Consumer Reports Not Qualified To Rate Funds

Research on Safe Withdrawal Rates


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Consumer Reports Not Qualified To Rate Funds

Post by ForeignExchange » Sun Feb 20, 2005 3:42 am

About fifteen years ago or so, I used to buy monthly literally every financial magazine on the newstand. Enjoyed reading about funds and the pros who ran them. Some funds were doing very well then, and are still doing fine now. The author of this recent article though has left me bewildered.

Here are the ten year total returns for Vanguard's S&P 500 index. Also I've attached the returns over this time period for some of the funds listed in the article.

Vanguard S&P 500 Index 11.43%

Cliipper 16.17%

Yacktman 13%

ING Corporate Leaders 12.05%

FPA Capital 17.61%

So where's the author's beef?

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Post by JWR1945 » Tue Feb 22, 2005 10:54 am

I think that the author has some valid points.

But I am going to be more outrageous than either the writer or Consumers Reports.

I don't think that even Morningstar does a decent job of rating funds!

Somebody did an analysis of Morningstar's ratings. He concluded that their ratings were heavily weighted by three-year returns.

From what I have read, especially in the Hulbert Financial Digest in terms of Newsletters, it takes about 10 years to identify the truly outstanding performers. Three years is much too soon. Five years is barely enough to identify candidates. Around a decade, the truly skilled can be identified.

I will add another note. The truly skilled stock pickers have bad years as well as good years.

When you read or hear about a study that complains about a fund's failure to beat-the-market every year or even most years, the researchers have missed the mark badly. That kind of performance is very rare. But there are many investors who consistently beat-the-market (in terms of their own criteria, I should add) over a ten-year period.

Most researchers miss this last point. The draw wildly inaccurate conclusions because they focus on a problem that they can analyze without thinking about bigger issues.

Have fun.

John R.

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