind seeing that drag in your account the other 87% of the time,

there’s nothing left to discuss.



Take care

Dude nice post...

Is most of this broker lingo. I do agree PFA's use the we hire and fire theory often. It works and shows customer we manage the big picture and hire a professional to manage the daily balance of the funds.

When I say the big picture I mean guiding them by risk, needs, time frames and performance.

Thanks Exec

I don't fundamentally disagree with the we hire and fire approach.  I just have some concerns about how it's marketed and implemented.  As I've mentioned before, I'm having a few doubts about the rationale for charging a % of assets for this approach.  It seems to me that clients will become antsy when markets are modest and question the fee they are charging.  Interesetingly enough I watched a DVD yesterday by the Russell group (formerly Frank Russell Company), who is one of the biggest promoters of the fee based wrap approach.  In fact I used to work down the street from their headquarters in Tacoma, WA and I know some people who work there.  Anyway, on the DVD they reflected the same thoughts; that charging a fee for a wrap program and providing basic services will eventually cause clients to do the cost/benefit analysis,  resulting in disatisfation or concern about the ongoing fee no matter how many birthday cards or performance reports you send them.  They provide some tools to solve this problem, like creating a client engagement roadmap, which is a small step in the right direction, but I still feel like a retainer seems to be most appropriate for manager selection, education, planning etc...   Anyway Blah, blah, blah.  Maybe this is a good topic to discuss on it's own or put to rest?

Thanks for listening

[quote=skeedaddy]Mike,

Style drift doesn't bother me if in the end my money is worth more.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

[/quote]

But once you understand how little stocking picking has to do with returns (less than 6%) and how much cap and style do, you’ll see your money not only grows faster, but with less volatility.

[quote=skeedaddy] I think too big a deal is made by that term. GARP, value, its all about branding and promotion.   
[/quote]

Not even close. In fact, you can win a Nobel prize in economics proving it isn’t “branding”. 

[quote=skeedaddy]
Brandes is a fine shop, decent track record over the long haul, but don't
forget your barf bag. Huge swings quarter to quarter, +15% then -18%.

[/quote]

You’re not looking at their LC Value portfolio. They don’t have swings like that, aside from the quarter including 9/11. In fact, when compared to the S%P 500, they’ve had over the past 6 years 112% upside capture with only 53% of the downside. Again, even if you hired Brandes, they’d only be around 24% of the portfolio.

[quote=skeedaddy]
Also, I don't see enough of a negative correlation to the market.

[/quote]

Since you’re talking about an equity manager you’re not going to see a negative correlation to the market. What you will see, and what matters  is that they have a low (.30) correlation to the typical growth manager.

[quote=skeedaddy]

If you're convinced that you should have an allocation in deep value, and
don't mind having that drag on portfolio performance then so be it.

[/quote]

If you consider +12 returns for the past 5, 7, and 10 years a “drag” (not to mention the past three at +23%), so be it. I know plenty of folks who would have been happy to have that drag, not to mention the “drag” that 25% of your portfolio in international equities have delivered. A one trick all growth, all <?:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />US portfolio has been the place to find “drag” the last 6 years.

[quote=skeedaddy]

For instance, Lg. Cap Value outperformed in 2 of the last 15 years. So if you
don't mind seeing that drag in your account the other 87% of the time,
there's nothing left to discuss.

[/quote]

I have no idea where you got that stat or what measure is used in it.

Go to ; http://www.russell.com/us/indexes/us/default.asp

 Then look to the right under "Historical Performance" and pull up the "Style Idexes" PDF. 

There you'll find a  a chart of the Russell Style indexes. You’ll see that in the last 12 years, LC Value has out performed LC Growth 67% of the time, and has done it with lower volatility. Just as important to our conversation, look how many times that both LC styles have been outperformed by SC or MC. In fact, looking at all caps and styles LCG has been at the top three times, and the bottom four times during this 12 year span. That “one size fits all” portfolio has been a relative dog.

I’m not making the case here, btw, for LC Value over LC Growth. I’m making the case that a diversified portfolio encompassing the various styles and caps (since I can't, and I’ve yet to see anyone else who could, predict which style/cap would be in favor next) provides better performance with lower volatility than a portfolio of either a single style or a one constructed ignoring style and cap.

That’s why when I meet a prospect that employs a single manager, connected to a single style I don’t denigrate him for employing the guy. I assume he’s done a fine job with what should be the smallish part of the portfolio he runs. I simply ask the prospect who’s running the other caps and styles that should be in their portfolio. When I hear he’s running 100%, I know there’ll be an ACAT signed soon.

Hey, wasn’t the gangster Stanley Tookie Williams also nominated for a

Nobel?



I still have a chance!

Yeah that was after he became a born again.

Mike,



I’m getting the data right off the Brandes and Russell websites.



On the Russell website, Lg. Cap Value is “color-coded” in a dark brown

and yes it was the best performing style in 2 of the past 15 years (about

13% of the time.)



Brandes US Value Equity fund did have huge quarter to quarter swings in:

1998, 1999, 2002, 2003 and 2005 (I can see your point about low

correlation )…the damn thing is all over the place.   



I would be inclined to go the Emerging Market route and get double the

return for that volatility. Anyway since no one else is jumping in, maybe

we should stop.

[quote=skeedaddy]Mike,

On the Russell website, Lg. Cap Value is "color-coded" in a dark brown
and yes it was the best performing style in 2 of the past 15 years (about
13% of the time.) <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

[/quote]

You’re sort of moving the goalposts there, Skee. If you mean of ALL ten of the styles, yes, LCV was the top only twice (LCG was only three times, see the chart I linked to),but jumping from that  to saying that any sector but the very top is a “drag”, well, that’s hardly true. LCV outperformed LCG 67% of the time. More importantly only two of the ten sectors beat that “only twice at the top” record. It sounds like you’ve made my case for me, guessing the next favored sector is nearly impossible.

Again, we’re talking as if I’m a proponent of LCV exclusively, and I’m not. What I’m saying is that your growth style of investing is favored when growth styles in general are favored. A balanced portfolio that includes all styles and caps will outperform that single strategy over any reasonable period of time.

[quote=skeedaddy]
Brandes US Value Equity fund did have huge quarter to quarter swings in:
1998, 1999, 2002, 2003 and 2005 (I can see your point about low
correlation <?:namespace prefix = v ns = "urn:schemas-microsoft-com:vml" />)...the damn thing is all over the place. 

[/quote]

I can see what you’re saying from the Brandes website. Why that information doesn’t track what I have from my source on their SMA is a mystery to me. OTOH, without looking at quarter to quarter shifts in the S&P or the Russell 1000, you can’t really say it’s been a rougher ride than the indexes AND the Brandes portfolio on their website has made a habit of beating the S&P 500. With a lower standard deviation and beta than either index, it’s safe to assume there’s less volatility there. LCG is even more volatile as a matter of fact. Better still, combine Brandes with a low correlation LCG manager and you’ve come a long way to reaching that efficient frontier and with lower volatility.

[quote=skeedaddy]  

I would be inclined to go the Emerging Market route and get double the
return for that volatility.

[/quote]

If you think the volatility of the Brandes account is rough, you don’t want to venture near the international, much less the emerging market group.

[quote=skeedaddy]

Anyway since no one else is jumping in, maybe
we should stop.
[/quote]

If there aren’t any further takers, that’s fine by me. Thanks for the discussion.

I know it’ll piss some off but here are my final numbers for 2005:



up 23.8%



Top holdings:



Apple

Texas Inst.

Humana

Corning

XTO Energy



Worst holdings:



Qualcom

GE

Nordic American Tankers

Ebay

Starbucks



Have a happy and safe New Year to all!

SKEE