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Sovereign Wealth

I do hold a more than passing fascination with the idea of Sovereign Wealth Funds – I find the idea of a nation being a custodian of the wealth of the nation to be intriguing. I am also interested ( read fucken appalled) in how badly managed our resources are. For example in 2021 it is estimated that Australia and Qatar will ship roughly the same quantity of liquefied natural gas (about 100 billion cubic metres) For which Qatar will receive $26.6B in royalties whilst we will collect $800M. A staggering disparity – you could say that our incompetence has cost us $25.8B. Alternatively you could say our government has given away this amount of money to someone else for whatever reason. The rationale for governments doing this is up to others to decide.

When thinking about such funds I wanted to see what the latest league table looked like and Google was very helpful and I assembled the following table. I extend it to the 15 largest funds to include our domestic fund.

SW Raw

As you would expect the rising might of China sees it in first place whilst we sit at 13. I decided to re rank this table according to population to get a measure of efficiency and to actually see how much benefit per citizen the funds generate.

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China slips from number one to number 13 – so much money but also so many people. Adjusting for population size only moves us up three places. The absolute superstar of such funds is Norway who have an enviable record of managing their North Sea oil and gas revenues. We can only dream of what the size of our fund would have been if the countries resources has been properly managed

The Great Idiot Tax Continues

It is at this time of the year when superannuation funds crow about how good they have done and of their inestimable benefit to mankind in general and this year was no exception.  So as is my now annual tradition I thought I would have a look at how good they have done and compare that to the real world where delusions about how good you think you are dont exist. From the article I linked to I took this table which looks at the average return of a a growth fund since 1993.

Screen-Shot-2017-07-03-at-1.44.22-pm

Source – Superannuation returns above 10% for the June Year

This piece acts as a good starting point for comparison with the market. For this I used the All Ordinaries Total Return index which used to be known as the Accumulation Index. It includes not only the price movement of the index but also folds back in the dividends of the index components so it is a good benchmark for simply passively holding an index fund or ETF.

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When the chart of the average return of a growth fund is first viewed it does create an overall favourable impression – there are only three negative years and returns seem overall to be quite robust. It is only when you compare this active management with a passive benchmark that you realise how poor local managers actually do when compared to the index. Remember these are people who are paid to beat the index and as we will see they are paid staggering sums of money. Looking at annual percentage returns is quite crude and does lack a bit of fidelity, you dont actually know what the true performance differential is so I looked at the value of $1 invested into an average growth fund and into the index and got the following.

C2

The market leaves the industry for dead – the market investment would now be worth $9.87 versus the industries $5.91 and for this privileged investors have been ripped off handsomely. The chart below looks at what my guess of the annual fee intake of superannuation funds is. For this I have assumed an average fee of 1.5% to cover not only management fees but also advisor commissions.

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So to produce a theoretical return of slightly better than half what the market produced  in the period above the superannuation industry has collected probably close to $310B in fees. So to once again steal from Winston Churchill – never in the field of human endevour has so much been paid to so few for so little.

On The List Of Things I wont Be Doing Today

The Path To Financial Disaster Is Closer Than You Think

I have always been acutely aware that financial success can often disappear with a single misstep. I have over the past three decades seen many people who have made a single error and never recovered. I have known high flying brokers who after the 1987 crash went to work in their local news agency and I had a friend whose $14M trading account evaporated in a few days. This had lead me to play defence when it comes to money. Granted I do operate under the mantra of the fewer fucks I give the more I make but I am always firm on when to pin the pin and I never verge into recklessness. I am always fascinated by the stories of athletes who earn staggering sums and then have nothing to show for it. Many undoubtedly receive appalling financial advice. In the 1980’s the standard advice given to AFL footballers was to buy a pub and become a piss head behind the bar. Some are undoubtedly victims of fraud whereas others are probably just useless.

What intrigues me are the sums of money that many can go through in a very short period of time as shown in the ESPN documentary below. Whilst, many say they wouldn’t make the same mistakes think of all the stupid things you have done and then just add a few zero’s to the equation and see if you are so cocky then. I know from my own experience in my early days I was a bees dick away from doing something stupid and sometimes only the good grace and luck of a move in my direction saved me.

I am reposting the video below because it came back into my consciousness when reading this piece on former NFL player Clinton Portis who both squandered and was swindled out of the $43 M he made during his playing career.

 


 

Remember, Money Doesn’t Have to Be the Root of All Evil

It may cost more than $100 million, but many social problems could be alleviated with the creative infusion of cash. Compensating organ donors could increase the supply of organs and save thousands of lives annually. Paying opium farmers in Afghanistan and Latin America to grow something else could bring an even larger dividend in averted addictions and wars. And why not neutralize opposition to reducing carbon emissions by reimbursing coal miners, or the entire fossil fuel industry, for their losses?

More here – The New York Times

Fiji

I am somewhere over the Pacific reflecting upon my time in Fiji. I am not an easy traveller – I don’t move from country to country with the ease and grace that many do. Mine is not the liquid carefree transnational border hopping where people just set off for a new destination without a care in the world. On the contrary, I am cross between a travelling diva and an organisational freak. Every aspect of what I do is planned months in advance – there are no surprises. In my world surprises are for people who cannot plan and whose lives will never go very far despite their relaxed travel style.

However, the thing I do attempt to do is to make an effort to watch and listen to all the things I see in any new spot. My mode of information gathering when I travel is osmotic in nature as I am always consciously aware of not being one of the many dickheads I have encountered when I do travel. The world has enough dickheads it doesn’t need me to add to their number. Which is something the loudmouth heehaw Yanks in the departure lounge at Nadi could have learnt. My latest adventure has been a juxtaposition in cultures – I stayed at a five-star resort in what is effectively a third world country and the contrast between the two was not lost on me.

In fact, the trip came at a time when I had been reading a fair bit about does money buy you happiness. For some reason, this subject seems to be a cross between the trendy topic de jour and the selective perception one gets when you latch onto a topic. I will state at the outset that I firmly believe that money does buy happiness. Of this I have no doubt. As a crass example as I write this I am sitting in business class and whilst it is not a wonderfully isolating pod like I am used to and snobbishly wish I had. I am happy I am not down the back of this little buzz box of a jet.

However, my word view did seem to clash with that of the Fijians for whom family, culture and faith are paramount. For them their connection to others is their guiding light and this did cause me to reflect on my own somewhat avaristic nature. But I wonder how one applies this way on a western environment where success is somewhat of a scorecard based upon how much you make. And I have to admit I am a willing participant in this game – my childish obsession with expensive cars is in many ways not for me but for others. The first question you are asked when you meet someone new is what do you do? From this one’s social status is defined along with a perception of how much you make. I want others to see what I can afford. This is how we organise our society – we are not set up for our currency to be based upon the quality of our interactions with others.

This raises the question of what can be taken from such a trip beyond a suntan and additional t-shirts for my collection and I must admit I don’t really know the answer. I have some idea about the notion of balance and connection to others but to me this sounds too new age and somewhat of a half arse notion. The sort of thing you would read being spouted by some man bun sporting, kale munching hipster vegan wanker in an inflight magazine with all the depth of a roadside puddle.

I have always had difficulty with people pretending to be from another culture. Few things used to shit me more in the martial arts than students who wanted to be Asian. They would adopt fake mannerisms and would desperately yearn for an Asian partner. They would travel t country like Japan only to realise that no matter how much you wished to be you would never be one of them. And in some ways, I have the same feeling about people who want to be Fijian and adopt their ways and approaches to problems. There are things to learn such as the relentless friendliness of all of those that I encountered. But there are downsides – the Fijians are very proud of their no hurry no worry approach to life and it is a seductively relaxed way of seeing the world. But after a while it would drive you around the bend.

So the question becomes one of what do you take and what to you leave behind and I don’t have an answer to this as of yet.

But there is a deeper question to this and that is what do they take from us. Is it the good bits or do they succumb to the capricious nature of our world?

 

Managing Mistakes

Somewhat appropriate given a cock up I made during the week….
 

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