I was thinking of the results I was able to generate in part one and have come the conclusion that they flatter the basic premise of achieving the same return as the accumulation index. Remember, the basic premise was you simply bought the index and hung on – it is referred to in the piece as a do nothing strategy. Unfortunately it is far from do nothing and completely unrealistic in both expectation and execution. Such ideas suffer from and are ultimately doomed by the phenomena of survivor bias – the index today is not the index of 1984. Looking at the trajectory of the index gives an unrealistic sense of what you can expect since the index is merely a representation of a collection of companies that at any given point make up the index. This collection is fluid – stocks move in and out of the index on a quarterly basis.
If you had to buy the index in 1984 you would have bought stocks such as Bell resources, Bond Corp, Ariadne, Qintex, MIM, and Adelaide Steamship – all of which have disappeared along with dozens of others stocks from that period. If you want to maintain a portfolio that mirrors the index you need to be constantly rebalancing your portfolio to reflect changes in the index . To give you an idea of how unreasonable such an undertaking is for a private investor consider that the March 2013 quarterly rebalancing of the index generated 64 changes. Therefore your portfolio would have had to sell the following stocks –
Aspire Mining (ASX: AKM)
Australasian Resources (ASX: ARH)
Arafura Resources (ASX: ARU)
Atlantic Limited (ASX: ATI)
Ausgold Limited (ASX: AUC)
Alcyone Resources (ASX: AYN)
Azumah Resources (ASX: AZM)
Crusader Resources (ASX: CAS)
Cerro Resources (ASX: CJO)
Cokal Limited (ASX: CKA)
Carabella Resources (ASX: CLR)
Carbon Energy (ASX: CNX)
Dragon Mountain Gold (ASX: DMG)
Engenco Limited (ASX: EGN)
Empire Oil & Gas (ASX: EGO)
Elders Limited (ASX: ELD)
Finders Resources (ASX: FND)
Gold Road Resources (ASX: GOR)
Hunter Hall International (ASX: HHL)
Kula Gold (ASX: KGD)
Kentor Gold (ASX: KGL)
Metgasco Limited (ASX: MEL)
Marengo Mining (ASX: MMC)
Murchison Metals (ASX: MMX)
Moly Mines (ASX: MOL)
MetroCoal Limited (ASX: MTE)
Nkwe Platinum (ASX: NKP)
Noble Mineral Resources (ASX: NMG)
PMP Limited (ASX: PMP)
Rialto Energy (ASX: RIA)
Robust Resources (ASX: ROL)
Resource Equipment (ASX: RQL)
Stanmore Coal (ASX: SMR)
Samson Oil & Gas (ASX: SSN)
South Boulder Mines (ASX: STB)
Seymour Whyte (ASX: SWL)
Tribune Resources (ASX: TBR)
Voyager Resources (ASX: VOR)
WDS Limited (ASX: WDS)
YTC Resources (ASX: YTC)
And buy the following stocks –
Alchemia Limited (ASX: ACL)
Auckland International Airport (ASX: AIA)
Altium Limited (ASX: ALU)
AMA Group (ASX: AMA)
Australian Power and Gas Company (ASX: APK)
Avanco Resources (ASX: AVB)
BigAir Group (ASX: BGL)
Bravura Solutions (ASX: BVA)
Calibre Group (ASX: CGH)
Collection House (ASX: CLH)
CTI Logistics (ASX: CLX)
Central Petroleum (ASX: CTP)
Coventry Group (ASX: CYG)
Donaco International (ASX: DNA)
Energy Developments (ASX: ENE)
FAR Limited (ASX: FAR)
Fonterra Shareholders’ Fund (ASX: FSF)
Funtastic Limited (ASX: FUN)
Gale Pacific (ASX: GAP)
Greencross Limited (ASX: GXL)
Hot Chili (ASX: HCH)
HFA Holdings (ASX: HFA)
Icon Energy (ASX: ICN)
Indochine Mining (ASX: IDC)
Infomedia Ltd (ASX: IFM)
Ingenia Communities Group (ASX: INA)
Iron Road (ASXL IRD)
Integrated Research (ASX: IRI)
Jumbo Interactive (ASX: JIN)
Jupiter Energy (ASX: JPR)
Lifestyle Communities (ASX: LIC)
Liquefied Natural Gas (ASX: LNG)
Lonestar Resources (ASX: LNR)
Lachlan Star (ASX: LSA)
MEO Australia (ASX: MEO)
Millennium Minerals (ASX: MOY)
Macphersons Resources (ASX: MRP)
Medical Developments International (ASX: MVP)
MaxiTRANS Industries (ASX: MXI)
Mayne Pharma Group (ASX: MYX)
Norton Gold Fields (ASX: NGF)
Otto Energy (ASX: OEL)
1300 Smiles (ASX: ONT)
Peninsula Energy (ASX: PEN)
Pro-Pac Packaging (ASX: PPG)
Reef Casino Trust (ASX: RCT)
Reed Resources (ASX: RDR)
Sino Gas & Energy Holdings (ASX: SEH)
Sihayo Gold (ASX: SIH)
Sirius Resources (ASX: SIR)
Silver Chef (ASX: SIV)
Service Stream (ASX: SSM)
Strike Energy (ASX: STX)
Sun Resources (ASX: SUR)
Syrah Resources (ASX: SYR)
Toro Energy (ASX: TOE)
Treasury Group (ASX: TRG)
Universal Biosensors Inc. (ASX: UBI)
Unity Mining (ASX: UML)
US Masters Residential Property Fund (ASX: URF)
Vocus Communications (ASX: VOC)
Westside Corporation (ASX: WCL)
Wellcom Group (ASX: WLL)
Yancoal Australia (ASX: YAL)
In a single day you would have had to undertake 128 transactions to hold your portfolio as a static representation of the index. Clearly, this is an idiot idea.
It all makes sense if you believe that the article was written by one idiot so that all the buy and hold idiots get a dose of confirmation bias for Christmas
CT, you should write an article in The Age!!
I doubt very much they would publish it.
Type in: honesty, common sense and media in one sentence into Microsoft Word and it will green underline it reporting “fragment (consider revising, non sensical)”.