(PUB) Investing 2016

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A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • VOL. 26, NO. 3
Dislocation Strategy
AFTER JANUARY’S DECLINE, February continued to grind investors down—for a while
anyways. By month’s end, the Dow squeaked out a 0.3% gain, while the S&P index
dropped 0.4%. Total Stock Market Index, which had been down as much as 11.3% for
the year, ended the month off 5.7%, cutting that loss in half.
Now, here’s a question: Did you take advantage of the opportunities afforded by this
manic market? Did you trim from some of your best performers and add to the laggards?
If you’re like most investors, you didn’t, because, well, it’s hard to sell your winners and
buy your losers.
But trades like that are exactly what long-term investors do when the markets hand
them a gimme. For instance, just two weeks into the month, Capital Opportunity was
down 15.6% on the year. By comparison, Dividend Growth had fallen just 6.6%.
From February 11, when the aforementioned funds were scraping bottom, through the
end of the month, Capital Opportunity rebounded 8.6%, while Dividend Growth gained
4.3%. Having trimmed some of the latter to buy some of the former (or just plowing
more money into the bigger loser) may turn out to have been a great move.
I spoke about just this situation with Barron’s last week. While the article is behind a
paywall, you can see my video interview here: Personally, I was
adding significantly to my PRIMECAP Management-run funds, which accomplishes the
same thing. And I think that move is going to pay off.
The issue, of course, as Jeff so neatly explained last month in his rebalancing discussion,
is that investors often don’t do what’s best for their long-term financial health, because they
The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.
HIGH YIELD
High Yield: Opportunity or Trap?
GIVEN THE LETTERS I’ve read lately, I’m not at all surprised that some investors
have begun to believe that a holding in junk bonds, like those owned by High-Yield
Corporate , is a fool’s errand. The junk bond market is under pressure as a host of smaller
energy companies (like those in the shale industry) are teetering on the brink of default.
In particular, FFSA members have asked whether we should continue to hold onto High-
Yield Corporate in our Conservative Growth Model Portfolio and Income Model Portfolio.
Jeff and I posted some data on high yield to our members-only website at the start of
February. Now, we want to update that data further.
First, to reiterate, our view hasn’t changed. The answer to the question of whether we
should continue to hold and even buy more of High-Yield Corporate is yes.
DOW JONES INDUSTRIALS
February Close: 16516.50
STANDARD & POOR’S 500
February Close: 1932.23
4300
4550
4800
5050
5300
F JDN OSA J JMAM
NASDAQ COMPOSITE
February Close: 4557.95
0.00%
0.08%
0.16%
0.24%
0.32%
F JDN OSA J JMAM
3-MO.TREASURY BILLYIELD
February Close: 0.31%
1.6%
1.8%
2.0%
2.2%
2.4%
2.6%
F JDN OSA J JMAM
10-YR.TREASURY NOTE YIELD
February Close: 1.74%
15900
16400
16900
17400
17900
18400
F JDN OSA J JMAM
1850
1900
1950
2000
2050
2100
2150
F JDN OSA J JMAM
AVERAGEVANGUARD INVESTOR*
February: -0.2% YTD: -3.7%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
F JDNOSAJ JMAM
*See the footnotes on page 2.
Model Portfolios................................................................ 2
Oil and Stocks in Sync—Not!............................................ 5
A Cold, Not Life-Threatening............................................. 6
Performance Review.................................................... 8-11
Making an Early Retirement........................................... 12
Distributions to Come..................................................... 13
Dividend Growth’s Decade.............................................. 15
Do-It-Now Action Recommendations............................. 16
MARCH 2016
SEE DISLOCATION PAGE 3 >
S P E C I A L E X P A N D E D 1 6 - P A G E I S S U E
> SEE HIGHYIELD PAGE 4