Help Me Break My Love Affair With Fidelity Low Priced Stock

[Small Law Survivor]

True confession:

Back in the early '90s I started to think about investing, and how to educate myself. I went to my local library and read magazines on finance. To the best of my memory, I studied an article in Money Magazine that listed the 50 (100?) best funds. I picked some - I believe they were all managed funds.

One of them was Fidelity Low Priced Stock (FLPSX). (drum roll)

Of all the managed funds I invested in based on the Money Mag article, this is the only one I still have. It represents 6% of my overall portfolio, but 12% of my stock investments. I hold it in my traditional IRA.

If you are familiar with this fund you know that I got lucky - it has returned almost 14% since its inception in 1989. It is a mid-cap value fund, and its manager (Joel Tillinghast) invests outside the U.S., so it's a small/mid "go anywhere" fund (40% non-US right now). It's highly diversified (it owns around 900 stocks). Its ER is .68. It's turnover is 8%.

I am primarily an index/Vanguard investor, but I can't bring myself to sell this fund. It is a small/mid value fund, which I like. It gives me international exposure to that asset class, which I like. Tillinghast is either a very good investor, or a very lucky one.

I really appreciated that during the dot com crash in 2001, it held up extremely well, so it's proven to be a good diversifier (although it didn't hold up in 2007, matching the S&P 500's loss). Funny, I remember reading on the Morningstar/Fidelity discussion forum in '98/'99, people expressing dissatisfaction with this fund, since it wasn't matching the 20% annual returns of the SP500 in the late '90s. But I held on ...

In the last 25 years the only time I sold any of the fund has been this year, when I've been getting my retirement allocation down to 50-50. And even then I only sold about 10-15% of my holdings in the fund.

I confess: I am in love with this fund, but I feel guilty owning an expensive, managed fund.

Am I making a mistake holding on to it? Any opinions?

Caveat: If Tillinghast retired from the fund, I would sell it (!)

[LukeHeinz57]

Stay the Course! Lol

[omgbirdman]

I would say that 6% of portfolio is negligible enough that you can let it be.

[Jack FFR1846]

I came into Bogledom with a host of Fidelity active funds including low price, magellan, contrafund, china region. As I became convinced that indexing was the way to go, I dumped them one by one and bought the index funds needed to fill my new found asset allocation that I targeted (I never made an AA before that and diversification to me meant to buy some of every fund that my 401k offered). Dump it like it's gold that you bought 5 years ago and has let you down with no hope to do right by you again. Put on some country song of a long lost love (named F-150) and the girl that got away (a doberman named Sweetie) and just hit the "sell dollars to buy another" button.

[Majormajor78]

ER is .68. It's turnover is 8%.

That's not bad for and active fund. I didn't think funds with such a low turnover were still around. Feel free to keep it of course but 12% of your stock portfolio may be a little high. Remember, this is the portion of your 50/50 portfolio that will be primarily responsible for keeping up with inflation. I'd do 5% of my stock portion if I really wanted it to hang around.

Of course, being me, I'd ditch the manager risk you've mentioned and just incorporate some small/mid value index funds if I believed in that portion of the market. Or better yet go with a total market fund. Somebody had to say it...

[krow36]

Have you compared its return to that of Vanguard's Extended Market Index fund? If you use Vanguard's Compare tool, you'll see Extended Mkt has done better over last 1, 3 and 5 years and about equal over last 10 years.
Fidelity's Extended Market Index fund would no doubt be similar.

[David Jay]

I would say that 6% of portfolio is negligible enough that you can let it be.

+1

[aristotelian]

Interesting, I had the same experience with T. Rowe Price Mid Cap Value (ER 0.8%). I bought into it in my 20's before I learned about index funds, and over the years it has been an absolute beast for me, outperforming both the S&P and MCV benchmark over 10 and 15 years similar to FSLPX. The manager was even the Morningstar manager of the year in 2016. I ended up cashing it all in this year and using it to pay off my mortgage. It was painful but I figured my luck couldn't possibly continue. Interestingly, it's below both S&P and the MCV benchmark by a lot this year. That fund definitely made up for a lot of poor decisions with individual stocks.

I am now slowly building a position in VOE just because that asset class has been good to me.

[SimplicityNow]

It's ER isn't horrible, it is a low percentage of your total portfolio, it has low turnover, it gives you some international exposure, it has done well over the long term and you like it. I don't see a reason to sell it just because it is managed.

[nisiprius]

This is what I personally would do. I do not say it is rational, I say it is what I would do... and have done, though not with FLSPX.

The problem with having a fund that has outperformed is that you hate to miss out on the possibility of future outperformance.

I would first decide, "if I didn't hold FLSPX, what fund would I hold instead?" Call that fund X. I would then use Morningstar growth charts, starting at the date I bought the fund, to compare the cumulative total return of FLSPX to fund X, and calculate the difference. How many dollars more do I have because of investing in FLSPX?

I would then say, "OK, so I am Y dollars ahead. Let's not be greedy. I would willing to give some of that money back, because I would still be ahead of where I'd have been with fund X. What percentage of my excess returns do I really want to hang onto? Let's say... 66% of Y."

And then I would hang onto FLSPX, and periodically keep checking how far ahead I am versus where I would have been with fund X... and only when the difference narrows to less than 66%-of-Y would I exchange FLSPX for Y.

I wouldn't be as well off as if I'd sold FLSPX at the exact "right" time, but I'd still be better off than if I'd never invested in FLSPX, and I could be happy with that.

One risk, of course, is that FLSPX suddenly plummets so quickly... and at a time when I'm not paying attention... and, as a result, I don't succeed in hanging on to 66%-of-Y.

It's just an idea.

[EyeYield]

OP - I bought the same fund around the same time as you, probably heard about it in Money too, for my tIRA. Since I'm just 5 years away from RMD's, I will start a Roth conversion this year and a piece of Low Priced Stock will be the first to be converted, since it's one of the larger pieces of my tIRA. I will probably convert it to something more conservative, but haven't decided if that's the right thing to do since it will have an opportunity to recoup any losses in a Roth without having to withdraw.

Depending how far away you are from RMD's, you might want to protect yourself from a possible market downturn just as you have to take your RMD's, by converting some stock funds before you get there.

Just a thought.

[an_asker]

This is what I personally would do. I do not say it is rational, I say it is what I would do... and have done, though not with FLSPX.

The problem with having a fund that has outperformed is that you hate to miss out on the possibility of future outperformance.

I would first decide, "if I didn't hold FLSPX, what fund would I hold instead?" Call that fund X. I would then use Morningstar growth charts, starting at the date I bought the fund, to compare the cumulative total return of FLSPX to fund X, and calculate the difference. How many dollars more do I have because of investing in FLSPX?

I would then say, "OK, so I am Y dollars ahead. Let's not be greedy. I would willing to give some of that money back, because I would still be ahead of where I'd have been with fund X. What percentage of my excess returns do I really want to hang onto? Let's say... 66% of Y."

And then I would hang onto FLSPX, and periodically keep checking how far ahead I am versus where I would have been with fund X... and only when the difference narrows to less than 66%-of-Y would I exchange FLSPX for Y.

I wouldn't be as well off as if I'd sold FLSPX at the exact "right" time, but I'd still be better off than if I'd never invested in FLSPX, and I could be happy with that.

One risk, of course, is that FLSPX suddenly plummets so quickly... and at a time when I'm not paying attention... and, as a result, I don't succeed in hanging on to 66%-of-Y.

It's just an idea.

Alternatively, OP could keep Y in FLSPX (which would be one nifty bonus) and convert the rest to fund X.

That said, if I were in OP's shoes, I would do nothing. Six percent of overall portfolio is still in the range of play money. But I would definitely not add to it!

[Small Law Survivor]

That said, if I were in OP's shoes, I would do nothing. Six percent of overall portfolio is still in the range of play money. But I would definitely not add to it!

Trust me, this is not play money!

[Valuethinker]

Caveat: If Tillinghast retired from the fund, I would sell it (!)

Without going into detail about my own experience, I do believe there are "hot hands". Buffett of course. It's rare however to have such *net* of fees -- the problem with hedge fund managers (the fees are huge) and with private equity (ditto).

You are right though, if you think about his equivalent in Europe (Anthony Bolton-- Fidelity Special Values) 25 years of outperformance ended when he ceased to manage the fund. John Walton (British Empire Securities) was another.

The 2008-09 downturn tested many managers, especially those of a value bent. Bill Miller at Legg Mason gave up something like 13 years of outperformance. There were other managers who did the same. And managers who got it right (Paulson Partners) then proceeded to get it horribly wrong later (he predicted high inflation with quantitative easing, positioned accordingly (gold, etc.) and gave up a huge amount of performance.

In fact Bolton then went on to start a Fidelity fund in China, and performance was poor. He admitted that he had been naive about Chinese markets and Chinese companies (the tendency of companies to lie to their shareholders). He has finally retired, having done what he could to bring in proper risk controls and analysis appropriate for the Chinese market.

So:

- consider the total proportion of your portfolio and consider taking some money "off the table" perhaps as part of a shift towards bonds

- sell if the fund manager retires -that seems to be an iron lesson of these sorts of situations (Peter Lynch, Anthony Bolton etc.)

[Small Law Survivor]

- sell if the fund manager retires -that seems to be an iron lesson of these sorts of situations (Peter Lynch, Anthony Bolton etc.)

For sure - they must be paying Tillinghast a fortune to run that fund. Lets see, .068 x $40B = (drum roll) .. $272,000,000/year! I'd guess they're paying Tillinghast north of $25MM/year, maybe as much as $50MM.

But, once he has a few hundred million, why continue working? He can't take it w/him

[goingup]

I would keep it, but I'm rather loyal to people, products, and institutions that I feel have done right by me. You own an investment that has outperformed since the early 90's. That's amazing. It's proven it's worth and shows no signs of breaking faith. Next decision? What's for dinner?

[Grt2bOutdoors]

Keep it. True story, about 4 years ago I applied your logic to a Fidelity large cap growth fund which I exchanged into total stock market index even though the track record of the Fidelity fund was superior over the 1,3,5,10 and time I held the fund. I regret selling it, the fund I sold had kept a hot hand and is up 25% more in value that total stock market. I own FLPSX for over twenty years, I will not sell it, (also a significant holding in my retirement account) the formula works. If it isn’t broke, don’t fix it. Keep it.

I don’t care what Joel Tillinghast is paid, he’s earned every dollar of it and then some for his shareholders. He just wrote a book, kind of pricey when it comes down in cost I may pick it up to read.

[avalpert]

Have you compared its return to that of Vanguard's Extended Market Index fund? If you use Vanguard's Compare tool, you'll see Extended Mkt has done better over last 1, 3 and 5 years and about equal over last 10 years.
Fidelity's Extended Market Index fund would no doubt be similar.

This.

It doesn't seem like you have been getting any advantage from this fund for the last decade and there is no reason to think you will going forward - you should expect to underperform for the risk by about 68 basis points.

Nostalgia is a bad reason to hold onto a fund, not letting go of past overperformers before they regress to the mean is a key reason why trying to pick individual securities and managers doesn't tend to work. You should drop it now, the longer you hold on waiting for it to win again the more dug in emotionally you will get and the harder it will be to let go.

So yes, I'd say you are making a mistake holding on to it.

[pkcrafter]

Small Law, you have our blessing to continue holding the fund, but you have to also realize you have just put the kibosh on future performance.

Paul

[avalpert]

Keep it. True story, about 4 years ago I applied your logic to a Fidelity large cap growth fund which I exchanged into total stock market index even though the track record of the Fidelity fund was superior over the 1,3,5,10 and time I held the fund. I regret selling it, the fund I sold had kept a hot hand and is up 25% more in value that total stock market. I own FLPSX for over twenty years, I will not sell it, (also a significant holding in my retirement account) the formula works. If it isn’t broke, don’t fix it. Keep it.

So you sold the fund that continued to perform better than average and held the fund that didn't - seems like great evidence that you (like most of us) aren't able to predict what managers will happen to do better going forward. Recognizing that, i think you are taking the wrong lesson - the lesson should be to not try.

[Grt2bOutdoors]

I didn’t know Extended Market is a Small/Mid cap value index. If you are going to compare, then use the correct benchmark. Extended Market is loaded with growth stocks and is domestic only.

[Grt2bOutdoors]

Keep it. True story, about 4 years ago I applied your logic to a Fidelity large cap growth fund which I exchanged into total stock market index even though the track record of the Fidelity fund was superior over the 1,3,5,10 and time I held the fund. I regret selling it, the fund I sold had kept a hot hand and is up 25% more in value that total stock market. I own FLPSX for over twenty years, I will not sell it, (also a significant holding in my retirement account) the formula works. If it isn’t broke, don’t fix it. Keep it.

So you sold the fund that continued to perform better than average and held the fund that didn't - seems like great evidence that you (like most of us) aren't able to predict what managers will happen to do better going forward. Recognizing that, i think you are taking the wrong lesson - the lesson should be to not try.

Perhaps you ought to read my subsequent post- you are using the wrong benchmark for FPLSX. A common amateur mistake, he hasn’t underperformed over the time I have held it.

[avalpert]

I didn’t know Extended Market is a Small/Mid cap value index. If you are going to compare, then use the correct benchmark. Extended Market is loaded with growth stocks and is domestic only.

You'll see the same result comparing it to Mid-Cap Value (VOE). I'd be happy to check it with the right domestic/international mix if you happen to know what it was.

[itstoomuch]

Never fold a winning hand for new set of cards.

[avalpert]

Never fold a winning hand for new set of cards.

What if the hand is already won - do you assume it will win the next deal too?

[itstoomuch]

^The hand is not won until you call the pot.
If you want a new hand, then you have a new pot and a new hand- which is the problem that small law survivor is facing.

I have the same problem concerning my primary Discretionary Acct.
Do I sell out and re-establish the Index or continue with a trading strategy?
YMMV

[Small Law Survivor]

You'll see the same result comparing it to Mid-Cap Value (VOE). I'd be happy to check it with the right domestic/international mix if you happen to know what it was.

Here is the M* for the fund:
http://portfolios.morningstar.com/fund/ ... ture=en-US

I suppose if you were to track it against an index or group of assets classes you'd have to match these percentages - or just rough it and say 60% mid-cap U.S., 40% mid-cap international (both value). However, this is complicated by the fact that the fund's allocations move around over the years, as do the size and value factors.

This fund does raise an interesting existential problem: you buy a fund out of ignorance 25 years ago, and you get lucky. Does that mean you hold the fund going forward? If so, lets just look at every managed fund that done well over the last 25 years, and buy it.

As one of the Bogleheads said to me at a Boston BH meeting earlier this year, when I mentioned this fund to him over lunch, "the question is, if you didn't own it, would you buy it today"?

Tough question. The answer is probably, "no." Should the fact that I've owned it for 25 years make a difference? I donno ....

A humorous aside: we subscribe to the New Yorker, and a year or so ago Fido had a full page ad showing this fund vs. SP500 since inception of the Fido fund. Of course, the Fido fund killed the S&P. Was that a fair comparison? I thought not ....

[Grt2bOutdoors]

I didn’t know Extended Market is a Small/Mid cap value index. If you are going to compare, then use the correct benchmark. Extended Market is loaded with growth stocks and is domestic only.

You'll see the same result comparing it to Mid-Cap Value (VOE). I'd be happy to check it with the right domestic/international mix if you happen to know what it was.

It shows as of 9/30/17 the following composition: 49.27% domestic, 38.34% international equity, 12.38% cash/cash equivalents. The fund has a mandate to hold equities priced at $35 or lower per share. Historically, it used to be $25 per share but it had a difficult finding lower priced stock during the internet hey-day and leading into 2008, so they changed mandate to $35 per share and it is a go anywhere fund. As a result of being a go-anywhere fund, if say large cap stocks get beat down and are on the cusp of being in upper end of midcap range, he'll buy them, once they recover he holds them if they continue to be a good value investment. A prime example of that is his holding of United Healthcare, which in my mind is a large if not mega cap stock. It ranks up in the top 10 holdings of the fund. Hard to gauge performance vis a vie an index since it's a custom benchmark and the mileposts seem to be changing as they manage the portfolio.

[avalpert]

You'll see the same result comparing it to Mid-Cap Value (VOE). I'd be happy to check it with the right domestic/international mix if you happen to know what it was.

Here is the M* for the fund:
http://portfolios.morningstar.com/fund/ ... ture=en-US

I suppose if you were to track it against an index or group of assets classes you'd have to match these percentages - or just rough it and say 60% mid-cap U.S., 40% mid-cap international (both value). However, this is complicated by the fact that the fund's allocations move around over the years, as do the size and value factors.

Exactly, we'd have to know its exposure across time - in fact, in recent years it doesn't look to have had much value exposure either. One could argue that part of what you are paying the manager for is to choose the right exposure at the right time and then you would compare it using a risk/return ratio like Sharpe or Sortino (which on quick glance tells a similar story - over the past 10 years basically no advantage and it has trailed over 5 years and less)

This fund does raise an interesting existential problem: you buy a fund out of ignorance 25 years ago, and you get lucky. Does that mean you hold the fund going forward? If so, lets just look at every managed fund that done well over the last 25 years, and buy it.

As one of the Bogleheads said to me at a Boston BH meeting earlier this year, when I mentioned this fund to him over lunch, "the question is, if you didn't own it, would you buy it today"?

Tough question. The answer is probably, "no." Should the fact that I've owned it for 25 years make a difference? I donno ....

The rational answer is it shouldn't make a difference - but we aren't particularly rational creatures so we do look at what we hold differently than what we don't. Once you recognized that you shouldn't hesitate to act on it - the more you hesitate the harder it will be in the future.

[avalpert]

I didn’t know Extended Market is a Small/Mid cap value index. If you are going to compare, then use the correct benchmark. Extended Market is loaded with growth stocks and is domestic only.

You'll see the same result comparing it to Mid-Cap Value (VOE). I'd be happy to check it with the right domestic/international mix if you happen to know what it was.

It shows as of 9/30/17 the following composition: 49.27% domestic, 38.34% international equity, 12.38% cash/cash equivalents. The fund has a mandate to hold equities priced at $35 or lower per share. Historically, it used to be $25 per share but it had a difficult finding lower priced stock during the internet hey-day and leading into 2008, so they changed mandate to $35 per share and it is a go anywhere fund.

The composition today isn't helpful for comparing historical returns. For what it is worth, Fidelity chooses to use the Russell 2000 to compare it to - as you'd expect it tells the same performance story.

[Kenkat]

This forum in general tends to be a little too fixated on expense ratio and tends to ignore low turnover when it comes to active funds. Active funds in general are immediately dismissed.

0.68% is relatively low cost. Not index fund low, but still low.

8% turnover is fantastic and more important for this fund than the expense ratio.

It’s a low cost active fund. They tend to compete relatively well with indexes and index funds over time. Especially those that move around the style box a bit. There are many posts of “well, if you adjust for this and that and the other, it didn’t really beat the index, not by much at least”. But there’s 25 years of performance in the bank already.

I’ve owned Primecap since 1998 - almost 20 years. It is a similar type of fund - relatively low cost, low turnover, tends to move around in terms of style a bit. It goes against the prevailing trend here. Call it “Kenkat’s Folly”. The extra money is nice.

I’d be inclined to keep what you have.

[JBTX]

I've also had FLPSX for a couple of decades. IMO, there are a few funds out there that seem to generate enough alpha out there to at least offset their fees, and perhaps a little more. This may be one of them.

What I am doing with this one and a few others is continue to watch them. I look at performance against applicable benchmarks over multiple periods. If I start to see a pattern of obvious underperformance over multiple time periods, then I try to figure out why, and based upon what I find out, I may at that point decide to move to an index fund.

On this fund, and a little more on Fidelity Contra fund, I have sold some. If I can't make myself break from it, I may reduce my holdings. Of course this is all in retirement funds.

So in short, don't dump it, just watch it, and as long as it performs well hold steady. If you feel guilty then sell a little bit to make you feel better. Every once in while I'll feel like I need to do something so I may trade a little bit of this for that, but in the scheme of things it is really immaterial, but it makes me feel better.

[an_asker]

That said, if I were in OP's shoes, I would do nothing. Six percent of overall portfolio is still in the range of play money. But I would definitely not add to it!

Trust me, this is not play money!

Depends on the definition of play money, YMMV. My understanding of the term is that it includes money that you could put in individual stocks/mutual funds/bitcoin/more volatile instruments that one would normally wish to associate with, etc... and that in the range of 5% of total portfolio, it is an excusable vice! Note that I didn't mean you could take it to Las Vegas and bet it on the slot machines!!

[TheTimeLord]

True confession:

Back in the early '90s I started to think about investing, and how to educate myself. I went to my local library and read magazines on finance. To the best of my memory, I studied an article in Money Magazine that listed the 50 (100?) best funds. I picked some - I believe they were all managed funds.

One of them was Fidelity Low Priced Stock (FLPSX). (drum roll)

Symbol: FBGRX

One-year return: 26.9% (vs. 17.9% for S&P 500)

Three-year return: 10.5% (vs. 9.2%)

Five-year return: 16.6% (vs. 14.5%)

10-year return: 9.9% (vs. 7.1%)

Expense ratio: 0.82%


Read more at https://www.kiplinger.com/slideshow/inv ... u4Bhz4Q.99

[siamond]

I took the annual performance of FLPSX, and used the Simba spreadsheet to compare its performance against (US) Mid Cap Value, Small Cap Value, REIT and Total-US-Market since 1990. A growth chart shows FLPSX winning hands-down. A telltale chart shows the same thing, but with the additional color that in the past ~10 years, FLPSX didn't make a difference, but then it didn't lose either, and MCV/SCV did more or less the same, and the value effect has this long historical property of staying subdued for a decade or so before displaying a sudden spurt of growth. FLPSX did manage the 2008/09 crisis quite remarkably though.

It is hard to make a case against this fund based on history, that is for sure. And I can see the emotional attachment to something that served the OP so well. And the ER isn't that high.

I don't know, I wouldn't have a big problem giving it a go for a while longer. Maybe check annually the rolling returns over the past 15 years (easy to do on Morningstar) against well-known value index funds and against TSM. Whenever such rolling returns fall in the red, then ditch it. By then, your emotional attachment should be gone anyway. Otherwise, smile and give it a few more years...

Fact is modern value indices (Mid Cap Value, Small Cap Value) use algorithms which are rather complex, and one could question what is the actual difference between a well managed value fund like FLPSX and value-oriented index funds. I would suspect that it is more tenuous than what passive investors would like to admit. Still, 0.68% is half a point above the ER of an index fund, so at some point it has to keep justifying its mettle.

In other words, it is much better to break a love affair when they are no regrets. Otherwise, you'll keep wondering "what if...".

[WildBill]

Howdy

I think that holding competently run actively managed funds will have value as more investment is moved to indexing, creating potential mispricings that active funds can exploit.

Consider it a hedge against future index investing stagnation. That should take care of the angst and mitigate the uncertainty.

Then go to the beach, or worry about something else more important.

W B

[avalpert]

Howdy

I think that holding competently run actively managed funds will have value as more investment is moved to indexing, creating potential mispricings that active funds can exploit.

That doesn't really make sense - if anything, more people who were poor at evaluating individual stocks moving to index funds should reduce mispricing in the market as the active investors who are left are all pros.

[nedsaid]

This forum in general tends to be a little too fixated on expense ratio and tends to ignore low turnover when it comes to active funds. Active funds in general are immediately dismissed.

0.68% is relatively low cost. Not index fund low, but still low.

8% turnover is fantastic and more important for this fund than the expense ratio.

It’s a low cost active fund. They tend to compete relatively well with indexes and index funds over time. Especially those that move around the style box a bit. There are many posts of “well, if you adjust for this and that and the other, it didn’t really beat the index, not by much at least”. But there’s 25 years of performance in the bank already.

I’ve owned Primecap since 1998 - almost 20 years. It is a similar type of fund - relatively low cost, low turnover, tends to move around in terms of style a bit. It goes against the prevailing trend here. Call it “Kenkat’s Folly”. The extra money is nice.

I’d be inclined to keep what you have.

Don't give it another thought. My gosh, if this is your way of recovering lost youth, it is miles better than the really foolish things middle aged and older men do. Better than buying a sports car and many fewer consequences than an affair. You own two great funds, I would keep them even if they are active. My gosh, you have to have at least one guilty pleasure in life. I have a lot more investing sins to confess in the confession booth. Your sin is minor and not major. Venial but not mortal.

[siamond]

Maybe check annually the rolling returns over the past 15 years (easy to do on Morningstar) against well-known value index funds and against TSM. Whenever such rolling returns fall in the red, then ditch it. By then, your emotional attachment should be gone anyway. Otherwise, smile and give it a few more years...

Er, I have to take that back, Morningstar doesn't allow to assemble a rolling returns chart exceeding 5 years. Really? Sigh.

But well, you could easily use PortfolioVisualizer to check the performance of the last 15 years (or 10 years or whatever) by playing on the start date, here is an example:
https://www.portfoliovisualizer.com/bac ... ion3_3=100

(as a side note, FLPSX didn't manage the 2008/09 crisis particularly well, actually; see the monthly drawdown chart; but it did well in 2002, that is for sure).

[letsgobobby]

Deleted

[3funder]

I generally agree that It wouldn't hurt to hold on to your shares; however, you should also consider the fact that this fund faces headwinds due to asset bloat. Makes it much more difficult for Tillinghast (or anyone else, for that matter) to replicate the same wonderful results for much longer. Doesn't mean it can't or won't happen, but it is something to consider.

[tibbitts]

Here's a worse offense: I hold Fidelity's emerging market bond fund (New Markets Income) with a nearly .9% expense ratio! When I invested it seemed obvious you have to have emerging market bonds (still does, really) and there was no cheap alternative. Even now the VG index isn't exactly cheap.

[hicabob]

I used to use flpsx for many years for my 401k contribution on the advice of the controller/cpa at a company I worked for decades ago. I sold it when Tillinghast took his temporary leave of absence a few years ago having done well but starting to dislike the ER. I reinvested boglehead fashion in fido total stock and fido s+p500 instead and I think I have done better than if I had stayed. ... edit - in fact the last 5 years look pretty bad for flpsx relative to the s+p500

https://finance.yahoo.com/chart/FLPSX

[WildBill]

Howdy

I think that holding competently run actively managed funds will have value as more investment is moved to indexing, creating potential mispricings that active funds can exploit.

That doesn't really make sense - if anything, more people who were poor at evaluating individual stocks moving to index funds should reduce mispricing in the market as the active investors who are left are all pros.

Howdy

I appreciate your take on this, as I am still trying to work out the implications of the dramatic increase of funds as a percentage of the market going into indexing. I’m not sure that your logic is correct.

It seems that axiomatic that capitalization based indexing will tend to drive overpriced stocks higher as they are bought to maintain their index percentages. Of course this depends on how much of the market percentage is represented by indexed investing. What is that percentage point?

I haven’t quite gotten past that, and I still am a believer in index funds, but I am starting to be slightly skeptical due to the the substantial shift to indexing.

W B

[avalpert]

Howdy

I think that holding competently run actively managed funds will have value as more investment is moved to indexing, creating potential mispricings that active funds can exploit.

That doesn't really make sense - if anything, more people who were poor at evaluating individual stocks moving to index funds should reduce mispricing in the market as the active investors who are left are all pros.

Howdy

I appreciate your take on this, as I am still trying to work out the implications of the dramatic increase of funds as a percentage of the market going into indexing. I’m not sure that your logic is correct.

It seems that axiomatic that capitalization based indexing will tend to drive overpriced stocks higher as they are bought to maintain their index percentages.

No, I don't think that is axiomatic at all - there are a lot of embedded assumption in there. For starters, how do you know the money that is going into indexing isn't coming disproportionately from 'overpriced' stocks to be distributed across the market?
This also often reflects a misunderstanding of how indexes work - why do you think the index needs to buy 'overpriced' stocks to maintain their relative weight in the index? As the price is driven up, the value of the index funds existing holdings increase in proportion to their relative market weight increase.
It also seems to equate high market cap with 'overpriced' - but why should we assume that higher market cap stocks are priced more 'wrong' relative to future outcomes than any other stocks?

All in all, I think there has been some interesting marketing by those whose paychecks depend on someone paying for active management that has served to confuse people not with logic and reason but propaganda.

[WildBill]

Howdy

I think that holding competently run actively managed funds will have value as more investment is moved to indexing, creating potential mispricings that active funds can exploit.

That doesn't really make sense - if anything, more people who were poor at evaluating individual stocks moving to index funds should reduce mispricing in the market as the active investors who are left are all pros.

Howdy

I appreciate your take on this, as I am still trying to work out the implications of the dramatic increase of funds as a percentage of the market going into indexing. I’m not sure that your logic is correct.

It seems that axiomatic that capitalization based indexing will tend to drive overpriced stocks higher as they are bought to maintain their index percentages.

No, I don't think that is axiomatic at all - there are a lot of embedded assumption in there. For starters, how do you know the money that is going into indexing isn't coming disproportionately from 'overpriced' stocks to be distributed across the market?
This also often reflects a misunderstanding of how indexes work - why do you think the index needs to buy 'overpriced' stocks to maintain their relative weight in the index? As the price is driven up, the value of the index funds existing holdings increase in proportion to their relative market weight increase.
It also seems to equate high market cap with 'overpriced' - but why should we assume that higher market cap stocks are priced more 'wrong' relative to future outcomes than any other stocks?

All in all, I think there has been some interesting marketing by those whose paychecks depend on someone paying for active management that has served to confuse people not with logic and reason but propaganda.

Howdy

Some good points. Thanks. However, I am still struggling with this.

Index funds have served me well for over 30 years, but what was once a slightly idiosyncratic investment strategy has become the conventional wisdom, with enormous shifts of funds into indexes. That makes me somewhat uneasy, as my experience is that the conventional wisdom usually is not so wise.

Indexing depends on robust price discovery, and at what point does a sufficiently large share of investment in index funds potentially impede price discovery?

I have no clue. However, it does seem obvious that if you get past that tipping point, or even start to get near it, wherever it is, there is potential for stock picking - active management- to outperform due to the weight of indexing impeding price discovery.

Still puzzling over this.

W B

[avalpert]

Howdy

I think that holding competently run actively managed funds will have value as more investment is moved to indexing, creating potential mispricings that active funds can exploit.

That doesn't really make sense - if anything, more people who were poor at evaluating individual stocks moving to index funds should reduce mispricing in the market as the active investors who are left are all pros.

Howdy

I appreciate your take on this, as I am still trying to work out the implications of the dramatic increase of funds as a percentage of the market going into indexing. I’m not sure that your logic is correct.

It seems that axiomatic that capitalization based indexing will tend to drive overpriced stocks higher as they are bought to maintain their index percentages.

No, I don't think that is axiomatic at all - there are a lot of embedded assumption in there. For starters, how do you know the money that is going into indexing isn't coming disproportionately from 'overpriced' stocks to be distributed across the market?
This also often reflects a misunderstanding of how indexes work - why do you think the index needs to buy 'overpriced' stocks to maintain their relative weight in the index? As the price is driven up, the value of the index funds existing holdings increase in proportion to their relative market weight increase.
It also seems to equate high market cap with 'overpriced' - but why should we assume that higher market cap stocks are priced more 'wrong' relative to future outcomes than any other stocks?

All in all, I think there has been some interesting marketing by those whose paychecks depend on someone paying for active management that has served to confuse people not with logic and reason but propaganda.

Howdy

Some good points. Thanks. However, I am still struggling with this.

Index funds have served me well for over 30 years, but what was once a slightly idiosyncratic investment strategy has become the conventional wisdom, with enormous shifts of funds into indexes. That makes me somewhat uneasy, as my experience is that the conventional wisdom usually is not so wise.

Indexing depends on robust price discovery, and at what point does a sufficiently large share of investment in index funds potentially impede price discovery?

Indexing doesn't actually depend on robust price discovery, prices may be more volatile without it but the premise would be the same. Indexing also can't impede price discovery - literally, it can't get in the way, by definition it is taking no position on price and will take what ever price is offered so it enables price discovery among those who want to actively offer a price.

In any case, have you ever participated in a prediction market in a small group setting? One of the things you learn is that it doesn't take many active participants to make a market if you have enough liquidity from passive participants - I don't know that there is a specific percentage of money that needs to be asserting an active opinion on valuations but if there is it is really low, single digit low. You probably don't need more than a handful of people involved to do it. And yes, if enough liquidity in the market became passive to create wide spreads from the consensus valuation of active participants there would be an opportunity to step in and take advantage - and I'm certain the pros would long before the opportunity ever trickled down to the mutual fund community.

While there is a somewhat interesting theoretical discussion to be had about the minimum numbers, I am 100% certain that there is zero chance of it ever being relevant to the broader stock market.

[welderwannabe]

Im not gonna break your love affair. A .68% ER, assuming those are the only costs (no front end or back end loads) is not totally obscene if you like the fund's style, it is working for you, and it keeps your life simple.

Invest away.

[obafgkm]

For sure - they must be paying Tillinghast a fortune to run that fund. Lets see, .068 x $40B = (drum roll) .. $272,000,000/year! I'd guess they're paying Tillinghast north of $25MM/year, maybe as much as $50MM.

But, once he has a few hundred million, why continue working? He can't take it w/him

Tillinghast may not have reached his number.

[TheTimeLord]

For sure - they must be paying Tillinghast a fortune to run that fund. Lets see, .068 x $40B = (drum roll) .. $272,000,000/year! I'd guess they're paying Tillinghast north of $25MM/year, maybe as much as $50MM.

But, once he has a few hundred million, why continue working? He can't take it w/him

Tillinghast may not have reached his number.

People like that like aren't working for the money. By that logic Warren Buffett and Charlie Munger would have left Berkshire long ago. Can't imagine how difficult it would be to try to slow down from that sort of lifestyle to a classic retiree lifestyle, my guess is neither can they.