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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.

Capture

 

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

A Few Charts To Chat About

Every quarter JP Morgan Chase put out what they call a Guide to the Markets. The report itself is largely noise and is the sort of thing that research departments like to show to clients in an attempt to convince them that they are more than the sum of their convictions and misdemeanours. Generally I ignore this sort of thing but there are two charts within the report making the rounds and these deserve comment and the third is one that doesn’t get much attention but which is perhaps the most useful chart in the report.

The first chart I want to look at is the one titled S&P 500 at Inflection Points –

Inflection

To be honest I have never known what they mean by the term inflection point. Inflection simply means a change in the form of a word although I do think they might be trying to be a little bit clever and use the meaning that is derived from differential calculus which is the point at which a curve changes from being convex to concave and vice versa. So the implication for the average punter seeing this is that the S&P 500 is at a point of instability or change when in fact all you are seeing is a series of straight lines drawn with the benefit of hindsight. I have been receiving these reports for some time and the terminal point of the final line has been creeping up as the market has moved up. Whatever predictive value they think is has is eroded by this simple fact of self correction. The other point that concerns me about this sort of thing is the small call out box in the middle of the chart which offers a series of metrics which are designed to offer a comparison between the present day and two points of previous reversal. Again the implication is to convey the notion that the market is at some sort of tipping point.

One of the things that amazes me most about trading is that the longer I do it the more I admit that I dont know. For a very long time I have been convinced that I have no idea where the price of instrument is going. I certainly know a lot about market dynamics, the history of markets (which is something everyone should study) and about my own reactions to events. But I have sod all idea about where the market is going. Granted I can create a narrative in my own head to justify my own positions but at the end of the day I simply make a bet on the direction of an instrument and I am consciously aware of my own behavioural short comings. Charts such as the one above try to convey a form of pseudo scientific form of prediction that does little more than seek to appeal to the various biases of the reader. Readers viewing this sort of thing will anchor on the two highlighted points and use them as a reference for their decision making when they are probably little more than a Ludic fallacy.

S&P500

This second chart only tells us one thing – an index go up over time. But even that is not as obvious as it seems. Firstly, the S&P 500 is a relatively new index it certainly was not around in the early 1900’s. So what you are seeing is an artefact, something that is not real. Secondly, the chart doesn’t show the real changes in the index when adjusted for inflation. Accepting that the index did not exist for the majority of the period under investigation and using as much historical data as I could find I have adjusted the index below for inflation. You will also note that even though I have adopted the same log scaling the scaling of the data is different – this is what happens when you are plotting a made up version of the index.

Inflation

As you can see the almost linear climb of the last few decades is not as pronounced when the data is adjusted. Whilst I dont want to overstate the impact of adjusting the data it is important to understand that the reality of investing over the very long term as opposed to the rosy picture presented by simple price data.

The final chart is actually what I would consider to be the only useful chart in the entire report because it documents the extreme rebound that equity markets are capable of.

Returns

As you can see despite some deep falls within the year the index has in the majority of cases managed to finish positive for the year.  However, it doesn’t man that the index has an ever upward trajectory – it can still go nowhere for periods of time which is what catches the buy and hold brigade. They misinterpret this chart as indicating that markets always get better and markets or more correctly indices do climb over time of their upward bias but that doesn’t mean your stock or collection of stocks will follow. The usefulness in this final chart is that it reminds us that markets change and they change over a variety of periods – change offers us the potential for involvement and therefore profit.

Why Cant Monkeys Talk?

Decades ago, while Philip H. Lieberman was soaking in a bathtub and listening to the radio, he heard anthropologist Loren Eiseley ponder an evolutionary puzzle: Why couldn’t monkeys talk? Like us, they’re social primates, intelligent and certainly not quiet. Rhesus macaques grunt, coo, screech and scream. Infant macaques make sounds known as geckers. Despite the grunting and geckering, though, no other primates — not even the chimpanzees and bonobos, our nearest ape relatives — can make the vowel and consonant sounds we know as speech.

More here – Washington Post

PS: You mean Planet of the Apes is not possible….WTF?

A MATH GENIUS BLOOMS LATE AND CONQUERS HIS FIELD

….Huh’s math career began with much less acclaim. A bad score on an elementary school test convinced him that he was not very good at math. As a teenager he dreamed of becoming a poet. He didn’t major in math, and when he finally applied to graduate school, he was rejected by every university save one.

Nine years later, at the age of 34, Huh is at the pinnacle of the math world. He is best known for his proof, with the mathematicians Eric Katz and Karim Adiprasito, of a long-standing problem called the Rota conjecture.

Even more remarkable than the proof itself is the manner in which Huh and his collaborators achieved it—by finding a way to reinterpret ideas from one area of mathematics in another where they didn’t seem to belong. This past spring IAS offered Huh a long-term fellowship, a position that has been extended to only three young mathematicians before. Two of them (Vladimir Voevodsky and Ngô Bảo Châu) went on to win the Fields Medal, the highest honor in mathematics….

Dont worry too much about the fact that this is about a mathematician who specialises in a very rarefied field – absorb the lesson that often it is never too late.

Conundrum Of The Day

I have reflected on the post I wrote last week about the great superannuation rip off in which I compared the returns from investing in an average growth fund with those derived from investing in the index. It struck me over the weekend that the majority of fund managers (read almost all ) are followers of the Efficient Market Hypothesis (EMH).  The central tenet of  the EMH is that it is impossible to beat the market because all information is seamlessly incorporated into a securities price and that investor will react in a rational manner to this information.

So the question becomes if the people managing superannuation funds believe this to be true and I think they do, why then then do they have growth portfolio’s? Growth portfolios are in simple terms stock picking portfolio’s designed to beat the market. If you believe you cannot beat the market why then bother with stock picking? This is a massive contradiction and I have no idea how they reconcile this.

But then again they managed to reconcile charging vast amounts for bringing no skill whatsoever to the investment process.

How you see the world has a significant effect on your success by Michael Yardney

I’ve asked Michael Yardney to write a special guest column today. Michael has been a friend of mine for many years and is our ‘go to’ guy when it comes to property. I’m sure you’ll find his insights powerful. Now… over to Michael.

There are, broadly speaking, two ways to see the world and these have a great influence on how successful you become.

The first is what psychologists call the “external locus of control,” and the second is the “internal locus of control.”

You see… as the world around you changes, you can either attribute success and failure to things you have control over, or to forces outside your influence.

And which orientation you choose has a huge bearing on your long-term success.

This concept dates back to the 1960s with Julian Rotter’s investigation into how people’s behaviours and attitudes affected the outcomes of their lives.

Locus of control describes what individuals perceive about the underlying main causes of events in his/her life.

Put more simply:

Are you the pilot of your life or you just a passenger?

Do you believe that your destiny is controlled by you or by external forces (such as fate, the government, your boss, the system or others)?

Here’s how Charles Duhigg—the author of the book Smarter Faster Better describes locus of control:

“Locus of control has been a major topic of study within psychology since the 1950s. Researchers have found that people with an internal locus of control tend to praise or blame themselves for success or failure, rather than assigning responsibility to things outside their influence. A student with a strong internal locus of control, for instance, will attribute good grades to hard work, rather than natural smarts. A salesman with an internal locus of control will blame a lost sale on his own lack of hustle, rather than bad fortune.

“‘Internal locus of control has been linked with academic success, higher self motivation and social maturity, lower incidences of stress and depression, and longer life span,’ a team of psychologists wrote in the journal Problems and Perspectives in Management in 2012. People with an internal locus of control tend to earn more money, have more friends, stay married longer, and report greater professional success and satisfaction”

What is an external locus of control?

Well, we all know those people.

In fact, sometimes we are those people.

Nothing is ever their fault. There is always an excuse. The world is out to get them, life is unfair.

Duhigg describes it as follows:

“…Having an external locus of control—believing that your life is primarily influenced by events outside your control—’is correlated with higher levels of stress, [often]because an individual perceives the situation as beyond his or her coping abilities,’ the team of psychologists wrote” (24).

The benefits of an Internal Locus of Control

In general, people with an internal locus of control:

  • Engage in activities that will improve their situation.
  • Emphasize striving for achievement.
  • Work hard to develop their knowledge, skills and abilities.
  • Are inquisitive, and try to figure out why things turned out the way they did.
  • Take note of information that they can use to create positive outcomes in the future.
  • Have a more participative management style.

The bottom line:

We aren’t born with an unalterable locus of control, so it is critical to keep an eye on in ourselves so we can improve the way we look at the world.

Sure, bad things happen to us.

But rather than dwelling on them, it’s better to find a useful belief about them and move on.

It’s important to remove the idea that your life is dictated by forces outside of your control.

Of course, to one degree or another, it is. But there is plenty that we can control. You can create your own luck through study, hard work and perseverance.

It’s often said that you become a blend of the five people you hang out with the most.

This is important to keep in mind. Associate with positive people who believe they are in control of their own lives. Their beliefs and energy will rub off on you. And then yours will rub off on them.

It becomes a very powerful and positive feedback loop!

 

Guest author:

Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog. 

50 Smartest Companies

You will note somewhat sadly that not one of them is located locally….

C4

More here – MIT Technology Review

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The Trading Game Pty Ltd (ACN: 099 576 253) is an AFSL holder (Licence no: 468163). This information is correct at the time of publishing and may not be reproduced without formal permission. It is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs.