Active Manager Marketing Quote of the Day

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Rick Ferri
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Active Manager Marketing Quote of the Day

Post by Rick Ferri »

ETFs Churning Most Cash Ever
October 21, 2013, InvestmentNews

Eric Marshall of Hodges Capital Management said this about index fund and ETFs investors:

“The past strategies of just blindly investing in ETFs and index funds may be a little bit more challenging. You really need to go out there and find pockets of opportunity.”

According to their website, Hodges Capital Management manages 5 mutual funds that they believe address any risk tolerance an equity investor has using a process they say they have been “perfecting” for over 5 decades.

++++++++

That's a good one. Here is what I believed to be The Most Overused Fund Manager Cliché

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cheese_breath
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Re: Active Manager Marketing Quote of the Day

Post by cheese_breath »

Rick Ferri wrote:“The past strategies of just blindly investing in ETFs and index funds may be a little bit more challenging. You really need to go out there and find pockets of opportunity.”
That's quite a quote. I would think using index funds would be less challenging, and finding pockets of opportunity would be more challenging. But then, what do I know. :confused
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Re: Active Manager Marketing Quote of the Day

Post by Professor Emeritus »

Rick Ferri wrote:ETFs Churning Most Cash Ever
October 21, 2013, InvestmentNews

Eric Marshall of Hodges Capital Management said this about index fund and ETFs investors:

“The past strategies of just blindly investing in ETFs and index funds may be a little bit more challenging. You really need to go out there and find pockets of opportunity.”

According to their website, Hodges Capital Management manages 5 mutual funds that they believe address any risk tolerance an equity investor has using a process they say they have been “perfecting” for over 5 decades.

++++++++

That's a good one. Here is what I believed to be The Most Overused Fund Manager Cliché

Rick Ferri
If anyone anywhere can identify pockets of opportunity that give above market returns he or she is a certified imbecile if they tell anyone else rather than just borrowing the money and investing. OTOH Quacks, magicians and charlatans have been selling "dreams" for thousands of years. and the suckers keep buying
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Re: Active Manager Marketing Quote of the Day

Post by JW-Retired »

Rick Ferri wrote:ETFs Churning Most Cash Ever
October 21, 2013, InvestmentNews

Eric Marshall of Hodges Capital Management said this about index fund and ETFs investors:

“The past strategies of just blindly investing in ETFs and index funds may be a little bit more challenging. You really need to go out there and find pockets of opportunity.”

According to their website, Hodges Capital Management manages 5 mutual funds that they believe address any risk tolerance an equity investor has using a process they say they have been “perfecting” for over 5 decades.
Always the wonderfully slick wording. Implies they have a process that finds pockets of opportunity and generates alpha, but they only literally say that they recognize their need to do so and have been working toward it for 50 years. Obviously no success yet or they would say so. :D
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Re: Active Manager Marketing Quote of the Day

Post by FafnerMorell »

I would think that "blindly" investing would remain pretty easy - I mean, if you were doing it blind before, and you're still doing it blind, what's changed? Has Vanguard made their web site less friendly to seeing-eye dogs?

Personally, I prefer "intelligently investing in ETFs and index funds", which, thanks to auto-deductions and a pretty-darn-lazy portfolio, mean I don't often have to change things. So if things got more challenging (perhaps you have to solve differential equations as part of the security questions?), I haven't noticed.
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Taylor Larimore
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Re: Active Manager Marketing Quote of the Day

Post by Taylor Larimore »

Rick:

Like Mr. Bogle, you are not making friends in the self-serving financial business. :happy

Best wishes.
Taylor
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Re: Active Manager Marketing Quote of the Day

Post by Fallible »

JW Nearly Retired wrote:
Rick Ferri wrote:ETFs Churning Most Cash Ever
October 21, 2013, InvestmentNews

Eric Marshall of Hodges Capital Management said this about index fund and ETFs investors:

“The past strategies of just blindly investing in ETFs and index funds may be a little bit more challenging. You really need to go out there and find pockets of opportunity.”

According to their website, Hodges Capital Management manages 5 mutual funds that they believe address any risk tolerance an equity investor has using a process they say they have been “perfecting” for over 5 decades.
Always the wonderfully slick wording. Implies they have a process that finds pockets of opportunity and generates alpha, but they only literally say that they recognize their need to do so and have been working toward it for 50 years. Obviously no success yet or they would say so. :D
JW
This is right on, as is Rick's column. The words only imply, the main one being "opportunity" (versus a sure thing). Unfortunately, too many people will read it as a sure thing, or at least close enough to one, because it's what they want to believe. As for "perfecting" for decades, the preferred implication is that perfection has been actually reached and is being sustained; yet it can also mean simply that perfection is always being sought. Whichever it means is in the eye of the investor.
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Re: Active Manager Marketing Quote of the Day

Post by JoMoney »

Rick's article wrote:... Put cash in Mason jars and bury them around the house. This isn’t a strategy I recommend, especially for those of us over the age of 50 (that’s my wife’s contribution to this article). I added it to this list just to show how silly the phrase “participate in the market on the upside and preserve capital on the downside” can be.
Sad that this "strategy" does actually get used. A friends grandmother past away a couple years ago. They know from financial records and from conversations with the great-aunt that at the peak of the crisis in 2009 the grandmother withdrew over $80k from an account and literally hid it away somewhere. She passed away shortly after, and nobody knows what she did with the money.
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Re: Active Manager Marketing Quote of the Day

Post by pingo »

JW Nearly Retired wrote:
Rick Ferri wrote:According to their website, Hodges Capital Management manages 5 mutual funds that they believe address any risk tolerance an equity investor has using a process they say they have been “perfecting” for over 5 decades.
Always the wonderfully slick wording. Implies they have a process that finds pockets of opportunity and generates alpha, but they only literally say that they recognize their need to do so and have been working toward it for 50 years. Obviously no success yet or they would say so. :D
JW
When I read that part, my first thoughts were that they've been screwing up for 50 years, but they're trying to convince us that they've learned from their mistakes. :P
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Re: Active Manager Marketing Quote of the Day

Post by ruralavalon »

Hodges CapitalManagement wrote:You really need to go out there and find pockets of opportunity.”

If I could do that I wouldn't tell a soul, I'd borrow every cent I could and leverage into those pockets of opportunity. Are they such fools that they actually tell mere lowly customers about those opportunities?
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Re: Active Manager Marketing Quote of the Day

Post by stratton »

Rick Ferri wrote:The Most Overused Fund Manager Cliché
And I thought it was, "It's a stock pickers market."

:P

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Re: Active Manager Marketing Quote of the Day

Post by stratton »

Hodges CapitalManagement wrote:You really need to go out there and find pockets of opportunity.”

We've got that covered.

Buy, hold and REBALANCE.

Paul
...and then Buffy staked Edward. The end.
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Re: Active Manager Marketing Quote of the Day

Post by Christine_NM »

I like the warm fuzzy feeling of knowing that whatever the next "pocket of opportunity" is, I already own it in Balanced Index and Total International.

Better yet, I am not the next "pocket of opportunity" for some broker with kids' college to pay for.
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Re: Active Manager Marketing Quote of the Day

Post by pingo »

Does that "pocket of opportunity" refer to appropriating what's in your pocket or lining his?

I suppose it really is two sides of the same coin.
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Re: Active Manager Marketing Quote of the Day

Post by Dutch »

Pickpocket of opportunity
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Re: Active Manager Marketing Quote of the Day

Post by TT »

delete
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Re: Active Manager Marketing Quote of the Day

Post by CanyonCitySteve »

I found this thread will looking up something else. Looked up HDPMX performance on Morningstar:

http://quotes.morningstar.com/fund/hdpmx/f?t=HDPMX+

They have beaten S&P 500 index handily for 1,3,5,10 year periods.

So I guess they have been successful in finding some little pockets? (Donning flame-retardant suit)

Just trying to stir up some trouble.....
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Re: Active Manager Marketing Quote of the Day

Post by N52570 »

CanyonCitySteve wrote:
They have beaten S&P 500 index handily for 1,3,5,10 year periods.
Yes they have, in more ways than one!

HDPMX- 3 yr Standard Deviation 18.52
S&P 500- 3 yr Standard Deviation 11.60

With risk comes reward.
Last edited by N52570 on Sun Sep 28, 2014 6:53 am, edited 1 time in total.
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Re: Active Manager Marketing Quote of the Day

Post by packer16 »

Professor Emeritus wrote:
Rick Ferri wrote:ETFs Churning Most Cash Ever
October 21, 2013, InvestmentNews

Eric Marshall of Hodges Capital Management said this about index fund and ETFs investors:

“The past strategies of just blindly investing in ETFs and index funds may be a little bit more challenging. You really need to go out there and find pockets of opportunity.”

According to their website, Hodges Capital Management manages 5 mutual funds that they believe address any risk tolerance an equity investor has using a process they say they have been “perfecting” for over 5 decades.

++++++++

That's a good one. Here is what I believed to be The Most Overused Fund Manager Cliché

Rick Ferri
If anyone anywhere can identify pockets of opportunity that give above market returns he or she is a certified imbecile if they tell anyone else rather than just borrowing the money and investing. OTOH Quacks, magicians and charlatans have been selling "dreams" for thousands of years. and the suckers keep buying
I totally disagree with statement and statements like this lead to as much hubris about lack of pockets of opportunity as there is about an abundance of them. You need to find what these claimed opportunities are and test them. I agree many of them may be quacks but the only way to know is to test them. The ones I have found are small relative to the size of managed funds and thus may not interest many of them and thus may persist for periods of time.

I can give you an example today, Korean preferred stocks. These are economically the same as common stock with no vote yet trade at discounts of up to 60% to the common. If you combine this with a modestly undervalued or undervalued stock you get a nice opportunity. I am invested in a few of these but do I lever up and buy as much as I can? No, the reason being is that although a difference exists between these prices exist there is no pure arbitrage rule out there that forces them to converge. I believe they will converge in price to the more normal level of 5 to 10% observed in the US and Europe but over time. I invest the amount I feel comfortable and tell other. What gain do I have keeping the info to myself? As a matter of fact there is an incentive to tell others.

The assumption that there is an incentive to not tell others is based upon an assumption that investors can deploy a large amount of capital into a single idea, which many cannot.

Packer
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Re: Active Manager Marketing Quote of the Day

Post by Taylor Larimore »

Packer:

In a post last February, you wrote about your 2013 performance:
This year I had performance of 146% (my best year yet). This was with portfolio of about 20 value stocks with top 10 concentration of about 85%.
You outperformed Warren Buffett and the best fund managers. Please tell us your secret.

Thank you and best wishes.
Taylor
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Re: Active Manager Marketing Quote of the Day

Post by nedsaid »

I think Taylor has asked Packer16 a fair question.

What I will do is post my own investment results and how I did it. This is only fair. I don't think my
results are particularly outstanding but not bad. I have my transaction data in Quicken and I have used Quicken to calculate my investment returns.

Brokerage IRA 15 year 4.92% 10 year 7.01% 5 year 11.04% 3 year 19.72%
(Individual stocks, ETFs, Load Funds this is a 90% plus US and International Stock Portfolio. Expenses
on funds and ETFs between .5-.6)

Mutual Fund IRA 15 year 7.49% 10 year 7.43% 5 year 10.35% 3 year 11.62%
(This is at my favorite mutual fund company, varied from 70/30 to 60/40 portfolio. These are no-load managed funds with one index thrown in. Expenses .81-.86).

Work Savings Plan 15 year 7.59% 10 year 7.60% 5 year 9.77% 3 year 12.75%
(This is mostly index funds, I use active funds where passive are not available. Varied from 70/30
to a 60/40 portfolio. Expenses .32)

Lower cost variable annuity 15 year 5.14% 10 year 5.40% 5 year 8.32% 3 year 10.31%
(Invested 50/50 and reflects 0.90 annuity charge plus fund expenses. I use a couple of index funds here and a Vanguard International Fund).

There is also a small Roth that I have had less than 10 years and a frozen cash balance pension and another small pension. My total retirement calculations take into account the Roth IRA.

Total Retirement Savings 15 year 5.92% 10 year 6.88% 5 year 10.21% 3 year 13.68%. Expenses of funds and ETF's worked down from an estimated 0.85 to 0.56. This reflects increased use of indexing. My total asset allocation during that time was 94% stocks/6% bonds in 1999 worked down to 80/20 in 2000. In most years since then, I have varied between 72/28 and 60/40. I have aimed for being at about 70/30.

Vanguard Lifestrategy Moderate Growth 15 year 5.38% 10 year 6.54% 5 year 9.86% 3 year 12.42%
This fund invests with approximately a 60/40 portfolio.

So taking into account my varying asset allocations, the limitations of Quicken, and trying to calculate the effects of a couple small pensions, it appears that I have probably about matched or beat a tiny bit the Vanguard Lifestrategy Moderate Growth over the 15, 10, 5, and 3 year periods. I have let my asset allocation float as I have been less diligent about rebalancing as has Vanguard. So not bad. Again, it is hard to come up with exact numbers for my entire retirement portfolio but they are very close to reality. A Vanguard Moderate Growth fund was the best benchmark I could come up with.
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Re: Active Manager Marketing Quote of the Day

Post by bertilak »

Eric Marshall wrote:“The past strategies of just blindly investing in ETFs and index funds may be a little bit more challenging. You really need to go out there and find pockets of opportunity.”
He should get a prize for such densely packed set of snake oil.

past strategies: You certainly don't want old outdated strategies.
just: You don't want to be "just" anything.
blindly: You don't want to be in the dark, cavorting with those lame (see "just" above) index people.
challenging: Why do it the hard way?
need: Here comes the answer! Can't wait!
find: (But let me do that for you.)
pockets: You wouldn't know a pocket if you saw it. (Even if my hand was already in yours!)
opportunity: Yes! That's what you want! Lemme sell get you some of that!
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Re: Active Manager Marketing Quote of the Day

Post by N52570 »

bertilak wrote:
Eric Marshall wrote:“The past strategies of just blindly investing in ETFs and index funds may be a little bit more challenging. You really need to go out there and find pockets of opportunity.”
He should get a prize for such densely packed set of snake oil.

past strategies: You certainly don't want old outdated strategies.
just: You don't want to be "just" anything.
blindly: You don't want to be in the dark, cavorting with those lame (see "just" above) index people.
challenging: Why do it the hard way?
need: Here comes the answer! Can't wait!
find: (But let me do that for you.)
pockets: You wouldn't know a pocket if you saw it. (Even if my hand was already in yours!)
opportunity: Yes! That's what you want! Lemme sell get you some of that!

You forgot "may"! :D

As in, not absolutely, not positively or without any question it will "be a little bit more challenging", but it "may" be.

That's good to know! :shock:
"Nobody knows nothing"! Raymond
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Re: Active Manager Marketing Quote of the Day

Post by packer16 »

I am not sure it is much of a secret but avoiding competition and investing in unusual corners of the market. For some of my recent performance luck had a role. Historically I have been able to find enough of these situations to develop a somewhat diversified portfolio. The US stocks are typically in the $100 to $300m market cap range. The biggest holders are typically DFA and Vanguard so I think many of these stocks are held by indexers versus active managers. It has been harder lately as the only places that have been cheap are corners of foreign markets, like South Korea preferreds, Greek operating companies and HK real estate holding companies. I also like to buy things that I think are at least a 50 cent dollar (tough in today's market).

I do have to say a portion of the returns have to be luck as I sold out of more fairly valued names and bought into more undervalued names this year. If I would have stayed in those names that I was in the beginning of the year I would have been down year to data. So far this year I am up 16.2%. This portfolio also has more risk with annual volatility of close to 50% vs. about 20% for the S&P 500. Some may say I am just getting rewarded for risk which is fair but I am in the accumulation phase so I am not as concerned about volatility than I will be in the distribution phase. Over the past 10 years the returns have averaged about 35% per year over the past 14 years 26% per year. I do not expect this going forward as part of this is luck and if luck went the other way then the performance would have been less. I think the one thing I do not do that other active managers do is buy a diversified group of stocks which given current pricing enivitably leads to a large number of fairly valued or overvalued names. I buy only what is cheap and weight the cheaper stocks more. At some point, I will hit a 2008 type return where I underperformed by 14%.

I am appreciative of the folks here as I will be transitioning the portfolio to less risky one as I enter the distribution phase and the funds/approaches here I think are the most effective I have seen. I recommend the 3 fund portfolio to all who ask about long-term asset accumulation because of the downsides of my approach. The downsides for most about the approach I take is the volatility and the ability to get comfortable with the concentrated approach. I have convinced myself but it is hard to convince others and at this point I do not try unless asked.

Packer
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Re: Active Manager Marketing Quote of the Day

Post by pingo »

CanyonCitySteve wrote:I found this thread will looking up something else. Looked up HDPMX performance on Morningstar:

http://quotes.morningstar.com/fund/hdpmx/f?t=HDPMX+

They have beaten S&P 500 index handily for 1,3,5,10 year periods.

So I guess they have been successful in finding some little pockets? (Donning flame-retardant suit)

Just trying to stir up some trouble.....
@CanyonCitySteve

It's no trouble at all, but you may be making some rookie mistakes:

Rookie mistake #1: Comparing actively-managed small-mid cap funds to Large Caps (S&P 500).
Rookie mistake #2: Buying high and selling low.

HDPMX averages out to be a mid cap fund, holding mostly mid and small caps (with a number of large cap stocks) so forget about the S&P 500. Morningstar even compares it to the Mid Cap Blend category, so let's compare it to the Vanguard Extended Market Index Fund (VEXMX) which is the rest of the market not included in the S&P 500 (mid and small caps with a some large caps). Let's also compare it to a real past outperformer, the T. Rowe Price Mid Cap Growth Fund (RPMGX). Below we'll see that HDPMX experienced average returns with greater volatility, greater risk, and greater-than-average loses over each period.

ImageMorningstar.com 5 year chart

ImageMorningstar.com 10 year chart

ImageMorningstar.com chart (max)

Over the loooong haul and fairly-short haul, HDPMX hasn't outperformed. It has merely been average. So, if you or other investors had the fortitude to hold on and not go chasing after other funds over short periods where HDPMX looked bad, you'd have benefitted from the long-term average performance of HDPMX, as would investors holding the index fund VEXMX.

The problem is that investors think they can find funds that buck trends over the short term as if that's meaningful. They abandon a fund which is underperforming over short periods (as HDPMX has underperformed again and again), in order to buy into funds that outperformed over short periods (like HDPMX has outperformed again and again). It is one of many reasons thats average investors earn returns to the tune of 1-2 percentage points lower than the actual funds they use, which funds on average are already underperforming an appropriate index fund because of higher costs.

The average HDPMX investor "sold low" by abandoning HDPMX after periods of underperformance, which is when said investor should have been buying. The average HDPMX investor "bought high" by investing in HDPMX after periods of outperformance, which may be when said investor should have been selling. It's the classic buy high, sell low blunder.

Below I show that HDPMX has outperformed for the last 3 years. (Finally!)

ImageMorningstar.com 3 year chart

Predictably so, we see that HDPMX outperformed and now you may want to buy it after the fact, which has the potential to kickstart a lifelong career of buying high and selling low. Just remember that HDPMX's is inseparable from it's underperformance prior to the last 3 years: it lost more and then "outperformed" when it in order to get back to zero.

Can you buy a loser/losing fund? That's arguably when you should have considered HDPMX in order to participate in high-return recovery. (Too late!) It's outperformance is merely a recouping of higher losses. If you study the 5, 10 and Max charts you'll see that HDPMX repeatedly lose more than average and then repeatedly "outperforms" to get catch up again.

You'll note that I haven't said anything about the T. Rowe Price fund. Until we look at the last 3 years, it seemed like a superior fund, It's longer track record make it appear to be one fund that buck's the trend. But after at least 22 years of outperformance, it's on everybody's radar and it has underperformed the other funds during the last 3 years. I don't know the future, so it leaves me wondering if its recent underperformance means it has lost its edge? Or, has it experienced asset bloat from the fund in-flows of performance-chasers that hurt it's performance? Or, is it a temporary hiccup? This is where risk still comes into play. Why is it underperforming? Will it outperform going forward? Do I have the fortitude to buy into losing fund? What if t continues to be a relative loser moving forward?

I don't know the answers. I just know that I enjoy the simplicity of low-cost index funds and the general assurance that the odds increase in my favor by using them, versus the hand wringing that comes with accepting manager risk.
Last edited by pingo on Wed Oct 01, 2014 4:19 pm, edited 8 times in total.
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Taylor Larimore
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Past Performance. . .

Post by Taylor Larimore »

Bogleheads:

This is what experts say about using Past Performance for picking funds:
Jack Bogle: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future."

Frank Armstrong, financial author: "Rating services such as Morningstar's 'Star Awards' or the 'Forbes Honor Roll' attest to the futility of applying past performance to tomorrow."

Barra Research: "There is no persistence of equity fund performance."

Burns Advisory tracked the performance of Morningstar's five-star rated stock funds beginning January 1, 1999. Of the 248 stock funds, just four still kept that rank after ten years.

Wm. Bernstein, author: "For the 20 years from 1970 to 1989, the best performing stock assets were Japanese stocks, U.S. small stocks, and gold stocks. These turned out to be the worst performing assets over the next decade."

Jack Brennan, Vanguard CEO: "Fund ranking is meaningless when based primarily on past performance, as most are."

Andrew Clarke, author: "By the time an investment reaches the top of the performance tables, there's a good chance that its run is over. The past is not prologue."

Prof. John Cochrane, author: "Past performance has almost no information about future performance."

S.T.Coleridge: "History is a lantern over the stern. It shows where you've been but not where you're going"

Jonathan Clements, author & Wall Street Journal columnist: "Trying to pick market-beating investments is a loser's game."

Eugene Fama: "Our research on individual mutual funds says that it's impossible to identify true winners on a reliable basis, even if one ignores the costs that active funds impose on investors."

Gensler & Bear, authors: "Of the fifty top-performing funds in 2000, not a single one appeared on the list in either 1999 or 1998."

Ken Heebner's CGM Focus Fund was the top U.S. equity fund in 2007. In November 2009, it ranked in the bottom 1% of its category.

Arthur Levitt, SEC Commissioner: "A mutual fund's past performance, which is the first feature that investors consider when choosing a fund, doesn't predict future performance."

Burton Malkiel, author: "I have examined the lack of persistency in fund returns over periods from the 1960s through the early 2000s.--There is no persistency to good performance. It is as random as the market."

Mercer Investment Consulting from a study of over 12,000 institutional managers: "Excellent recent performance not only doesn't guarantee future results but generally leads to underperformance in the subsequent period."

After fifteen straight years beating the S&P 500 Index, Legg Mason Value manager, Bill Miller's Legg Mason Value Trust (LMNVX) is now (9-30-2014) in the bottom 1% of its category for 10-year returns .

Ron Ross, author: "Extensive studies by Davis, Brown & Groetzman, Ibbotson, Elton et al, all confirmed there is no significant persistance in mutual fund performance."

Bill Schultheis, author: "Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea."

Standard & Poor's: "Over the 5 years ending September 2009, only 4.27% large-cap funds, 3.98% mid-cap funds, and 9.13% small-cap funds maintained a top-half ranking over the five consecutive 12-month periods."

Larry Swedroe, author: "The 44 Wall Street Fund was the top performing fund over the decade of the 1970s. It ranked as the single worst performing fund of the 1980's losing 73%. -- If you are going to use past performance to predict the future winners, the evidence is strong that your approach is highly likely to fail."

David Swensen, Yale's Chief Investment Officer: "Chasing performance is the biggest mistake investors make. If anything, it is a perverse indicator."

Tweddell & Pierce, authors: "Numerous studies have shown that using superior past performance is no better than random selection."

Eric Tyson, author: "If you had invested in the annual #1 top performing stock and bond funds over the last 15 years, 80% of those top performers subsequently performed worse, over the next 3-10 years, than the average fund in their peer group! Two of three former #1 funds are actually the worst performing funds in their particular category."

Value Line selected Garret Van Wagoner "Mutual fund Manager of the Year" in 1999. In August 2009, Van Wagoner's Emerging Growth Fund was the worst performing U.S. stock fund over the past 10 years.

Vanguard: "Buying a fund solely because it's done well in the past, or selling a fund that has performed poorly, can turn into a costly mistake." U.S. Growth had the 2nd BEST 10-year return of all Vanguard funds in December, 1998. On December 31, 2005 U.S. Growth had the 2nd WORST 10-year return of all Vanguard funds.

Jason Zweig, author and Wall Street Journal columnist: "Buying funds based purely on their past performance is one of the stupidest things an investor can do."
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
CanyonCitySteve
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Re: Active Manager Marketing Quote of the Day

Post by CanyonCitySteve »

@pingo

Thanks for the response. See comments:
It's no trouble at all, but you may be making some rookie mistakes:

Rookie mistake #1: Comparing actively-managed small-mid cap funds to Large Caps (S&P 500).
Rookie mistake #2: Buying high and selling low.
I didn't say to buy high and sell low. Nothing of the sort. Don't know how you inferred this.
I merely pointed out that this fund has beat the SP500 for 1,3,5,10 year periods, which is on-topic. The statement is simply that this actively managed fund achieved excellent performance over all of the time periods, which I know is anathema around here. Did not imply that indexing is a bad strategy :-)
HDPMX averages out to be a mid cap fund, .... Morningstar even compares it to the Mid Cap Blend category, so let's compare it to the Vanguard Extended Market Index Fund (VEXMX) .... Let's also compare it to a real past outperformer, the T. Rowe Price Mid Cap Growth Fund (RPMGX). Below we'll see that HDPMX experienced average returns with greater volatility, greater risk, and greater-than-average loses over each period.
I didn't make this comparison, but HDPMX did out perform VEXMX (the index) in all the charts you posted. And yes, it is higher risk...
RPMGX is a good example of a high-flyer that regressed badly, thanks for pointing this out.

That is all.
thanks
It is in the uncompromisingness with which dogma is held and not in the dogma or want of dogma that the danger lies. | --Samuel Butler
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Trevor
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Re: Active Manager Marketing Quote of the Day

Post by Trevor »

I didn't say to buy high and sell low. Nothing of the sort. Don't know how you inferred this.
I merely pointed out that this fund has beat the SP500 for 1,3,5,10 year periods, which is on-topic. The statement is simply that this actively managed fund achieved excellent performance over all of the time periods, which I know is anathema around here. Did not imply that indexing is a bad strategy :-)
I think we could all agree that this fund has performed well in the past (if we are just comparing returns.) Maybe it's one of the few quality active funds.

But I couldn't make myself take the risk of under performing the market. Maybe I could switch half of my portfolio into some active fund and I would do great, but maybe not. I just prefer getting almost exact market returns with no risk or regret of under performing :D
WWJD - What Would Jack Do?
pingo
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Re: Active Manager Marketing Quote of the Day

Post by pingo »

pingo wrote:Rookie mistake #1: Comparing actively-managed small-mid cap funds to Large Caps (S&P 500).
CanyonCitySteve wrote:I merely pointed out that this fund has beat the SP500 for 1,3,5,10 year periods
Making my point for me. Just like corporate bonds or emerging markets, the S&P 500 is an inappropriate benchmark. A completion index (or proxy such as VEXMX) is a more appropriate benchmark because it tracks/represents the returns of predominantly small and mid cap stocks, which is also how HDPMX invests.

How else do you explain that Morningstar rates an "outperforming" fund like HDPMX with 3 stars (read: average performance) reserving a 4-star rating for an S&P 500 fund like VFINX that "underperformed" it? (4-stars = above-average.) They pertain to different categories. As an aside, the rating for VEXMX is 4 stars.
CanyonCitySteve wrote:RPMGX is a good example of a high-flyer that regressed badly, thanks for pointing this out.
3 years isn't long enough to say. By comparing the 10 and 22 year (max) charts, we see that RPMGX has outperformed VEXMX mostly by losing less money during market downturns. When markets turn positive, RPMGX's returns are similar, not necessarily higher. A good example of this can be seen in the 22 year (max) chart where RPMGX lost less money than VEXMX from 2000 through 2003, which significantly widened the performance gap. As tides rose from 2003 through 2007, RPMGX and VEXMX are parallel, indicating very similar returns.

It's clear from the same charts that HDPMX regularly regresses under and over the index proxy. Don't merely look at the end points, look at what HDPMX is doing in between the end points.
CanyonCitySteve wrote:I didn't make this comparison, but HDPMX did out perform VEXMX (the index) in all the charts you posted.
Morningstar.com chart (max = 22 years)
Image


Passing VEXMX in the last 5 or 6 months of a 22 year period means the outperformance is noise; meaningless.

Morningstar.com 10 year chart
Image


Likewise, total returns between HDPMX and VEXMX from the last ten years are neck and neck, with HDPMX nudging past VEXMX in the last few months; meaningless outperformance with zero predictive value.

Morningstar.com 5 year chart
Image


Had this conversation taken place in May instead of October, the 5 year nod would have gone to VEXMX. The points in time in which an investor looks up performance data is random, which is another reason that past performance can be deceptive.

Morningstar.com 3 year chart
Image


The HDPMX's 3-year outperformance is great, but we must remember that it is part of the long-term catching up that is happening after previously undergoing 5 years of significant underperformance.

Will HDPMX continue to outperform now? Per the charts, it has never outperformed without eventually giving up the spread and then some. Its past performance suggests a miraculous ability to get out of the way of its own costs (ER 1.34%) after horrible and repeated underperformance, enough to recoup and offer total returns that are in-line with the market space in which it invests, i.e. small, mid and some large caps.

Getting back to the cliché referenced by Rick Ferri, the biggest pockets I see in the Hodges fund are not in extraordinary opportunities found by HDPMX's active-management, but in the pockets of underperformance draping underneath the index fund from 1992-1997, 1999-2003, and from 2008-2013.
pingo wrote:Rookie mistake #2: Buying high and selling low.
CanyonCitySteve wrote:I didn't say to buy high and sell low. Nothing of the sort. Don't know how you inferred this.
Morningstar's own research confirms that star funds and managers receive large in-flows of new money after outperformance has mostly been achieved and those same funds/managers tend to underperform going forward. That's what I mean by buying high.

Frustration with subsequent future performance engenders selling when there are losses or when returns are disappointing relative to other funds. That's what I mean by selling low. Ironically, it is upon such outflows that a star fund's underperformance begins to turn around. It is one big reason why there is an average difference of 1-2 percentage points between fund returns and investor returns.

If that's not you...I'm glad. :D
Last edited by pingo on Tue Oct 07, 2014 1:53 pm, edited 15 times in total.
simpleton
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Re: Active Manager Marketing Quote of the Day

Post by simpleton »

This is why I like the "telltale chart" so much. It's very difficult to look a the telltale chart for this comparison and come to the conclusion that the managers of HDPMX have figured out how to beat the market consistently:

http://morning-wave-7809.herokuapp.com/#HDPMX/VEXMX

Image
pingo
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Re: Active Manager Marketing Quote of the Day

Post by pingo »

^ My problem is that I don't know how to read that chart. :|
jaab
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Re: Active Manager Marketing Quote of the Day

Post by jaab »

I think "telltale" is just a fancy name for excess returns of asset 1 over asset 2. HDPMX over VEXMX. If the linie is going down it means HDPMX' returns are lower. Parallel lines = they return the same. Upward sloping line = HDPMX has better returns.
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packer16
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Re: Active Manager Marketing Quote of the Day

Post by packer16 »

I am sorry but I feel that the idea of beating the market consistently is a strawman that many who advocate passive strategies use in there illustrations of why passive is better. That should not be the test and one I don't think even active managers claim. A more realistic test is performance over longer periods of time and cumulative outperformance by greater than a certain percentage. I think 5% is a good bogie that Ben Graham spoke of in the Intelligent Investor. Now there are no mutual funds that have that type of performance versus factor index types of funds, so I agree that there are no actively managed funds available that it makes sense to own if you have an unrestricted set of funds you can own. However, sometimes you are constrained to LC index funds (S&P 500) and active funds that provide more exposure to the small and value factors. In that case it may make sense to pay for the active management to get expose to the small and value factor.

I think the Hodges idea of going after pockets of opportunity is the right approach but that mutual funds is the wrong vehicle to do this with as there are few pockets of opportunity that a fund of reasonable size and diversification can have meaningful exposure to.

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