One of the most egalitarian things about markets is that everyone has access to the same information. Sure there are occasional instances of insider trader and pump and dump schemes surrounding dodgy mining companies that always seem to originate from Western Australia. But the numbers we all see on a daily basis are the same – there are no hidden numbers that a special coterie of Illuminati have access to that grant them boundless wealth. Which is why it is always surprising to me that the quality of advice given to retail investors is so poor. All analysts would have to do is to step back and ask themselves the simple question – is what I am saying based in any form of reality at all.
Recently I got a piece of marketing gibberish from someone who suggested that local banks are brilliant long term investments – so I decided to test that hypothesis. The table below looks at the value of $10,000 invested in each of the major banks ten years ago, its value today, and the CAGR and MaxDD.
The table is hardly a ringing endorsement for investing in banks. Again we return to the relationship between drawdown and return – if I am faced with the possibility of having a 50% drawdown I would want better than single digit returns. With such a drawdown my return should be multiple of my original investment, not barely breaking even after ten years.
This information is not hidden it is publicly available you just have to look and educate yourself. But despite what they say education is not free – you have to pay attention.
