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Author: Yumoroz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 17885  
Subject: Yacktman Date: 3/30/2010 6:15 PM
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I was looking for a large-cap fund, and two Yacktman funds are looking good, I have heard about them long time ago, never bought, and now see them again on my screen,
but when looked deeper, I found interesting thing about the manager,
here is the quote from Yahoo:

Yacktman (YACKX) and Yacktman Focused (YAFFX)
Jason A. Subotky
Lead Manager since 31-Dec-2009
Yacktman is president of Yacktman Asset Management, a company he formed in March 1992. From 1983 to 1992, he managed Selected American Shares, for which he was named Morningstar's 1991 Portfolio Manager of the Year. Prior to that, he was a portfolio manager at Stein Roe & Farnham from 1968 to 1982 and a partner at that firm from 1974 to 1982. He also has spent time at Continental Bank. Yacktman is a member of the Financial Analysts Society of Chicago.


Has Mr.Yacktman recently retired?
It is funny to see his biography under a new name, Jason A. Subotky

Another thing, since this fund had really great performance in last 2 years, they assets increased dramatically
(in the last 2-3 years Yacktman grew 4-5 fold and YAFFX 10-15),
so if I buy them now, I just might be chasing past performance, plus really late,
on the other hand, having their NAV decreased only 18-23% in 2008, while the category had -37% and still grow 60-63% in 2009, when the category grew only 24%, and all of this including this huge new money inflows, is very impressive

what do you think?
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Author: Stas3000 CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17414 of 17885
Subject: Re: Yacktman Date: 3/31/2010 12:45 AM
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In my opinion, YACKX is one of top actively managed large cap mutual funds. Based on history, the management team really adds value. But we'll see what the future brings. I've done some research, but don't take my word for it.

One way to not take my word for it -- or Yahoo's -- is checking out the fund's prospectus and annual report. Regarding Subutsky, here's truth:

"At year end, Jason Subotky, a Vice President of the Yacktman Funds, joined Donald and Stephen Yacktman as a co-manager of The Yacktman Fund and The Yacktman Focused Fund. Jason has been part of the investment team at Yacktman Asset Management since 2001 and has made a significant contribution to our results." (Source: annual report, effective 12/31/2009.)

Something interesting about the portfolio at year-end:
- Yacktman held only US stocks (to my knowledge)
- about 3% of YACKX portfolio was made up of preferred stocks, corporate bonds and other non-equity securities
- about 11% of assets were in commercial paper and other cash-like securities

Despite being seemingly not fully invested, YACKX still outperformed S&P 500 YTD as of 3/30/2010. Maybe some of that cash was put to good use in January/February...

So in summary, YACKX is a great choice. Two more large-cap funds I consider top-notch are AMAGX and FAIRX. Hope that helps and good luck.

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Author: Yumoroz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17415 of 17885
Subject: Re: Yacktman Date: 3/31/2010 12:21 PM
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thanks a lot, Stas, especially for the info about managers,
and I agree that Fairhome and Amana funds are pretty good, too,
FAIRX has been my best performing fund, at least within the US funds,
and I have some of AMAGX and AMANX as well, so far so good
(I know, I like to have too many funds)

But here the interesting thing I noticed about YACKX performance and size.
First of all, like you said, I should probably trust less to Yahoo - it shows really bad performance for YACKX in some years, and S&P reports, available through Scottrade show different (better) numbers,
but even with these numbers I can see the pattern:
over-performing the category for couple of years,
then big growth in assets (not surprising)
then under-performing (not surprising again),
then many people sell it (sure)
and then, after getting smaller, over-performing again (this is not as obvious as other parts, and I believe is a good sign),
and the cycle repeats

Based on this, right now might not be a good time to buy it,
although I probably still will, after selling some disappointing funds
plus because one of my IRA accounts at Thinkorswim will soon be TDAmeritrade and I want to sell all funds, that have a fee at TDAmeritrade with NTF funds (and Yacktman funds are NTF there)

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Author: Stas3000 CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17416 of 17885
Subject: Re: Yacktman Date: 3/31/2010 1:37 PM
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With fund families like Amana and Yacktman, a lot of what investors are doing is entrusting their assets to the manager. IMHO, managers are those funds' best assets. So, theoretically, those managers should make good decisions no matter the investment climate. And unlike many other funds, they usually do.

Two things you may want to consider. My Amana fund, AMAGX, has been underperforming over the last year or so -- still enough to have superior long-term performance vs benchmark. YACKX has been underperforming in bull markets and outperforming in the bear markets. (Yacktman Sr. really didn't get into the tech boom from what I remember reading and his fund got punished by investors - a lot of money got pulled out.) The issues about growth and decline in assets under management (AUM) is one of the clues, I suppose. Another is that managers move money out of hot stocks as markets get overvalued in their view. Probably one of the reasons AMAGX has had 15-25% of AUM in cash - management unsure about the true value of the market given the exceedingly fast recovery in stocks, etc. I guess, every manager has his/her own philosophy, but it is critical to understand with smaller funds like YACKX and AMAGX.

Secondly, unrelated to the first point, TD Ameritrade and other brokers may not keep their NTF funds that way forever. Some funds that were NTF @ TDA last year are that way no more. And TDA charges $50 to buy/sell no-load mutual funds. If you buy for $0, you may sell for $50 a year from now. So since you like to have a lot of funds, you may have to start liking a lot of commissions. Hope not, right? Maybe that $9.99/$7.00/etc is not so bad for stocks and ETFs...

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Author: Yumoroz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17417 of 17885
Subject: Re: Yacktman Date: 3/31/2010 8:01 PM
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"YACKX has been underperforming in bull markets and outperforming in the bear markets."

yes, I am ok with the first part, given the second one, as long as it has a good overall performance, with the complete bull+bear cycle.
Actually, last time, YACKX outperformed in both bear (2008) and bull (2009) markets, that's why I am so interested in it (and not only me, of course)

TD Ameritrade and other brokers may not keep their NTF funds that way forever. Some funds that were NTF @ TDA last year are that way no more

yes, this is a good point, and in fact, I could not quickly find a page with NTF list at TD Ameritrade site this time, so I used a list I saved a year ago, which was not such a good idea,
btw, if you know where it is, can you give me the link to NTF?
(or maybe they moved it to a member-only area, but that would be odd)

And TDA charges $50 to buy/sell no-load mutual funds. If you buy for $0, you may sell for $50 a year from now.

this is true, too, although sometimes they can give a customer a break, like they did, I believe, to Littlechap when one fund family (NTF in both Scottrade and TDAmeritrade) was acquired by another one (with the fee in both Scottrade and TDAmeritrade) - I mention Scottrade, because I had an account there, and they would not waive the fee for me, and after I said "you know, TDAmeritrade did this for their customer", they rightfully replied: "and you know, what is their fee and what is ours?"


So since you like to have a lot of funds, you may have to start liking a lot of commissions. Hope not, right? Maybe that $9.99/$7.00/etc is not so bad for stocks and ETFs...

of course not :)
and I am not moving from Thinkorswim to TDAmeritrade, they are moving by themselves (TDAmeritrade bought them about a year ago)
My main IRA (rollover from 401K) is still with Scottrade, my smaller Traditional IRA I have already moved from Thinkorswim to WellsTrade (very good deal, 100 free trades per account, for total of MF and stock/ETF transactions) and only my wife's TIRA is still with Thinkorswim,
we might move it to WellsTrade later

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Author: Stas3000 CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17418 of 17885
Subject: Re: Yacktman Date: 3/31/2010 8:40 PM
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You can locate the NTF page by going to Research & Ideas => Mutual Funds => Fund Families, but here's the link:
http://research.tdameritrade.com/public/mutualfunds/fundfami...

As far as I know, Schwab, Scottrade, TDA, Fidelity allow account-free access to their NTF mutual fund pages. Sometimes though, to avoid commissions, it might be worthwhile opening an account with the mutual fund provider directly - just a thought if your favorite fund is not NTF at your brokers. Although I have a significant portion of my investment $$ in mutual funds, I'm more interested in exchange-traded issues and individual bonds, so...

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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17419 of 17885
Subject: Re: Yacktman Date: 4/1/2010 8:16 AM
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If you put up a 5 year chart of YACKX, SPY, QQQQ, and IWM, you can see that YACKS underperformed the major indices until the bottom in March, 2009. Then it took off dramatically: YACKS +126%, while SPY +76%, IWM +100%, QQQQ +88%.

Those are all total returns, including reinvestment of distributions.

Maybe somebody learned something?

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Author: Yumoroz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17420 of 17885
Subject: Re: Yacktman Date: 4/1/2010 4:36 PM
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Thanks again, Stas,
I don't know why I missed this page yesterday

"Sometimes though, to avoid commissions, it might be worthwhile opening an account with the mutual fund provider directly - just a thought if your favorite fund is not NTF at your brokers"

yes, this is what I did after Scottrade started to charge a fee on many funds - moved my Vanguard and TRowePrice funds to their providers, but only my in my taxable account, while my Scottrade RIRA was created later, and I have only NTF funds there, although occasionally I had to pay some fees because of changes in NTF policy

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Author: Littlechap Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17421 of 17885
Subject: Re: Yacktman Date: 4/2/2010 12:07 AM
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Hey Yuri,

Once again our ideas cross paths!!

I bought some Yacktman fund years ago, based on whatever kind of research I was able to do at the time. I do not recall what happened specifically after that, but for some reason I was motivated to ease most of the way out of my YACKX position. I'd have to go back and look at the transactions but presumably they were underperforming the other stuff I held, and I must have concluded that the fund had list its touch.

Recently I happened to glance at it and saw that it had come back to generate some impressive statistics -- depending on what kind of lens one used, at what angle. But I was still seeing that inconsistency, so I did not make any move back into it.

But here the interesting thing I noticed about YACKX performance and size... I can see the pattern: over-performing the category for couple of years, then big growth in assets (not surprising) then under-performing (not surprising again), then many people sell it (sure) and then, after getting smaller, over-performing again (this is not as obvious as other parts, and I believe is a good sign),
and the cycle repeats


I never got as clever as to pair asset base with fund performance -- but now that I think about it, I think that could be misleading. After all, with just a couple of cycles to look at, it is entirely possible that the manager just happened to make smarter picks -- or got luckier! -- during periods when there was more cash to work with. This is partly what I meant about lenses and mirrors above.

In any case, I've been really sidetracked lately so I haven't done much tinkering, but as I recall, last time I considered moving back into YACKX, I was dissuaded by something. Am I right in remembering that it's pretty concentrated? (No time to check). Maybe that was it...

Other comments about this thread to follow.

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Author: Littlechap Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17422 of 17885
Subject: Re: Yacktman Date: 4/2/2010 12:48 AM
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Hello,

Two things you may want to consider. My Amana fund, AMAGX, has been underperforming over the last year or so -- still enough to have superior long-term performance vs benchmark.

Since I seem to own all the same stuff Yuri owns... I also have bits of both Amana funds here or there, and have noticed the performance dip. I haven't heard analysts make this point, but here's my guess:

In the stock market as a whole, indexes are dominated by big-cap companies. Many of them are related to the finance industry, or real estate, or debt-heavy companies -- one way or another, a huge amount of stock out there is in companies with exposure to the financial markets.

And the financial sector is where the market took its worst beating in the past couple of years. So if you look at the recovery in (for instance) the S&P500 from its lows to its current level, you'll probably see a lot of the index being pulled up by the recovery of big banks that got bailed out, and others that got bigger by way of cheap mergers, and so on. In short, they were starting from lower lows, so on a percentage basis, they would outperform other sectors.

Meanwhile, with jobs dying and consumer spending low, and other factors, energy stocks got hammered for quite a while.

Well, as you probably know, AMAGX and AMANX do not own stock in any financial services companies, due to their charters. And much of their success in recent years was due to their owning a fair amount of energy stock.

In short: for the past two years, they have *not* owned beaten-up financial stocks that were making a big comeback, and the *have* owned energy stocks that were slipping downward from all-time highs.

So in my view, the relative underperformance of these funds, especially compared to their own track record, is no surprise. I have sat on them with the assumption that the recovery of the financials is mostly done, making the broad market less upwardly mobile by comparison to them. I also see energy prices climbing back up, and other sectors that these funds own. So I think the rest of this year may tell whether these funds can return to their outperforming ways -- or not. In the meantime I consider them to be a "hold" rather than a buy or sell.

YACKX has been underperforming in bull markets and outperforming in the bear markets. (Yacktman Sr. really didn't get into the tech boom from what I remember reading and his fund got punished by investors - a lot of money got pulled out.)

I'd differ with the wording, and to some extent the analysis. Funds do not get "punished" -- people simply choose to take their money out and invest it elsewhere in hopes of better returns. They are not all motivated by the same issues. Yes, some people may have been annoyed at Yacktman, but the biggest investors aren't swayed by annoyance. They are swayed by opportunity. The end of the tech boom coincided with the rush toward emerging markets, for instance. Small cap funds were doing very well and attracted money in those days.

Another is that managers move money out of hot stocks as markets get overvalued in their view. Probably one of the reasons AMAGX has had 15-25% of AUM in cash - management unsure about the true value of the market given the exceedingly fast recovery in stocks, etc.

It has been discussed here and elsewhere: the manager of AMAGX and AMANX has to follow certain Muslim guidelines, which include not investing in money-lending companies, and not making money on interest. So unlike other funds, the manager has very few ways to hedge against stock price volatility except to stay in cash.

I do not know that this is the manager's main reason for the cash stake in the funds' portfolios, but I believe it is part of it.

Secondly, unrelated to the first point, TD Ameritrade and other brokers may not keep their NTF funds that way forever. Some funds that were NTF @ TDA last year are that way no more.

This has also been discussed here before -- but in any case, having a general fear about funds potentially losing NTF status someday would hardly be a good reason to avoid buying them, IF they meet other criteria or other needs in the portfolio. Also, in my experience, in a few unusual cases where an NTF fund has changed status like that, I've been able to liquidate without any transaction fees.

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Author: Stas3000 CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17423 of 17885
Subject: Re: Yacktman Date: 4/2/2010 10:46 AM
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Littlechap,

Looks like you disagree with a lot of points I made, but that's fine. It's good that you brought up the Muslim element of Amana funds' strategy. In my research, I was surprised to find out that the manager is not Muslim. But based on the increasing asset base investors don't mind. (Sorry, but I don't have sources right off the bat.)

Just wanted to share two articles that might help better understand YACKX. It's amazing how low the asset base was in 2000...
http://online.wsj.com/article/SB124580494181644945.html
http://www.benzinga.com/46539/fortune-yacktman-fund-yackx-pa...

Hope this helps. Cheers!

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Author: Yumoroz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17426 of 17885
Subject: Re: Yacktman Date: 4/2/2010 6:31 PM
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"Hey Yuri,
Once again our ideas cross paths!!"


Hi, glad to see you again
You know the saying, "Great minds think alike"?
well, on the other hand, Russian have a different one, "Fools have the same thoughts" :)
Actually, as I just learned, the full quote (attributed to Niccolo Machiavelli) is "Great minds think alike, but fools seldom differ", so one can choose whatever part he likes to quote :)

"pair asset base with fund performance ... could be misleading. After all, with just a couple of cycles to look at, it is entirely possible that the manager just happened to make smarter picks -- or got luckier! -- during periods when there was more cash to work with"

If course, it could be misleading, and I course, I don't have enough statistics, just a thought.
Although I do not agree with this part (or maybe I ddid not understand it correctly): "smarter or luckier when there was more cash" - because in those two cycle, I believe, I see exact opposite: once he gets a lot of money (cash), performance drops, which is understandable (I will add about it later), but when he has less money, it improves.
I believe, I read here from some more experienced people than me (and maybe it even was you, sorry, if I am misquoting), that this is really difficult situation for an open-ended mutual fund (unlike ETF or closed end fund), when people redeem a lot their fund shares in the short period - for some time, manager can satisfy it with cash, but if redemption continues, he has to sell shares which he would not have sold otherwise at that time (and for that price), which negatively impacts overall performance and increases costs for the remaining shareholders. Is this true, or I misunderstood something?
If it is, than it is a good sign, that both times, after big outflows, he managed to get a very good performance
Not counting, of course, the very first time, when he had little money (1992-94), but NOT because of redemption - just as any new fund.
The first time he might have gotten lucky - after all, we are looking post-fact at some "winners", but then it would be getting lucky 3 times, which is not so probable.

<>"it's pretty concentrated?"

yes, it is, it had only 41 holdings in 2005, and has 51 now,
btw, I don't understand, why he calls his other fund "Focused" (YAFFX), or, rather, I agree it is even more focused (29 in 2005, 44 now), but 40-50 is already "focused enough" for me,
and both funds have almost the same "Top 10" table, even including percentages

P.S. I wish, I had more time, I wanted to tell more about "size and performance", but for different fund, Ariel (ARGFX), maybe some time later

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Author: Yumoroz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17427 of 17885
Subject: Re: Yacktman Date: 4/2/2010 6:34 PM
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sorry for the mistakes (on top of my far-from-perfect English)
"If course" and "I course" both mean "Of course", of course :)

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Author: ipo99 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17429 of 17885
Subject: Re: Yacktman Date: 4/3/2010 3:03 AM
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All,

If you look at YACKX in 3, 5 and 10 year performance, they are great.

There are two majors in last 10 years. One was in March 2000 - dot.com bubble and another in March 2009 Housing Bubble.

If you brought this MF in 2004, you will not be happy in 2007. It was flat in 2005-2007 while the category MF has 5%, 18% and 1% in those 3 years. It is more a value and contrarian fund. I use Yahoo graph YACKX vs SP 500, Dow Jones from 1998 20 Sept 2007. After that they are all the same due the mother of all BUBBLES.

If you think that we will have another one or two in next 10 years, you will find this MF very good.

This MF will be lack behind during the bull market and you will be very happy that the MF will not drop too much while in bear market.

I have also tried to explain the performance in 2009. I may find it in fund summary.
"The investment seeks long-term growth of capital; current income is secondary. The fund invests primarily in equities, including convertibles. It may also invest in short-term money markets for income and long-term, high-quality debt for growth. There is no limitation on the percentage of assets that it may invest in any particular type of security."

There is no limitation on the fund asset allocation, they might put money in high yield last year and to have this market performance at 59%. Most Category MF is fully invested according to the fund limitation. My Fidelity high yield FAGIX had 73% return last year.

The fund family investment philosophy is very critical in any MF family investment. There will be far more limitation on the big MF family such as Fidelity or Vanguard.

I had seemed a few articles on whether the equity fund should be allowed to retain more cash during the bear market.

Year YACKX Category Diff
2009 59.31406 24.12957 35.18
2008 -18.44068 -37.09089 18.65
2007 0.0293 1.42422 -1.39
2006 4.67973 18.1512 -13.47
2005 0.20534 5.95259 -5.75
2004 11.99149 12.96895 -0.98
2003 14.62352 28.43527 -13.81
2002 13.55019 -18.69376 32.24
2001 17.30881 -4.98723 22.30
2000 12.12441 7.86671 4.26
1999 -2.0037 6.72062 -8.72
1998 16.09498 12.00449 4.09
1997 -2.74724 26.61205 -29.36
1996 0.51852 20.07984 -19.56
1995 7.30435 32.38635 -25.08
1994 9.47537 -0.69925 10.17
1993 -3.49567 13.61364 -17.11

Currently I am migrating my retirement equity fund to EFT fund.

Here is my asset allocation in bull market.

Stock/Bond ratio: 65/35

IVE 30
EFA 15
EEM 20
AGG 15
LQD 20

It is only my 2 cents.

ipo99

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Author: Littlechap Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17431 of 17885
Subject: Re: Yacktman Date: 4/3/2010 4:58 AM
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Littlechap,

Looks like you disagree with a lot of points I made, but that's fine. It's good that you brought up the Muslim element of Amana funds' strategy. In my research, I was surprised to find out that the manager is not Muslim. But based on the increasing asset base investors don't mind. (Sorry, but I don't have sources right off the bat.)


I disagree with lots of things, so don't take it personally.

If you read previous discussions of these funds on this board you'd see this topic covered vis-a-vis Amana. Some folks have a hard time getting past the many components of Sharia law, regardless of the fact that the main thing applying to this fund (IIRC) has to do with borrowing and lending, basically. I think there are some others, like companies selling alcohol etc. but there are non-Muslim funds that eschew such investments, also.

Just wanted to share two articles that might help better understand YACKX. It's amazing how low the asset base was in 2000...
http://online.wsj.com/article/SB124580494181644945.html
http://www.benzinga.com/46539/fortune-yacktman-fund-yackx-pa......


It is always good to share resources with fellow investors. My own reaction is that what these guys say is a lot like what other fund managers say when their funds perform inconsistently: "Buy Me and Hold Me; Sooner or Later I'll Make Money."

That one article talks about 10-year performance. Well, if you've followed any of these funds for a while, you can remember seeing that 10-year number when it was calculated over the period of (say) 1992 to 2002, or 1995 to 2005, or 2000 to 2010, etc. It's a sliding window and within any of those windows you do not always get really fabulous results.

The one article (typically) belittles the viewpoints of people who do not have the kind of patience that -- apparently -- a person needs to be successful owning the Yacktman Fund. They talk about people whose idea of "longterm" is "next week." That's just crap. I do not know anybody who really thinks that way. Time is a continuum, and the choices are not limited to A) one week or B) twenty years.

There are many people who want or need to invest for one year, or five years, or whatever, for their own reasons unrelated to Mr. Yacktman and his philosophy. It's not because they're stupid or impatient. People have lives, things come up. Investing should reflect life -- not vice-versa! So it's just bogus to point to any one manager and claim that he was always "right" just because his ten-year trailing returns happen to look good on Day X.

For those lucky people who start early with a big pile of cash and never really need it, well let them load it into a barrel of YACKX and perhaps in 25 years it will turn into ten barrels. I thought it looked good when I bought it, but lost my affection for it. Maybe I was too fickle, but y'know the market is way more fickle than I am.

I'll end by simply mentioning Wally Weitz, who is always touted by Morningstar and other places as being brilliant and stuff, but whose value fund (WVALX) has been moribund for most of the past 10 years. Apparently it was great before that, and his reputation has been coasting ever since. So when I see articles like the ones you've linked to, about how Yacktman looks so smart at the moment... well, he could be the Wally Weitz of 2015 or so. You never know.

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Author: Littlechap Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17432 of 17885
Subject: Re: Yacktman Date: 4/3/2010 5:22 AM
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...Although I do not agree with this part (or maybe I ddid not understand it correctly): "smarter or luckier when there was more cash" - because in those two cycle, I believe, I see exact opposite: once he gets a lot of money (cash), performance drops, which is understandable (I will add about it later), but when he has less money, it improves.

The point I was trying to make, perhaps unsuccessfully, is that it would take a REALLY complex analysis -- with data from Yacktman himself -- to determine the precise relationship between his cash balance at any given point, and inflows, and outflows, and his own purchases or sales of stocks that may have had nothing to do with old redemptions or new investors.

Do you see my point? You can attempt to look at two or three numbers, and if you see that there is a coincidence of timing, you might draw a cause-effect conclusion. But it could be misleading.

Statisticians have classic examples which I can't bring to mind, so I'll make one up. Let's say that on December 31 of of a given year, John Doe drank champagne on New Year's eve. The next trading day, the overall market was up by 2% and he made good money. A year later, he didn't get to the store so he had no champagne on 12/31, and the next trading day, the market was down. Twelve months later he made sure to have champagne on New Year's eve, and when the market first opened in January, again it was bullish and up 3%.

So John Doe concludes that his drinking champagne on New Year's Eve causes the stock market to go up.

I concede it's not a great example, but it's the best I can do. If one mucks about with actual mutual fund mechanics the same principle holds true -- it's just harder to see. Basically, it's very hard to separate all the many variables that result in fund performance -- and I would be reluctant to just take two or three, as you seem to be doing, and try to draw conclusions from them. Perhaps you're right, I'm just saying that it feels a little shaky.

I believe, I read here from some more experienced people than me (and maybe it even was you, sorry, if I am misquoting), that this is really difficult situation for an open-ended mutual fund (unlike ETF or closed end fund), when people redeem a lot their fund shares in the short period - for some time, manager can satisfy it with cash, but if redemption continues, he has to sell shares which he would not have sold otherwise at that time (and for that price), which negatively impacts overall performance and increases costs for the remaining shareholders.

This is not original with me, it's a pretty fundamental principle of fund management that one reads many places. Basically I think that it's hard for a manager to balance all this stuff, but most funds now have early redemption fees to encourage a more stable asset base. IIRC Yacktman was slow to implement such fees when they came into vogue. Perhaps that has made a difference, I don't know.

If it is, than it is a good sign, that both times, after big outflows, he managed to get a very good performance Not counting, of course, the very first time, when he had little money (1992-94), but NOT because of redemption - just as any new fund. The first time he might have gotten lucky - after all, we are looking post-fact at some "winners", but then it would be getting lucky 3 times, which is not so probable.

Well pretty soon you have to start looking at the situation in reverse. Is it possible that outflows are the *cause* of his fund's improved performance? You're saying that he did well *despite* having to sell stocks. Maybe it's the opposite, and his fund did better *because* redemptions forced him to sell weak stocks that, maybe, he should have sold earlier. Hmm?

If so, it's still a matter of luck... ;-)

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Author: KennyO Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17433 of 17885
Subject: Re: Yacktman Date: 4/3/2010 4:26 PM
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Statisticians have classic examples which I can't bring to mind,...

I believe what you're searching for is the Latin maxim, "Post hoc, ergo propter hoc" which translates to, "After this, therefore because of this" or "B followed A therefore A caused B." Though it's been a long time, I well remember one of the lessons drilled into us when studying statistics: correlation and causation are only tenuously connected.

KennyO

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