Comments on: Your Actively Managed Superannuation Fund Cannot Beat the Market

By: Russell

Russell — Sun, 12 Jul 2009 23:07:14 +0000

Brian,

Feel free to send me a quick email. rcmuldoon@live.com I can point u in the right direction of the team responsible for this performance. FYI, it is also a publicly listed business with a Top Teir audit firm, so accuracy and integrity is assured.

Russell

By: Greg Atkinson

Greg Atkinson — Thu, 09 Jul 2009 07:55:18 +0000

I think one problem we have is people think that just because something is a "system" that somehow this means it is faultless and will always work. It has been so long since we faced harsh economic times in Australia that people have simply forgotten that sometimes you have years of negative returns.

My own view is that you should treat investing like a business. You do not run a business simply to get tax credits so likewise you should not invest in something simply because it looks tax effective.

I am not really into "systems" as such, I prefer to simply invest in areas where I see long term potential but I see the merit in having a balanced portfolio..it is a hedge against errors.

Bashing financial planners can go too far and few self appointed investment legends ever disclose in any detail what they hold in their portfolios or how they trade. (I am not an F.P by the way) We have good investment years and we have shockers...that is simply the way things go and that isn't the financial planners fault.

By: Coffee Addict

Coffee Addict — Thu, 09 Jul 2009 06:27:05 +0000

Richo. I agree, though in saying. I'm not a financial planner but if I were, I'd be telling many of my clients to keep a substantial portion of their powder dry. Its like a battlefield out there and you need to be willing and able to either redeply your troops on a daily/hourly basis OR stay well in the rear. (This is where is where most Bob's clients would, I guess, want to be.) If there is another market "correction" the Mums&Dads could wisely dabble into consumer stables like WOW for long term dividends but timing advice is also important here. You will currently pay a premium for getting into stocks that are "perceived" to be defensive. I don't believe there is any obligation for me or anyone else to diversify onto battle fronts that are likely to be high loss makers in the short to medium term. That said, IF an asset class, say commercial or residential property tanks out completely there is may be tactical advantage in putting your entire portfolio there for a period of time. . My thinking is of course not foolproof and it has been a red ink week for my gold and energy speculatives. Interestingly, I have (so far) done no worse this week than my industry superfund which follows a diversified/passive/largely blue chip approach to equity investment. We're both down about 4.5%. My downside may be similar to the industry fund BUT my upside potential is, I believe, much better. On the issue of timing I haven't done too badly so far but I don't have a crystal ball. Consequently I don't tend to dive into (or out of) anything too quickly. I'm willing to pay higher transaction fees to nibble into a stock over time rather than punt it all in one go. Similarly, when the time comes for me to move super funds from cash into Aussie equities this may well occur in monthly chunks of 10 to 20 percent of portfolio value. This is not a foolproof strategy but it may mitigate some timing risks in some circumstances.

By: Richo

Richo — Thu, 09 Jul 2009 05:16:03 +0000

The problem is that any systematic framework for investing is going to have flaws. Portfolio theory is a good theory, but (correct me if I am wrong) uses symmetrical risk curves.
5 years ago or so, I read an interesting piece from a statistician working with finance. He pointed out that risk in markets is strongly assymetrical. That is that the chance of a catastrophic decline in price is higher than the equivalent gain in price.
That blows apart investment theories which use symetrical risk models to make the calculations solvable.
The Black Scholes formula for pricing options uses a symmetrical risk model.
And then the notorious Gaussian copula formula. Similarly used for scenarios beyond its limitations. http://minitutorials.com/forums/index.php?showtopic=4609

By: Bob Jobson

Bob Jobson — Thu, 09 Jul 2009 03:37:13 +0000

Biker Pete, I am a Financial Planner, not an investment manager. I (like most Financial Planners) outsource the investment management function to investment managers. I am the co-pilot holding the map. Does your doctor work on a performance-based system? If you get cancer, does he only get paid if you go into remission? I am the advocate, trying to help my clients navigate through an uncertain investment landscape. I read in the paper the other day that retail investors have lost $8Billion (that's eight thousand million dollars) in failed investment schemes. This is why I only invest in passive and low-cost index funds for clients. The big dilemma is do we follow Modern Portfolio Theory which says that you should stay invested (and diversified) at all times, or do we try to 'time' which investments to be in and when? Timing is very easy in hindsight, as it now seems that everyone saw the GFC coming, but in reality, it is extremely difficult. In fact in the USA Dalbar (a research firm) have studied the returns achieved by the average investor (in Mutual funds) over a 20 year period and found that while the market deliver 11.8%pa the average investor achieved 4.3%pa...why due to poor timing decisions (selling at the bottom and buying at the top). I still think the knockers of MPT need to put up or shut up.

By: Biker Pete

Biker Pete — Wed, 08 Jul 2009 10:03:28 +0000

A viable alternative? How about a performance-based system, Bob? Using OPM, you lose... you don't get paid.
We knock realtors on this forum (sometimes for good reason!) but with the exception of auctions (those dupe shows...) if there's no result, there's _no_ payment... .

By: Bob Jobson

Bob Jobson — Wed, 08 Jul 2009 01:17:28 +0000

Dan, I find your work very interesting (I am a Financial Planner and was a Stockbroker for many years by the way) and I always enjoy a 'contrarian' whovever, the thing that frustrates the life out of me, is that all those who knock Modern Portfolio Theory make very valid point, but one thing they they (and you) fail to do, is present a viable alternative. I would be the first to admit that MPT is not perfect, but those who suggest that Tactical Asset Allocation (or simply timing) is a better option, provide no explanation of how this is to be achieved or no evidence that they are actually successful using it. There are plenty of Stockbrokers and others out there who claim to be good at timing, but where's the hard evidence. Anyway, thanks for the article. Cheers Bob.

By: Brian

Brian — Wed, 08 Jul 2009 00:58:35 +0000

Hi Russell

Care to add the name of said boutique fund manager? I am seriously looking at moving my money from my current fund manager to one who actually makes positive returns well above the average and benchmark.

Putting all my super into an index fund would be even more agreeable than accepting my current fund manager's 'performance'

By: Jay

Jay — Tue, 07 Jul 2009 22:30:56 +0000

Russell - I doubt that Dan or anyone else could reproduce that research, because they wouldn't be given access to the data. It would be a good idea to read the report before bagging it. For example, it recognises that there are high-performing funds that consistently stay in the top quartile; unfortunately, though, there are more that consistently underperform, and underperformance seems to be stickier.

The main point of the report (as opposed to the way it's been reported) was to call for better information so that people could assess their options more knowledgeably. This seems to be a move towards more thinking, not less.

By: Russell.

Russell. — Tue, 07 Jul 2009 06:58:42 +0000

Dan, sometimes you speak of things u know little about and articles like this are truly very frustrating. What a load of crap.

I worked for a boutique fund manager in Sydney up until just recently. Our performance was excellent and well above the index returns over 1, 2, 3 and 4 year time frames. In fact our out-performance numbers over these same periods were 1yr +26.7%, 2yr +12.3%, 3yr +22.5%, 4yr +14.4%.

We were stock pickers and ran a concentrated fund of less than 15 businesses based on teachings from whom u talk about – Warren Buffett. OUR superannuation clients did VERY well by allowing us to actively think and invest their capital rather than just hug an index.

What your article suggests is that there is not point in thinking. Well, rather than being frustrated, perhaps I should congratulate you on an excellent piece. I guess I should actually be happy with this research… what could be better than to be in a business with other investors who feel that there is no point in actually thinking for themselves?

Relying on a report produced by a lazy Government run organisation that gets paid not to think is highly questionable. Please research your own articles next time.