Good reads from around the Web.
I wrote a big introductory musing article about the state of the world as usual this morning, but it’s so long that I’ve decided to save it for a future post in its own right.
It was riffing on this post by David Schwartz in the Financial Times about high yield shares (that’s a search result – click the article near the top).
So you can go read that to get prepped up. 🙂
Look on the bright side – less homework for you before you get to dive into this week’s links!
Enjoy.
From the blogs
Making good use of the things that we find…
Passive investing
- When fund selection is done right – Rick Ferri
- Are investors really this clueless? – Canadian Couch Potato
Active investing
- Hindsight bias – Expecting Value
- Confirmation bias and perma-whatevers – Abnormal Returns
- Value traps that aren’t – The Value Perspective
- Tesla and growth investing – Ivanhoff Capital
- Intertek: Great growth, but expensive – iii blog
Other articles
- How to prosper in an economic boom – Mr Money Mustache
- You ever go totally crazy? – James Altucher Confidential
- Financial repression and UK wages – Retirement Investing Today
Product of the week: Credit Unions have often been touted as a post-crisis alternative to greedy Big Banking, but The Guardian reports one a month has been going bust. They’ve been smaller operations so far, and savers were compensated up to the £85,000 FSCS limit.
Mainstream media money
Note: Some links are to Google search results – these enable you to click through to read the piece without you being a paid subscriber of the site.
Passive investing
- Interview with passive investing legend Charles Ellis – CNN Money
- US investors increasing their reliance on ETFs – FT
Active investing
- Great write-up of the Berkshire annual meeting – Jeffrey Matthews
- Has Australia’s luck run out? [Search result] – Merryn/FT
- Lesson from Buffett: Doubt yourself – Wall Street Journal
- The oil and gold booms are over – Bloomberg
- Alternatives to ‘terrible’ bonds [Search result] – FT
Other stuff worth reading
- Co-op Bank downgrade: Is your money safe? – Guardian
- Time to buy a Euro property bargain? – Telegraph
- Where is property cheap but family friendly? [Interactive] – Telegraph
- Peston: Who should get our RBS and Lloyds shares? – BBC
- Wall Street is back – The Economist
- Why you’re right to fear the news – MarketWatch
- Soros debating Europe [Long!] – Project Syndicate (or Reuters’ recap)
- The biggest retirement myth ever told? [US, would love to see UK data] – Motley Fool
Book of the week: Early reports are that Baz Luhrmann’s movie version of The Great Gatsby
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Sorry about the title. I forgot to change it when I decided to store the article for the future!
Thanks for such a great list of reads, looks like I have lots of reading to do this weekend. Cheers mate.
Mr.CBB
@Investor,
The post to which you linked was not up to the standard of the posts by yourself and The Accumulator. A retrospective analysis with selected start/end dates and a somewhat idiosyncratic division between so-called high and low yield shares.
Even if his conclusion is correct, and it may be well be despite the unconvincing arguments, in order to exploit the result, you’d need to be able to identify where we were within the bull/bear cycle and rebalance
your portfolio accordingly. It’s reasonably easy to identify, at the time, the extremes of market despair (1973/4, 2001 post 9/11, 2008/9) and exuberance (Summer 1987, 1999/2000) but much more difficult to defy the prevailing mood and take contrary action. However, away from those extreme points, it is much harder to identify, at the time, whether we’re in a bull or bear market, a rally within a secular bear market, or a temporary drop within a secular bull market.
Studies over long-term periods and those which look at, say, 10 year performance starting at successive years within the last century or so, and which show the contribution of dividends to overall returns are far more convincing and point to conclusions which are relatively easy for long-term investors to apply, don’t imply the need to time the market and entail lower transaction costs.
I wish the MMM published responsible articles which were of more help to the average Joe or Jane (rather than the mainly well-informed readers of this blog) and reiterated endlessly the accepted wisdom about asset allocation, folly of trying to time the market, underperformance of
most active funds relative to indices etc.
BTW I’m still waiting to hear re the Cass study, how it is that there are so few simian active managers who consistently beat their benchmark indices long term. Perhaps the explanation lies with the herd instinct!
@GOP — Hi Paul, yes, I will discuss some of this in my upcoming post, particularly the start and end date points as you say. Also 15 years isn’t really very long. To be honest I only put the link in afterwards, as I realised I had forgotten to change the title after I’d already posted and I didn’t want to mystify people! 🙂
That said the “total returns from dividends” issue is a bit more complicated then is commonly stated.
The research does not find as I understand it that focussing on the return from higher yielding dividends in order to capture this significant share of gains from dividends will deliver superior results, just because the total return includes a large share from dividends.
In an absurd case to make a point, it could be for instance that one share never pays a dividend for 100 years, then pays out a massive one at the end of the time sequence! Anyone who had not included it in their portfolio based on the prior year’s 0% yield would have lost out.
It could also be that low yielders pay steady growing dividends that are compounded from the early years for the next century, but that high yielders pay big for a few years then fail to pay out eventually or decline in capital value.
I’m not saying this does or doesn’t happen, per se, but just that the quick conclusions some draw are too hasty.
I keep meaning to set aside a weekend (/week!) to dig really deeply into this and look into the research more deeply, but not sure if my maths is up to it! In fact it’s probably a Phd thesis. Maybe someone has already done it?
I’m not sure the division in the article is all that idiosyncratic — it’s quite normal for these sorts of studies to divide the FTSE 350 into high yield and low yield brackets in my experience, for good or ill.
As an aside, remember that I’m over 50% active in my investing, for my sins. Dig through my posts and you’ll find I do all sorts of non-passive-canon things. The Accumulator’s Tuesday posts are the ones that pure passive investors should focus on. I’m rogue. 😉
That said, the gist of my upcoming piece is that there’s a strong case for focussing on total return however you invest.
@The Investor,
Interest comment about focussing on higher yielding shares alone not producing superior returns. Maybe a “monkey” portfolio which excluded shares without dividends would produce better results still!
I’m fascinated (and pleased) by the success (so far) of the Vanguard UK FTSE Income fund since its launch in 2009. I don’t understand why it has outperformed the iShares UK Dividend Plus (LSE: IUKD to such an extent when their algorithms appear so similar. The Vanguard fund also has lower volatility than the All Share index and charts comparing it to FTSE All Share trackers show a smaller fall during the 2011 share price drop. I haven’t seen a dispassionate analysis of the Vanguard income fund performance and who knows whether it will continue. If it had existed during the dot com boom, I guess it would have under-performed the FTSE All Share index.
A predominantly passive approach suits me because I’m full of (justified!) self-doubt about my stock and fund-picking capabilities. Prior to the explosion of information and choice, I used to pick funds on the basis of past performance and manager track record but, with the one exception of Anthony Bolton/Fidelity European, it just did not work and my UK fund selections usually underperformed their benchmark indices by a margin. And that was true of funds whose praises continued to be sung by press comentators.
I look forward to your article about total return but prepare yourself for some flak from the HYP afficionados!
@Grumpy Old Paul:
Active fund recommendations in the press – they’re ridiculous, aren’t they?
For exposure to a given country/region, expert Mr X “likes” fund A, while expert Ms Y is “keen on” fund B. It’s nothing more than PR for both the ‘experts’ – usually IFAs – and named funds. And there’s no declared interests from the ‘experts’, either. Oh, and funnily enough, over the page there’s an ad for one of the cited fund managers.
As I said, ridiculous.
Great list you got here. Thanks for sharing. Will try to read each of them.
@Paul — Just briefly, the Vanguard fund has a couple of maybe subtle-seeming rule differences that make it a very different beast to IUKD (and result in a very different, more HYP-like portfolio).
From memory it is forward looking, not backwards looking, when it comes to yield. Also it is I think deliberately sector-diversified. (Sorry, at work can’t look up now but it’s in the literature). As I’ve argued several times on Monevator, I think IUKD should be thought of as a value fund, not an income fund. It just happens to use yield as its metric.
Re: My article, don’t look forward too much — it’s not very deep — and I am thinking of anyway doing my HYP update first, instead, for Thursday.
Re: Stockpicking / fund picking, yes passive is an absolute no-brainer if you have no track record of outperforming from stock picking, market timing, or anything else in the past.
Where it gets more tricky is if you can see success in the past there. Risk or luck? Confidence or over-confidence? Delusion? 😉
Perhaps you simply had your bad luck before I’ve had my bad luck (or Buffett has had his). In that case, going passive early could save you a lot of money.
Of the reasons I actively invest with a fair chunk of my wealth, any monetary gain from beating the market is quite far down the list.
just noticed vanguard now do global small-cap index
.40% amc
£2.00 monthly platform fee
UK domicile
HL