Critiquing the Contrarian

Comments on “A Former Hedge Fund Manager’s Contrarian Strategy” by Walter H. Weil, in the June 2017 AAII Journal.

While I agree that the bull market in the U.S. is generally concerning, I suggest that Walter Weil’s alternatives are overly limited. While I currently have a position in an S&P 500 ETF, some discounted bonds and about one-third in cash, the rest of my investments are in Chinese stocks and ETFs, European and emerging market ETFs and commodities. I also have a small short position and own equity puts as hedges.

My point is that Weil provides an all or nothing choice, while there are investment options available to the individual investor.
—Jerome Marshak from New Mexico

I thoroughly enjoyed reading Walter Weil’s article. His explanation of his macro approach to investing is insightful, and I appreciate Weil’s refreshing honesty when he explains that his strategy does not always get the timing right.

Weil’s credibility would be enhanced if he cared to share his personal annual investment returns compared to the S&P 500.

Although he is well into his retirement, I encourage him to share more details about his investment strategy and experience.
—Edward J. Kmiec from New Jersey

One Reason for Roth IRA Rollover

Comment on “IRAs Primarily Funded by 401(k) Rollovers and Higher Income Households” in the Briefly Noted column in the June 2017 AAII Journal.

“They attribute the popularity of Roth IRAs to the higher income caps on who can contribute.” This is not necessarily a consideration. After feeding a traditional IRA for some time, this kid learned that at a given age Uncle Sam would force her to take money out of the account. The reaction? “Don’t you tell me how much and when to take my money out of my piggy bank!” Therefore, I paid the taxes and rolled it into a Roth IRA.
—Betty Stacey from Virginia

Following the Blended Approach

Comments on “Power Your Portfolio With Value” by Paul Merriman, in the June 2017 AAII Journal.

My wife and I have a blend of value and growth in our portfolio, using Vanguard Total Stock Market fund as a significant share of our portfolio. Basically, we try to match the indexes. We also have no income funds; in other words, we are 100% in stocks. For income, we both receive Social Security and pensions. Also, we have begun taking my RMD from my 401(k) plan.

This income more than covers all our living and travel expenses. I know we are very fortunate to be in this position. We have always been almost 100% invested in stocks. I know if we did not have such a good income stream, we would most likely also have to invest for income.

A standard percentage in stocks and income should not be a given. Each investor must look at his or her situation and decide what is best for them.
—Mike Mullins from California

This is an excellent article and one that I will keep on my desk as a reference. In particular, I like the Ultimate Equity Portfolio. Thank you for writing this article, Paul!
—Jim Eisenreich from Minnesota

Accrual Strategy’s Effectiveness

Comment on “Using Accruals to Judge How Persistent Earnings Will Be” by Charles Rotblut, CFA, in the June 2017 AAII Journal.

This strategy may not work anymore. It is “arbitraged” away by Wall Street or hedge funds. I took the course under Professor Richard Sloan (now in California) at the University of Michigan, Ann Arbor, in 2004. He did mention in 2004 that everybody is chasing the anomaly and it may not be there in another 10 years. One can check the academic literature, such as University of Southern California professor Mark Soliman’s papers.
—Manjunath Sharma from California

Charles Rotblut responds:

The performance of the strategy is tracked by going long (buying) companies with low accruals and shorting companies with high accruals. Though the returns of doing this have declined, the risk of a company with high accruals taking write-downs and announcing negative earnings surprises has not gone away.