Poor Janus, a look at this once high flying fund family

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nisiprius
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Re: Poor Janus, a look at this once high flying fund family

Post by nisiprius » Sun Aug 31, 2014 1:35 pm

packer16 wrote:...For some stocks the maker to taker ratio will be 1:1 but for others it could be much more slanted towards the index fund because the flow is an average....
No, it isn't, because most index funds--the giant ones at Vanguard, for example--are cap-weighted, so the flow for each individual stock is an identical percentage of its total capitalization. If there is a flow of 0.001% of all of the capital in the stock market into Vanguard Total Stock Market Index Fund, there is a flow of 0.001% of GE's capitalization into GE, a flow of 0.001% of Millipore capitalization into Millipore, a flow of 0.001% of Shoe Carnival Inc's capitalization into Shoe Carnival, etc. etc.

Unless you are talking about random noise and roundoff errors?
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Re: Poor Janus, a look at this once high flying fund family

Post by HenryPorter » Sun Aug 31, 2014 1:36 pm

packer16 wrote:The contrarian in me, given the huge flows into indexed products, articles like this becoming mainstream and the performance of indexed products lately, is telling me passive investments may be in for a spell of underperformance similar to 2000 to 2002. The rationale for index funds makes sense long-term but the indexing momentum may be pulling long-term returns to the present.

Packer
.

In a long-term scenario, the net earnings for the stocks in the index should determine how much the index rise. I think a good example is Berkshire Hathaway. Pretend it is an index fund. It does not trade very much, or at least not as much as some of the hot stocks could even though it has a large market cap. The B shares trade a lot, but they have been trading more heavily only the past 6 years or so. The intrinsic value of Berkshire Hathaway, if you strip out Buffett's effect as the CEO on the NAV, reflects the underlying value of the companies it owns. I think the stock tracks that. Maybe if passive investing becomes huge, the worse that happens is Wall Street can not have a field day running the stock prices up and down the chart based on every dog whistle of an economic indicator that the fed lets out.

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Re: Poor Janus, a look at this once high flying fund family

Post by nisiprius » Sun Aug 31, 2014 1:40 pm

packer16 wrote:...The price indexers are taking is assumed to be fair or close to value. If this is not the case and they are buying overvalued stock, then the indexers are the losers...
No, I don't assume the price indexers are taking is close to value.

I certainly believe that a lot of the stocks I buy in my index fund are overvalued--and that a lot are undervalued. Indexers don't have a problem with concept. It's the salespeople for active managed funds who have problem with it, or pretend to have a problem with it. They are the ones forever griping on our behalf, "if you buy an index fund you are buying all the overvalued stocks. Wouldn't it be better not to do that?"
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Re: Poor Janus, a look at this once high flying fund family

Post by packer16 » Sun Aug 31, 2014 3:04 pm

nisiprius wrote:
packer16 wrote:...The price indexers are taking is assumed to be fair or close to value. If this is not the case and they are buying overvalued stock, then the indexers are the losers...
No, I don't assume the price indexers are taking is close to value.

I certainly believe that a lot of the stocks I buy in my index fund are overvalued--and that a lot are undervalued. Indexers don't have a problem with concept. It's the salespeople for active managed funds who have problem with it, or pretend to have a problem with it. They are the ones forever griping on our behalf, "if you buy an index fund you are buying all the overvalued stocks. Wouldn't it be better not to do that?"
Marketing aside if you are buying consistently more overvalued stocks than undervalued stocks (which is the result of higher demand based upon the index formula - not a valuation metric) your future performance will suffer. You should be able to get around this with a fundamentally weighted fund but with more costs. The real question from an investors perspective is will the overvaluation be equal to or less than the additional fees. From Siegel's latest book the entry premium of a stock into the S&P 500 is about 400bp. So that equates to about 4.7 yrs of fees at a 100bp expense ratio (15bp for index fund) and 11.4 yrs at a 50bp expense ratio.

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Re: Poor Janus, a look at this once high flying fund family

Post by Clumsum » Sun Aug 31, 2014 3:29 pm

I owed many of their funds. Janus, Twenty, Venture, Worldwide. Started with Edward D Jones and Putnam (ouch). Then started reading and buying hot no load funds. Scudder, Harbor, Janus, and maybe one or two more. Have one T Rowe Price Fund left and the rest Vanguard. Almost all indexed now.

Thus forum can save people a lot of the investing mistakes made by many of us.

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Re: Poor Janus, a look at this once high flying fund family

Post by edge » Sun Aug 31, 2014 4:20 pm

Great. So if you know which stocks are overvalued and which ones are undervalued feel free to make your self infinitely wealthy. It is very simple:

1). index funds capture the near market return. No more no less. If you look for something less than the market return, look elsewhere.
2). Index funds do not set prices. To suggest that is complete ignorance. Index funds do not have the volume to set prices and the buying pattern of index funds matches the market.
packer16 wrote:
nisiprius wrote:
packer16 wrote:...The price indexers are taking is assumed to be fair or close to value. If this is not the case and they are buying overvalued stock, then the indexers are the losers...
No, I don't assume the price indexers are taking is close to value.

I certainly believe that a lot of the stocks I buy in my index fund are overvalued--and that a lot are undervalued. Indexers don't have a problem with concept. It's the salespeople for active managed funds who have problem with it, or pretend to have a problem with it. They are the ones forever griping on our behalf, "if you buy an index fund you are buying all the overvalued stocks. Wouldn't it be better not to do that?"
Marketing aside if you are buying consistently more overvalued stocks than undervalued stocks (which is the result of higher demand based upon the index formula - not a valuation metric) your future performance will suffer. You should be able to get around this with a fundamentally weighted fund but with more costs. The real question from an investors perspective is will the overvaluation be equal to or less than the additional fees. From Siegel's latest book the entry premium of a stock into the S&P 500 is about 400bp. So that equates to about 4.7 yrs of fees at a 100bp expense ratio (15bp for index fund) and 11.4 yrs at a 50bp expense ratio.

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Re: Poor Janus, a look at this once high flying fund family

Post by larryswedroe » Sun Aug 31, 2014 7:43 pm

Packer
FWIW I think all your assumptions are basically false, you have huge amounts of actively managed funds and hedge funds and endowments and pension plans and they are trading and not HFTs and their activity is setting prices, A problem you are having IMO seems to me is failing to separate fund flows from activity. Like I said all the fund flows into index funds in a year makes up a fraction of one day trading activity, and all stocks are impacted in the same way as they buy market cap, so relatively speaking they don't impact prices anyway. The markets aren't setting prices in the way you think they are. If you were even close to correct than as the percent of indexing has been rising you should see higher percent of active managers winning, but that isn't true. When your theory doesn't match the facts, time to throw out the theory
Larry

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Re: Poor Janus, a look at this once high flying fund family

Post by Dandy » Mon Sep 01, 2014 6:53 am

In my dumb old days I had a bit on money in Janus Venture (small cap). Luckily I got out way before they had management fall out and other problems and saw the index fund light. :happy

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Re: Poor Janus, a look at this once high flying fund family

Post by midareff » Mon Sep 01, 2014 7:03 am

JPH wrote:I did well with Janus for a long time. I got out in 2003 when they were involved in a market timing/after hours trading scandal.

same story here.

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Re: Poor Janus, a look at this once high flying fund family

Post by bru » Mon Sep 01, 2014 1:59 pm

Not long go I came across investment materials for Janus from probably 25 or more years ago. A coworker at the time touted them and I requested the info but never invested with them. If I had, maybe like some of you I would have gotten out before their fall, but who knows?

Regardless of how high flying they once were I'm still satisfied I invested with Vanguard at that time.

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Re: Poor Janus, a look at this once high flying fund family

Post by nisiprius » Tue Sep 02, 2014 11:48 am

packer16 wrote:....Marketing aside if you are buying consistently more overvalued stocks than undervalued stocks (which is the result of higher demand based upon the index formula - not a valuation metric) your future performance will suffer....
This just makes no sense to me at all. If there were evidence that the most popular "index funds" among indexers were small-cap value index funds or something, then you could argue that demand from "indexers" was driving up the relative prices of REITS or small-cap value. But the most popular Vanguard "index fund" is Total Stock, $343 billion; second most popular, 500 Index, $177 billion. Small-Cap Value Index has only $13 billion which by Vanguard standards is almost a "boutique" fund.

You keep implying that indexers are selectively driving up the prices of the stocks in the index, causing them to become overvalued. But the most popular index funds invest in all stocks. Perhaps Vanguard Total Stock Market Index, Fidelity Spartan Total Market Index, Schwab Total Stock Market Index owners are driving up the price of the stock market as a whole, but that's a different matter.

How can I possibly be buying "consistently more overvalued stocks" when I am buying every U.S. stock there is?

Everything is everything. The cap-weighted portfolio mirrors the market portfolio.
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Re: Poor Janus, a look at this once high flying fund family

Post by larryswedroe » Tue Sep 02, 2014 1:35 pm

nisiprius
There is strong science on human behavior, once someone believes something it literally may not matter if you show them very specific data that they are wrong and in most cases they basically ignore it. They will even interpret tables and charts incorrectly. FWIW I believe nothing anyone can say will convince Packer that his view is not correct. It's why some will never be passive investors despite the evidence.

Try reading this
http://www.alternet.org/media/most-depr ... brain-ever

Larry

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Re: Poor Janus, a look at this once high flying fund family

Post by nisiprius » Tue Sep 02, 2014 1:48 pm

larryswedroe wrote:nisiprius
There is strong science on human behavior, once someone believes something it literally may not matter if you show them very specific data that they are wrong and in most cases they basically ignore it. They will even interpret tables and charts incorrectly. FWIW I believe nothing anyone can say will convince Packer that his view is not correct. It's why some will never be passive investors despite the evidence.

Try reading this
http://www.alternet.org/media/most-depr ... brain-ever

Larry
Yikes!

But I don't quite believe it's as bad as all that, because I believe a lot of opinion change comes as a result of "planting seeds" that do not come to fruition until much later. And nothing any Yale prof says can convince me otherwise. :)
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Re: Poor Janus, a look at this once high flying fund family

Post by packer16 » Tue Sep 02, 2014 3:17 pm

Believe it or not but I think that passive investing is the best for most folks and have given that advice to most of my family and friends. An interesting observation from one of the Univ of Chicago researchers on another thread is that active investing can work if you follow other outperforming investors like Warren Buffett. I have a similar method (looking at other value investors ideas as an initial screen) along with my private company/asset valuation experience and that has worked for me so far. I have a much volatile portfolio (about 50% annual volatility) but with higher returns than an index . If I had to let someone else manage my money, I would definitely index and tilt SCV as I think SCV captures what used to be called alpha in the days of The Superinvestors of Graham and Doddsville.

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Re: Poor Janus, a look at this once high flying fund family

Post by larryswedroe » Tue Sep 02, 2014 4:53 pm

Nisiprius
If you had been advising people as long as I have you would agree that it's mostly as bad as that. If not how do you explain the continued ignoring the evidence by most pension plans and endowments. Now individuals might not be aware of the evidence (perhaps they don't even want to know or their "world view" would be destroyed--better to be ignorant than wrong) but institutional investors are almost surely aware in most cases at least

Packer
If that were try why do we not have more Warren Buffetts with big alphas? Sorry don't buy that. What the successful ones have done is mostly load up on factors that have produced premiums. We have many who imitate Buffett and Graham but very few that get the same results

Larry

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Re: Poor Janus, a look at this once high flying fund family

Post by packer16 » Tue Sep 02, 2014 5:27 pm

Larry,

There are some you are just not looking in the right places. As the Chicago business profs said you need to look for smaller managers who do not manage large pools of money. These guys are not managing mutual funds. I also think you can look at those who opportunistically invest like Baupost. I have linked in other threads records of folks who have outperformed and linked to a newspaper article with my performance (reviewed by an independent journalist). Whether you buy the records or not is up to you but the records are the records and I think the magnitude of outperformance is beyond chance (25% outperformance annualized for 15 years).

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Re: Poor Janus, a look at this once high flying fund family

Post by WhyNotUs » Tue Sep 02, 2014 5:41 pm

larryswedroe wrote:nisiprius
There is strong science on human behavior, once someone believes something it literally may not matter if you show them very specific data that they are wrong and in most cases they basically ignore it. They will even interpret tables and charts incorrectly. FWIW I believe nothing anyone can say will convince Packer that his view is not correct. It's why some will never be passive investors despite the evidence.
Larry
Motivated Reasoning helps explain todays disconnect in discourse.
http://en.wikipedia.org/wiki/Motivated_reasoning
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Re: Poor Janus, a look at this once high flying fund family

Post by larryswedroe » Tue Sep 02, 2014 5:43 pm

Packer
Sure there might be but we cannot know them or study them to see if they are generating alpha or not. If no public records to study it's meaningless, and certainly meaningless if you cannot invest with them
Larry

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Re: Poor Janus, a look at this once high flying fund family

Post by Silverado » Tue Sep 02, 2014 7:05 pm

Got into Janus by virtue of Berger, which I'd held since 94. TLH my way out in 2009. Did like some features of their website, but that is no reason to invest. Was out of the country for most of the scandal.

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Re: Poor Janus, a look at this once high flying fund family

Post by Pizzasteve510 » Tue Sep 02, 2014 11:12 pm

larryswedroe wrote:Packer
Sure there might be but we cannot know them or study them to see if they are generating alpha or not. If no public records to study it's meaningless, and certainly meaningless if you cannot invest with them
Larry
I agree with pretty much all your points Larry, but I also do see examples of 'Warren Buffet like investing' occurring in many small businesses not traded. Could small business be a source of 'alpha,' if able to be tapped by markets?

I take my question from observing high margins, but low 'sales price' valuations for many family run businesses I have been close to. I wonder if opportunities exist in this sub-small cap area that could be unlocked by technology change.

It will be interesting if, with a globally networked world, if there becomes a way for investors to tap this under explored frontier of investing, a small local farm, business, or even individual labor rate arbitrage, etc. Emerging websites like Kickstarter and other new business models (10EQS) point to interesting possibilities. You correctly point out that this area is unavailable to 'wall street' type investment managers, but that does not mean it is not possible and it is a substantial part if our economy.

My other inspiration are the micro-loan initiatives in some third world countries. Founded as development efforts, my friend who ran one mentioned that the very poor who get small loans are actually very profitable and good investments on a return basis, if you didn't have the administration overhead. People borrowing $200 for a milk cow, pay back and pay well, especially when their future depends on it. It brings to mind a study I read in 1984 on the psychology of lotteries. In the study, the focus of the buyer was on whether the payment of a winning return was able to change their life in terms of a higher social class. That is why the poor buy scratchers and the wealthier lean towards powerball. It seems small scale business run by highly motivated people can really deliver above average results, if not commoditized by being larger scale.

Anyway, just some random thoughts.

On a side note, I have held Janus Balanced fund for many years in one of my taxable accounts as a conservative part of the account (basically a lazy place to stash extra cash I never bothered with, since no load fees). Now I am reforming towards full indexing. I didn't want to take the capital gains, but I took another look and noticed what I used to think were competitive fees are not what I thought. At its higher expense ratio, would it be advisable to sell even if in a high tax bracket (AMT). How many years are generally needed for the tax hit too be worth switching funds or should I just suck it up and hold, paying my higher fees?

PS
Sorry for the rambling thoughts, but I like to do that sometimes..I realize perhaps my post is a bit infested by thinking about the Enron Corporations overall business strategy. That is another long post, but in summary Enron was trying to create liquidity in markets because they believed in the commoditization of assets over time and that they could speed this up by taking positions and making markets. What they thought they knew how to do was to create that scale, make trading revenue on fees as a market maker, and while at it create trades with alpha the old fashioned way (having insider info by holding assets so they can arbitrate the less price sensitive). What was required was to get scale, so they targeted large markets with large transactions (energy, steel, water, bandwidth). I always thought that another model was to aggregate many smaller transactions to help capital find users. With good, cheap tech (like the Internet) this is possible (bogle heads a prime example). We aggregate ideas very rapidly, creating value. The financial markets, as mature markets, do both. They serve large volumes and large transactions, so alpha shrinks to almost zero. So for me, those seeking alpha need to target new markets outside of traditional equities.

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Re: Poor Janus, a look at this once high flying fund family

Post by packer16 » Wed Sep 03, 2014 6:28 am

larryswedroe wrote:Packer
Sure there might be but we cannot know them or study them to see if they are generating alpha or not. If no public records to study it's meaningless, and certainly meaningless if you cannot invest with them
Larry
How do you know? Have you actively looked or are you relying on academic studies? One of the benefits I have had with this forum is folks shooting down my ideas vs. just getting confirmation. This provides a great filter to prevent my biases from effecting me too much. A part of the scientific process is to look for non confirming information. When you find this information you test it to see if it valid and change your hypothesis if applicable. In this case, which surprises me given your past analyses and responses, it appears you are not spending the time to ask/investigate whether non confirming data about alpha exists especially since you are writing a mini book on it.

BTW - you are correct on the index effect on larger stocks. Thanks for the patient replies but I do wonder about the effect on smaller stocks where the index funds own 5 to 10% of the shares outstanding of a number of these smaller companies.

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Re: Poor Janus, a look at this once high flying fund family

Post by larryswedroe » Wed Sep 03, 2014 9:38 am

Packer
Let me just say this, an individual can have "advantage" in the sense that they can concentrate portfolios in the stocks that give the very highest loadings to the factors in ways a fund cannot (as it must diversify and also cash flows force if you will diversification or large market impact costs). So one can "outperform" by having higher loadings than a fund can get. Note this is same logic of why Bridgeway OMNI funds are not open to the general public, we don't want the large cash flows to lead to lower loadings on the factors. But there is also a question of what's enough diversification. IMO in small stocks I would want to see hundreds of stocks given the high idiosyncratic risks. That leads IMO to funds as best solution for almost everyone.

Now do I think that there are some superstar investors who can discover value in stocks. Sure, but IMO not likely to find them and if you do they are likely to be extracting the value as their skill is the scarce resource and not your capital. And then funds flow into them and bye bye alpha. Bottom line, success sows the seeds of its own destruction--by the time you can discover them it's likely almost too late, if not already the case.

Note, as a very large investor, my firm manages directly or indirectly through the BAM Alliance now over $25b of assets and as result as you can imagine we are marketing target for the investment industry. Does that mean we see everyone, no. And yes we do rely on academic literature to make our investment decisions.

As to small stocks I don't see any evidence to support your idea on impact of pricing. Again, if you are correct then we should see more active winners exploiting the overpricing caused by indexers---and we don't see that in small stocks any more than in large stocks. When the theory doesn't fit the facts throw out the theory. It's almost certainly wrong. Again note that it's not dollars amount that matter much but flows. And you can own say 10% of a stock but never trade it, so you are not impacting prices. And when you buy you are buying small amounts, and hopefully using patient algorithmic trading. And by the time you have to trade it, because it's no longer small, then the market impact costs get much lower because it's now a much larger cap stock as it exits the small cap index

I hope that is helpful
Larry

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Re: Poor Janus, a look at this once high flying fund family

Post by Bubbagump » Thu Sep 04, 2014 12:02 pm

IlikeJackB wrote:Brings back memories of my pre-boglehead days. :oops:

Sigh, indeed. I was in early college at the time and thought I was doing my diligence in savings. This along with Microstrategies stock in a brokerage account put me off investing for a good while.

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