Evaluating Managed Funds

[Evan]

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one stinker of a year (2005 was only 13%).

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Running hot rules.

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None of this explains Buffett's success. He's rarely had a diversified portfolio

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I just thought I'd add a cool quote from Warren:
"Diversification is very important if you don't know what you're doing."

[ericd]

What you are really buying is the fund manager. In this case, he has been there since inception so that the results are solely his. It's interesting that the only year he underperformed is the year after a down market, where he more than held his own.

The major concern I'd have is that this is the only fund the company has. Just adds to the risk.

[buffett]

Here's another method I just learned about. I haven't seen it in action, but it sounds like a good idea.

[Sniper]

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Here's another method I just learned about. I haven't seen it in action, but it sounds like a good idea.

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This essentially measures the sucess of their decision making... an excellent measure!

For those partcipating in the Marketocracy competition... they have a similar measure on the "Timing" page... where 30, 60, and 90 day results on your buys and sells are measured.

[Ed Miller]

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Here's another method I just learned about. I haven't seen it in action, but it sounds like a good idea.

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That's an interesting idea.

[zerosum]

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Here's another method I just learned about. I haven't seen it in action, but it sounds like a good idea.

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That's an interesting idea.

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Here's a link to the paper.

http://webuser.bus.umich.edu/sialm/mfconcjf.pdf

Sorry, wrong paper. Still an interesting read.

O.K. Here's a link to the paper discussed in the IHT article. It seems it's still a working paper.

http://finance.sauder.ubc.ca/~mkacpe...unobserved.pdf

[z32fanatic]

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Fairholme - 30%
Vanguard 500 Index Fund Investor Shares (VFINX) - 15%
Vanguard Small-Cap Index Fund Investor Shares (NAESX) - 20%
Vanguard European Stock Index Fund Investor Shares (VEURX) - 20%
Vanguard Total International Stock Index Fund (VGTSX) - 15%

I don't like skimping on Fairholme, though... I think it's quite likely to beat the market less fees (the fees and turnover are modest). Maybe just take out the 500 fund altogether, just letting Fairholme represent the big stuff:

Fairholme - 40%
Vanguard Small-Cap Index Fund Investor Shares (NAESX) - 20%
Vanguard European Stock Index Fund Investor Shares (VEURX) - 20%
Vanguard Total International Stock Index Fund (VGTSX) - 20%



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What kind of yearly return % would either of these allocations yield? Obviously nothing is guaranteed, but what would be an average yearly yield? I'm currently investing in Fidelity Contrafund just because with an average return of 12%, it seems like the best option out there.

[Ed Miller]

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What kind of yearly return % would either of these allocations yield? Obviously nothing is guaranteed, but what would be an average yearly yield? I'm currently investing in Fidelity Contrafund just because with an average return of 12%, it seems like the best option out there.

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I doubt Contrafund will continue to earn 12% annually going forward. Looking at past returns and extrapolating to the future can be very dangerous unless you have lots of other reasons to think that performance will continue.

And, FWIW, FAIRX has returned over 14% for the past five years.

[z32fanatic]

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I doubt Contrafund will continue to earn 12% annually going forward. Looking at past returns and extrapolating to the future can be very dangerous unless you have lots of other reasons to think that performance will continue.

And, FWIW, FAIRX has returned over 14% for the past five years.

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What makes you think it will not continue to make 10% or more? The last two years its made 15% each year, and this year it's already up 4%. Just curious what you're basing this on.

[rockrock]

DesertCat,

Buying 1% of a company and buying 100% of a company is so different that if you fail to recognize this, arguing with you is more hopeless than I ever imagined. Surely you don't believe this and were trying to use hyperbole to make a point.

If you were trading microcaps for the past 4.5 years, BRSIX is a microcap index fund that did much better. IJJ (mid cap value idx) and IJS (small value idx) returned about the same as you - around 45-50%.

Your results were almost undoubtedly a function of the asset class you traded. If you managed these returns trading large cap/S&P/Dow stocks (which have done poorly for 5 yrs0, then kudos to you.

It is impossible to measure one's results without tracking them versus an underlying index. If not asset classes, then a sector. Maybe you were heavy in energy. If so, how did you do versus XLE.

I could go on and on but I think my point is clear.

5 year return of microcap vs midcap value vs small value

Because you managed 50% over 4.5 years doesn't make you a SuperInvestor, standing mightedly in the shadow of Warren Buffet. It probably means you traded stocks in asset classes that have done well over that time.