Monday, December 10, 2012

AFL: Common Sense Investing Not Contarian Investing

“Investors pulled an estimated net $10 billion out of U.S. equity mutual funds in the week ended July 27”


This was a headline put out by Reuters in 2011.  In my book, I spend a lot of time discussing the negative impact of the herd mentality and trying to time the market over the long-term.  This headline represented mutual fund outflows for just one week in the year 2011, and by the end of the year U.S. equity funds finished with a net outflow for all of 2011.  Let’s examine how this individual investor retreat has worked out since July 27, 2011.  Since that date and since the end of 2011 the average U.S. equity fund and S&P 500 TR returns are as follows as of the close on December 7, 2012:

Since 7/27/11
S&P 500 TR
Large Cap Value
Mid Cap Value
Small Cap Value
Large Cap Growth
Mid Cap Growth
Small Cap Growth


How have those redemptions worked out for shareholders?  Not well.  People always ask me, “How have your models achieved such high returns over the last 10 years and since the year 2000?”  Well it’s not rocket science and it is all explained in my book that you can find at any online book retailer.  For those of you that do not know about the success they are asking about, here are my model average annual returns over the last ten years and since inception that are updated daily at

Since Inception
10 Year
Model 1
Model 2
Model 3
S&P 500 TR


My models and my methodology for success are all outlined in my book.  I rarely give away my process and my current holdings.  My newsletter subscriber’s pay for that privilege, but the one thing I can tell you is time and time again as I look back on my models, more often than not I am doing the exact opposite as the mutual fund inflow/outflow data.  For example, foreign equities had a very rough 2011 and a sharp increase was seen in foreign equity funds outflows.  Let’s take a look now at the average performance for these foreign equity funds thus far for 2012:

Foreign Large Cap Value
Foreign Small/Mid Value
Foreign Large Cap Growth
Diversified Emerging Markets


In all three of my models I added more money to my foreign equity positions on December 30th 2011.  I did not do this because my crystal ball works, but rather because that is what my models were telling me to do.  People like to call my investment style “Contrarian”.  It’s not contrarian it’s “Common Sense”.  At Allocation For Life we have tried to simplify the process for individual investors.  The way I invest will never change and we believe giving investors the ability to own strategies that make sense to them, and that they can follow via the Allocation For Life Investment Newsletter, should not have to cost them a fortune in fees.  The average investor that seeks help is paying over 1% of their total assets away in advisory fees each year.  All of my AFL models are available to my newsletter subscribers to own in self-directed accounts at Folio Investing.  There are no management fees or advisory fees because I am not advising.  My followers simply read my book and found an approach that makes sense to them.  We created a way for these investors to own what I own and have given them ability to make changes to their models when I make changes to mine.  The process to do so at Folio takes about 5 seconds.  Yes we timed the process.

Isn’t finding things that we can relate to and that make sense to us the ultimate goal?  I found my way many years ago and I have been trying my best to spread the word.  If you are deploying an investment strategy that has worked over the long-term and that you can clearly define, then I say, “Good for you.” That is a sincere congratulation’s, because if you are at that point then you are in position to win the war.  However, I know the truth, and that truth is that most individual investors are a part of the herd, and cannot clearly define how they are going to get where they need to go.  The fund inflow/outflow data does not lie, and it does not paint a pretty picture for the average investor’s success.  It's up to us to find our own way.


Jon R. Orcutt is the founder of Allocation For Life, Author of The Allocation For Life Investment Newsletter, Author of "Master The Markets With Mutual Funds: A Common Sense Guide To Investing Success" and manager/creator of the AFL Models available to Allocation For Life subscribers at Folio Investing.