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.
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.
Most nursing home doctors are not gerontologists. It is puzzling why Dr. Marcinko focuses on nursing homes when discussing LTCI. Less than 10% of long-term care is provided in nursing homes. Most care is provided in private homes or assisted living facilities, and is covered by LTCI.
Medicaid, Medicare and managed care reimbursements to nursing homes are declining. LTCI provides fund to avoid reliance on government programs.
Insurers have precious little claims experience with untested products. The LTC industry has paid over $15 billion in benefits.
LTCI commissions are hefty and not transparent to the buyer. LTCI, like any product, including medical services, is sold on its merits, and bought on perceived value, not the profit margin earned by the seller.
Dr. Marcinko suggests investing to cover the cost of a potential average stay of two to three years. This is akin to investing for the average auto accident (probably mostly dented fenders) or average home claim (probably hail or theft), but not for a serious collision or the house burning down.
Dr. Marcinko should stick to practicing medicine, while I do similarly with LTCI insurance sales, and for the sake of others, never should the twain cross.
Gerald Carson
Long-Term Care Insurance Specialist
Las Cruces, N.M.
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