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I Think We Have A Different Definitions Of Success

Investing is hard there is no doubt about that and being an amateur investor is even harder because you have to rely upon the supposed expertise of others. This lack of familiarity with the industry and its nuances combined with a dependence upon others makes life very difficult for those on the outside.  However, this difficulty is further compounded by the total and utter bullshit that is spewed out by the industry as to how successful they are and how indispensable they are, as a case in point consider the following paragraph –

Many superannuation industry participants were surprised at the Financial System Inquiry (Murray) arguing that the superannuation system was inefficient and uncompetitive. This confused many within the industry as there are many great achievements – collectively, the industry has delivered:

  • A 5% annual real rate of return on investments over 25 years.
  • Part closure on the population’s under-insurance gap through group policies.
  • A large capital market which has reduced our reliance on foreign investment into Australia – and we have a large pool of assets invested abroad.
  • Widespread international recognition of the Australian system as one of the most effective in the world

Source – RiceWarner

The cited Murray Inquiry is correct, the Superannuation industry is inefficient and noncompetitive but in my view it is also incompetent and somewhat delusional. If we were to take a step back and look at the primary difficulties that all investors face it would be fair to say that they are primarily psychological in nature. Investing or trading is primarily a psychological endevour. You are constantly engaged in a battle with both your basic programming and your own inner demons. Once these are brought under some form of control then the game does become a little easier. Within the rich cornucopia of psychological maladies that afflict us all you would find delusion to be a cornerstone in many. A large population of traders consider themselves to be much more effective than they really are. In fact the entire hedge industry is afflicted by this curse as it would seem by the above paragraph is the superannuation industry and its cheerleaders.

In the above piece I have highlighted the points which in my mind set the tone for the industry. The industry believes it is a great success because over 25 years it has delivered a real return of 5% – the problem with this is over the same period of time the real return on the market is  8.8%. This differential doesn’t sound like much but in terms of the long term returns of an investment that is continually compounded it is enormous. Consider the data presented below where I have compared the return on a simple balance of $25,000 compounded at both the market rates of return and that of the industry.

Capture

The job of a fund manager is to deliver what is known as alpha, this simply another word for skill. If a fund manager delivers a long term rate of return of 10% and the markets rate of return is 8% then you can consider this differential to be the application of skill. The superannuation industry in Australia does the opposite – it is a drag on performance. Yet intriguingly it considers itself to be successful. This delusion has profound effects on investors since they are being charged for the privilege of being underfunded in their retirement. There is an extraordinaire difference between having $84,658.87 in retirement and having $205,902.87  This year the superannuation industry will probably take around $2B in fees yet it will undoubtedly deliver yet another sub par year. This adds to the tens of billions already taken from investors. Outside of politics and the public service it would be hard to find an industry that delivers so little value for such cost to the average consumer.

Whilst I cannot give investment advice I can only reiterate what I have said before. If I had to have superannuation I would opt for an index linked fund with the option to move into cash when required and I would shift in an out of these two options based on the application of a long term moving average over the All Ordinaries as per the free chart below –

index

Nothing fancy or complex, when the index is above the moving average you move into the index when it is below you move into cash.

Bulls, Bears & Charlatans

The word ‘charlatan’ is supposedly derived from the Italian word ciarlare, which means ‘to babble.’

Some of the original charlatans were confidence men who would prey upon people’s misunderstandings about healthcare before modern medicine existed. There used to be traveling medicine shows where the salesperson would make promises of magic elixirs that would heal all wounds. It was only after they had moved on to the next town that people would realize they’d been swindled as these tonics were worthless forms of medicine (this is also where the term snake oil salesman comes from).

A charlatan has also been described as someone who professes to have abilities or expertise that they do not have. The term ‘charlatan’ is perfect for the finance industry because it can attract people pretending — whether they realize it or not — to know more than they actually do.

More here – A Wealth of Common Sense

PS: I was going to write something on exactly the same headline but as you can see someone beat me to it…..

Downer EDI

Here is a chart of Downer EDI (Dow)

Dow

If you bounced into this on the breakout from congestion well done, you got a nice trade and then it all went pear shaped. DOW have apparently launched a bid for Spotless which I mentioned last week. This bid entails a capital raising whereby for every 5 existing DOW shares you own you get another 2 at $5.95. This brings the true adjusted price to $7.01. Now as sometimes happens things dont always go as planned. The market is a giant voting machine and in this instance it has decided that the takeover of Spotless has knobs on it but that is not the point. The point is that I have heard that people who have been recommend DOW have been moaning and whinging that it has gone down.

Well, here is a news flash for all of you who take a trip to Brown Gouge to get your pants cleaned every time things dont go perfectly…..SUCK IT UP.  The market is not perfect, it is an odd, organic, sometimes self correcting, maddeningly chaotic system that in no way has to conform to your belief structure. This sort of event will happen at least once in your trading career and if you cannot handle that without blaming everyone else in sight then this business is not for you. So step aside and leave it to the grown ups.

I Think This Says Americans Have Gotten Fatter But Not Smarter….

The Sickening Business of Wellness

The term “wellness” — which seems to encompass everything from yoga to detox teas to crystals — is very hot right now. Earlier this year, New York magazine dedicated an entire, incredulous month to figuring out what wellness was, producing such articles as “How Algae Went From Horse Food to Wellness Trend” and “The Real Housewives Guide to Wellness” (Lisa Vanderpump regularly goes to the cryotherapy tank). Just last month, the Harvard Business Review declared in an article that employers need to recognize that “wellness” starts at work, although the piece stops short of defining what, exactly, wellness is. Wellness can be big business. Beyond “wellness programs” at work, “wellness centers” are popping up across the country — Russell Simmons just opened one in LA.

So what is wellness? Wellness technically means the opposite of illness. According to nationalwellness.org, wellness “is a conscious, self-directed, and evolving process of achieving full potential.” Okay.

More here – The Outline

Have A Guess….Any Guess

I should add that once a year Marc Faber who is cited often on this chart pops up and says the end of the world is coming. No doubt one year it will and he will bounce around in triumph and the dimwitted double digit IQ plonks in the media will laud him as a genius.Capture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source @JonBoorman

 

Learn To Think

CaptureSomeone who clearly doesn’t know me very well sent me this meme. Apparently, it is from one of our many cognitively challenged politicians suggesting that the unemployed should all go into the armed forces. Whilst, it is a profoundly stupid idea as we will see in a minute it will no doubt play well with those parts of Australia where teeth, IQ points and sexual partners who are not related to you are in short supply.

Despite this it is an incredibly instructive piece about the power of a simple phrase which is merely a short narrative and the need to actually think. The meme seems to in a clear manner solve several assumed problems.

Unemployed youth are a problem.

It assumes that unemployed youth are a problem themselves as a matter of character.

The military can fix these problems because the military fixes character flaws.

Unemployed youth will be better when they come out of the armed forces.

It will save us money because they won’t have to be paid unemployment benefits.

You will also note that like all strong simple narratives it contains an element of bias. It assumes that there is something wrong with the group being referred to and they can be fixed quite easily. It is at this point that most people stop thinking and fail to consider the implications of what they have read.

To look at the reality of dumping all the unemployed youth into the armed forces I have done a bit of dodgy back of the envelope number crunching. Currently the Australian Defence Forces (ADF) personnel number 57,982 – a relatively small but professional organisation. The current budget for the ADF is $34.2B. Both these numbers are important since the form the basis for my broad brush guesswork. As best as I could tell from the labyrinthine government statistics there are about 300,000 unemployed youths between the ages of 16 and 24, which also neatly is just on the lower limit for selection. I couldn’t readily find a better breakdown so I am going to assume that this is our effective population available for service.

In the first of my really sweeping generalisations I am going to assume that we dump all 300,000 into the ADF, so the size of the ADF goes from 57,982 to 357,982. It is here that our brilliant slogan begins to run into trouble because you have to feed, cloth, house and train this suddenly resurgent military lest you have 300,000 bored bastards sitting in a field outside Puckapunyal looking for rocks to paint.

If we assume continuity in levels of training and equipment then the ADF’s budget is going to have to go through the roof. If it costs us $34.2B to have a military of 57,982 then I going to assume that to expand the military almost five fold then we will have to expand the military budget fivefold. All of a sudden the ADFs budget goes from $34.2B to $171B (I have assumed folding in the current expenditure).

This number needs to be put into context. It would mean we have the third largest military budget in the world behind the US and China. It would be about 7% of our GDP and about $68,000 per person – giving us the most expensive military in the world based upon GDP and per head expenditure.

So how much does this save us?

Apparently the most expensive part of the unemployment/welfare miasma is the Newstart allowance which approximately $10B per year which is shared among 858,373 recipients. Again assuming a simple pro rata breakdown our 300,000 unemployed youths cost us $3.5B per year.  Therefore the brilliant decision to lob everyone into the ADF costs us $167.5B per year ($171B – $3.5B)

I accept that my dodgy figures are probably off by miles but it still easily shows what an incredibly stupid idea it is. Even if I am off by an order of magnitude it is still stupid but more importantly it was easily shown to be stupid with little more than a pencil and a piece of paper. Consider this in the context of your own trading, most of the things you hear are stupid and can be shown to be so with a little bit of critical thinking. But is it is this critical thinking bit of the equation that lets people down, we are primed for simplistic explanations and slogans. Thinking is a metabolic and emotional cost because what you find out may run counter to what you believe to be true and nobody wants that to happen.

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