Letters to the Editor
I was surprised at the absence of one particular fund, Clipper (Ticker: CFIMX), in James Cloonan’s most recent Matter of Opinion article (August 2004 AAII Journal). Clipper is a five-star Morningstar-rated fund and is a winner no matter how you look at. The fund’s performance, short term and long term, is far better than the S&P 500. Also, it’s a large fund, value style, low expense, low price to prospective earnings, well managed, no scandal and is very stable.
When the entire market had a double-digit loss in 2002 (one of the darkest years since the depression days of 1929 for the S&P 500, NASDAQ, and Dow Jones industrial average), this fund showed a total loss of only 5.5%.
Further, I saw no mention of the Sharpe ratio in an article emphasizing the role of risk.
James Cloonan Responds:
Thanks for your input. Clipper is a fine fund. Only a few things kept it off our list: At $7 billion, it seems too large to continue finding special opportunities. Perhaps that is why its performance is off for the last year and a 1.13% expense ratio is, in our opinion, very high for a fund with $7 billion in assets. We also hesitate to recommend funds with a $25,000 initial investment.
The Sharpe ratio helps us to evaluate our criteria for beating the S&P 500 on a risk-adjusted basis. While the Sharpe ratio shows the relative return (net of the riskless rate) per unit of risk and is great for comparisons, the risk-adjusted rate of return shows what that means in terms of additional return when risk is held constant. The formulas are similar.
If you have Clipper there is no reason not to keep it, but I would watch its performance as it grows larger—if they don’t close it.
To The Editors:
While I completely understand the concept of the Shadow Stock Portfolio (see this issue’s A Matter of Opinion column and the Model Portfolios area), I was wondering if you had any data on what would happen if you bought the stocks as they were recommended, and, instead of selling as they became oversized or overvalued, you held them for a long period of time. Benjamin Graham said the best time to hold a stock is
James Cloonan Responds:
As you might guess, almost half of our sells over the years have been takeovers or companies going private. We have monitored the other sells and sure enough they, on average, have gone up—perhaps as much as the market. They have not gone up as much as the rest of the portfolio, however. Our rule to sell after two years if the stock no longer qualifies is a fairly new concept and based on limited research. We will continue to evaluate this issue. The only problem with Graham’s rule is, even if a stock is good, what do you do when a better one comes along? Unless you have a continual stream of wealth, as Mr. Buffet has, the only way to upgrade is to sell the good stocks to get great stocks.
To The Editors:
Thank you very much for your August 2004 article, “Surviving a Loss: Financial Planning for Widows and Widowers,” by Mark Colgan. I feel this is a very important article. When I lost my husband of 40 years in 1999, there were many terrible problems that I had to face alone, burdened with fear and anguish, which—as noted in the article—create a lack of interest in financial matters.
In retrospect, I would like to underline the need for obtaining many death certificates from the funeral director or health department, which you mentioned. You may need more than 25. In my case, I needed to change a great many accounts from joint ownership to sole ownership and you have to have death certificates to do that. It’s depressing to look at that death certificate so many times, but you will need to.
Also, as a surviving spouse of a veteran, it was imperative to have an Honorable Discharge from the Army in order to make arrangements for the funeral and burial at a local veteran’s cemetery. It took many frantic days of searching to find this scrap of paper as, for whatever reason, it was not kept with other important papers. It was a tremendous relief to find it. With some advanced planning, this would not have been such a big problem.
Most financial publications tend to overlook the reality of death. I am glad you took the lead in covering this and will definitely save the article.
Mary J. MacKenzie