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  • The $100,000 Buy-and-Hold Challenge

    This week, I'm going to hand the reins over to Roger Schreiner, one of the early pioneers of active money management, and allow him to fill you in on a challenge he made last year to John Bogle of Vanguard Funds fame. Roger has studied and observed active and passive management strategies for decades and feels, as I do, that active strategies can provide superior risk management. Roger's conviction is so strong that he challenged Mr. Bogle to a contest that would prove which strategy would come out on top over a given period of time, with $100,000 going to the winner's charity of choice. Mr. Bogle didn't accept, so Roger later widened the challenge to any passive money manager. Still, no takers.

    While most active managers put their 'money where their mouth is' by investing in their own programs, Roger has gone one step further by issuing a direct challenge to one of the most prominent adherents of buy-and-hold strategies, and risking $100,000 of his own money in the process. I think you'll enjoy reading Roger's challenge as well as his arguments in favor of active management. After his discussion, I'll debunk a few of the more common rebuttals that Roger has received since issuing his challenge. If you are struggling with deciding how to get back into the market, I think you'll find this week's E-Letter to be very interesting.

  • Retirement Focus: Target-Date Funds in the Crosshairs

    Target-date funds have been touted as an excellent alternative for 401(k) plan participants who either can't or won't do the work necessary to build their own retirement portfolios. These funds offer a one-stop shopping approach by offering an automatic asset allocation scheme within the fund that is based on a future retirement date. However, like most one-size-fits all solutions, these funds have some serious drawbacks. In fact, some of these funds did so poorly in 2008 that government regulators are now considering special allocation and disclosure rules. This week, Mike Posey will fill us in on the pros and cons of target-date funds and why they may not always be the best alternative for investors.

  • Institutionalized Deception

    Some of you may remember the colorful radio ads featuring Eddie Chiles, CEO of the Western Company. He was famous for his 'I'm mad as hell and I'm not going to take it any more' commentaries. I remember seeing scores of cars sporting an 'I'm mad too, Eddie' bumper sticker. I just have to wonder how mad Eddie would be right now concerning the institutionalized deception going on in the financial services industry. At a point in time when the public is calling for increased integrity from their financial institutions, just the opposite seems to be happening. Unfortunately, most Americans have no idea the wool is being pulled over their eyes. Read on to see if you have been the victim of 'institutionalized deception.'

  • More Buy-And-Hold Myths Debunked

    This week, I continue my efforts to keep you informed regarding the sometimes misleading arguments used by Wall Street in support of buy-and-hold investment plans. While these studies and publications are often based on accurate market data, they are skewed in such a way as to reach a deceptive conclusion. I would bet that most investors have seen buy-and-hold promotions that advise against "timing" the market since you might miss the best 10, 20, etc. best days in the market. What these promotions don't tell you is what happens if you miss the worst days in the market. I'll fill you in on the missing information, and you will be surprised at what it reveals.

    Then, I'll take on the tired old buy-and-hold argument that you shouldn't move to cash in bear markets because the gains of a new bull market are concentrated in the first few months. Thus, if you are in cash, you'll likely miss out on these early gains. What these shameless promotions conveniently leave out is that this is true only if you are at or near the actual market bottom, which is very hard to predict. I'll balance out this argument by showing what losses you might miss out on if you move to cash, and how missing these losses may more than compensate for any gains lost in a renewed bull market.

    Unfortunately, many investors swallow buy-and-hold arguments hook, line and sinker without asking critical questions. It is my hope that resources like this week's E-Letter will empower you to resist these purposely misleading Wall Street promotions. I also encourage you to forward this week's E-Letter to anyone you feel may benefit from this knowledge....
  • Beware: Bear Market Brings Out Tall Tales!

    This week, I'm going to share my thoughts about a couple of the recent investment-related articles I have read. The first article documents the day in February when the stock markets hit the milestone of having fallen 50% from their October 2007 peaks. Of course, this means that index investors will now have to earn 100% or greater returns just to get their accounts back to break-even. I'll also note how market action since that article has now taken the major market indexes even deeper into the red. The market's action over the past eighteen months or so highlights my frequent advice to include investments that employ active money management strategies in your overall portfolio. While there are obviously no guarantees, the ability to move to cash or hedge long positions can potentially help to minimize losses, especially during bear markets. This brings us to the second article. Many large mutual fund and brokerage companies have a vested interest in seeing discredited buy-and-hold strategies continue. Thus, it was not a surprise when I learned of a study sponsored by a major mutual fund company that supposedly showed the superiority of buy-and-hold over the active strategy of market timing - even in this bear market! It was also no surprise that the study was based on flawed assumptions that skewed the results in favor of buy-and-hold. I was surprised, however, that the Investor's Business Daily publication reported on the flawed study as if it were legitimate advice. In the E-letter, I'll point out how the mutual fund study was fatally flawed, and hopefully show you how to avoid taking such articles and studies at face value, even when they are published by seemingly legitimate sources....
  • A Eulogy For Buy-And-Hold Investing

    I have recently written about the demise of buy-and-hold investment strategies sold under names such as asset allocation, passive investing, index investing, Modern Portfolio Theory, etc., etc. However, there are those in the financial services industry who are trying to revive this relic of a bygone bull market. This week, I'm going to take on those who support buy-and-hold strategies, and tell you why they may have vested interests that won't allow them to let go of this failed investment strategy. I'll also update the performance of two of the actively managed programs I wrote about in 2008. I encourage you to take out your year-end investment account statements and compare them to these programs....
  • "Buy-And-Hold" Bites The Dust - Now What?

    While there has always been debate about the value of buy-and-hold investing, the last decade or so has really dealt a blow to this passive investment strategy. I have always said that the long-term statistics (some spanning 75 years or more) used by passive investing proponents to "prove" their point are totally unrealistic in relation to the actual time horizons of many investors. Over shorter periods of time, a buy-and-hold portfolio can suffer major losses, possibly right at the time investors need their money the most. Now is just such a time. After suffering through two major bear markets since 2000, individual investors and even many professionals are seeking out the kind of actively managed investment alternatives that I have recommended since 1995. This week, I'll revisit the perils of index investing, as well as provide a brief economic overview....