Bill Gross: do as he says or as he does?

From Investment News:

"Despite market sell-off, Bill Gross goes on a $21.4 million [his own money] bond-buying binge.  PIMCO fund manager is predicting the end of the 30-year bond rally, but he keeps plowing his own money into fixed-income funds."

Ignore him either way... his track record is less accurate than a coin flip:  Bill Gross Guru rating.

Instead, stick to an appropriate long-term asset allocation that deliberately reflects your goals, time horizon, risk tolerance, and financial circumstances.

S&P persistence scorecard... let the dart-throwing begin.

The S&P Persistence Scorecard, released twice per year, tracks the consistency of top performing mutual funds over yearly consecutive periods and measures performance persistence (ie, repeat outperformance).

The results are not encouraging for investors who think it's possible to pick investment managers who can consistently outperform the market:

Very few funds have managed to consistently repeat top-half or top-quartile performance.  Over the five years ending September 2010, only 4.10% of large-cap funds, 3.80% of mid-cap funds, and 4.60% of small-cap funds maintained a top-half ranking over five consecutive 12-month periods.  Expectations of a random outcome would suggest a rate of 6.25%.

Looking at longer-term performance, 14.20% of large-cap funds with a top-quartile ranking over five years ending September 2005, maintained a top-quartile ranking over the next five years.  Only 8.50% of mid-cap funds and 27.30% of small-cap funds maintained a top-quartile performance over the same period.  Expectations of a random outcome would suggest a repeat rate of 25.00%.

No wonder active investment management (ie, "beating the market") is called a loser's game.

"The man who thinks he knows something does not yet know as he ought to know."
-- 1 Corinthians 8:2 

IPOs behaving badly

Ever been tempted to invest in an IPO (initial public offering)?

Do you think that IPOs are sure bets?  Think again.

Vonage, WebVan, and Pets.com are just a few examples of IPOs gone really bad.

Investing in individual stocks (as opposed to mutual funds or ETFs) represents legalized gambling and IPOs are the roulette wheel.

Read the whole story:  Seven disastrous initial public offerings

"Steady plodding brings prosperity, hasty speculation brings poverty."
Proverbs 21:5 

Active investors play musical chairs

A recent survey of active investors (those trading 36+ times a year) by Fidelity investments indicates that 2/3 of the respondents expect to have better returns than the S&P 500 over the next 12 months.

Some rudimentary arithmetic indicates that only 50% of all market participants can outperform the market (and that's in a world with no investing expenses).

50 chairs, 66 investors, music stops.  Ouch.

Read the whole story:  Investment News/Active investors expect to beat S&P 500 in 2011

Related post:  Illusory Superiority

"The race is not to the swift or the battle to the strong, nor does food come to the wise or wealth to the brilliant, but time and chance happen to them all."
-- Ecclesiastes 9:11 

Social Security "do over" provision officially coming to an end

SSA revises withdrawal policy

It's official. On Wednesday the Social Security Administration published final rules, effective immediately, that limit the time period for beneficiaries to withdraw an application for retirement benefits to within 12 months of the first month of entitlement and to one withdrawal per lifetime. In addition, beneficiaries entitled to retirement benefits may voluntarily suspend benefits only for the months beginning after the month in which the request is made.

The agency said it is changing its withdrawal policy because recent media articles have promoted the use of the current policy as a means for retired beneficiaries to acquire an "interest-free loan." However, this "free loan" costs the Social Security Trust Fund the use of money during the period the beneficiary is receiving benefits with the intent of later withdrawing the application and the interest earned on these funds. The processing of these withdrawal applications is also a poor use of the agency's limited administrative resources in a time of fiscal austerity—resources that could be better used to serve the millions of Americans who need Social Security's services.

Although the new rules are effective immediately, the agency is providing for a 60-day public comment period. The agency will consider any relevant comments received and publish another final rule to respond to comments and to make any appropriate changes to the rule.

See the Federal Register for a complete discussion of the rule change.

Thank you to Elaine Floyd, CFP® for highlighting this new change.

 

Quotable: John Bogle

"The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible.  After nearly fifty years in this business, I do not know of anybody who has done it [market timing] successfully and consistently.  I don't even know anybody who knows anybody who has done it successfully and consistently."

And just for good measure, here's another:

"Anybody who goes into the market to make money specifically in 2011 should either be spanked or have their head examined. It's just too short of a period to predict, and it's a crap shoot."

-- John Bogle, Founder of the Vanguard Group