Probably the wrong question for this crowd....

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Probably the wrong question for this crowd....

Postby rex » Wed Dec 19, 2012 4:41 am

but ...is anyone here investing in this Oceanstone (OSFDX) fund ( http://investing.money.msn.com/investme ... iaquotebtn ). I currently have no allocation in any actively managed fund - but to be honest, this one caught my eye. Thinking about using a portion of my play money to give it a shot... any thoughts ?
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Re: Probably the wrong question for this crowd....

Postby stemikger » Wed Dec 19, 2012 5:02 am

rex wrote:but ...is anyone here investing in this Oceanstone (OSFDX) fund ( http://investing.money.msn.com/investme ... iaquotebtn ). I currently have no allocation in any actively managed fund - but to be honest, this one caught my eye. Thinking about using a portion of my play money to give it a shot... any thoughts ?


As long as you follow Mr. Bogle's rule and no more than 5%.
Stay the Course!
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Re: Probably the wrong question for this crowd....

Postby Johm221122 » Wed Dec 19, 2012 5:32 am

rex wrote:but ...is anyone here investing in this Oceanstone (OSFDX) fund ( http://investing.money.msn.com/investme ... iaquotebtn ). I currently have no allocation in any actively managed fund - but to be honest, this one caught my eye. Thinking about using a portion of my play money to give it a shot... any thoughts ?

Why has it caught your eye?past performance has no bearing on future performance.It has 74% in cash?
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Re: Probably the wrong question for this crowd....

Postby Joe S. » Wed Dec 19, 2012 6:05 am

rex wrote:Probably the wrong question for this crowd....



I think you should ask questions like this, so we can tell you why we won't invest in this fund. It has had a great 5-year return, but research has shown that mutual funds that have had a great 5 or 10 year return usually end up underperforming the S&P 500 in the future. So research suggests it will underperform index funds in the future. Furthermore, it has a 1.80% expense ratio. Research has shown that high expense funds tend to perform poorly. It is a value fund, which is a plus, but doesn't make up for the high expense ratio.

I suspect you are blinded by the great 5-year return, but this is not the way to pick funds. When I started investing in 1990, the big star was the Magellan fund, which had a great record. I resisted the urge to buy it, and since then the fund has done poorly.
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Re: Probably the wrong question for this crowd....

Postby rex » Wed Dec 19, 2012 6:08 am

i think the fact that it has 73% in cash is intriguing - maybe just set up to exploit the swings in the market (just playing devil's advocate here). The other thing that caught my attention is that it dropped just 9.96% in 2008 while most mutual funds including a S&P index dropped 37%.
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Re: Probably the wrong question for this crowd....

Postby rex » Wed Dec 19, 2012 6:11 am

Joe S. wrote:
rex wrote:Probably the wrong question for this crowd....



I think you should ask questions like this, so we can tell you why we won't invest in this fund. It has had a great 5-year return, but research has shown that mutual funds that have had a great 5 or 10 year return usually end up underperforming the S&P 500 in the future. So research suggests it will underperform index funds in the future. Furthermore, it has a 1.80% expense ratio. Research has shown that high expense funds tend to perform poorly. It is a value fund, which is a plus, but doesn't make up for the high expense ratio.

I suspect you are blinded by the great 5-year return, but this is not the way to pick funds. When I started investing in 1990, the big star was the Magellan fund, which had a great record. I resisted the urge to buy it, and since then the fund has done poorly.



true :) i guess i'm just looking to re-validate the thesis that "I'm actually better off with an index fund" by investing some small money (<3% of my portfolio) in this fund and then actually seeing that over a period of 5 years, I'd have been better off investing in S&P index.
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Re: Probably the wrong question for this crowd....

Postby Joe S. » Wed Dec 19, 2012 6:29 am

rex wrote:
true :) i guess i'm just looking to re-validate the thesis that "I'm actually better off with an index fund" by investing some small money (<3% of my portfolio) in this fund and then actually seeing that over a period of 5 years, I'd have been better off investing in S&P index.

There is a problem with your experiment. Research suggests this fund will probably underperform the indexes over the next 5 years, but it might overperform next 5 years. If it overperforms, you might decide that it's a great fund and put more into it. Then it crashes.

Let suppose you wanted to buy Bill Miller's Legg Mason Value Trust (LMVTX) in 1996 after it had been in existence for 5 years. It had beat the S&P 500 five years straight. Of course, I would have told you not to, but you did anyway. It then proceeded to beat the S&P 500 for every year for 10 years more. Of course you then invest more. It then crashed horribly. Many of these funds take horrible risks, and when their luck runs out, they do horrible.
http://www.forbes.com/sites/greatspecul ... the-crowd/

I think you need to read up on all the "great" funds that did well for a while and then underperformed. Then don't invest in a "great" fund.
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Re: Probably the wrong question for this crowd....

Postby rex » Wed Dec 19, 2012 6:52 am

Joe S. wrote:
I think you need to read up on all the "great" funds that did well for a while and then underperformed. Then don't invest in a "great" fund.


Thanks for the article Joe - food for some serious thought ! i'll prob end up putting the money in VEU ....
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Re: Probably the wrong question for this crowd....

Postby dkturner » Wed Dec 19, 2012 8:15 am

rex wrote:but ...is anyone here investing in this Oceanstone (OSFDX) fund ( http://investing.money.msn.com/investme ... iaquotebtn ). I currently have no allocation in any actively managed fund - but to be honest, this one caught my eye. Thinking about using a portion of my play money to give it a shot... any thoughts ?


If you are new to equity investing you might be doing yourself a huge favor by taking a flyer on this fund. If the skeptics are right and this fund underperforms in the future you will have learned a valuable lesson. There is nothing like losing one's hard earned money to learn a lesson about prudence. Many of the regular posters on this site have told us they became Bogleheads because they badly underperformed a low cost passive investment strategy by chasing the next hot fund.

OTOH if this fund continues to post stellar returns you'll have more money to show for making your bet. Statistically you should lose this bet, so probabilities are you will learn a valuable lesson and become a Boglehead in the bargain.
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Re: Probably the wrong question for this crowd....

Postby NYBoglehead » Wed Dec 19, 2012 8:37 am

I think if you keep your allocation low it might be a net benefit in the long run. Keep it for 5 years, it'll more than likely underperform the market and your belief in the Boglehead approach to investing will be reaffirmed.
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Re: Probably the wrong question for this crowd....

Postby Wagnerjb » Wed Dec 19, 2012 10:04 am

rex wrote:but ...is anyone here investing in this Oceanstone (OSFDX) fund ( http://investing.money.msn.com/investme ... iaquotebtn ). I currently have no allocation in any actively managed fund - but to be honest, this one caught my eye. Thinking about using a portion of my play money to give it a shot... any thoughts ?


Rex - you can do anything you want with your play money, especially if it helps you stay disciplined with the other 90% of your assets. However, a word of advice is in order with a fund such as this. It is highly concentrated in its holdings (only 6 stocks) and thus its performance is magnified compared other more broadly diversified funds. We see concentrated funds at the very top of the rankings, and this is no exception. When they hit a home run, it is huge and can contribute to the 2009 return for this fund of 260%. But these funds have a way of crashing and burning in a flamboyant way. Sadly, it is invariably after many performance chasers jump into the fund looking to buy "last year's returns". The road is littered with these concentrated funds that had a lucky streak, put up fabulous numbers, gathered lots of assets from performance chasers, made lots of money for the fund manger, then had their performance come back to earth.

Best wishes.
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Re: Probably the wrong question for this crowd....

Postby midareff » Wed Dec 19, 2012 10:38 am

The Seminole Hard Rock Casino would probably be more fun ... and the very same sort of speculation. Hard to confuse this with investing.
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Re: Probably the wrong question for this crowd....

Postby pingo » Wed Dec 19, 2012 10:47 am

rex wrote:i think the fact that it has 73% in cash is intriguing - maybe just set up to exploit the swings in the market (just playing devil's advocate here). The other thing that caught my attention is that it dropped just 9.96% in 2008 while most mutual funds including a S&P index dropped 37%.


I'm glad you asked!

With 73% cash and only 6 stock holdings, it sounds like they're making big macro and micro bets. Risk eventually shows up. Even if they've made the right calls now and in the past, are you or I really going to know it and stay the course when it eventually appears that the strategy blew up in their faces? Perhaps this time it'll be that holding cash (which I'll assume they did just before the crash) will be their downfall, that is, the world doesn't end (again) in the near-enough future. Or, maybe they'll be right.

John Bogle (and I'm sure others) have adroitly pointed out that most active managers hold too much cash when they should be in the market, and too much market when they should be in cash (that is, if one is to really benefit from timing markets). It overwhelmingly works against their returns. I don't have the stats, but they can be found in his books.

And roughly 2.81% in costs (1.81% ER + 113% turnover) is uber-difficult to overcome. I suppose there are some funds, like salmon, who can swim against such a current. But ultimately, salmon do so at the cost of their own lives.

They're mostly a small cap (value?) fund with probably one Mid Cap company a couple Lg Caps (and all that cash!), so throw S&P 500 comparisons out the window...until they're exciting outperformance attracts so many new investors that they're AUM forces them into nothing but Large Caps (like, say, Fidelity Contrafund?).

It's true that I am only seeing what I want to see here (a factor in most cases where one finds a "magic" fund). I'll admit that unlike the OP, I'm looking at/for arguments in favor of the fund, but I have a firm investment philosophy that keeps me from getting too distracted by the latest and greatest. My total return plan benefits from principles that should benefit from Lg, Mid, Sm and Cash, but not of it will play out so dramatically because it's a matter of staying the course with a strategic asset allocation. Total return/strategic asset allocation with the use of index funds and staying the course ensures that my risk isn't so concentrated and erratic. The benefits of the outperforming asset classes distill profit into the remaining areas when-and-if they outperform. I am roughly in control of what level of risk I assume, and my portfolio builds itself from my savings and a process of a total return strategy.

Here's how Oceanstone (OSFDX) did compared to VG Sm Cap Index Fund (NAESX) since the crash:

Image

Meh.

If the market tanks soon, OSFDX will look great. If it doesn't, OSFDX won't.
Last edited by pingo on Thu Dec 20, 2012 11:16 am, edited 7 times in total.
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Re: Probably the wrong question for this crowd....

Postby heyyou » Wed Dec 19, 2012 11:05 am

I too am in agreement with all of the above warnings, been there, done that, and would have retired earlier if I had not chased performance. I paid dearly for my education on that topic.

Some learn by reading, some learn by listening, and some still have to pee on the electric fence, just to see what happens.
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Re: Probably the wrong question for this crowd....

Postby kenyan » Wed Dec 19, 2012 11:20 am

Looks like the survivor of an incubator fund culling. $28 million in fund assets? The guy guessed and got lucky on extremely concentrated positions. For every fund like this, there were probably 100 funds that tried the same thing and failed to impress, because they didn't get lucky.

IMO.
Retirement investing is a marathon.
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Re: Probably the wrong question for this crowd....

Postby magician » Wed Dec 19, 2012 12:08 pm

midareff wrote:The Seminole Hard Rock Casino would probably be more fun ... and the very same sort of speculation. Hard to confuse this with investing.

I believe that the problem that most people who lose money in this sort of scheme have is that it's too easy to confuse it with investing.
Simplify the complicated side; don't complify the simplicated side.
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Re: Probably the wrong question for this crowd....

Postby Stryker » Wed Dec 19, 2012 2:35 pm

With just over 93% of his equity assets in consumer cyclicals and a portfolio turnover of 113%, it looks to me like the manager is taking sector bets. I invest in equal sectors in my own Canadian equity portfolio, but I don't try and predict an unknowable future, nor would I even consider investing with someone who thinks they can for the long term either.
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Re: Probably the wrong question for this crowd....

Postby Sbashore » Wed Dec 19, 2012 4:47 pm

It's name scares me. I believe in omens. Ocean - Stone.
Steve | Semper Fi
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Re: Probably the wrong question for this crowd....

Postby pingo » Thu Dec 20, 2012 11:20 am

Stryker wrote:With just over 93% of his equity assets in consumer cyclicals and a portfolio turnover of 113%, it looks to me like the manager is taking sector bets.


Good point. Another big bet. Yet, with only 6 stock holdings, it's hard to imagine they could make anything other than (a) sector bet(s)!
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Re: Probably the wrong question for this crowd....

Postby pingo » Tue Dec 25, 2012 5:41 pm

Is it just me or is there now a of content page missing from this thread?
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Re: Probably the wrong question for this crowd....

Postby Default User BR » Wed Dec 26, 2012 1:43 am

pingo wrote:Is it just me or is there now a of content page missing from this thread?

I think there's content missing from that sentence.


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Re: Probably the wrong question for this crowd....

Postby pingo » Wed Dec 26, 2012 6:33 pm

Default User BR wrote:
pingo wrote:Is it just me or is there now a of content page missing from this thread?

I think there's content missing from that sentence.


Brian


I think that is what they call ironic! :D

But, yeah, I've posted other things that are no longer in this thread. I distinctly remember that it quickly grew long enough for a "page 2". Then there was a while I couldn't access the thread, so I figured it was under review or about to get locked, but here we are, able to post, except that now content is missing.

:?:
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