Flawed Methodology In Value Article

Kevin Wilson‚s article "Why Value Beats Growth" (Financial Advisor, June 2004) uses some flawed methodology used to reach his conclusions. He seems to have very different definitions of "passive" and "value" than me and my colleagues. No matter.

However, I do wonder why it is that it seems every time some writer holds up Warren Buffett and Benjamin Graham as evidence of great stock pickers to be emulated, the writer always leaves out what these two gentlemen have advised actual investors to do.

Buffett has, several times, extolled the virtues of index funds. Most recently Buffett wrote in the 2003 Berkshire Hathaway annual report, "Index funds that are very low-cost, are investor-friendly by definition, and are the best selection for most of those who wish to own equities."

In a 1976 interview in Financial Analysts Journal shortly before his death, Graham, speaking about stock picking and analysis said, "I doubt whether such extensive efforts will generate sufficiently superior selection to justify their costs … I‚m on the side of the ‘efficient market‚ school of thought."

I also find it interesting that so many seem to forget that these and other "star" managers are famous precisely because their records are so unusual. You don‚t get on the covers of magazines for doing nothing special after all. With so few outperforming and accordingly, so many underperforming, capturing the returns of the capital markets leads to above average results.

Add in the behavioral issues highlighted in Harold Evensky‚s excellent interview with Daniel Kahneman in the same issue and you have a recipe for truly superior results.

Dan Moisand, CFP, principalSpraker,
Fitzgerald, Tamayo & Moisand LLC
Melbourne, Fla.

Doctor Mistaken About Long-Term Care Insurance

Dr. David Marcinko‚s letter in the April issue of Financial Advisor, "Rethinking LTC Insurance," showed a lack of knowledge of long-term care insurance (LTCI). He mistakenly fixates on LTCI as nursing home insurance. Contrarily, this insurance has a nickname among LTCI professionals as "stay-out-of-nursing-home insurance." He makes a case in several bullet points against buying LTCI, which I will paraphrase and offer response.

Elderly need custodial assistance more so than skilled nursing home care. LTCI covers custodial care in the home or assisted living facility.

HMO pressures doctors not to certify Activities of Daily Living (ADLs). I challenge Dr. Marcinko to produce valid complaints of policyholders who had difficulty obtaining certification from their physician of needing assistance with ADLs.

Medicaid facilities are not known for quality. LTCI pays for care wherever the person wants care, be it home, assisted living or quality nursing facility.

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