Dear friends,

Welcome to a new year.  Take a moment, peer back at 2011 and allow yourself a stunned “what the hell was that about?”  After one of the four most volatile years the stock market’s seen in decades, after defaults, denunciations, downgrades, histrionics and the wild seesaw of commodity prices, stocks are back where they began.  After all that, Vanguard’s Total Stock Market Index (VTSMX) had, as of 12/29/11, risen by one-quarter of one percent for the year.

I have no idea what the year ahead brings (except taxes).  I’m dubious that the world will follow the Mayans into extinction on December 21^st.    My plan for the new year, and my recommendation for it: continue to live sensibly, invest cautiously and regularly, enjoy good wine and better cheese, celebrate what I have and rejoice at the fact that we don’t need to allow the stock market to run our lives.

All of which introduces a slightly-heretic thought.

Consider Taking a Chill Pill: Implications of a Stock-Light Portfolio

T. Rowe Price is one of my favorite fund companies, in part because they treat their investors with unusual respect.  Price’s publications depart from the normal marketing fluff and generally provide useful, occasionally fascinating, information.  I found two Price studies, in 2004 and again in 2010, particularly provocative.  Price constructed a series of portfolios representing different levels of stock exposure and looked at how the various portfolios would have played out over the past 50-60 years.

The original study looked at portfolios with 20, 40, 60, 80 and 100% stocks.  The update dropped the 20% portfolio and looked at 0, 40, 60, 80, and 100%.

As you think about your portfolio’s shape for the year ahead, you might find the Price data useful.  Below I’ve reproduced partial results for three portfolios.  The original 2004 and 2010 studies are available at the T. Rowe Price website.

What does that mean for you?  Statisticians would run a Monte Carlo Analysis to guide the answer.  They’d simulate 10,000 various decades, with different patterns and sizes of losses and gains (you could lose money in 6 of 10 years which, though very unlikely, has to be accounted for), to estimate the probabilities of various outcomes.

Lacking that sophistication, we can still do a quick calculation to give a rough idea of how things might play out.  Here’s how the simple math plays out.

Assuming no losing years, $10,000 invested conservatively for 10 years might grow to $20,900.  You might or might not have experienced a loss (historically, the portfolio lost money one year in 16). If your loss occurred in Year 10, your $10,000 would still have grown to $20,000.

Assuming no losing years, $10,000 invested moderately for 10 years might grow to $25,000.  You’ll likely have lost money twice, about 6.5% each year.  If you suffered an average loss in Year Five and again at Year Ten, your $10,000 would still have grown to $17,600.

Assuming no losing years, $10,000 invested aggressively for 10 years might grow to $29,900.  You’ll likely have lost money twice, about 12.5% each year.  If you suffered an average loss in Year Five and again at Year Ten, your $10,000 would still have grown to $18,385.

Measured against a conservative portfolio, a pure stock portfolio increases the probability of losing money by 400% (from a 6% chance to 23%), increases the size of your average loss by 2500% (from 0.5% to 12.5%) and triples your volatility.  With extraordinary luck, it doubles the conservative portfolio’s gain.  With average luck, it trails it. This is not a prediction of how stocks will do, in the short term, or the long term, but  is simply a reminder of the consequence of investing in them.

We can’t blithely assume that future returns will be comparable to past ones.  As Bob Cochran and others point out, bonds enjoyed a 30 year bull market which has now ended.  GMO foresees negative “real” returns for bonds and cash over the next seven years and substandard ones for US stocks as a whole.   That said, the Price studies show how even fairly modest shifts in asset allocation can have major shifts in your risk/reward balance.  As with Tabasco sauce, dribbles and not dollops offer the greatest gain.  Adding only very modest amounts of stock exposure to otherwise very conservative portfolios might provide all the heat you need (and all the heat you can stand).

Launch Alert: TIAA-CREF Lifestyle Income

On December 9, 2011, TIAA-CREF launched a new series of Lifestyle funds-of-funds.  In light of the T. Rowe Price research, Lifestyle Income (TSILX) might be worth your attention.  TSILX invests 20% of its assets in stocks, 40% in Short-Term Bond Fund (TCTRX) and 40% in their Bond (TIORX) and Bond Plus (TCBPX) funds.  The bond funds are all low cost offerings with index-like returns.  The equities sleeve is needlessly complicated with 11 funds, the smallest allocation being 0.2% to Mid-Cap Value.  That said, TSILX has a bearable expense ratio for a new fund (0.85%).  It’s run by the same team that has achieved consistent mediocrity with TIAA-CREF Managed Allocation (TIMIX), another fund of too many TIAA-CREF funds.   In this case, “mediocrity” isn’t bad and “consistent” is good.   The minimum initial investment is $2500.

TSILX might, then, approximate T. Rowe Price’s conservative portfolio allocation.  They are, of course, not the only option.  Several of the “retirement income” funds offered by the major no-load families have the same general nature.  Here’s a rundown of them:

The Great Unanswered Question: “What Are Our Recommendations Worth?”

This is the time of year when every financial publication and most finance websites (not including the Observer), trumpet their “can’t miss” picks for the year ahead.  A search of the phrase “Where to Invest in 2012” produced 99,200 hits in Google (12/26/2011), which likely exceeds the number of sensible suggestions by about 99,100.

Before browsing, even briefly, such advice, you should ask “what are those recommendations worth?”  A partial answer lies in looking at how top publications did with their 2011 picks.  Here are The Big Four.

Morningstar, Where to Invest in 2011 was a report of about 30 pages, covering both general guidance and funds representing a variety of interests.  It no longer seems available on the various Morningstar websites, but copies have been posted on a variety of other sites.

Kiplinger, Where to Invest in 2011 began with the guess that “Despite tepid economic growth, U.S. stocks should produce respectable gains in the coming year.”  As long as you can respect 1.6% (Vanguard’s Total Stock Market Index through Christmas), they’re right. In a sidebar story, Steven Goldberg assured that “This Bull Market Has Room to Run.”  Again, if “into walls” and “off cliffs” count, they’re right.

The story focused on 11 stocks and, as a sort of afterthought, three funds.  In a particularly cruel move, the article quotes a half dozen fund managers in defense of its stock picks – then recommends none of their funds.

SmartMoney, Where to Invest in 2011, cheated a bit by not offering its recommendations until February.  Even then, it focused solely on a dozen individual stocks.  The worst of their picks, Oracle ORCL, was down 16% between the start of the year and the Christmas break.  The best, TJX Companies TJX, was up 49%. Six stocks lost money, six gained.  The portfolio gained 4.8%.  A rough conversion into fund terms would have you subtract 1.4% for operating expenses, leaving a return of 3.4%.  That would have it ranked in the top 14% of large cap core funds, through Christmas.  If you missed both the best and worst stock, your expense-adjusted returns would drop to 1.4%.

Money, Make Money in 2011: Your Investments discussed investing as a small part of their 2011 recommendations issue.  The offered a series of recommendations, generally a paragraph or two, followed by a fund or two from their Money 70 list.

Money’s strategic recommendations were: Favor stocks over bonds, favor large caps over small cap, good overseas carefully and don’t rush into emerging markets,  shorten up bond durations to hedge interest rate risks and add a few riskier bonds to boost yields

The Bottom Line: give or take the Fairholme implosion, Morningstar was mostly right on equities and mostly wrong on bonds and commodities, at least as measured by a single year’s return.  SmartMoney’s stock picks weren’t disastrous, but missing just one stock in the mix dramatically alters your results. Kiplinger’s got most of the forecasts wrong but chose funds with predictable, long term records.

Amateur Hour in Ratings Land, Part 1: TheStreet.com

How would you react to an article entitled “The Greatest Baseball Players You’ve Never Heard Of,” then lists guys named DiMaggio, Clemente and Kaline?  Unknown novelists: Herman Melville, Stephen King . . . ?

TheStreet.com, founded by frenetic Jim Cramer, is offering up mutual fund analysis.  In December, mutual fund analyst Frank Byrt offered up “10 Best Mutual Funds of 2011 You’ve Never Heard Of.”  The list made me wonder what funds the folks at TheStreet.com have heard of.  They start by limiting themselves to funds over $1 billion in assets, a threshold that suggests somebody has heard of them.  They then list, based on no clear criteria (they’ve been “leaders in their category”), some of  the industry’s better known funds:

Franklin Utilities (FKUTX) – $3.6 billion in assets under management

Fidelity Select Biotechnology (FBIOX) – $1.2 billion

Sequoia Fund (SEQUX) – $4.7 billion, the most storied, famously and consistently successful fund of the past four decades.

Federated Strategic Value Dividend Fund (SVAAX) – $4.9 billion

Delaware Smid Cap Growth (DFDIX) – $1 billion

GMO Quality (GQETX) – technically it’s GMO Quality III, and that number is important.  Investors wanting Quality III need only shell out $10 million to start while Quality IV requires $125 million, Quality V requires $250 million and Quality VI is $300 million.   In any case, $18 billion in assets has trickled in to this unknown fund.

Wells Fargo Advantage Growth (SGRNX) – the fund, blessed by a doubling of assets in 2011 and impending bloat, is closing to new investors. Mr. Byrt complains that “Ognar has wandered from the fund’s mandate,” which is proven solely by the fact that he owns more small and midcaps than his peers.  The prospectus notes, “We select equity securities of companies of all market capitalizations.”  As of 10/30/2011, he had 45% in large caps, 40% in mid caps and 15% in small names which sounds a lot like what they said they were going to do.  Mr Byrt’s ticker symbol, by the way, points investors to the $5 million minimum institutional share class of the $7.2 billion fund.  Po’ folks will need to pay a sales load.

Vanguard Health Care Admiral Fund (VGHAX) – a $20 billion “unknown,” with a modest $50,000 minimum and a splendid record.

SunAmerica Focused Dividend (FDSAX) – $1 billion

Cullen High Dividend Equity (CHDVX) – $1.3 billion.

Of the 10 funds on Mr. Byrt’s list, three have investment minimums of $50,000 or more, four carry sales loads, and none are even arguably “undiscovered.”  Even if we blame the mistake on an anonymous headline writer, we’re left with an unfocused collection of funds selected on unexplained criteria.

Suggestion from the peanut gallery: earn your opinion first (say, with serious study), express your opinion later.

Amateur Hour in Ratings Land, Part 2: Zacks Weighs In

Zacks Investment Research rates stocks.  It’s not clear to me how good they are at it.  Zacks’ self-description mixes an almost mystical air with the promise of hard numbers:

The guiding principle behind our work is that there must be a good reason for brokerage firms to spend billions of dollars a year on stock research. Obviously, these investment experts know something special that may be indicative of the future direction of stock prices. From day one, we were determined to unlock that secret knowledge and make it available to our clients to help them improve their investment results.

So they track earnings revisions.

Zacks Rank is completely mathematical. It”s cold. It”s objective.

(It’s poorly proofread.)

The Zacks Rank does not care what the hype on the street says. Or how many times the CEO appeared on TV. Or how this company could some day, maybe, if everything works perfectly, and the stars are aligned become the next Microsoft. The Zack Rank only cares about the math and whether the math predicts that the price will rise.

Momentum investing.  That’s nice.  The CXO Advisory service, in an old posting, is distinctly unimpressed with their performance.  Mark Hulbert discussed Zacks in a 2006 article devoted to “performance claims that bear little or no relationship with the truth.”

In a (poorly proofread) attempt to diversify their income stream, Zacks added a mutual fund rating service which draws upon the stock rating expertise to rank “nearly 19,000 mutual funds.”

There are three immediately evident problems with the Zacks approach.

There are only 8000 US stock funds, which is surely a problem for the 10,000 funds investing elsewhere.  Zacks expertise, remember, is focused on US equities.

The ratings for those other 10,000 funds are based “a number of key factors that will help find funds that will outperform.”  They offer no hint as to what those “key factors” might be.

The ratings are based on out-of-date information.  The SEC requires funds to disclose their holdings quarterly, but they don’t have to make that disclosure for 60 days after the end of the quarter.  If Zacks produces, in January, a forecast of the six-month performance of a fund based on a portfolio released in November of the fund’s holdings in September, you’ve got a problem.

Finally, the system doesn’t attend to trivial matters such as strategy, turnover, expenses, volatility . . .

All of which would be less important if there were reliable evidence that their system works.  But there isn’t.

Which brings us to Zack’s latest: a 12/20/11 projection of which aggressive growth funds will thrive in the first half of 2012 (“Top 5 Aggressive Growth Mutual Funds”).  Zacks has discovered that aggressive growth funds invest in “a larger number of” “undervalued stocks” to provide “a less risky route to investing in these instruments.”

Investors aiming to harness maximum gains from a surging market often select aggressive growth funds. This category of funds invests heavily in undervalued stocks, IPOs and relatively volatile securities in order to profit from them in a congenial economic climate. Securities are selected on the basis of their issuing company’s potential for growth and profitability. By holding a larger number of securities and adjusting portfolios keeping in mind market conditions, aggressive growth funds offer a less risky route to investing in these instruments.

Larger than what?  Less risky than what?  Have they ever met Ken Heebner?

Their five highest rated “strong buy” funds are:

Legg Mason ClearBridge Aggressive Growth A (SHRAX): ClearBridge is Legg Mason’s largest equity-focused fundamental investing unit.  SHRAX traditionally sports high expenses, below average returns (better lately), above average risk (ditto), a 5.75% sales load and a penchant for losing a lot in down markets.

Delaware Select Growth A (DVEAX): give or take high expenses and a 5.75% sales load, they’ve done well since the March 2009 market bottom (though were distinctly average before them).

Needham Aggressive Growth (NEAGX) which, they sharply note, is “a fund focused on capital appreciation.”  Note to ZIR: all aggressive growth funds focus on capital appreciation.  In any case, it’s a solid, very small no-load fund with egregious expenses (2.05%) and egregious YTD losses (down almost 15% through Christmas, in the bottom 2% of its peer group)

Sentinel Sustainable Growth Opportunities A (WAEGX): 5% sales load, above average expenses, consistently below average returns

American Century Ultra (TWCUX): a perfectly fine large-growth fund.  Though American Century has moved away from offering no-load funds, the no-load shares remain available through many brokerages.

So, if you like expensive, volatile and inconsistent . . . .  (Thanks to MFWire.com for reproducing, without so much as a raised eyebrow, Zacks list.  “Are These Funds Worth a Second Look?” 12/21/2011)

Two Funds, and Why They’re Worth your Time

Really worth it.  Every month the Observer profiles two to four funds that we think you really need to know more about.  They fall into two categories:

Most intriguing new funds: good ideas, great managers. These are funds that do not yet have a long track record, but which have other virtues which warrant your attention.  They might come from a great boutique or be offered by a top-tier manager who has struck out on his own.  The “most intriguing new funds” aren’t all worthy of your “gotta buy” list, but all of them are going to be fundamentally intriguing possibilities that warrant some thought.  This month’s new fund:

HNP Growth and Preservation (HNPKX): one of the strengths and joys of small funds is that they offer the opportunity to try new approaches, rather than offering the next bloated version of an old one.  The HNP managers, learning from the experience of managed futures funds, offer a rigorous, quantitative approach to investing actively and cautiously across several asset classes.

Stars in the shadows: Small funds of exceptional merit. There are thousands of tiny funds (2200 funds under $100 million in assets and many only one-tenth that size) that operate under the radar.  Some intentionally avoid notice because they’re offered by institutional managers as a favor to their customers (Prospector Capital Appreciation and all the FMC funds are examples).  Many simply can’t get their story told: they’re headquartered outside of the financial centers, they’re offered as part of a boutique or as a single stand-alone fund, they don’t have marketing budgets or they’re simply not flashy enough to draw journalists’ attention.  There are, by Morningstar’s count, 75 five-star funds with under $100 million in assets; Morningstar’s analysts cover only eight of them.

The stars are all time-tested funds, many of which have everything except shareholders.

Tocqueville Select (TSELX): Delafield Fund is good.  Top 5% of the past three years.  And five years.  And ten and fifteen years, for that matter.  Could Tocqueville Select be better?  It offers the same talented team that runs Delafield, but allows them to construct a concentrated portfolio that needs to invest only one-twentieth of Delafield’s assets.

Launch Alert:

Matthews Asia Strategic Income Fund (MAINX) launched on November 30, 2011.  The fund will invest in a wide variety of bonds and other debt securities of Asian corporate and sovereign issuers in both local and hard currencies. The fund will draw on both Matthews’ expertise in Asian fixed-income investing, which dates to the firm’s founding, and on the expertise of its new lead manager, Teresa Kong. Ms. Kong was Head of Emerging Market Investments at Barclays Global Investors / BlackRock, where she founded and led the Fixed Income Emerging Markets team. She was a Senior Portfolio Manager for them, a Senior Securities Analyst at Oppenheimer Funds, and an analyst for JP Morgan Securities.  Matthews argues that the Asian fixed income market is large, diverse, transparent and weakly-correlated to Western markets. Because Asian firms and governments have less debt than their Western counterparts, they are only a small portion of global bond indexes which makes them attractive for active managers. The Matthews fund will have the ability to invest across the capital structure, which means going beyond bonds into convertibles and other types of securities. The minimum initial investment is $2500 for regular accounts, $500 for IRAs.  Expenses are capped at 1.40%.

Prelaunch Alert: RiverNorth Tactical Opportunities

RiverNorth Core Opportunities (RNCOX) exemplifies what “active management” should be.  The central argument in favor of RNCOX is that it has a reason to exist, a claim that lamentably few mutual funds can seriously make.  RNCOX offers investors access to a strategy which makes sense and which is not available through – so far as I can tell – any other publicly accessible investment vehicle. The manager, Patrick Galley, starts with a strategic asset allocation model (in the neighborhood of 60/40), modifies it with a tactical asset allocation which tilts the fund in the direction of exceptional opportunities, and then implements the strategy either by investing in low-cost ETFs or higher-cost closed-end funds.  He chooses the latter path only when the CEFs are selling at irrational discounts to their net asset value.  He has, at times, purchased a dollar’s worth of assets for sixty cents.

Closed-end funds are investment vehicles very much like mutual funds.  One important difference is that they can make greater use of leverage to boost returns.  The other is that, like stocks and exchanged-traded funds, they trade throughout the day in secondary markets.  When you buy shares, it’s from another investor in the fund rather than from the fund company itself.  That insulates CEFs from many of the cash-flow issues that plague the managers of open-ended funds.

RNCOX, since inception, has outperformed its average peer by about two-to-one, though the manager consistently warns that his strategy will be volatile.  After reaching about a half billion in assets, the fund closed in the summer of 2011.

In the fall of 2011, RiverNorth filed to launch a closed-end fund of its own, RiverNorth Tactical Opportunities.  The fund will invest in other closed-end funds, just as its open-ended sibling does.  The closed-end fund will have the ability to use leverage, which will magnify its movements.  The theory says that they’ll deploy leverage to magnify the upside but it would be hard to avoid catching downdrafts as well.

Morningstar’s Mike Taggart agrees that the strategy is “compelling.”  Mr. Galley, legally constrained from discussing a fund in registration, says only that the timing of launch is still unknown but that he’d be happy to talk with us as soon as he’s able.  Folks anxious for a sneak peek can read the fund’s IPO filing at the Securities and Exchange Commission.

Pre- Pre-Launch Alert:

Andrew Foster announced on Seafarer’s website that he’s “exploring” a strategy named Seafarer Overseas Growth and Income.  At this point there is no vehicle for the strategy, that is, nothing in registration with the SEC, but tracking Mr. Foster’s thinking is likely to be a very wise move.

Mr. Foster managed Matthews Asian Growth and Income (MACSX), a FundAlarm “star in the shadows” fund, from 2005-2011.   As its manager, he first worked with and then succeeded Paul Matthews, the firm’s founder.  Saying that he did an excellent job substantially understates his success.  MACSX was one of the most consistent, least volatile and most rewarding Asia-focused funds during his tenure. Andrew also served as Matthews’ director of research and chief investment officer.

Andrew left to found his own firm in 2011, with the announced intention of one day launching a thoroughly modern mutual fund that drew on his experience.  While this is not yet that fund, it does illustrate the direction of his planning.   Andrew writes:

This strategy attempts to offer a stable means of participating in a portion of developing countries’ growth prospects, while providing some downside protection relative to a strategy that invests only in the common stocks of emerging markets. The strategy’s objective is to provide long-term capital appreciation along with some current income. In order to pursue that objective, the strategy incorporates dividend-paying equities, convertible bonds and fixed income securities. It may also invest in companies of any size or capitalization, including smaller companies.

We’ll do our best to monitor the strategy’s development.

Mining for Hidden Gems among Funds

Journalist Javier Espinoza’s pursuit of “hidden gems” – great funds with under $100 million in assets – led him to the Observer.  His article Mining for Hidden Gems Among Funds ran in the Wall Street Journal’s “Investing in Funds” report (12/05/2011).  The Journal highlighted five funds:

Pinnacle Value (recommended David Snowball and profiled as a “star in the shadows”)

Marathon Value (another “star in the shadows,” recommended by Johanna Turner of Milestones Financial Planning and a supporter of both FundAlarm and the Observer)

Artio US Smallcap (recommended by Bob Cochran of PDS Planning, one of the most thoughtful and articulate members of the community here and at FundAlarm)

Bogle Small Cap Growth (recommended by Russel Kinnel, Morningstar’s venerable director of fund research)

Government Street Equity (recommended by Todd Rosenblut, mutual fund analysis for S&P Capital IQ)

Fund Update

RiverPark Wedgewood (RWGFX), which the Observer profiled in September as one of the most intriguing new funds, has an experienced manager and a focused portfolio of exceptionally high-quality firms.  Manager Dave Rolfe aims to beat index funds at their own game, by providing a low turnover, tightly-focused portfolio that could never survive in a big fund firm.

The fund is approached the end of 2011 with returns in the top 2% of its large growth peer group.  Manager Dave Rolfe has earned two distinctions from Morningstar.  His fund has been recognized with the new Bronze designation, which means that Morningstar’s analysts weigh it as an above-average prospect going forward.  In addition, he was featured in a special Morningstar Advisor report, Wedgewood’s Lessons Pay Off.  After lamenting the pile of cookie-cutter sales pitches for firms promising to invest in high-quality, reasonably-priced firms, Dan Culloton happily observes, “self-awareness, humility and patience set Wedgewood apart.”  I agree.

Briefly Noted . . .

Matthews International Capita Management reopened Matthews Asian Growth and Income Fund (MACSX) and the Matthews Asia Small Companies Fund (MSMLX) on January 4, 2012. The funds have been closed for about a year, but both saw substantial asset outflows as Asian markets got pummeled in 2011.  MACSX was identified as an Observer “Star in the Shadows” fund.  As usual, it’s one of the best Asian funds during market turbulence (top 15% in 2011) though it seems to be a little less splendid than under former manager Andrew Foster.  The young Small Companies fund posted blistering returns in 2009 and 2010.  Its 2011 returns have modestly trailed its Asian peers.  That’s a really reassuring performance, given the fund’s unique focus on smaller companies.

The Wall Street Journal reports on a fascinating initiative by the SEC.  They’ve been using quantitative screens to identify hedge funds with “aberrational performance,” which might include spectacularly high returns or inexplicably low volatility. They then target such funds for closer inspection.  The system is been so productive that they’re now adding mutual funds to the scan (“SEC Ups its Game to Identify Rogue Firms,” 12/29/11).

Artisan Partners has withdrawn their planned IPO, citing unfavorable market conditions.  The cash raised in the IPO would have allowed the firm to restructure a bit so that it would be easier for young managers to hold a significant equity stake in the firm.

Ed Studzinski, long-time comanager of Oakmark Equity & Income (OAKBX) retired on January 1, 2012, at age 62.  Clyde McGregor will now manage the fund alone.

ETrade daily publishes the list of “most searched” mutual funds, as an aid to folks wondering where investors’ attention is wandering.  If you can find any pattern in the post-Christmas list, I’d be delighted to hear of it:

• Rydex Russell 2000 2x Strategy (RYRSX)
• Managers PIMCO Bond (MBDFX)
• T. Rowe Price Emerging Markets Stock (PRMSX)
• Vanguard Energy (VGENX)
• T. Rowe Price New Horizons (PRNHX)

Highland Funds Asset Management will spin-off from Highland Capital Management next month and switch its name to Pyxis Capital.  Highland’s 19 mutual funds will be rebranded with the Pyxis name effective January 9.  Pyxis is a constellation in the southern sky and Latin for a mariner’s compass.  Pixies?  Pick Six?  Pick sis?  What do you suppose was going on at the meeting where someone first suggested, “hey, let’s change our name to something that no one has ever heard of, which is hard to say and whose sole virtue is an obscure reference that will be grasped by three Latin astronomers?”

Anya Z. and the Observer’s New Look

In December we unveiled the Observer’s new visual design, which is easier to navigate, easier to maintain and infinitely more polished.  I’d like to take a moment to recognize, and thank, the designer.  Anya Zolotusky is a Seattle area web designer who specializes in elegant and highly useable websites for small businesses.  Anya’s resume has entries so cool that they make me laugh.  Uhhh . . . she pioneered “cybercasts from uncomfortable places.”   One presumably uncomfortable place was a Mt Everest Basecamp, 18,000’ up from which she handled all communications, including live audio and video interviews with CNN and their ilk).

We talked a while about what I imagined the Observer should look like and Anya took it from there.  She describes her goal:

Primarily I wanted a more polished look that would better suit the spirit of the MFO and make using the site a more pleasant experience for visitors. I liked incorporating the energy of the exchange floor, but faded way back, because the MFO is a source of calm and reason in the midst of investment world chaos. The colors, the clean layout and clear navigation are all intended to create a calm backdrop for a topic that is anything but. And the iconic Wall Street bull is just a natural totem for the MFO. I’m happy to have contributed a little to what I hope is a long, bullish future for the MFO and all the Snowball Groupies (especially my mom)!

Anya’s mom is a Soviet émigré and long-time fan of FundAlarm.  Her encouragement, in a note entitled “Come on, Snowball.  Do it for mom!” helped convince me to launch the Observer in the first place.

And so, thanks to Anya and all the remarkably talented folks whose skill and dedication allows me to focus on listening and writing.  Anyone interested in seeing the rest of Anya’s work should check out her Darn Good Web Design.

Two New Observer Resources

The Observer continues to add new features which reflect the talents and passions of the folks who make up our corps of volunteer professionals.  I’m deeply grateful for their support, and pleased to announce two site additions.

The Navigator

Accipiter, our chief programmer and creator of the Falcon’s Eye, has been hard at work again. This time he’s turned his programming expertise to The Navigator, a valuable new tool for looking up fund and ETF information. Similar to the Falcon’s Eye, you can enter a ticker and receive links to major sources of information, 27 at last count. In added functionality, you can also enter a partial ticker symbol and see a dropdown list of all funds that begin with those characters. Additionally, you can search for funds by entering only part of a fund name and again seeing a dropdown list of all funds containing the string you entered. Choosing a fund from the dropdown then returns links to all 27 information sources. This all strikes me as borderline magical.  Please join me in thanking Accipiter for all he does.

Miscommunication in the Workplace

This ten-page guide, which I wrote as a Thanksgiving gift for the Observer’s readers, has been downloaded hundreds of times.  It has now found a permanent home in the Observer’s Resources section.  If you’ve got questions or comments about the guide, feel free to pass them along.  If we can make the guide more useful, we’ll incorporate your ideas and release a revised edition.

In Closing . . .

Augustana College bell tower panorama, photo by Drew Barnes, class of 2014.

Winter will eventually settle in to the Midwest.  The days are short and there are lots of reasons to stay inside, making it a perfect time to catch up on some reading and research.  I’ve begun a conversation with Steve Dodson, former president of Parnassus Investments and now manager of Bretton Fund (BRTNX) and I’m trying to track down James Wang, manager of the curious Oceanstone Fund (OSFDX).  Five years, five finishes at the top of the fund world, cash heavy, few assets and virtually no website.  Hmmm. Our plan is to review two interesting new funds, one primarily domestic and one primarily international, in each of the next several months. We’ll profile the new Grandeur Peak Global Opportunities (GPGOX) and Matthews Asia Strategic Income (MAINX) funds in February and March, respectively.

Observer readers have asked for consideration of a half dozen funds, including Conestoga Small Cap (CCASX) and Aston/Cornerstone Large Cap Value (RVALX).  I don’t know what I’ll find, but I’m delighted by the opportunity to learn a bit and to help assuage folk’s curiosity.

In addition, Junior Yearwood, who helped in editing the Miscommunication in the Workplace guide, has agreed to take on the task of bringing a long-stalled project to life.  Chuck Jaffe long ago suggested that it would be useful to have a launch pad from which to reach the highest-quality information sources on the web; a sort of one-stop shop for fund and investing insights.  While the Observer’s readers had a wealth of suggestions (and I’ll be soliciting more), I’ve never had the time to do them justice.  With luck, Junior’s assistance will make it happen.

We’re healthy, in good spirits, the discussion board is populated by a bunch of good and wise people, and I’m teaching two of my favorite classes, Propaganda and Advertising and Social Influence.  Life doesn’t get much better.

I’ll see you soon,

David

Dear friends,

Welcome to the Observer 2.0.  We worked hard over the past month to create a new look for the Observer: more professional, easier to read, easier to navigate and easier to maintain.  We hope you like it.

It’s hard to believe that, all the screaming aside, the stock market finished November at virtually the same point that it began.  Despite wild volatility and a ferocious month-end rally, Vanguard’s Total Stock Market Index Fund (VTSMX) ended the month with just a tiny loss.

Finding Funds that Lose at Just the Right Time

The best investors are folks who are able to think differently than do their peers: to find opportunities where others find only despair.  In our ongoing attempt to get you to think differently about how you find a good investment, we decided to ask: do you ever want funds that aren’t top performers?

The answer, for long term investors, is “yes.”  In general, you do not want to own the high-beta funds that have the best performance in “junk rallies.”  Junk rallies are periods where the least attractive investment options outperform everything else.  Those rallies push the riskiest, least prudent funds (temporarily) to the top.

One way to identify junk rallies is to look for markets where the performance of solid, high-quality companies dramatically lags the performance of far more speculative ones.  We did that by comparing the returns of index funds tracking the boring Dow Jones Industrial Average (blue chips) with the performance of funds tracking the endlessly exciting NASDAQ.  It turns out that there are three years where the Nazz outperformed the Dow by more than 1000 basis points (i.e., by 10 percentage points).  Those years are 2003 (Dow trails by 2100 bps), 2007 (1040 bps) and 2009 (3200 bps).

This month’s screen looks at funds that, over the past 10 years, are above average performers except during junk rallies.  In junk rally years, we looked for absolute returns of 10% or more.

As one reads the Morningstar coverage of these funds, the words that keep recurring are “disciplined,” “patient” and “concentrated.”  These are folks with a carefully articulated strategy who focus on executing it year after year, with little regard to what’s in vogue.

While this is not a “buy” list, it does point out the value of funds like Matthews Asian Growth & Income (MACSX), in which I’ve been invested for a good while.  MACSX puts up terribly relative performance numbers (bottom 10-15%) every time the Asian market goes wild and brilliant ones (top 5%) when the markets are in a funk.  If you’re willing to accept bad relative performance every now and then, you end up with excellent absolute and relative returns in the long-run.

Updating “The Observer’s Honor Roll, Unlike Any Other”

In November 2011, we generated an Honor Roll of funds.  Our criterion was simple: we looked for funds that were never abysmal.   We ignored questions of the upside entirely and focused exclusively on never finishing in a peer group’s bottom third.  That led us to two dozen no-load funds, including the Price and Permanent Portfolio funds highlighted above.

One sharp member of the discussion board community, claimu, noticed the lack of index funds in the list.  S/he’s right: I filtered them out, mostly because I got multiple hits for the same index. Eleven index funds would have made the list:

• four S&P 500 funds (California Investment, Dreyfus, Price, Vanguard)
• four more-or-less total market funds (Price, Schwab, Schwab 1000, Vanguard)
• one international (Price), one growth (Vanguard) and one small growth (Vanguard).

The story here might be the 67 S&P500 index funds that have a ten-year record but didn’t make the list. That is, 95% of S&P500 funds were screened-out because of some combination of high expenses and tracking error.

Those differences in expenses and trading efficiency add up.  An investment a decade ago in the Vanguard 500 Index Admiral Class (VFIAX) would have returned 2.45% annually over the decade while the PNC S&P 500 “C” shares (PPICX) earned only 1.14% – less than half as much.  $10,000 invested in Vanguard a decade ago would now (11/30/11) be worth $13,300 while a PNC investor would have $11,700 – for having taken on precisely the same risks at precisely the same time.

Press Release Journalism: CNBC and the End of the Western World

Does anyone else find it disturbing that CNBC, our premier financial news and analysis network, has decided to simply air press releases as news?   Case in point: the end of the world as we know it.  On 11/30/11, CNBC decided to share David Murrin’s fervent announcement that there’s nowhere worth investing except the emerging economies:

The Western world has run out of ideas and is “finished financially” while emerging economies across the world will continue to grow, David Murrin, CIO at Emergent Asset Management told CNBC on the tenth anniversary of coining of the so-called BRIC nations of Brazil, Russia, India and China, by Goldman Sachs’ Jim O’Neill.

“I still subscribe and I’ve spoken about it regularly on this show that this is the moment when the Western world realizes it is finished financially and the implications are huge, whereas the emerging BRIC countries are at the beginning of their continuation cycle,” Murrin told CNBC. (The Western World Is ‘Finished Financially’)

One outraged reader phrased it this way: “So why do reasonably respectable news outlets take as news the ravings of someone who has so obvious a financial stake in what is being said … News flash, “The CEO of Walmart declares the death of main street businesses . . . ” Good God!”

While Mr. Murrin is clearly doing his job by “talking his book,” that is, by promoting interest in the investment products he sells, is CNBC doing theirs?  If their job is either (a) providing marketing support for hedge funds or (b) providing inflammatory fodder, the answer is “yes.”  If, on the other hand, their job is . . .oh, to act like professional journalists, the answer is “no.”

What might they have done?  Perhaps examine Mr. Murrin’s credibility.  Ask even a few questions about his glib argument (here’s one: “the Chinese markets are at the mercy of the world’s largest and least accountable bureaucracy, one which forces the private markets to act as proxies for a political party.  To what extent should investors stake their financial futures on their faith in the continued alignment of that bureaucracy’s interests and theirs?”).  Perhaps interview someone who suspects that the expertise of companies domiciled in the Western world will allow them to out-compete firms domiciled elsewhere?  (Many thanks to Nick Burnett of CSU-Sacramento, both for pointing out the story and for supplying appropriate outrage.)

A Gift Freely Given

We’re deeply grateful for the support, financial, intellectual and moral, that you folks have offered during this first year of the Observer’s life.  It seemed fitting, in this season of thanksgiving and holidays, to say thanks to you all.  As a token of our gratitude, we wanted to share a small gift with each of you.  Chocolate was my first choice, but it works poorly as an email attachment.  After much deliberation, I decided to provide some practical, profitable advice from a field in which I have both academic credentials and lots of experience: communication.

Many of you know that I am, by profession and calling, a Professor of Communication Studies at Augustana College.  Over the years, the college has allowed me to explore a wide variety of topics in my work, from classical rhetoric and persuasion theory, to propaganda, persuasion and business communication practices.  Spurred by a young friend’s difficulties at work and informed by a huge body of research, I wrote a short, practical guide that I’d like to share with each of you.

Miscommunication in the Workplace: Sources, Prevention, Response is a 12-page guide written for bright adults who don’t study communication for a living.  It starts by talking about the two factors that make miscommunication so widespread.   It then outlines four practical strategies which will reduce the chance of being misunderstood and two ways of responding if it occurs anyway.  There’s a slightly-classy color version, but also a version optimized for print.  Both are .pdf files.

In the theme of thanksgiving, I should recognize the three people who most helped bring focus and clarity to my argument.  They are

Junior Yearwood, a friend and resident of Trinidad, brought a plant manager’s perspective, an editor’s sensibility and a sharp eye to several drafts of the guide.  Junior helped both clarify the document’s structure and articulate its conclusion.

Nicholas Burnett, an Associate Dean at Cal State – Sacramento, brought a quarter century’s experience in teaching and analyzing business and professional communication.  Nick pointed me to several lines of research that I’d missed and helped me soften claims that probably went beyond what the research supports.

Cheryl Welsch, a/k/a Chip, the Observer’s Technical Director and Director of Information Technology at SUNY-Sullivan, brought years of experience as a copy editor (as Hagrid would have it, she’s “a thumpin’ good one”).  She also helped me understand the sorts of topics that might be most pressing in helping folks like her staff.

The Harvard Business Review published Communicating Effectively (2011), which is a lot more expensive (well, this is free so pretty much everything is), longer (at 250 pages) and windier but covers much of the same ground.

If you have reactions, questions or suggested revisions, please drop a note to share them with me.  I’m more than willing to update the document.  If you really need guidance to the underlying research, it’s available.

Two other holiday leads for you.  QuoteArts.com offers a bunch of the most attractive, best written greeting cards (and refrigerator magnets) that I’ve seen.  The Duluth Trading Company offers some of the best made, best fitting men’s work clothing I’ve bought in years.  The Observer has no financial link to either of these firms and I know they have nothing to do with funds, but I’m really pleased with them and wanted to give you a quick heads-up about them.

Two Funds, and why they’re worth your time

Really worth it.  Every month the Observer profiles two to four funds that we think you really need to know more about.  They fall into two categories:

Most intriguing new funds: good ideas, great managers. These are funds that do not yet have a long track record, but which have other virtues which warrant your attention.  They might come from a great boutique or be offered by a top-tier manager who has struck out on his own.  The “most intriguing new funds” aren’t all worthy of your “gotta buy” list, but all of them are going to be fundamentally intriguing possibilities that warrant some thought.  This month’s new fund:

Lockwell Small Cap Value (LOCSX): a product of The Great Morgan Stanley Diaspora, Lockwell is a new incarnation of a very solid institutional fund.  The manager, who has successfully run billions of dollars using this same discipline, is starting over with just a million or two.  While technically a high-minimum institutional fund, there might be room to talk.

Stars in the shadows: Small funds of exceptional merit. There are thousands of tiny funds (2200 funds under $100 million in assets and many only one-tenth that size) that operate under the radar.  Some intentionally avoid notice because they’re offered by institutional managers as a favor to their customers (Prospector Capital Appreciation and all the FMC funds are examples).  Many simply can’t get their story told: they’re headquartered outside of the financial centers, they’re offered as part of a boutique or as a single stand-alone fund, they don’t have marketing budgets or they’re simply not flashy enough to draw journalists’ attention.  There are, by Morningstar’s count, 75 five-star funds with under $100 million in assets; Morningstar’s analysts cover only eight of them.

The stars are all time-tested funds, many of which have everything except shareholders.

Artisan Small Cap (ARTSX): they’re baaaaaack!   ARTSX is the fund that launched Artisan had a blazing start in 1996: a chart-topping 35% gain, $300 million in assets, and a principled close within 11 months.  What followed were nearly 15 years of uninspiring performance.  In 2009, the management team that has brilliantly guided Artisan Mid Cap took over here and the results have been first rate.  Time for another look!

Fund Update: RiverPark Short-Term High Yield and RiverPark/Wedgewood

Two of the RiverPark funds that we’ve profiled are having banner years.

RiverPark/Wedgewood (RWGFX) offers a concentrated portfolio of exceedingly high-quality stocks.  They’ve got a great track record with this strategy, though mostly through separately-managed accounts.  I have some questions about whether the SMA success would translate to similar performance in their fund.  The answer appears to be “yes,” at least so far.  For 2011 (through 11/29), they’re in the top 2% of large growth funds. Their 2.2% gain places them about 750 basis points ahead of their average peer.  The fund has gathered $70 million in assets.

RiverPark Short Term High Yield (RPHYX) continues to be a model of stability.  Its unique portfolio of called high yield bonds and other orphan investments is yielding 4.2% and has returned 3.25% YTD (through 11/29/11).  Judged as a high-yield bond fund, that’s great: top 4% YTD with minimal share price volatility.  Viewed as a cash management tool, it’s even better.  Latest word is that assets are up to $35 million as more advisors come onboard.

In mid-November, Barron’s ran a nice profile, “Enjoying Their Freedom,” of RiverPark and of these two funds.

Closure alert: Aston/River Road Independent Value

In a November 18 filing with the SEC, Aston announced that ARVIX will close to new investors “if the net assets of the Fund reach a certain level in combination with other assets managed in the same investment strategy by … River Road Asset Management.  Currently, the Fund expects its Soft Close Level to be between $500 million and $600 million in net assets.”  Eric Cinnamond, the manager suggests that “given our sales pipeline,” the fund will likely close before December is over.  Existing investors will be permitted to add to their accounts but (with a few exceptions) no new investors will be allowed in.

In general, folks interested in a low volatility strategy crafted for high volatility markets really should look, and look quickly, to see whether ARVIX makes sense for their portfolios.  The Observer’s April 2011 profile of ARVIX makes clear that this is a strategy with a long, consistently and hugely successful trade record.  So far in 2011, it’s in the top 1% of small value funds.  Mr. Cinnamond is both modest and thoughtful, and tries to balance a celebration of the fund’s success with realism about the years ahead:

This year has set up nicely for the portfolio — ideal market for a flexible and opportunistic strategy.  Every year won’t be like this (the product has high tracking error) and if small caps go lot higher from here, the strategy will most likely lag as I continue to be positioned defensively with below average risk in the equity portfolio and above average cash levels.  That said, as you know, this can change quickly — hopefully recent volatility in the small cap market continues into 2012.

Right, “hopefully recent volatility … continues.”  Volatile markets create outsized opportunities that Mr. Cinnamond has, over the course of years, profitably exploited.  Two other takes on the fund are the fund’s most recent profile of itself and a new Morningstar essay which looks at the two best small-value funds in 2011: The Top Performing Funds in 2011’s Toughest Category.

Launch alert:

Forward Management introduced a new investor share class for the $1.2 billion, Forward Select Income Fund (FFSLX) at the end of November, 2011. The fund focuses on the preferred securities of REITs, rather than their common stock.  The fund’s yielding over 9% currently, and has pretty consistently finished near the top of the real estate fund stack by combining above average returns with low volatility.

This is the fifth Forward real estate fund to be offered directly (i.e., without a load) to retail investors.  The others are Forward International Real Estate (FFIRX), the Forward Real Estate Long/Short (FFSRX), Forward Real Estate and the Forward Global Infrastructure (FGLRX).  In each case, there’s a $4000 minimum which is reduced to $500 if you set up an account with an automatic investing plan.

Fidelity launched Fidelity Total Emerging Markets (FTEMX) on November 1^st.   FTEMX represents a really good idea: an emerging markets balanced fund.  The fund will invest about 60% of its assets in stocks and 40% in bonds, which should over time provide stock-like returns with greatly reduced volatility.  That might translate to higher shareholder returns, as folks encounter fewer dramatic declines and are less likely to be tempted to sell low.  The fund is managed by a team led by John Carlson.  Mr. Carlson has been doing really good work for years on Fidelity’s emerging markets bond fund, Fidelity New Market Income (FNMIX).  There’s a $2500 minimum investment and an expense ratio of 1.40%.

One landmine to avoid: don’t pay attention to the fund’s performance against its Morningstar peer group.  Morningstar doesn’t have an E.M. balanced group, and so assigned this fund to E.M. stock.

I’ve also profiled the closed-end First Trust/Aberdeen Emerging Opportunities (FEO) fund.  FEO has a higher expense ratio (1.80%) but can often be bought at a discounted price.

Alpine: A slight change in elevation

The good folks at the Alpine Funds have taken inspiration for their namesake mountain range.  Effective January 12, they’re increasing their minimum initial investment for stock funds by a thousand fold:  “For new shareholders after January 3, 2012, the minimum initial investment of the Institutional Class has increased from $1,000 to $1,000,000.” The minimum for bond rises will rise only a hundredfold: “For new shareholders after January 3, 2012, the minimum initial investment of the Institutional Class (formerly the Investor Class) has increased from $2,500 to $250,000.”

At the same time they’re renaming a bunch of funds and imposing a 5.5% front load.

Of the funds involved, Dynamic Transformations (ADTRX) is most worth a look before the no-load door closes.  It’s a relatively low turnover, relatively tax efficient mid-cap growth fund that invests in companies undergoing, well, dynamic transformations.  (After January, I guess the transformations can be rather less dynamic.)  That discipline parallels the discipline successfully applied at Artisan’s Mid Cap (ARTMX) fund.  As with Alpine’s other funds, risk management is not a particular strength and so it tends to be a high volatility / high return strategy; that is, it captures more of both the upside and the downside in any market movement.

(Thanks to the members of the Observer’s discussion board community, who read SEC filings even more closely – and with more enthusiasm, if you can imagine that – than I do.  Special thanks to TheShadow for triggering the discussion.)

Briefly Noted . . .

Normally “leaving” is followed by “coming back.”  Not so, at Fidelity.  Andy Sassine, manager of Fidelity Small Cap Stock (FSCLX) is taking a six-month year, but the firm made clear that it’s a one-way trip.  He might work at Fidelity again, but won’t work as a manager.  His fund is being taken over by Lionel Harris of Fidelity Small Cap Growth (FCPGX). Small Cap Growth will be taken over by Pat Venanzi, who manages two small slices of Fidelity Stock Selector Small Cap (FDSCX) and Fidelity Series Small Cap Opportunities (FSOPX).

In the 2012 first quarter, American Beacon will merge the Bridgeway Large Cap Value (BRLVX) fund into the newly created American Beacon Bridgeway Large Cap Value and retain Bridgeway as subadviser.   Bridgeway Social Responsibility, a previous Bridgeway offering, was acquired by Calvert Large Cap Growth. This past May, that fund merged into Calvert Equity (CSIEX), which is not subadvised by Bridgeway.

Allianz RCM Disciplined International Equity (ARDAX) will liquidate on Dec. 20, 2011.

American Beacon Evercore Small Cap Equity  (ASEAX) is closing ahead of its liquidation on or about Dec. 15, 2011.

Dreyfus has closed and plans to liquidate the Dreyfus Select Managers Large Cap Growth (DSLAX) as of Dec. 13, 2011.

In one of those “laws of unintended consequences moves,” Schwab gave in to advisors’ demands and changed the benchmark for the Schwab International Index Fund (SWISX).  Investors claimed that it was too hard to compare SWISX’s performance because it was the only fund using Schwab’s internally-generated benchmark.  In an entirely Pyrrhic victory, Schwab moved to the standard benchmark (MSCI EAFE) and thereby lost any reason for existence.  The move will require the fund to divest itself of a substantial, and entirely sensible, stake in Canadian stocks and make substantial investments in mid-cap stocks.

American Century International Value Fund (ACVUX) is being rebuilt: new management team, new discipline (quant rather than fundamental), new benchmark (MSCI EAFE Value)

In closing . . .

Many thanks to all of the folks who have used the Observer’s Amazon link.  It’s remarkable easy to use (click on it, set it as your default Amazon bookmark and you’re done) and helps a lot.

I’ve been working through three books that might be worth your year-end attention.

Robert Frank, wealth reporter for the WSJ, The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble, and Bust. In some ways it’s a logical follow-up to his book Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich (2008).  The 8.5 million Richistanis, Frank discovered, own things like “shadow yachts,” which are the yachts which follow the rich guys’ yacht and carry their helicopters.  In The High-Beta Rich, Frank looks at the ugly implications of financial instability among the very wealthy.  Generally speaking, their worth is highly volatile and market dependent.  A falling market decreases the wealth of the very rich about three times more than it does for the rest of us.  Frank writes:

Suddenly, in 1982, the year I call the magic year for wealth, the 1 percent, which used to be like the teetotalers of our economy, became the binge drinkers.

And when times were good, they did two or three times better than everyone else. When times were bad, they did two or three times worse. So if you look at the last three recessions, the top 1 percent lost two to three times in income what the rest of America lost. And, you know, part of it has to do with more and more of today’s wealth is tied to the stock market, whether it’s executives who are paid in stock or somebody who’s starting a company and takes it public with an IPO.

And the stock market is more than 20 times as volatile as the real economy.

And, as it turns out, slamming the rich around has real implications for the financial welfare of the rest of us.  Frank appeared on NPR’s Talk of the Nation program on November 16.  There’s a copy of the program and excerpts from the book available on Talk of the Nation’s website.

Folks who find their faith useful in guiding their consumption and investments might enjoy a new book by a singularly bright, articulate younger colleague of mine, Laura Hartman.  Laura is an assistant professor of religion and author of The Christian Consumer: Living Faithfully in a Fragile World.  The fact that it’s published by Oxford University Press tells you something about the quality of its argument.  She argues:

At base, consumerism arises from a distorted view of human nature.  This ethos teaches that our wants are insatiable (and the provocations of advertising help make this so), that buying the new article of clothing or fancy gadget will answer our deepest longings.  That we are what we own.  Humans, then, are seen as greedy and lacking and shallow.  (192)

While this isn’t a “how-to” guide, Laura does offer new (or freshened) ways of thinking about how to consume what you need with celebration, and how to leave what others need untouched.

The most influential book I’ve read in years is Alan Jacobs’ Pleasures of Reading in an Age of Distraction.  Jacobs is a professor of English at Wheaton College in Illinois.  Despite that, he writes and thinks very well.  Jacobs takes on all of the wretched scolds who tell us we need to be reading “better” stuff and argues, instead, that we need to rediscover the joy of reading for the joy of reading.

One of Jacobs’ most compelling sections discussed the widespread feeling, even among hard-reading academics, that we’ve lost the ability to read anything for more than about five minutes.  It made me feel good to know that I wasn’t alone in that observation.  He has convinced me to try a Kindle which, he argues, has renewed in him the habit of reading which such passion that you sink into the book and time fades away.  The Kindle’s design makes it possible, he believes, to feel like we’re connected while at the same time disconnecting.

Regardless of what you buy or who you share our link with, thanks and thanks again!

In January, we’ll look at two interesting funds, the new HNP Growth & Preservation (HNPKX) which brings a “managed futures” ethos to other asset classes and Value Line Asset Allocation (VLAAX) which has one of the most intriguing performance patterns I’ve seen.  In addition, we’ll ring in the New Year by looking at the implication of following the “Where to Invest 2011” articles that were circulating a year ago.

Wishing you great joy in the upcoming holiday season,

David