It's hard for me to believe that I have been writing and publishing this Newsletter for nearly 17 years now.

I started in the Spring of 1999. At the time, I was working as a technical writer for Hewlett-Packard in the heart of Silicon Valley. But I planned to retire early. So, I figured I needed to ensure that when I did, I would have a project big enough to keep me occupied so I wouldn't get bored. I chose to try to publish a newsletter, something that combined one of my biggest interests, investing, with what I had always done throughout my life - research and writing.

I thought it highly improbable that I, without any degree in business or economics but rather, psychology, nor any knowledge of marketing, could reach more than a small handful of co-workers, relatives, or maybe a few others.

However, I completely underestimated the reach of the Internet, which was still pretty new at the time. A considerable effort in those early years to learn the workings of search engines was able to get me to high page rankings and probably made all the difference in eventually attracting the thousands of people who read my articles today.

Writing my Newsletters is still my main activity today, along with managing my own investments. Learning about investing and trying to help others with theirs has probably been the most significant thing I have accomplished throughout my prior careers as a psychologist and a computer professional in spite of the fact that I haven't ever received any compensation for doing it. And, in many ways, it has been more interesting.

(continued page 3)

not in itself seem significant, on a quarterly basis one has to go back consecutive 29 quarters, to the third quarter of 2008, to see an outperformance by Large Value over Large Growth that is that large. Note: Performance figures cited are through Apr. 20 unless otherwise noted.

If Large Cap Value funds continue to outperform Large Cap Growth at the same pace for the rest of the year, there would be a huge 12% spread by year's end. While such a large disparity might seem highly unlikely, it cannot be totally dismissed.

If you compare the performance of two Vanguard index funds, Vanguard Index Value (VIVAX) and Vanguard Index Growth (VIGRX) as proxies for each of these categories, you will see that over the last 9 years, going back to May 1, 2007, Value has gone from a net asset value (NAV) of 27.85 to only 33.03 for a cumulative gain of 18.6% (not annualized, excluding dividends). Growth, on the other hand, has gone from a NAV of 31.44 to 55.64 for a gain of 77.0%. The difference is a whopping 58.4%. When averaged out over the 9 years, VIGRX has exceeded VIVAX by about 6.5% per year.

Since Large Value has been so far behind, merely gaining back one year of this outperformance for the rest of this year would bring it close to an 11% outperformance of Large Growth. However, it seems far more likely that the category will see smaller outperformances over quite a few of a number of upcoming years to enable it to eventually catch up to Large Growth. I, for one, believe such an equalization is reasonable to expect. In fact, history shows that value stocks tend to be better long-term performers than growth stocks, supporting the potential for a big upcoming turnaround.

What else might argue for my suggested Large Value overweighting? Evidence suggests that as the Fed raises interest rates which they already have begun to do, value stocks tend to get stronger. (For a further discussion of this, see the following article.) Further, with growth stocks having reached a greater degree of overvaluation in the recent past than value stocks (although each category is more fairly valued now), Large Growth stocks would seem more likely to suffer if and when investors become unnerved and decide that they need to protect their profits.

International Stocks

Even more severe than the long-term underperformance of value stocks has been that of International funds/ETFs. When one compares the performance of the average International category fund with that of the S&P 500 index over the last 10 years (thru Mar. 31), one finds an annualized total return for the foreign category of 1.8% vs 7.0% for the US-only index. Emerging Market funds have done only slightly better at 2.5%.

Is there any sign of a possible turnaround here? While only tentative given the short time period, a proxy for the entire International category, the Vanguard Total International Stock Index Fund (VGTSX), has gone from a NAV of 12.87 on 01/20/2016 to 14.98 on 4/20 for a 16.4% gain over 3 mos. Looking back over its quarterly returns, one has to go back to the 3rd quarter of 2010 (21 consecutive quarters ending this past Dec.) to find a gain that big.

The same can be said for emerging markets. Looking at the Vanguard Emerging Mkts. Index Fund (VEIEX), the NAV has gone from 18.06 on 01/21/2016 to 22.38 on 4/20 for a gain of 23.9%. To find a closely comparable quarterly gain, one would need to go back to the 3rd quarter of 2009 (25 consecutive quarters, ending this past Dec.).

For both Large Value and International stocks, while not proof that a longer-term turnaround will be forthcoming, the data seem to be possibly suggesting that these categories of funds/ETFs will be better places to emphasize within a diversified portfolio over the next few years. With International stocks, and especially emerging markets relatively undervalued, these categories of funds/ETFs would appear more appealing than US-only stock funds when looking at annualized return potentials over at least the next several years.

Still, there can be many "false dawns" where a category seems to be making a comeback but, not much later, falls back again. And, even if the outperformances I expect occur, it may not mean excellent absolute returns but only relatively better returns than the aforementioned competing categories. But especially when viewed over the longer term, an approach that incorporates the notion of comebacks by underperforming categories often seems to be an effective strategy when deciding which funds to emphasize within portfolio whenever considering periodic changes.

But turnarounds don't just happen because one "thinks" they should happen. The necessary ingredient is typically that the category in question has either become under-/overvalued, or, a major and usually unexpected development occurs within the markets that creates a nearly totally new mindset in investors, or both. While the second of these conditions is almost impossible to predict and is relatively rare, the first can be recognized by investors who are willing to pay close attention to relatively extreme over- or under-performance within the category averages. [End]