Tuesday, September 28, 2010

"It is the same stupid old normal we've always had."

From AAP in smh.com.au September 28, 2010 - 11:41AM

Crisis on repeat: We're chimps with no memory

Fisher Investments chief executive Ken Fisher says the economic conditions facing the world today are not dissimilar to previous downturns, like that seen in the early 1990s.

"If you read the media from 1991 it sounds just like it does today," he told the Forbes CEO Conference today.

"We're chimpanzees with no memory.

"Our problems in this environment, that we think are so unique, so abnormal.

"It is the same stupid old normal we've always had."

"We keep chewing the cud. We go over the same stupid wrong pessimistic stories... ruminating on them again and again."

Mr Fisher said unlike five out of six US investors, who "believe we are going sideways or going down", he was bullish about the future.

"I believe the next 10 years will be just as good as the 1990s," he said.

"In my mind, I think the period we have ahead of us is as good as we have ever had ahead of us, at a time when people believe we have a lackluster world ahead at best."


Wednesday, September 22, 2010

Smart thinking trumps crystal ball

Good piece by Tim Blue in today's Australian:

IT is track record through time that can be most telling with fund managers.

Watch them ride out market cycles through smart thinking and investment processes robust enough to withstand the roller-coasters of financial crises.

Texas-based Dimensional Fund Advisors focuses on value and small capitalisation stocks, and deals with them in a way that eschews both index-style and traditionally active trading.

Its Australian Value Trust boasts a 10-year track record of 11.5 per cent annualised to August this year, net of fees, well ahead of the S&P/ASX 200 accumulation index of 7.3 per cent for the same period...


Tuesday, September 21, 2010

Classic YouTube

From Matthew Price's Broom Wagon at SBS Cycling Central

Before Mark Cavendish's win at Salamanca on Thursday there was Adriano Baffi, who won the same stage of the 1994 Vuelta at the considerable expense of Mercatone Uno team-mate Mario Cipollini. Despite not wearing a helmet, the future Lion King somehow escaped serious injury.

Wednesday, September 15, 2010

See the faces of the Pakistan floods: An unforgettable video

TED’s curator, Chris Anderson, was born in Pakistan, and feels an enduring tie to the country — which has recently experienced the worst floods in living memory, killing thousands and displacing tens of millions of people. Chris and his wife, Jacqueline Novogratz of the Acumen Fund, traveled the country, visiting camps and flooded cities — and gathering personal stories from this massive disaster (read them on Chris’ personal blog).

Tuesday, September 14, 2010

The Investment Answer

Excellent new book by Dan Goldie and Gordon Murray is available to buy or download for free in pdf format at:


About the Book (from www.theinvestmentanswerbook.com)

This unique book is written in clear and understandable language. Whether you are new to finance or an experienced investor, this book is essential reading. It cuts through the Wall Street hype to give you just what you need to know. You will learn to take advantage of how markets really work and how to benefit from the wisdom that Nobel Prize winners have acquired over the last 60 years. This book will change the way you think about investing.

About Daniel C. Goldie, CFA, CFP

Mr. Goldie is President of Dan Goldie Financial Services LLC, a registered investment advisory firm that helps individual investors and families manage their money and make smart financial decisions. He has been recognized by the San Francisco Business Times as one of the top 25 Bay Area independent advisors, and by Barron's as one of the top 100 independent financial advisors in the United States.

Tuesday, September 07, 2010

Should we Still be Worried? ... I Say No

I am optimistic about markets going forward. I went to a good presentation last week on sovereign debt issues and impacts on global markets.

The fact is that, so long as we assume that markets are relatively efficient, all of the issues that may give cause for alarm are already factored into prices today. When you buy a share in a company today you are buying an entitlement to a share in all of the future earnings of that company and the price that you pay is the best estimate of those future earnings, discounted back to today's value. If company earnings are likely to be lower in the future then today's price of the company's shares is lower.

The expected return, even from US shares, going forward from today is very similar to that you should expect from Australian shares. At first this may seem counter-intuitive but with the free-flow of capital and efficient markets then if higher returns could reasonably be expected from say Australian markets than US markets then global hedge-fund managers would be selling US shares today and buying Australian shares. Prices would immediately adjust until the expected future returns were similar (ie. Australian shares prices move up and US share prices move down.) The flow of capital and price movements should happen immediately upon the release of new information about the respective economies.

All of this translates to the fact that our current strategy is sound. The last financial year, whilst not being outstanding, was almost exactly what you should expect over the long term from this type of investment portfolio. Return for growth portfolios was around 14% with small companies doing better than large companies, emerging markets doing better than developed etc. There was a slight negative effect due to Australian dollar movement.

I hope that this all makes sense.

Feedback welcome!

Wednesday, September 01, 2010

Elif Batuman in conversation with Richard Fidler

US writer and academic Elif Batuman fell in love with the great Russian writers after reading 'Anna Karenina' some years ago.

Broadcast date: Tuesday 31 August 2010 (612 ABC Brisbane)

Elif has discovered that when you read a truly great novel, it can work as a kind of vortex - drawing you into its world and its passions, and if you're not careful you can end up making important decisions about your own life as a result.

She wanted to explore the link between real life and books, and when she decided to chase up the lives and stories of the likes of Tolstoy and Dostoyevsky, she had no idea of the extraordinary places it would lead her.

Some of the many things she discovered on her bizarrre journey include the discovery that Isaac Babel once met and probably interrogated the creator of the original King Kong movie on a Polish battlefield - and that in the old Uzbek language they have 70 words for duck.

The Possessed: Adventures with Russian Books and the People Who Read Them published by Text

Brisbane Writers' Festival: Thurs 2 Sept GoMA Cinema A 2.30 pm/Sat 4 Sept The Edge 1.30 pm


Building Resilience

Jim Parker, Vice President, DFA Australia Limited
August 2010

'Risk' means different things to different people, but a common definition is as 'uncertainty'. Now, an entire science is being built around the idea of how we can cope better with the unknowable. And it has interesting parallels with investment.

What's known as 'Resilience Science' was the subject of a recent fascinating documentary on public radio in Australia, as an array of scientists revealed how new techniques are being developed to help society cope with rapid and unexpected economic, environmental and social change.1

"People are beginning to realise more and more that systems don't actually behave like we think they do," says Dr Brian Walker, a researcher with Australia's Commonwealth Scientific and Industrial Research Organisation.

The mistaken supposition, Dr Walker says, is that self-organising systems behave predictably and uniformly with small changes accumulating over time.

"But ... there are limits to the degree to which a system can cope with a shock and reorganise to keep functioning the same way," he says. "And once it goes past that limit, which we call a threshold or tipping point, it still keeps self-organising, but in a different direction, and often one that we don't like."

The role of resilience scientists, then, is to find and identify safe operating techniques within this system so that they can continue to cope when the unknowable and totally unexpected occurs.

Environmental journalist and author Mark Scheilstein provided an interesting analogy in citing the recent disastrous oil spill in the Gulf of Mexico or the flooding that followed Hurricane Katrina in 2005.

"When engineers look at major projects—whether levees in New Orleans or an oil rig in the Gulf of Mexico—not only do they have to plan for things they know about, but they have to plan for things they don't know about," he says.

"What happened in both of these instances is a very similar failing, in my mind on the part of the engineers" in that they failed to account for residual risk beyond the realms of their traditional expectations, Scheilstein says.

In environmental science, resilience is developed through building of reserve capacity, developing what's known as "modularity", diversifying food and energy sources, incorporating the idea of sustainability and increasing efficiency so that large exogenous shocks can be managed without the system falling apart.

Interestingly, similar ideas were explored in a financial market context in Sydney recently when Reserve Bank of Australia deputy governor Guy Debelle spoke to a conference on the concepts of risk and uncertainty.2

Debelle made the point that before the global financial crisis, many market participants had fallen victim to a form of hubris, believing that risk was totally quantifiable when in fact there would always be a degree of persistent uncertainty in the system that no model could account for.

"I don't want to get too 'Rumsfeldian' here, but an important element of risk management is to know what you don't know," the central banker said.

Because it was impossible to measure what we don’t know, policymakers and market participants needed to find ways of making the financial system as robust as possible in the face of this inherent and irreducible uncertainty.

So international policymakers in Basel are considering new requirements such as limiting the leverage of financial institutions, delivering a more robust funding structure to banks and enhancing their capital buffers.

Even then, the Reserve Bank deputy governor warned that no single model or combination of models can totally eliminate uncertainty.

"Risk measurement based on historical models can only take you so far. Judgement must play an important role," Debelle said. "Ultimately, the future is uncertain, in the sense that it cannot be quantified. The goal should be to design systems that are as robust as possible to this uncertainty."

The science of resilience is not unlike the approach to investment risk that Dimensional employs. That is, we must not only prepare for risky events that are within the confines of a neat model, but also must take account in our processes of what we don't know—outcomes beyond our conception.

This is achieved by building flexible, resilient, robust and dynamically integrated investment processes that can withstand rapid and unexpected change while maintaining the desired strategies.

Uncertainty in investment outcomes is dealt with through broad diversification, both across and within asset classes. The emphasis is on reducing the impact of idiosyncratic risk in a portfolio and focusing instead on risks that bear a long-term relationship to return.

Substitution is another technique. Traders are given discretion by being able to execute with a wide set of available orders. Not being wedded to an index or having strong convictions about particular securities also gives the investment team the sort of flexibility not available to other managers.

"Modularity" in science means the existence of modules within a network that can communicate and cooperate with each other, but which can operate independently if required. So it is with Dimensional's global investment process—with trading desks in Austin, Santa Monica, Sydney and London dynamically integrated but able to be self-sufficient if needed.

Finally, resilience science incorporates the idea that there are multiple ways of knowing and that our understanding of nature is always evolving. Creative solutions often emerge out of this process.

Dimensional takes a similar approach to investment, always testing its assumptions and encouraging a continuing dialogue between those who pursue theoretical research, those who do the practical implementation and the clients who keep us aware of their changing needs.

Ultimately, building resilience amid uncertainty is what our business is about.

1. Resilience Science, ‘Future Tense’, Australian Broadcasting Corporation, August 26, 2010
2. Guy Debelle, ‘On Risk and Uncertainty’, Risk Australia Conference, Reserve Bank of Australia, August 31, 2010