The Third Pig

source: gallerylv

Market

"Looking to protect brand abroad, companies tap lobbyists on trademark infringement" by Catherine Ho; Washington Post

"Stocks: Mutual Fund Investors Hate Them the Most Since Oct. 2008" By Mark Gongloff; Wall Street Journal

Equity mutual funds lost a whopping $30 billion last week, according to the Investment Company Institute, their worst week since Oct. 15, 2008, in the depths of the financial crisis. We haven’t had an entire month with more than $30 billion in equity fund withdrawals since March 2009, much less one week.

Portfolio:

ABERCROMBIE & FITCH PROPOSES A WIN-WIN SITUATION by Abercrombie & Fitch, Brand Senses Department

We are deeply concerned that Mr. Sorrentino's association with our brand could cause significant damage to our image. We understand that the show is for entertainment purposes, but believe this association is contrary to the aspirational nature of our brand, and may be distressing to many of our fans. We have therefore offered a substantial payment to Michael 'The Situation' Sorrentino and the producers of MTV's The Jersey Shore to have the character wear an alternate brand. We have also extended this offer to other members of the cast, and are urgently waiting a response.

"Abercrombie offering to pay "The Situation" to not wear its clothes" by CBS News

"Curse of “The Situation”: Abercrombie Shares Dive After Earnings" by Avi Salzman; Barron's

Life:

"Build and Protect Your Company's Brand" by Karen E. Klein; Businessweek

"CrossFit: Where Navy SEALs and Pregnant Soccer Moms Help Each Other Get Ripped " by Greg Ferenstein; Fast Company

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Posted by Ben Taylor at 10:00 AM |
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source: Getty Images

This is just a quick entry to convey one message. Our Core Model Portfolio is likely beating the pants off of your mutual fund! As the chart below shows, the Core Model Portfolio has consistently outperformed the major indexes and the typical mutual fund over the last one, three, and five years as well as since the inception (12/6/2002) of the Core Model Portfolio. But the chart understates the degree to which our portfolio outperformed relative to mutual funds because the costs of owning the funds have not been considered in the returns. (Click chart or here for larger image.)

source: Foliofn.com, Standard & Poors, Wilshire, Wall Street Journal. Disclosure.

Correction: The annualized 3-year return ending 12/31/2010 for the Core Model Portfolio is actually 3.55% making the "Margin of Victory" for that time period 5.76%.

I do not want to make this post too lengthy. I plan on talking about the costs of mutual fund ownership in later posts. (It’s a topic deserving some attention.) 

Continue reading "We Beat The Big Dogs" »

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Posted by Ben Taylor at 05:55 PM |
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After finding my post about “lazy investing”, a reader of The Third Pig suggested following such an approach would eventually lead to financial ruin. The reader suggested to be a successful investor one had to be unnaturally gifted in analytic ability and/or spend countless hours researching and trading his portfolio. I cannot speculate on where this reader developed his point of view but what I can say is the evidence does not support him. Warren Buffett has often said that successful investing requires three things: a 5th grade understanding of mathmatics, a sound investment philosophy and the right temperament. Never does he say you have to be a genius or you have to stay up all hours a night trading your portfolio.

Legg Mason Capital Management performed a study in an attempt to find the common characteristics of mutual funds that beat the S&P 500 Index during the period of 1992 to 2002. What was found was a few common attributes of the outperformers which are strickingly similar to a lazy investing approach. Those funds were/are/have:

• Portfolio concentration: These portfolios have, on average 37% of assets in their top-10 holdings, versus 24% for the S&P 500 and a 28% median for all U.S. equity funds.
• Portfolio turnover: As a whole, this group of investors had about 30% turnover, which stands in stark contrast to turnover for all equity funds of 110%. They are truly, lazy investors (how we like to define it).
• Value Investment Style: Most if not all of the funds listed seek stocks with prices that are less than their value. These fund managers recognize that price and value are not the same, often diverge and then converge again. They take advantage of this consequence of investing in the stocks of companies.
• Off Wall Street: Only a small fraction of high-performing investors are located in the financial centers of New York or Boston. There location allows them to quiet the noise of Wall Street, dampening the temptation to trade frequently or with reckless abandon. They can take a more methodical and rational approach.

The chart below shows how some of those funds have fared against the S&P 500 in the 10 years ending September 30, 2009. As you can see, most of them beat the market and had positive returns in a period that experienced the worst economic times since the great depression. Oakmark Select in particular had a bad run as a result of owning a large piece of Washington Mutual during the subprime crisis (article) but it hardly mattered over the long term. The funds that didn't have been a little more volatile than the market and measured over different but similarly long periods, also outperformed the market. Although I cherry-picked the funds I follow most, the sample is representative of the group listed in the Legg Mason white paper.

Following this approach, our Core Model Portfolio Average has performed well over a similarly long period of nearly 7 years (ending 9/30/2009) returning an annualized 10.7% versus the S&P 500's 3.8%. Bottom line, it pays to be lazy when it comes to investing.

Disclosure: I and the clients of Brick Financial Management, LLC did not own shares in any of the the companies or funds mentioned in this post at the time of this writing. But positions may change at any time.

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Posted by Ben Taylor at 03:00 PM |
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