Mathjak's Market Calls

[mathjak107]

fridays update .

no changes in the portfolio's .

growth model up 2.50% ytd

growth and income model  up 2.00%

income model up 1.10%

i show pp  about flat  and total stock market index up 1.72% representing 100% equity's  which none of the  more aggressive models above are yet they are ahead ..

the income model has 40% in a balanced fund which when dissected along  with all the other bond funds it uses, actual equity's are only 26%. it uses  various  short term bond funds  and intermediate term bond funds  for the bond section  so as not to impede  the weak gains in stocks with excessive  interest rate sensitivity  .  beta compared to the s&p 500 is 67% less .

the last 7 years fidelity's managed large cap  funds have been beating indexing 6 out of the 7 years .  looks like the value in equity's is appearing every where but the index's  as the more people who index the more money goes in to the same exact stocks .

[Reub]

Thank you for your input, mathjak! We appreciate it greatly.

[Xan]

the last 7 years fidelity's managed large cap  funds have been beating indexing 6 out of the 7 years .  looks like the value in equity's is appearing every where but the index's  as the more people who index the more money goes in to the same exact stock s .

Do you think a total market index combat this effectively?

[mathjak107]

not at all .  there is so little difference between an s&p 500 fund  and a total market fund in return . in fact  even when small and mid caps were running 5-6% ahead of the s&p 500  the last few years there is typically less than 1% difference between them .

75% of the return  of the 5000 stocks in a total market fund is determined by the s&p 500 which itself is determined by the outcome of only the top 50 stocks .

in effect you have 4950 stocks  influenced by just 50 large caps  because of weighting . a total market fund really isn't a total market fund because of the way the market capitalization weights the index's .

lately not owning the poor performers in the index alone has had many managed funds doing better the last few years then the index . all a manager had to do was go light on energy  or take profits in bio tech and they did great .

while the s&p 500 is up 1.79%  , fidelity contra is up  7.00% ytd ,  fidelity blue chip growth up 5.68% , , fidelity growth company is up  almost 6% , the list goes on and on . ,

[ochotona]

not at all .  there is so little difference between an s&p 500 fund  and a total market fund in return . in fact  even when small and mid caps were running 5-6% ahead of the s&p 500  the last few years there is typically less than 1% difference between them .

75% of the return  of the 5000 stocks in a total market fund is determined by the s&p 500 which itself is determined by the outcome of only the top 50 stocks .

in effect you have 4950 stocks  influenced by just 50 large caps  because of weighting . a total market fund really isn't a total market fund because of the way the market capitalization weights the index's .

I have also been paying attention to this... if you really want to diversify across the total US stock market, and you still want to index, you have to own the sectors, how ever many you can stand. VTI alone doesn't do it. I just have three. large / mid  / small cap blend. If I add value / growth, that splits it up into six, but I don't want to do that at this point. Then, we could talk about industrial sectors... and on and on. Yeah, maybe an actively managed fund ain't a bad idea for some of your stocks.

[mathjak107]

i always liked the managed funds i used .  just buying index's and mixing them up still does not eliminate what  should not be in the mix .  it takes a long time for even poor performers to get booted out of an index .  think of what we saw ibm  do to the  dow by missing earnings again. ibm has been a real stinker for years .

as stocks get more and more overvalued an index can't take profits and just shed them .

[mathjak107]

yes some are and their returns reflect that fact  either lagging behind or never really doing well .

the mutual fund world consists of thousands of funds .

many are small funds we never heard of and one year they are on top and the next year they are on the bottom . they have little investor money  in comparison to the mega funds .

many of these tiny  funds have excellent mangers who do very well at picking stocks , only the funds are small and the expenses with so  few investors  run high ,  killing the return .

so what you really have is 80% of investor money is in only 20% of the funds and those funds tend to do very well  beating their index's long term .

once you look under the Hood you find while most funds lag their index's , investors vote with their money and most investors do not lag the index's because these consistent good performers ala contra , growth company , etc  do  beat the indexes and that is where  they they have the bulk of investor money . this is true at all large fund family's .

look at how quickly magellans day ended once it stopped producing and investors voted with their money ..  they were gone  and billions with them left in a heart beat and moved on to other mega funds which continued to do well . .

you have to remember there are high fee index funds in many 401k's so the word indexing can mean below average performance as well .

[MachineGhost]

75% of the return  of the 5000 stocks in a total market fund is determined by the s&p 500 which itself is determined by the outcome of only the top 50 stocks .

in effect you have 4950 stocks  influenced by just 50 large caps  because of weighting . a total market fund really isn't a total market fund because of the way the market capitalization weights the index's .

Yep, market cap weighting is a tilt and it sucks donkey balls.  I've tried to address the problem in this thread: http://gyroscopicinvesting.com/forum/st ... #msg116914

The next logical step after this is being sector tilt neutral.

[mathjak107]

do you know if you invested each year in the fortune 500 company's instead of the s&p 500 you would have outperformed by an amazing amount  because with index's  the most over valued company's count the most .

[MachineGhost]

do you know if you invested each year in the fortune 500 company's instead of the s&p 500 you would have outperformed by an amazing amount  because with index's  the most over valued company's count the most .

But are those companies investable?

[mathjak107]

no sure who is in it at this point.

there is no fund since many company's  are privately held shares

[mathjak107]

weekly update , no portfolio changes

growth model up 3.20%

growth and income model up 2.36%

capital preservation model  up 1.05%

and for ghost the select fund portfolio is flat ytd . it recovered nicely since it was down more than the others


is TLT NEGATIVE YTD ?  i would have to first figure it out manually

[MachineGhost]

and for ghost the select fund portfolio is flat ytd . it recovered nicely since it was down more than the others

Did it have exposure to the energy or biotech sector?

BTW, how did you handle those really killer drawdowns from 2000-2003 and 2007-2009?  They were historic, to say the least.

[mathjak107]

no problem ,  volatility  didn't bother me as much back then since i wasn't retired . today i am comfortable with the swings of a 50/50 .

what you have to rember is the up cycles take you up that much higher so the roll backs are to levels you wouldn't even be at if you were  much more conservative

i have little interest in paying attention to draw down for  that reason .  Over the last 100 years the stock market has experienced on average a 5% correction three times per year, a 10% correction once per year and a 20% correction once every three and a half years.

over the full market cycle, investing to achieve short-term comfort costs a fortune." -- John Hussman

"Fear is a stronger emotion than hope, which is why bear markets are always swifter than bull markets. The secret of making money in stocks is not to get scared out of them. Never bet on the end of the world, It only happens once." -- John Templeton


as far as the selects  they held no energy but did have bio tech at on point  but no longer .

[MachineGhost]

]

what you have to rember is the up cycles take you up that much higher so the roll backs are to levels you wouldn't even be at if you were  much more conservative

i have little interest in paying attention to draw down for  that reason .  Over the last 100 years the stock market has experienced on average a 5% correction three times per year, a 10% correction once per year and a 20% correction once every three and a half years.

Well, that may be true in nominal terms, but in real terms that may not happen for 20-30 years.  I know you don't look at returns in real terms, but it is an illusion to think you're at a higher wealth level in the future in terms of purchasing power just because the stock market is still nominally higher even after a 50% correction.  As Hussman says, bear markets regular wipe out more than half of the preceding bull market gains, but hes talking nominally.  The situation can be far worse in real terms, like the last 15 years where the S&P 500 just recently got back to breakeven in nominal terms, but has yet to in real terms.

So what about how you handled the dual risk of both losing your job as well as having those 50% portfolio losses at the same time during an economic contraction?  That is where the real risk is, I think.  Extremely psychologically difficult, especially if you have to tap into that capital for unemployment purposes.

We keep talking about this stuff and I think I'll even get immune to the -80% "volatility" in the Great Depression!

[mathjak107]

Once you start with all the what if's in life odds are you will paralyze yourself as a successful long term investor.

Most successful investors both in the markets and real estate tend not to believe their own bull shit.

One of the country's most successful real estate investors was my partner . I learned so much from him about how our brains will paralyze us if we allow it.

Our brains will gladly just keep feeding us visions of disaster scenario's , all the things that can go wrong  and the loss of money.

Nothing has any guarantees in life  just calculated odds and risk.

This is why some of us do well as investors and others  not so well.  Those that want little risks or volatility usually will pay a price for that .

Most of what allowed me to retire has not been  what I saved from my pay checks. It was the years of compounding on the investments I made from that relatively little bit I saved from my checks.

[dutchtraffic]

It's pretty simple, if you're going heavy on stocks, you're betting that the US is going to go through another golden age.
It's fine if you believe that, but let's be realistic, the chance of that is like what, 0.004%..?

(ps: most pros pretty much agree we are in the 'twilight zone' and all is messed up beyond repair, and no, this never happened before)

[mathjak107]

40-50% in equity's is far from heavy in equity's if you are referring to my current allocations.  It is a nice comfortable very typical allocation for retirement .

If I was still in my accumulation stage I would change nothing I did . Yeah I don't expect those returns going forward but I do believe once again whatever the results are they would  still out do the other choices once again.

If I didn't believe that , I wouldn't be an investor. I would buy all  cd's ,short term bonds and tips

[Pointedstick]

Most of what allowed me to retire has not been  what I saved from my pay checks. It was the years of compounding on the investments I made from that relatively little bit I saved from my checks.

What would you recommend for someone who plans to retire in a small number of years? Say, four?

[mathjak107]

that is a tough question to answer .

i can't say what is right for you , that depends on so many factors  .  it depends on what your own needs , goals and expectations from your money are .

if i had enough money saved by that point and had a pension that covered my needs then depending on the person you are you might want to just leave that money  invested as it always was in the growth model since with that pension the pay check never stops .  or you may want to say screw it, i got all i need so i am going with short term bonds , tips and a longevity annuity .

then we have everything in between .

i can only say what  i did .

i was always an aggressive investor . i couldn't care any less about draw down since i was interested only in long term results . what happened during short term cycles just went with the territory .

whether equity's or real estate my interest was to make my money produce while keeping risk but not always volatility to an acceptable level .

so what i did is shift about 6-7 years before i thought i would retire down to a compromised level .

i still wanted growth but less swings so i stayed with with the insight models  and switched from 100% the growth model to a kinder , gentler model  and used 1/3 the capital preservation model and 2/3's the growth and income model . that worked out to a  50% equity's model .

i liked the idea of keeping it dynamic .  while the allocations to equity's  stay in the same range percentage wise  the types of funds change a few times over the years  reflecting the world's changes better .

yes , we even owned fidelity select precious metals at one point when it was  a good time to own them . we may own them again one day when there is reason to or more value there .

i can't talk to much about the model's holdings because folks pay for that info but right now the models hold defensive positions in funds ,  industrial's , healthcare ( not much  biotech ) and consumer discretionary spending are where the funds weightings used are today .

but even wellesley income i think would be an excellent choice . maybe wellesley with a mix of other types of bond funds may be even better . that way you can have bond funds that do well if rates stay low and bond funds that do well if rates rise or if the dollar stays strong or if it weakens .  you can season to taste as needed .

another very very popular mix on the popular early retirement forum that sponsors firecalc is a 50/50 mix of wellesley and wellington ..

there is no end to what you can do  for a retirement model .

bob clyatt in his book work less live more has a nice diversified retirement model . i adopted bob's 95/5  method of determining how much you can spend each year  in retirement  as my own method as opposed to the 4% rule .  a bit heavy on international but in the long term i think that will be just fine as well .

20% VFINX  S&P500
      8%  VTMSX Tax Managed Small
      6%  VGTSX  Total International Equity
      10% VINEX  Internat'l Explorer (small)
      6% VEIEX  Emerging Markets
      30% VBIIX Intermediate Bond Index
      11% BEGBX  International Bond
      5%  VGSIX  REIT Index
      4%  Money Market Fund


bob swenson has a nice zero equity model for those with no pucker factor which is a diversified income model ,  which i am not a big fan of right now but non the less it is a viable option.

25% iShares Barclays Aggregate Bond ETF (AGG) (Tracks a broad index of high-quality U.S. bonds)

25% iShares iboxx $ Investment Grade Corporate (LQD) (Tracks an index of the most liquid, long-term corporate bonds)

10% Fidelity Floating Rate High Income (FFRHX) (Invests in floating rate bank loans that automatically adjusts to rising short-term interest rates. It offers additional inflation hedge)

10% iShares MBS Fixed Income (MBB) (Tracks a broad index mortgage-backed securities)

7.5% SPDR DB International Govt Inflation-Protected Bond (WIP) (Invests in an index of non-U.S., inflation-linked bonds)

7.5% PowerShares Emerging Markets Sovereign Debt (PCY) (Tracks an index of emerging markets government debt)

7.5% iShares Barclays TIPS Bond (TIP) (Tracks an index of inflation-protected, U.S. Treasury securities)

7.5% iShares Iboxx $ High Yield Corporate Bond (HYG) (Tracks an index of high yield bonds)

i think you will find overall most retirees who do have a portfolio fall out between 40-60% equity's .  even the pp could be fine but i think the timing now for such heavy bets on interest rates holding on bonds and gold performing may be a bit to much  of a drag on equity's if as usual the lead horse is equity's  and their returns are below average as predicted . the pp needs very  strong trends in something  to do well and with all category's either fully valued or just to out of favor for the conditions they are in , strong trends may be years away . .  .  but that is my opinion .

[barrett]

Most of what allowed me to retire has not been  what I saved from my pay checks. It was the years of compounding on the investments I made from that relatively little bit I saved from my checks.

What would you recommend for someone who plans to retire in a small number of years? Say, four?

I know this thread is Mathjak's Market Calls and not Barrett's Market Calls, but my advice would be don't do it. Plan on working a few years longer. Better to work a bit longer and regret it than working fewer years and regretting it. Mathjak's track record of doing really well in stocks and real estate may be repeatable over your time horizon but, gosh, I wouldn't count on it.

Whether you are invested in the PP or something closer to MJ's 50/50 mix, returns are just really likely to be very low for the next few years. Either mix is barely eking out gains right now.

To re-phrase what MJ wrote, I think most of what will allow today's investors to retire will be what they are able to save. Wellesley could be a good option for income but its performance will get hurt by this low-rate environment too. My wife and I are getting close to retirement and I am thinking more and more about annuitizing a portion of our assets. That and working part time.

Being so young, PS, means that you have a lot more unknowns than someone who is already in their 60s. Mathjak and I are trying to figure out a 30-40 year investing horizon. You are looking at more like 70. Err on the side of caution. Besides, you're really good at what you do for money, right? You might stink at retirement!

[mathjak107]

working longer is always a silver bullet if you can do it and want to do it.

just the difference between 62 and 70 can take a poorly funded  , likely financially stress filled miserable retirement and turn it in to a pretty good one .

not only will your ss check be 76 % bigger forever plus colas ,  but:

you have 8 more years to grow investments

8 more years to add to investments

8 years of not spending down assets

possible reduced or employer sponsored medical insurance

8 years of life less to support .

that can be worth as much as having an extra 800k saved up .

on the other hand , i liked my job a lot but i got to tell you , BEING RETIRED IS AWESOME .

I WISH I DID IT EVEN EARLIER.

as far as annuty's i think immediate annuity's may be playing a part in many of our retirements going forward . if not so much for us but if we have a spouse ,especially a wife who is not in to investing  pensionizing a piece of your non discretionary spending in to a check n the mail box can help her  a lot .

the reason i say "wife " is women live longer and while 80% of married men die married 80% of married women die alone .


also don't forget when i started investing the out look like now sucked . i entered the work force in the 1970's .

it looked like market returns were dead  forever .  well we know how that turned out .  so while the near term looks crappy the potential for world growth eventually is huge .

[barrett]

also don't forget when i started investing the out look like now sucked . i entered the work force in the 1970's .

it looked like market returns were dead  forever .  well we know how that turned out .  so while the near term looks crappy the potential for world growth eventually is huge .

I really do wish I shared your optimism about world growth, MJ. Having travelled a lot I guess I just think that there are reasons much of the world has not experienced growth. And many of those reasons are not going away anytime soon. Maybe one could have said the same in the 1970s. I don't know.

[mathjak107]

I am not optimistic at all. In fact my entire retirement plan is based on the worst case scenarios.

But i do think that no matter how tepid returns are a position of 40-60% equity's will work fine as well as can  do even better through my retirement if things are even just average , not even above average

Anything better then worst case will be an upside surprise.

[Pointedstick]

Being so young, PS, means that you have a lot more unknowns than someone who is already in their 60s. Mathjak and I are trying to figure out a 30-40 year investing horizon. You are looking at more like 70. Err on the side of caution. Besides, you're really good at what you do for money, right? You might stink at retirement!

That is certainly true. I know for a fact that "retirement" for me means "freedom to work on my own money-making projects." If I could't be productive, I'd be one of those people who retires and is dead in a year.

I am definitely considering working a few more years. Somehow I have been able to raise my net worth by $100k a year for the past three years, so if I can keep that up, it might be a no brainer to just work a bit longer and sock away a lot more money.