(PUB) Investing 2015

ate profit increases, is hypocritical to the max. Further, Icahn warns that junk bonds are bound to crater and investors will panic, causing even greater mar- ket stress. This is not a new or novel warning, and as Jeff keeps reminding me, liquidity in the junk bond market always dries up when the economy falters (and we’re nowhere near trou- ble today). High Yield Corporate ’s portfolio manager Michael Hong says most high-yield companies’ funda- mentals are healthy. Plus, when Jeff and I looked back at the data, the fact is that investors haven’t panicked out of this fund in the past. While the value may decline for a time, that “high-yield” income keeps on giving, month after month. For Contrarians In January, I told you about a con- trarian trading strategy involving Capital Value . When the fund’s three- year return lags that of Total Stock Market , historically, this has signaled an opportune moment to buy. Well, that time has arrived, and I sent out a special trading alert on Wednesday morning. But just to close the loop, at September’s end, Capital Value’s cumulative 37.7% three-year return lagged Total Stock Market’s 41.8% return. While I am not putting Capital Value into our Model Portfolios , as I’m happy with Selected Value as our hold- ing in a similar space, I did buy some for my personal account. If you’ve got an aggressive bone in your body and are looking for a market-beating strategy, albeit one that’s focused on a single fund run by contrarian managers, you may want to follow my lead. n

her colleagues left policy and interest rates unchanged. Gear up for more headlines, handwringing and second- guessing as we approach the final two Fed meetings of the year in October and December. My advice would be to tune them out. Yellen has indicated that a hike in rates is still likely this year, but whether the fed funds rate is at zero, 0.25% or 0.50% shouldn’t make a bit of difference in how our economy fares. The Fed standing pat on policy does reflect that, yes, there are issues here at home as well as overseas. But as I’ve noted before, investors are always faced with uncertainty, and the current eco- nomic and market cycle is no different from any that have preceded it. The same could be said for the revolving cast of characters using the Internet to scare investors. First it was the off-base comments about the dol- lar losing its safe-haven status and the Chinese yuan becoming a de facto cur- rency of choice. Now, corporate raider Carl Icahn is sharing his views on politics, the economic cycle, corporate profiteering and more in a video he posted on September 29. Icahn’s best criticisms are of government dysfunc- tion and some of the tax tactics corpo- rations and fat cats use to avoid pay- ing their fair share. But his simplistic comments about interest rates having caused the financial crisis, or the fact that earnings are falling (actually, earn- ings growth rates are falling, and that’s something we’ve seen coming for years now) aren’t exactly news. Plus, his criticism of financial engineering, which in many ways has developed as a direct result of the actions of activist investors like him demanding immedi-

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experienced is quite normal. I looked back at every single one of the 295 three-month periods (not just calendar quarters) since the newsletter’s 1991 inception and discovered that between 25% and 29% of the time, we’ve suf- fered losses in the Model Portfolios over that short time frame. Of course, as you know, the long-term returns for the Models are excellent, particularly given the level of risk taken to achieve them. So I wouldn’t chalk this up to anything more than what it is—a market setback. Why am I confident that this is noth- ing more than that? Our economy is in good shape, though it’s got its warts, for sure. Consumer confidence and consumer sentiment are near their highs for this economic cycle. The last time they were at these levels was in 2007. Job growth remains strong, and new claims for unemployment are at levels last seen more than 40 years ago. While the unemployment rate, at 5.1%, has fallen dramatically, the U-6 rate of total underutilized workers remains at 10.3%, but it’s falling as well. And this is happening as Baby Boomers are turning 65, the typical retirement age, at a rate of 10,000 per day. Household debt is incredibly low. The household debt service ratio, which measures how much disposable income is eaten up by monthly debt payments including mort- gages and consumer debt, has been at record lows for the past couple of years. And GDP growth has re-accelerated and was up at a 3.9% rate, after infla- tion, in the second quarter. At their much anticipated meeting, Federal Reserve Chair Janet Yellen and

Daniel P. Wiener - Senior Editor Jeffrey D. DeMaso - Editor/Research Director Seth H. Kennedy - Assistant Editor Amy Long - Vice President and Publisher Billy Currano - Senior Managing Editor David Clarfield - Assistant Managing Editor Rachel Johnsen - Editorial Assistant Louisa Dorado - Marketing Director Mary Southard - Marketing Director John Hall Design Group - Design and Production Fund Family Shareholder Association Member, Newsletter Publishers Association Daniel P. Wiener - Chairman James H. Lowell - President (www.FidelityInvestor.com)

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The Independent Adviser for Vanguard Investors • October 2015 • 3

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