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Fund Manager Scorecard

Each year Standard and Poors produce a scorecard of the performance of a regions fund managers against their comparison indices. You can find the raw scorecards here.

I decided to download the one for Australia and tidy up the data a little so it was more presentable. The chart below looks at the number of funds in various categories that have failed to match or beat their benchmark over a 1, 3, 5, and 10 year period. Just a reminder this table shows the number under performing, not the number that beat the index.

As you would expect this is one of those РI think I have seen this movie before type of scenarios. The majority of fund managers failed to match the index in all categories over all time frames. I had a quick glance at the scorecards for the other regions and this pattern repeats itself in all regions. The reasoning for this I think is that all managers are captive to the same narrative fallacies and are caught in the same academic, philosophical and psychological delusion. It is not that markets cannot be beaten because there are clearly well known managers who have beaten their index year after year. But if you based your investment strategy on notions such as the Efficient Market Hypothesis, perceptions that you know the value of  something and plain stupid ideas such as we dont need stops because we are smart and would never buy a company that went down. Then you deserve to made to look like an idiot.

However, there is a wider implication and that is the impact that this sort of massive non performance has on issues such as retirement. As I have said before part of the looming retirement crisis could be solved simply by nationalising all superannuation funds and placing everyone in an index fund. Overnight long term returns would double and fees would be more than halved. But there is also another impact and this one in related to the impact of on performance on the broader confidence in market participants. Is it any wonder that Australians opt for real estate as the prime mechanism of passive wealth creation when they hear about this sort of rip off.

Of Brexit And Bad Teeth

With the Poms shortly to decide whether or not to stay with Europe or go it alone the following graphic from the WSJ is interesting. As you can see the Pound has had a crisis of confidence at least once a decade since the the end of the Second World War.


It has been interesting to listen to the arguments for leaving. They seem to my ear to be rooted in the 1890’s when Britannia did rule the waves and the British Empire span huge swaths of the planet. They have not noticed that they are now a second rate power even within Europe. My guess is that the Europeans might be glad to see the back of their appalling food.

The Big Short


2015 – The Year In Money

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More here – Bloomberg

All Bubbles End With A Bust

One of the charts I occasionally look at is the RBA cash rate – I do so not because I think it is of any value whatsoever in making trading decisions but because it a wonderfully instructive prism through which to look at the psychology of people making long term investment decisions. The chart below tracks the cash rate since 1990.

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Since 1990 there have been two extended periods of easing – the first in the early 1990’s that lasted about 135 weeks and the current period which is of a similar duration. My observation of people when they comment on the cash rate is that they base their decision making or interpretation on what has happened since the last easing – that is they suffer from an extreme form of recency bias. It as if the cash rate only exists from one quarter to another. Contained within this bias seems to be the notion that rates have only ever fallen. Looking at the chart above tells a different story – easing is followed by tightening which is in turn followed by easing. During this century the cash rate has been at an average value of above 4.5%. I do admit that averages are a blunt problematic tool but it does illustrate that where we are now in the cycle is probably an outlier just as the very high rates of the late 1980s were. ¬†Outliers tell us something important because they illustrate the notion of regression to the mean. Within all systems regression to the mean is a key feature of all distributions and there is nothing we can do about it. Distributions are like thermostats that swing around a central value – overshooting and then retracing and this cycle repeats for as long as the system is in existence.

What this means for people whose investment decisions are based upon the cash rate is fairly obvious.



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