Vanguard's Bogle comments

[NW-Bound]

I claim "no fair"! You get to pick the disfavored sector AND the time period!!!

Well, you are the one who first picked the period to show the rebound of the financials over the last 3 months. And this rise of the financials comes from the stronger ones. Some of them ceased to exist like Bear Stearns. Hence, the drop is a lot more severe from 2007 to the bottom. The ones that came out owed their survival to the gummint bailout. In 2000, the telecoms and semis had no bail-outs. Surely, it is not fair.

Talk about bottom fishing, we all like to do it. Darn, it's exciting, particularly when you make money. But again, as I said, I like to bottom fish in "innocent" sectors. It does not mean you cannot make money bottom fishing in the financial sectors. There are so many ways to make money in a bull market. Whether that is going to last is 'nother thing.

Anyway, I like to point back to post #39 of mine, which quoted the review of Bogle's book by William Bernstein, that had an observation about the overweight of financials in the S&P 500 index, when the former was riding high in 2007. Who is the Cassandra now?

I need to go reserve this book from the library to see for myself what else Mr. Bogle had to say.

 

[FUEGO]

NW-Bound,

So what is your take on the next sector or two that will lag the SP500 over the next couple of years? My crystal ball is a little fuzzy this last year or two. I'm being serious - I like making money too!

Definitely check out Bogle. Common sense on mutual funds is a great book and explains the rationale for buy and hold indexing very well. It's good to see the arguments for it even if you don't adopt it in practice. I found the book (and buy and hold passive investing) very persuasive personally.

And by avoiding financials, you may be missing out on return vs. the market going forward. Or maybe not. I wish I knew for sure.

 

[ziggy29]

Watch the tanking of long Treasuries. If this persists, the financials could be toast anew as it would kill any chance of a housing recovery in the second half.

 

[NW-Bound]

Fuego,

Since you ask, I feel obliged to answer although I will disclaim to be an expert stock picker. In fact, I do not even discuss investing with people in my family. The last time I gave a mutual fund recommendation to my mother and it worked out, she later complained that I did not make the recommendation strong enough so that she would buy a whole lot more! I won't tell you what happened the time that my recommendation did not work out.

So, take this with a grain of salt, but I still have no financials. I also have no consumer discretionary stocks and no pharmaceuticals. Currently, I prefer material stocks, energy, and information technology.

About Mr. Bogle, I will say again that I respect his integrity. I have not read any of his books on investing. However, through the media and other indirect sources, I know of his investing philosophy and his work in reforming the financial service sector, as well as pressuring for change in corporate governance. He railed against mutual funds that charged high fees only to trail the S&P500 in the long run. The tendency of long-term nonperformance of active funds has been well documented. Mr. Bogle also warns against churning your portfolio and chasing after investment fads and the latest and hottest mutual funds. How can one argue with this? I did learn some expensive lessons on my own 10 years ago.

However, I read that he told investors that they did not need foreign stock exposures. That might be true 20 years ago, but we know things have changed (and perhaps Mr. Bogle has changed his mind too). About the bubble in financial stocks, he obviously saw it happening and knew it was not right. The problem appeared that he was hamstrung by his own doctrine of sticking with the S&P500.

But then, it appears that his disciples have allowed themselves all kinds of exceptions, as observed in bogleheads forum discussions. They even discuss charts, for crying out loud. I have not been to that site nor any investment forum, so only have second-hand knowledge relayed through postings here. I then wonder that if few of the bogleheads stay "purists", do they form different splinter groups and deviate from Mr. Bogle's doctrine in different directions? Some like to do a bit of dirty market timing, others some slicing-and-dicing, etc...? It is interesting, and different from what I envisioned when I first saw the term "bogleheads", again mentioned in this forum.

In another thread about charting or technical analysis, a poster repeated a commonly accepted observation that if something works and more and more people use it, it would soon stop working. Perish the thought, but how about indexing investing? Note that it worked fairly well in the 1950-1970 time frame, so so in 1970-1980, and very well in 1980-2000. Then all broke loose in 2000 till now. Could it be because too many were using it?

 

[FinanceDude]

Trying to spot the next bubble in the equity area might be harder than you think, given the govt's increasing control in business.

I currently am pondering three possible areas, municipal bonds (lots of states are broke) junk bonds (greed is rampant with those), and commodities to a lesser extent.

I still am very careful about financial stocks, there will be more bank blowups in the near future.........

 

[NW-Bound]

Trying to spot the next bubble in the equity area might be harder than you think, given the govt's increasing control in business.

Again, people totally misunderstand what I try to do, just for myself of course. I am not looking for the next bubble, but try to avoid areas whose prospects look dim compared to the rest (again according to my view).

Pharmaceuticals while the medical industry is under scrutiny? I avoid that sector, because I don't know how it is going to work. Exactly the same way I got out of financials, AFTER the news broke about Bear Stearns and its subprime monkey business. I don't know which banker was clean and who was not, so I stayed clear.

For being a chicken, I was thought to be loaded with hormones. Far from it !!!

Again, there are so many good and innocent companies out there. I do not see that I need to buy ALL of the S&P 500 to be called "diversified". Come on! How many of us here buy just VFINX, or SPY?

Instead of chest thumping saying that the US will remain forever the dominant economic power, I try to hedge by buying international stocks. Just my way of reacting to my chicken instincts. Hedge is the word!

About buying and hold, any of us here claimed to be courageous to hold Worldcom, Global Crossing, Enron, or Bear Stearns, GM to the bitter end, and felt proud about it?

 

[ziggy29]

I do not see that I need to buy ALL of the S&P 500 to be called "diversified". Come on! How many of us here buy just VFINX, or SPY?

How many *only* buy SPY or VFINX and consider that adequate diversification? Not many, I'd guess.

But how many of us here use something like VFINX or SPY as the U.S. large cap portion of their asset allocation? I'd bet quite a large number.

 

[NW-Bound]

So, we all add our own additional flavor to the base according to personal taste. A bit more red pepper, a dash more of Worcestershire than the recipe calls for. Perhaps substitute chicken for pork?

I just go a bit further and eliminate some ingredients that I do not feel comfortable with. Like I use anchovies for cooking, but not in my pizza.

 

[FinanceDude]

About buying and hold, any of us here claimed to be courageous to hold Worldcom, Global Crossing, Enron, or Bear Stearns, GM to the bitter end, and felt proud about it?

Well, might as well come clean. Stocks I and some clients took a bath on include:

Tyco
Global Crossing
Cisco
Microsoft
Hewlett Packard
CMGI

Luckily, I got everyone out of GM at $18, noones pissed about that......

 

[NW-Bound]

FD, note that my original list includes only stocks that went bankrupt.

Back to the earlier discussion on this thread, I was talking about getting out of financials AFTER the sh*t already hit the fan. In late 2007, when the latest news came out about the financial sector being in trouble, a reporter asked Buffet if it was the last shoe to drop, implying that the water was safe for investors to wade in.

Buffet's answer was "No, no. When people talk about shoe dropping, you do not know if it is a one-legged man, or a centipede."

I always like Buffet's humor, and recently bought Berkshire for the first time.

And about holding just VFINX (pure S&P500) for one's equity AA, I believe that has been Bogle's doctrine. Is that true or have I been barking up the wrong tree? In any event, it appears very few of his self-professed disciples really practice that.

PS. I need to log off to go to w*rk.

 

[FUEGO]

And about holding just VFINX (pure S&P500) for one's equity AA, I believe that has been Bogle's doctrine. Is that true or have I been barking up the wrong tree? In any event, it appears very few of his self-professed disciples really practice that.

I'm not sure EXACTLY what Bogle's doctrine consists of today. But in a nutshell the underlying rationale and premise of Bogle's style of investing is this:

"You can't beat the market. Own it and let the intermediaries extract as little wealth as possible from you."

In other words, owning just 100% SP500 (for your equities component) will go a long way and is a better long term investment vehicle (based on risk adjusted returns) than, say, picking stocks you think will outperform or investing in actively managed mutual funds. My guess is that Bogle today may say but the Total Market Index fund or the Global Market index fund.

The slicers and dicers that tilt towards value, and small and mix in a little REITs and commodities are not following the orthodox Bogle doctrine. They are making their bets on multiple relatively uncorrelated asset classes with the goal being lowering overall portfolio volatility and as a result getting a higher risk adjusted return. The typical tools of implementing this strategy are index funds due to low expense ratios, low hidden trading costs (turnover related), tax efficiency, low tracking error, knowing what you are buying, etc.

 

[FinanceDude]

Bogle didn't foresee ETF's, ETN's, and inverse ETF's when he authored his principles.

But I am digressing, we have had hundreds of discussions about this on here........

 

[DblDoc]

I'm not sure EXACTLY what Bogle's doctrine consists of today. But in a nutshell the underlying rationale and premise of Bogle's style of investing is this:

"You can't beat the market. Own it and let the intermediaries extract as little wealth as possible from you."

In other words, owning just 100% SP500 (for your equities component) will go a long way and is a better long term investment vehicle (based on risk adjusted returns) than, say, picking stocks you think will outperform or investing in actively managed mutual funds. My guess is that Bogle today may say but the Total Market Index fund or the Global Market index fund.

The slicers and dicers that tilt towards value, and small and mix in a little REITs and commodities are not following the orthodox Bogle doctrine. They are making their bets on multiple relatively uncorrelated asset classes with the goal being lowering overall portfolio volatility and as a result getting a higher risk adjusted return. The typical tools of implementing this strategy are index funds due to low expense ratios, low hidden trading costs (turnover related), tax efficiency, low tracking error, knowing what you are buying, etc.

An excellent summary. I think the SP500 "mantra" grew from the fact that it was the original index fund. Now that we have TSM, All World ex USA and more recently the Total World Index they are the funds of choice. Another reason for its persistence may be because it is the only cheap index fund available- this is true for my 403b plan currently.

DD

 

[freebird5825]

...But in a nutshell the underlying rationale and premise of Bogle's style of investing is this:

"You can't beat the market. Own it and let the intermediaries extract as little wealth as possible from you."

a.k.a "Cost matters."

 

[FUEGO]

An excellent summary. I think the SP500 "mantra" grew from the fact that it was the original index fund. Now that we have TSM, All World ex USA and more recently the Total World Index they are the funds of choice. Another reason for its persistence may be because it is the only cheap index fund available- this is true for my 403b plan currently.

Yes, I think you are right. Decades ago when Bogle first formulated his "doctrine" you just couldn't buy "exotic" funds like small cap value emerging markets ETF's at all, let alone with a fairly modest expense ratio. Now the slice n dice investor is in luck with plenty of sub slices to take advantage of. I personally think the law of diminishing returns applies to quantity of slices too.

I am essentially forced into SP500 index in my Health Savings account because it is either that for 0.4% expense ratio and almost zero turnover or something else with expense ratios 1+% higher and much more turnover.

I think Bogle's take on International was that it was too expensive to own and too risky because of potential for currency exchange rate fluctuation. But with today's international funds available for just a few basis points more ER than domestic funds, the expense question loses importance. Currency risk may actually reduce overall portfolio volatility since it causes international investment returns to be less correlated with US returns.

 

[FUEGO]

a.k.a "Cost matters."

In two words, yes, cost matters.

 

[FUEGO]

But I am digressing, we have had hundreds of discussions about this on here........

That's true. It is sort of like believing in a religion (or denying belief in a religion. You either get it or you don't, and you take it on faith to a certain extent. There is empirical evidence to support the validity of passive indexing, and good evidence at that. But we all must remain at least a tiny bit agnostic and we won't know whether we are "right" until the end. We all make choices in life. When the day of judgment comes, we will either have selected the most optimal path or we will not have.

 

[FinanceDude]

That's true. It is sort of like believing in a religion (or denying belief in a religion. You either get it or you don't, and you take it on faith to a certain extent. There is empirical evidence to support the validity of passive indexing, and good evidence at that. But we all must remain at least a tiny bit agnostic and we won't know whether we are "right" until the end. We all make choices in life. When the day of judgment comes, we will either have selected the most optimal path or we will not have.

Good point. I have often wondered why indexers like Bogle think index funds are "passive" when the stocks selected for the indexes like the S&P 500 are done by a committee. In effect, that is "active management"............

One could argue the Wilshire 5000 is the only REAL index fund of domestic stocks in the US, but that's a whole nuther can of worms.........

 

[FUEGO]

Good point. I have often wondered why indexers like Bogle think index funds are "passive" when the stocks selected for the indexes like the S&P 500 are done by a committee. In effect, that is "active management"............

One could argue the Wilshire 5000 is the only REAL index fund of domestic stocks in the US, but that's a whole nuther can of worms.........

Well, I suppose tracking the SP500 is only a little more "active" than tracking the wilshire 5000. Vanguard's SP500 fund had 5.6% turnover last year, meaning the average holding period for the fund's stocks is 17.9 years.

An index fund has to track SOME index after all. And even though the committee selects companies for inclusion in the index, they don't change a lot year to year (at least the SP500). You have to have some method to take out defunct companies and replace them with new companies (new because they grew large, or new because they just listed and went IPO).

In fact, many of vanguard's funds sample indexes and only pick certain stocks to seek to achieve the same returns as the index they are tracking (minus expenses). But this doesn't mean they aren't indexing, they are simply implementing their investment approach in an efficient manner.

 

[Dudester]

If there is "global market efficiency" between asset classes, then one shouldn't bother to rebalance his AA at all, the same as one should not change his stock components inside his MF.

Call me a trouble maker, but I just want to ponder.

There seems to be a lot of confusion about the benefits of rebalancing. This confusion has led me to do some investigation on my own. I've never found a good explanation on the Internet, but as near as I can figure out, the benefits of rebalancing can be explained as follows:

Suppose two guys each have a portfolio. Let's call them portfolios A and B. Also suppose that portfolios A and B have the same value at year 1. Further suppose that over a period of N years each portfolio has the same average annual increase in value. Finally, suppose the portfolio A is rebalanced and portfolio B isn't.

Which portfolio has the higher value at the end of N years?

Apparently, the math says that portfolio A has a higher *expected* final value than portfolio B. (I'm using the word "expected" in its mathematical sense. In this sense, "expected" means roughly "most likely." In other words, portfolio A will *probably* be worth more than portfolio B).

Supposedly, the reason for this is due to the fact that rebalancing reduces the variance (another math term) in the annual return of portfolio A. Also note that reducing variance is sometimes considered to be a way of reducing risk. This is what people mean when they say that rebalancing reduces risk.

Now the kicker is that even though portfolio A will probably be worth more than portfolio B at the end of N years, THIS ISN'T GUARANTEED (it's probabilistic rather than certain). I'm reminded of a quote attributed to Damon Runyon:

“The race is not always to the swift nor the battle to the strong, but that’s the way to bet”

To paraphrase:

The riches do not always accrue to the rebalancer, but that's the way to manage a portfolio.

A parting comment: I've also seen comments on the Internet where someone said that they ran a couple of spreadsheet scenarios and didn't observe any benefits to rebalancing. Because of the probabilistic nature of rebalancing, a handful of spreadsheet scenarios proves absolutely nothing.

If anybody has a better explanation for all of this, I would love to hear it.

 

[samclem]

Suppose two guys each have a portfolio. Let's call them portfolios A and B. Also suppose that portfolios A and B have the same value at year 1. Further suppose that over a period of N years each portfolio has the same average annual increase in value. Finally, suppose the portfolio A is rebalanced and portfolio B isn't.

Which portfolio has the higher value at the end of N years?

Apparently, the math says that portfolio A has a higher *expected* final value than portfolio B.

. . .
If anybody has a better explanation for all of this, I would love to hear it.

According to my understanding, Portfolio B (the one that didn't rebalance) would actually have the higher expected value. Here's why: On average, risky assets (e.g. small company stocks) have higher expected returns than less risky assets (e.g. government bonds). If they didn't, people wouldn't invest in them. If Portfolio A and Portfolio B start out with the same mix, Portfolio B will tend to accumulate more and more of these high-risk, high-return assets, since they will tend to gain value at a higher rate than the stodgier stuff. Just as we'd expect a portfolio of 80% stocks to have higher gains than a portfolio of 80% CDs, Portfolio B should be expected to outperform Portfolio B.

On average.

But, that's the catch. We only have one retirement portfolio, and most of us care a lot about it. We aren't trying to maximize our portfolio "on average," we are trying to increase our gains commensurate with the risk we are willing to take. That's why we rebalance. Because Portfolio A has a large number of loosely correlated/uncorrelated asset classes, it's overall volatility is much lower than the increasingly risky Portfolio B. Having al these uncorrelated asssets means that they can each be riskier (achieving an overall better return) than if we tried to achieve the same volatility with a single asset class (stodgy CDs, etc.)

Even though Portfolio B has higher expected returns, most of us properly reject it. Think of it this way: If a guy offered to allow you to bet $100 on the roll of the dice, and would pay you $10,000 if you guess the outcome, would you take the bet? Of course you would--it's a great bet, and on average you'll come out far ahead. But if the same guy insisted that you could only take the bet if you put up your entire retirement savings, would you still take the bet? It's still the same great payoff, and on average it is still a great bet. But, the risk (volatility) is so high that trying to maximize the "average" outcome is not in your best interest.

So, we rebalance not to increase overall expected return in an absolute sense, but to increase overall average return while remaining within our specific risk (expressed as volatility) tolerance.

Yes, there is a sense that rebalancing encourages one to buy assets when they are down and to sell off higher priced assets (locking in gains), thus helping to increase the growth of the overall portfolio. The studies I've read, however, indicate that the effect is smaller than one might have guessed, and that overall letting the more volatile assets keep running (or starting with them to begin with) produced higher expected returns. It's a ride most of us will not find worth taking.

 

[Dudester]

According to my understanding, Portfolio B (the one that didn't rebalance) would actually have the higher expected value.

...

The studies I've read, however, indicate that the effect is smaller than one might have guessed, and that overall letting the more volatile assets keep running (or starting with them to begin with) produced higher expected returns. It's a ride most of us will not find worth taking.

You may be right (in fact part of my motivation was to shake the tree to see if someone who knows more than I do about this would fall out). However, under the assumptions that I made, it's not clear to me that portfolio B would end up with a higher expected value.

One of the sources of information about rebalancing that I used is William J. Bernstein's site, in particular, URL: The Retirement Calculator From Hell - Part II

On this page he states:

"Let’s say that we’re examining a 100% stock portfolio for which we’ve assumed a 7% real return, with a returns standard deviation of 12%. Because of "variance drag" (more on this four paragraphs below), in order to obtain an annualized return of 7.0%, we need an average annual return of 7.7%. (If you are confused about the difference between average and annualized returns, take a look at the discussion of this about a third of the way into Chapter 1 of The Intelligent Asset Allocator.)"

Bernstein doesn't seem to go into the details very much, but he seems to imply that by reducing standard deviation (more or less equivalent to variance) one increases total annualized returns (I was using final value as a proxy for annualized returns). In the case of his example above, it's obvious that if the annual return is 7.0% each year, then the annualized return is 7.0%. If you toss in some variance, then it requires an average annual return of 7.7% to produce an annualized return of 7.0% (according to Bernstein).

It appears to me that a portfolio of "risky" stocks is only going to beat out a rebalanced portfolio if the risky portfolio has a high enough average annual return to offset what Bernstein calls the "variance drag." In my earlier post, I assumed that portfolios A and B had the same average annual return. This assumption was critical in my claim that portfolio A has a higher expected final value than portfolio B. Portfolio B doesn't have enough "oomph" to offset the variance drag even though it's riskier.

I would still love to hear from somebody who understands this better than I do.

 

[samclem]

You're looking in the right spot. Keep poking around Bernstein's site and you'll find lots of great info. He does some good write-ups on Mean Variance Optimizers (MVO) in discussing the Efficient Frontier. Great stuff.

In my earlier post, I assumed that portfolios A and B had the same average annual return. This assumption was critical in my claim that portfolio A has a higher expected final value than portfolio B. Portfolio B doesn't have enough "oomph" to offset the variance drag even though it's riskier.

I think that's the root of the problem. Over time, the assets in Portfolio B will skew to ever-higher average returns as the riskier assets grow..

I would still love to hear from somebody who understands this better than I do.

There are lots of really smart people here, I'm always learning something.

 

[NW-Bound]

It so happened that as I thumbed through my BusinessWeek issue dated April 20, 2009 before throwing it away, I saw an interview with Bogle. And in this article was a discussion of the very thing that I have been raising in this thread regarding financial stocks. Following is an excerpt, and if you like to read the full article I have also located the link at BW for your convenience.

Jack Bogle's Last Crusade? - BusinessWeek

Of course, some managers did avoid bank stocks or sold before they blew up. There's a powerful counterargument to Bogle's index-funds-beat-all dogma: Because they're passive by nature, index funds have no choice but to hold (and ride all the way down) the likes of Fannie Mae (FNM), Freddie Mac (FRE), AIG, Bear, Lehman, and Citigroup (C). In contrast, Tom Forester, manager of the $68 million Forester Value Fund, eked out a small gain last year, largely by avoiding bank stocks. (The S&P plunged 39%.) Bogle concedes that in times of crisis, the passive approach can be dangerous. "The indexers are the ultimate holders," he says. "They can't sell."

Instead, they should flex more of the muscle they do have, says Bogle. Each spring shareholders vote on corporate directors, an exercise known as "proxy season" because fund managers vote on behalf of their fundholders. Bogle says too many index managers serve as rubber stamps for boards. He proposes they raise their fees a smidge to pay for more due diligence and monitoring. Such an effort, he says, might have influenced the boards of Citigroup and AIG. ​

Note that the Forester Value Fund mentioned above is a very small fund, hence enjoyed its advantage in agility. Bigger mutual funds like my Dodge & Cox may have a tough time unloading the financial shares. Who would be buying but small investors trying to "catch the knife"?


Regarding Monte Carlo simulation, there is a recent thread on this, started by samclem.

http://www.early-retirement.org/for...ow-recognized-as-understating-risk-44061.html

I also have some new 2 cents to throw out on MPT for your amusement, along with some links. However, I need time to compose a coherent post, so please bear with me.

It is not that these tools aren't useful, but I think people may not realize their limitations. Remember the LTCM spectacular blow-up in the late 90s, using sophisticated trading strategies? Perhaps they were trying to maximize return without sufficient attention to risks, hence the problem is not the same as our more benign MPT problem which tries to trade off return vs risk. Nevertheless, the blowup may be caused by sensitivities to modeling parameters that in real life deviated too much from their assumptions. Garbage in, garbage out.

 

[FUEGO]

It so happened that as I thumbed through my BusinessWeek issue dated April 20, 2009 before throwing it away, I saw an interview with Bogle. And in this article was a discussion of the very thing that I have been raising in this thread regarding financial stocks. Following is an excerpt, and if you like to read the full article I have also located the link at BW for your convenience.

Jack Bogle's Last Crusade? - BusinessWeek

Of course, some managers did avoid bank stocks or sold before they blew up. There's a powerful counterargument to Bogle's index-funds-beat-all dogma: Because they're passive by nature, index funds have no choice but to hold (and ride all the way down) the likes of Fannie Mae (FNM), Freddie Mac (FRE), AIG, Bear, Lehman, and Citigroup (C). In contrast, Tom Forester, manager of the $68 million Forester Value Fund, eked out a small gain last year, largely by avoiding bank stocks. (The S&P plunged 39%.) Bogle concedes that in times of crisis, the passive approach can be dangerous. "The indexers are the ultimate holders," he says. "They can't sell."

Instead, they should flex more of the muscle they do have, says Bogle. Each spring shareholders vote on corporate directors, an exercise known as "proxy season" because fund managers vote on behalf of their fundholders. Bogle says too many index managers serve as rubber stamps for boards. He proposes they raise their fees a smidge to pay for more due diligence and monitoring. Such an effort, he says, might have influenced the boards of Citigroup and AIG. ​

Note that the Forester Value Fund mentioned above is a very small fund, hence enjoyed its advantage in agility. Bigger mutual funds like my Dodge & Cox may have a tough time unloading the financial shares. Who would be buying but small investors trying to "catch the knife"?

This is consistent with what Bogle has said all along. In his book Common Sense on Mutual Funds, he clearly lays out that typically every quarter or every year, an average of about 25% (give or take) of the actively managed funds beat the index funds. A select few can even do this for a few years in a row. There may be one or two that have a long string of successes (Magellan and Legg Mason Value Trust come to mind).

But the bet on index funds is a bet on the odds. Would you rather be in the 25% that beat the index funds? Of course! To succeed at this you must have a unique skill at selecting mutual fund managers AND the mutual fund managers stay with your fund AND the fund doesn't get too big and suffer from the inefficiences of bloat. Or you could use your own stock research skills to select superior stocks that beat the collective efforts of teams and teams of highly paid highly educated analysts that live, eat and breath equities analysis in their particular field of expertise every day.

Odds are you are going to fall in the 75% of funds that perform below the index. And in the meantime, you may be paying more in taxes if your fund has a lot of capital gains. And these statistics don't account for survivor bias - ie those mutual funds that close and cease to operate due to low subscriptions, massive outflows or near insolvencies.

If, before the fact, you could know to load up on Forester Value Fund, of course you would do so. After the fact it is easy to determine who the winners were and who the losers were.