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Weekend reading: A chance to hear Lars Kroijer speak in London

Weekend reading

Good reads from around the Web.

Occasionally a reader says they’d like to meet me for a beer1, but I’m sure they’d be disappointed.

For one thing, I’m slightly nuts. (See this investing debate with my co-blogger).

I’m also thin-skinned and awful to work with, apparently. (But thanks for understanding edinburgher, if you’re listening…)

Most of all though, I’m not a hedge fund manager.

Over the years a few have speculated that while by day by night I’m a humble blogger, in my day job I’m a titan of the markets – perhaps even a famous investor you’ve heard of – bringing fear to corporate boardrooms and my own personal yoga guru to meetings.

Sadly, I’m not. (I’m more thin-skinned and awful to work with, to be honest).

However I do know a genuine former hedge fund manager, and so do you – Lars Kroijer, the author of many fine articles on Monevator.

And now you can meet him, too!

Lars is giving a presentation in London at 6.30pm on Thursday 3 March, and he’d love to see lots of Monevator readers in the audience.

The event is free. You can’t argue with free.

Here’s the agenda:

  • What is investing edge? Do you have it? What should you do if – like most people – you don’t?
  • The long term financial benefits of investing knowing that you can’t outperform markets.
  • The hedge fund industry and hedge funds as an asset class. What may the future hold?
  • Starting and scaling a hedge fund, critical success factors, and facing the unexpected.

Sounds right up our street, doesn’t it?

To reserve your place, please register for an Evening With Lars Kroijer via that link to eventbrite.

See you there…

…maybe!

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: You’ve been able to pay your mortgage with paper round money for years thanks to near-zero interest rates – but they’re about to get even cheaper. Market turmoil has pushed UK rate rise expectations out to 2019, and lenders are set to slash again. First Direct, for example, just launched a 10-year fee-free 2.89% fixed rate mortgage, says The Telegraph.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.2

Passive investing

  • Passive investors, the Loch Ness monster, & other myths [Search result, but beware it’s a silly article that conflates ETF outflows (which I think will mainly be sales by hedge funds and similar who use ETFs as trading chips to put exposure off and on) with passive investors supposedly bailing out. Oh, and it also points to MLPs, a niche US investment that nobody who we’d call a passive investor would have touched with a barge pole. But, you know, I just do the links, who am I to judge?]FT
  • …and relax…
  • How big ETFs trade and are traded [Nerds only]ETF.com

Active investing

  • Morgan Housel: The agony of high returns – Motley Fool (US)
  • Understanding active fund benchmarks – This Is Money
  • The oil rout is a boon for global consumers – Telegraph
  • Gold prices can’t defy gravity forever – Bloomberg View
  • ‘Risk parity’ shows signs of strain [Search result]FT

A word from a broker

Other stuff worth reading

  • Help to Buy? More like ‘Help to Cry’ in London [Search result]FT
  • Hedge funds short luxury home builders [Search result]FT
  • Simon Lambert: Why my sister should start a pension – This Is Money
  • Beware the new ‘smishing’ text message scam – This Is Money
  • Investing in Kanye West’s old shoes – Guardian
  • When and why CEO pay shot up [Podcast]NPR
  • We’re addicted to technology [Via A.R.]N.Y. Books

Book reader of the week: Amazon has knocked £10 off its 7″ Kindle Fire tablet – normal price £49.99 – and says it’s a deal you’ll love. Valentine’s Day weekend, geddit? Thinking about all the arguments that tablet addicts provoke by preferring their screens to their partners, £10 off is the least the big A can do.

Like these links? Subscribe to get them every week!

  1. Never romance, alas. I’m single again! Form a queue, and please bring a printout of your portfolio and your written investment strategy. []
  2. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

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{ 35 comments… add one }
  • 1 Planting Acorns February 13, 2016, 10:57 am

    I very much hope to be there.

    I read that ‘smishing’ article in the week…probably the scariest thing I’ve ever read and a must read, particularly for those with elderly parents…

  • 2 Rob February 13, 2016, 11:49 am

    The article in This is Money starts well talking about indices, the gross return of the whole market unsullied by fees, trading or other costs. Then it morphs into talking about the performance of sectors which is the aggregate return of funds after their costs and includes returns from funds that invest outside their indices.
    This makes their relative performance look better because the peer group is after fees, not before as is the case with the index.

  • 3 Gregory February 13, 2016, 12:11 pm

    @- Passive investors, the Loch Ness monster, and other myths – Again and again: no pain no gain.

    “ There seems to be some perverse human characteristic that likes to make easy things difficult.” Warren Buffett

    Passive investing is like healthy lifestyle: it is easier said than done.

  • 4 Amber Tree February 13, 2016, 1:45 pm

    That sure looks like a great event. A little far for me for just one evening.

    Are there plans to publish a recap blog post? Would be nice to follow a little of what he says.

    An as far as indexing goes, I just keep on buying each month. I will worry later on how to convert that into a passive income stream.

  • 5 Gregory February 13, 2016, 2:25 pm

    It a good chance to meet with Lars, The Investor and The Accumulator. Personally. Face to face:) Don’t forget to give Your phone number!:)

  • 6 Learner February 13, 2016, 7:55 pm

    Gary Veynerchuk seems to define entrepreneurship as hitting it big, building a multi million dollar business – the NBA, not just pickup basketball. While he says making 80-90k on a personal e-commerce website is fine and he supports it, *real* entrepreneurs swing for the fences. Nothing wrong with either approach, but the definition of entrepreneur as superstar rankles. If anything the given statistic that 90% of startups fail would suggest success (sustainability) is more likely to had by keeping goals realistic, even humble.

  • 7 Neverland February 13, 2016, 9:17 pm

    The Moneysavingexpert forum is the gateway to the abyss…

    …but if you’re going to hell you might as well go down in style

    Here is the link to the UK survivalist/preppers thread on MSE:

    http://forums.moneysavingexpert.com/showthread.php?t=4065593

    There’s nowt so queer as folk…

  • 8 edinburgher February 13, 2016, 9:59 pm

    Always listening and always singing the praises of the best British PF blog – keep up the good work 🙂

  • 9 MyRichFuture February 13, 2016, 10:33 pm

    Cheers Neverland. Didn’t know we had preppers in the UK. Thought they were purely an American animal.

  • 10 The Investor February 14, 2016, 9:26 am

    @edinburgher — Thanks very much!

  • 11 helfordpirate February 14, 2016, 10:31 am

    @BlueSkyAsset link.
    Interesting (though obviously an advert for their own services) to those like me who are approaching deaccumulation and seem to be facing a potentially nasty “sequence of returns” scenario.

    But why do these pedlars of alternative retirement strategies always assume that a passive investor will continue to take an inflation adjusted 4% out of their portfolio regardless of what financial Armageddon is going on around them? Most people will have some flexibility about spending and some cash buffer.

    I have yet to read a proper analysis of a more likely scenario where a passive investor has say a 1-2 year cash buffer and perhaps 20% wiggle room on withdrawals. I am hoping that will be enough to soften the drawdown pain and maintain survivability from a bear market early in retirement – if it does come.

    @TI – thanks as always for the blog

  • 12 Planting Acorns February 14, 2016, 11:02 am

    @HP… I’m just starting the accumulation phase, but this is the million dollar question isn’t it? It effects everything, for eg…how much to invest in equities/bonds/gilts on each stage of the way up…
    … If you retired on June 14th 2007 I’m not sure two years cash reserves would cover it… I guess one could delay retirement but after thirty odd years of saving for it that seems a disaster…

  • 13 Neverland February 14, 2016, 11:58 am

    @Acorns

    Retirementinvestingtoday has done some analysis on sequence of returns risk but I don’t think they are well indexed

    Sequence of returns (I.e. You are much less rich than you think you are) is simply an unavoidable risk of retirement

    The only real solutions are:

    – retire with several million or a defined benefit pension

    – retire later

    – semi-retire with some continuing earning power

  • 14 helfordpirate February 14, 2016, 6:24 pm

    @Neverland
    I think there are things you can do to mitigate sequence of return risk. The key problem comes from needing to take a fixed real amount from your portfolio each year. If instead you can take a fixed percentage .e.g 4% of your portfolio value that year (not the starting year) then there is no sequence of returns risk – instead you have the problem of reduced income.

    If you can’t reduce your expenses then this is where your cash buffer comes into play. One strategy would be to take a fixed percentage and make up to the absolute amount using your cash.

    I haven’t seen any detailed analysis of how best to use cash in these situations. But back of the envelope a 50/50 portfolio seeing a 40% equity crash, a 20% portfolio drop and needing to make up 20% from a fixed 4% withdrawal i.e. 0.8% should be able to do this for perhaps 10 years with a 2 year cash buffer (8% cash). (very rough!)

    I also intellectually like Wade Pfau’s strategy of going for a very high percentage of bonds in early retirement and increasing equity as you get older. Just seems hard psychologically to do.

    I know some think that covering your expenses with dividends is the right way. Generally I see income and capital growth as all just “return”. But the lower volatility of dividends may reduce sequence of return risk I guess. Again I haven’t seen any analysis.

  • 15 Minikins February 14, 2016, 7:33 pm

    Hilarious self analysis @TI, doesn’t matter what anyone else thinks, really. If I could only find an ivory tower I’d be up there like a shot myself!

  • 16 The Rhino February 15, 2016, 1:09 pm

    @HP – that looks like a very wise approach to sequence of returns risk. I wonder what the WP idea of increasing equity allocation post retirement looks like if you retire young, say < 40?

  • 17 david dobler February 15, 2016, 1:59 pm

    sold out already? any chance to listen to it remotely online (web chat) or via a conference line?

  • 18 oldie February 15, 2016, 2:51 pm

    Conference too far away for me. Pity.
    A chance to hear it would be good.

  • 19 Sam February 15, 2016, 3:07 pm

    It seems to be sold out already! Nightmare :(.

  • 20 The Investor February 15, 2016, 7:12 pm

    @sam @david — Sorry to hear the event is booked up. Lars told me on Saturday 68 people signed up in the hours after the post/email went out. Quite a few Monevator readers were interested it seems!

    To be clear, this is Lars’ event, not ours. So while I will definitely pass on the ideas about recording it and so forth, it’s going to be up to him what he chooses to do.

    Also, re: Gregory’s comments, I’m sure they were tongue-in-cheek but anyway to be clear this isn’t a meet me or meet The Accumulator event. It’s a hear Lars speak and perhaps corner him afterwards event! 🙂

  • 21 The Investor February 15, 2016, 8:33 pm

    Update — I just tested the link to Lars’ talk and it’s telling me there are tickets available. When I click on Register it takes me to a sign-up page with an 8-minute countdown. I haven’t tested beyond that for obvious reasons. 🙂

    Perhaps they’ve found some spare chairs to bring into the back row? Anyway, hope for the disappointed?

  • 22 Fremantle February 15, 2016, 10:38 pm

    Managed to book earlier this evening without the countdown. Looking forward to hearing Lars.

  • 23 Gregory February 16, 2016, 5:21 pm

    Lars is the global Jack Bogle. I suggest his lecture for everbody. Every investor has to ask himself if he has real edge.

  • 24 Richard February 17, 2016, 9:50 am

    I was quick enough to hit the button and secure tickets before I had even finished the article. I look forward to hearing Lars speak!

  • 25 magneto February 17, 2016, 12:20 pm

    One thing that confuses me about Lars’ philosophy, and I may well be misunderstanding his book, is that unconventially he seems to be relatively sanguine about taking a little currency risk albeit reluctantly on the Fixed Income side, less so about taking advantage of currency volatility on the Stocks’ side by his emphasis on the sole use of a global tracker.
    Without being in any way confrontational, please keep ears open to see if Lars happpens to expand on this area.

    Thanks

  • 26 The Investor February 17, 2016, 7:44 pm

    @Magneto — I don’t understand your question, so one of us may be confused. 🙂

    Buying a single world tracker gives you plenty of currency risk — only a small part of it will be represented by UK assets in sterling, everything else comes with currency risk. So I would say he is very sanguine about currency risk with respect to equities, given that recommendation.

    Some people get confused and think that because a fund is denominated in their local currency (the £ in our case) and they bought it on the UK market, they are not exposed to currency risk. This is not true.

    Not sure if that’s where the disconnection is happening, but just in case you might find this article interesting:

    http://monevator.com/currency-risk-fund-denomination/

    In general the argument as I understand it from academics is that you might choose to ignore currency risk with equities because (a) the expected returns are very large (b) an equity’s time horizon is very long (it’s analogous to a perpetual bond in that (one!) sense) and (c) there are natural hedges that kick in, so that if you say buy Ford shares in the US as a UK investor and the US dollar weakens, that’s bad for your Ford holding when translated back into £ terms, but it could be good for Ford as a weaker $ boosts its competitiveness.

    In contrast, bonds will usually be of a fixed and relatively short lifespan, and lower returns in general means even small currency moves may wipe out your gains. And finally, conventional fixed coupon bonds obviously have no implicit hedging mechanism — you get what you get, in contrast to Ford where your returns will always be variable (both from share price and from any dividend stream over time).

    Think over 5-20 years in both cases. Obviously in the short-run anything can happen! (Can in the long-run too, but we’re talking probabilities here…)

    (Obviously a few lines doesn’t equate to a text book on currency risk, but that’s pretty much how I think about it. 🙂 )

  • 27 Tim G February 17, 2016, 8:00 pm

    @TI I suspect you’re pretty swamped with things to read, but just in case you’re on the lookout for anything else, the following is a blog that I enjoy:

    http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/

    It’s written from a left-of-centre perspective, but the author is also a columnist on Investor’s Chronicle. Makes for an unusual (and interesting) combination!

    His latest takes a sceptical look at claims that 20-somethings should be saving £800 per month to ensure a comfortable retirement. He has some interesting observations, including the notion that spending can also compound – a good holiday can carry on giving you pleasure for the rest of your life. (Indeed, in my experience at least, my memory has the happy trick of editing out the bad bits, so the holiday really does improve after it’s over as I forget about the squabbling kids and the annoyance of airports and am just left with the highlights!)

  • 28 Gregory February 17, 2016, 9:30 pm

    Wise man.
    Bennallack: OK. One last and potentially cheeky question, Lars. You’re an ex hedge fund manager. You know all the tricks, and you mention in the book that, amongst your various activities, you’re still running your own money. You’re still flexing the old hedge fund muscles. Or are you?

    Do you invest your money according to the principles you outlined in this book, or are you still looking for pairs trades where you sell kumquat plantations, buy …

    Kroijer: No, all my assets are invested along the lines in this book. I own some properties. I do have some private investments that are mainly in companies that I’m involved with through board membership, but no. I believe this stuff.

    Bennallack: But does that imply that you feel you’ve lost the edge you had?

    Kroijer: I think beating the market is very, very hard to do half-time. I think a lot of incredibly talented people I know spend 80 hours a week trying to do it, and still fail. I think it would be presumptuous of me to say, “I can just look over the Financial Times and magically see the ability to outperform the market.” I can’t. http://www.fool.co.uk/investing/company-comment/2013/11/05/trancript-the-edge-less-investor/

  • 29 The Investor February 18, 2016, 1:54 pm

    @Tim G — Thanks for the link, I am however quite familiar with Chris Dillow’s work and have occasionally included it into Weekend Reading, though he’s not on my regular reading circuit.

    I do find him thought provoking, but also sometimes he seems to miss the bleeding obvious (like a lot of academics I guess) and I enjoy the contradictions in his political views and his employment (and also his views about journalism and his employment! 🙂

  • 30 Fremantle March 4, 2016, 12:06 am

    Enjoyed Lars’s talk tonight. Although I’m more passive in a Tim Hale kind of way than a single cap weighted world equity kind of way, there’s much wisdom in his words.

    He didn’t get to expand on it in his talk, but I’d like to hear more on his thoughts regarding the important function hedge funds play in the market. My essential take on it was that hedge funds make their money on arbitrage, whittling away at unseen inefficiencies , making the market more efficient for the rest of us mortals.

    Hedge funds don’t even have to be successful for them to provide this service. So even if Lars had ended up living in his parents’ basement, he would have been doing us all a favour.

  • 31 Charles March 4, 2016, 8:24 am

    I very much enjoyed Lars’s talk too, and find his logic compelling.

    I have both his and Tim Hale”s book.

    @Fremantle Can I ask you what you see as the main difference between their approaches? Without looking, I seem to remember Tim’s portfolios included tilts towards such things as UK stocks, small companies and also encompassed property and some hedging on overseas bonds.

  • 32 Fremantle March 4, 2016, 8:59 am

    @Charles

    It depends on the edition, but my 3td ed. has tilts towards small, value for both developed and emerging markets, with property as another diversifier. On bonds he emphasised short duration government bonds and index linked bonds. Also emphasised a global portfolio, but provided examples of domestic portfolios as well.

    I guess on balance, Hale’s methodology satisfies the meddler in me, since managing one global tracker and a domestic gilt fund wouldn’t leave me with much to do, which I guess is the point.

  • 33 Charles March 5, 2016, 8:33 am

    @Fremantle

    Thank you for clarifying that. One difficulty I have with the simple world portfolio is the size of the US market as part of the standard global indices which is typically over 50%. I have started to use a mix of separate funds to scale North America back to 40% which still seems high. Am I claiming edge or a view, or am I ensuring good diversification of geographic markets?

  • 34 The Investor March 5, 2016, 9:30 am

    @Charles — In Lars’ world view, I think you are indeed claiming ‘edge’ if you underweight the US. International capital is in theory free to invest where it likes, so it could put less in the US and more in overseas markets if the prospects were more attractive externally. It might seem a fanciful notion given the size of countries’ economies, but over the long run big shifts do happen.

    For instance the Japanese stock market was more than 40% of the world total in the late 1980s at its peak, versus around 30% for the US back then. Today Japan is just less than 10% of the global index. That’s a huge change.

    Of course, some would say that Japan was clearly in a bubble in the late 1980s and *ought* to have been underweighted by any clever global investor with his head screwed on, and others will say that’s only hindsight talking, and if it was so very clearly overvalued then markets would have sold it down sooner. And hence we have active investing with its attempts (generally futile) to do better and the whole debate! 😉

    So, bottom line is it mostly depends how pure a purist you are, if we set aside any tax consequences and currency risk issues.

  • 35 Charles March 5, 2016, 7:31 pm

    @TI Thank you for your thoughts. I hadn’t appreciated how highly valued Japan had been. Given that currencies can be volatile it feels hard to base one’s allocation across countries on the current spot rate and then presumably subsequently rebalance using the rate on the day. My natural tendency would be to base allocation somewhere between relative stock market valuation and GDP for that region.

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