Good reads from around the Web.
One thing led to another this week, and so Weekend Reading had a rare hiatus from its usual Saturday slot.
(But let’s face it – even the most curmudgeonly of us were surely enjoying the fact they weren’t being snowed on in London, in Spring, as happened very briefly to me last week).
Here’s a Sunday heatwave edition of our weekend links.
Enjoy the rest of the good weather. You know that come October we’ll realise this five-day run of sun was actually our summer…
From the blogs
Making good use of the things that we find…
Passive investing
- Advisers shouldn’t seek alpha – The Evidence Based Investor
- Who wins the quantitative battle? [Geeky, transcript] – Jack Bogle
- Financial gaslighting (and the reality of hedge funds) – Above The Market
Active investing
- Why does indexing shrink alpha? – Pragmatic Capitalism
- Lessons learned from value trap Tesco – UK Value Investor
- Longest downtrend in crude oil history is over – Pension Partners
- The Graham and Doddsville letter: Spring Edition – Valuewalk
- Flat pancakes & dividends – Investing Caffeine
Other articles
- On washing powder: The alignment of interests – The Escape Artist
- How much do you earn, really? – Under the Money Tree
- Golden years – SexHealthMoneyDeath
- Exploring peer-to-peer real estate – Mr Money Mustache
Product of the week: Got a teenager? The Telegraph runs through the five cheapest cars for teens to insure, and then reveals what they actually buy. Kids, eh?
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.1
Passive investing
- Ritholz: Nobody knows anything – Bloomberg
- Fund fees predict future success or failure – Morningstar
Active investing
- Lee: Mutual friend put me on trail of new investment [Search result] – FT
- Hedge funds haven’t delivered on their promise – Economist
- How stock picks from the Ira Sohn conference are fairing – Bloomberg
- Active investors are nervous right now, which is good – Market Watch
- Housel: The conflicts in active investing – The Motley Fool (US)
A word from a broker
- Free ETF buying until the end of May – TD Direct
- Britain is not prepared for a Brexit recession – Hargreaves Lansdown
Other stuff worth reading
- How could the new first-time buyer boom go wrong? – Telegraph
- Making money in the gig economy – ThisIsMoney
- What if you chose experiences over security? – New York Times
- Investing in vintage watches – ThisIsMoney
- Retiring after 65 may help people live longer – Wall Street Journal
- The surprising fall in the cost of the UK’s food – The Guardian
- Is the Tesla 3 the electric car that will change everything? – The Guardian
- Solar power is (literally) contagious – Vox
Book of the week: I noticed How to Own the World
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I followed the link for the book, only to discover that Benjamin Graham’s The Intelligent Investor is available on Kindle for £1.99 right now. I’ve been meaning to read it for ages, so I know that’s a lower than normal price. I thought about sharing on FB, but I can’t imagine any of my friends will care. I imagine most Monevator readers have already read it, but maybe someone will be interested?
Dear Jack (if he reads this:))! As You know „Vanguard has, in fact, actively managed funds for nearly four decades. Vanguard has over £261 billion in actively managed equity mutual fund assets under management globally. This places Vanguard as the THIRD LARGEST ACTIVE equity mutual fund manager in the world ” See page 13. http://www.factors.vanguard-ebook.co.uk/#page13
You write: „RAFI 1000 has eked out a return margin of 50 basis points over Vanguard’s S&P 500 Index Fund (7.8% vs. 7.3%), but only by assuming about 15% more risk (standard deviation 17.4% vs. 15%). ”
You are right: more risk more gain and as Michael Batnick wrote: „Even when you add on 39 bps in fees, which is what the RAFI 1000 ETF charges, it still trounced the S&P 500 (net of 5 basis points in fees).” http://theirrelevantinvestor.com/wp-content/uploads/2016/03/Rafi-net-of-fees.jpg
You can read Micheal’s article here: http://theirrelevantinvestor.com/2016/03/30/before-you-trash-smart-beta/
@Emily, The Intelligent Investor has been on my reading list for a while. Thanks so much for the heads-up!
@Emily… Its been on mine too. Its now on my Kindle. Thanks!
How to Own the World looked interesting, but it has a very high number of 5 star reviews which always makes me suspicious.
The 3 star reviews suggest Smarter Investing and Investing Demystified are better.
“I know nothing, but at least I am aware of my own ignorance, and am willing to admit this publicly. Most of the rest of the commentary class has yet to learn this all-important lesson.”
What a great classic post from Barry Ritholtz, so relevant in the lead up to the referendum. I spent a balmy Friday afternoon in Spitalfields trying to get this very point across to some American friends…wish Barry could have been there..Thanks for the links
@Emily, where is the link? I can’t see The Intelligent Investor available for 1.99, only the summary/analysis of the book? I’ve been meaning to read it but been slightly put off as it was priced over 20 pounds.
I’ve read ‘How to Own The World’, it’s good for someone completely new to finance and investing. He explains the pros and cons of different asset classes and some metrics for measuring when they’re cheap (p/e ratio etc). Other than that I thought it was a bit rambling and incoherent and with little actionable advice. It would be good if he has introduced different portfolio models and asset allocations (like Monevator has done). He proposes a model something like the ‘Permanent Portfolio’ and seems to be extremely bullish about gold.
Thanks for the thoughts about ‘How To Own The World’. Perhaps I’ll try the Kindle version when I clear the backlog. Even if nothing new, it’s interesting to see how other authors line up their ducks.
I got the Intelligent Investor as a paperback years ago; it wasn’t £20, but it wasn’t £1.99 either! In-between. It’s worth it if you’re an active investor, even if you won’t learn anything new as it’s all been poured over and re-constituted so much — still good to read the source. There’s nothing in there for passive types though, and a lot of the special situations or even raw value stuff no longer applies much in our era. The behavioural stuff is timeless though (but as I say much repeated, not least by Buffett.)
On the Tesla model 3, I’ve been a fan of Tesla (and of course SpaceX) for a few years but now that they are becoming truly mainstream my contrarian warning lights are beginning to flash. Sadly, Tesla is now too popular for me to like, so I have started to look instead to Toyota’s Mirai and the hydrogen fuel cell for a suitable underdog. Go Mirai!
How To Own The World: https://plainenglishfinance.co.uk/how-to-own-the-world/
@John — I think there’s potentially an element of self-fulfilling prophecy here though? If Tesla is mainstream/popular enough to secure 400,000 advance reservations, then that’s $400m in cashflow brought forward to scale up, and pretty good security for some further capital raising. Certainly not risk-free for anyone involved (including the car buyers!) but far better than if it was still obscure ahead of a move to the mass market. Disclaimer: I am a long-time shareholder and certainly biased! 😉
@Gregory — Hmm, interesting business model they have there. Seems to be a fan of active funds, from the screen shot. I should have to read the book.
Re The Intelligent Investor
For those not buying individual stocks fair enough perhaps to give it a miss!
Benjamin Graham was however IMHO spot on the money talking about the irrational Mr Market in The Intelligent Investor :-
“Since common stocks, even of investment grade, are subject to recurrent and wide fluctuations in their prices, the intelligent investor should be interested in the possibilities of profiting from these pendulum swings. There are two possible ways by which he may try to do this : by way of TIMING and the way of PRICING. By timing we mean the endeavour to anticipate the action of the stock …… . By pricing we mean the endeavour to buy stocks when they are below their fair value and to sell them when they rise above such value. … We are convinced that the intelligent investor can derive satisfactory results from pricing …. We are equally sure that if he places his emphasis on timing, in the sense of forecasting, he will end up a speculator and with a speculator’s financial results This distinction may seem rather tenuous to the layman, and it is not commonly accepted in Wall Street.”
Re How to own the world
Had a peruse of the contents via Amazon.
Although another UK investing book is always welcome, this one does not seem Monevator material, way off the map (even for those inclined to value investing, a la Graham) . This author seems to be advocating shifting between Asset Classes to choose the most favourable going forward, and claims it can be done!
The author does however correctly identify that there are more Asset Classes to invest in other than just Stocks and Bonds!
Unfortunately will be giving this one a miss.
@magneto — Re: Intelligent Investor, I agree. As I say, the famous behavioural chapters (I forget which ones, 8 & 20 are springing to mind, but could be wrong) are timeless. But even to your quote, is there anyone seriously active investing who hasn’t read that sort of stuff 100 times already, or heard Buffett say it? It was truly revolutionary in Graham’s day. 🙂
Re: Asset allocation shifts, it can certainly be done. The question is whether it can be done (a) profitably and (b) consistently. From a Monevator perspective, I don’t have any problem with someone saying “this asset looks expensive to me, and this one cheaper, and I invest accordingly”. It’s something, to an extent I do, as the active investor around here.
Where the disagreements happen is when someone says “this asset IS expensive and this one IS cheaper and I will definitely do better accordingly”. The evidence for such confidence is slight for nearly everyone.
If George Soros or Stanley Drukenmiller tells me that, I’ll listen. If someone in our Comments section tells me that, I could not be more skeptical. My experience is they typically are just naive punters.
http://www.telegraph.co.uk/pensions-retirement/financial-planning/lifetime-isas-risk-confusing-savers—heres-how-to-weigh-up-whet/
I hope you don’t object to me posting this link. It doesn’t add anything (at all) new to the discussion we had when the LISA was announced, but I guess I just happen to be at an age/ stage where I find these fascinating…
…I think they’ll be a replacement for S&S ISA’s amongst already “wealthy” persons who own their own home and contribute to pensions…which would make them a “miss” I imagine from public policy point of view…but between this sub and regulating that BTL will require a 40pc deposit I guess the govt. is encouraging investment in the real economy rather than property…which has to be a good thing?
Time will tell, hope to join the debate on this after impact is felt next year
Having sat by a Tesla owner when he made his decision whether to put his name down for an “advanced reservation”, I’d have said there was a massive difference between those 400,000 and a firm order book. It’s a one-way free option and it’s amazing there aren’t more of them. Genius marketing and a great way to persuade investors to part with more money and that might be enough, in fact.
I’m fascinated by Tesla, and as a driver interested in the product (quite simply the quickest thing I’ve been in — also, the most plasticky 100 grand car). I struggle to see the investment case at the moment for the stock, however.
In regards to Tesla, I was actually reading a book recommended by Warren Buffett to Bill Gates. It is called “Business Adventures”. One of the chapters discusses the “Edsel”, which was a Ford car which was expected with wild fanfare, but by the time it hit the shelves, it sold miserably. It would be interesting to see how Tesla does, whether it hits its projections, and truly revolutionizes things the way its fans hope it would.
The contrarian in me thinks the stock is overvalued, and investors may not earn a good return even if Tesla does revolutionize things. But what do i know?
By the way, thank you for the Twitter interaction today. I am thinking things out loud, as I get some ideas from readings I have done. It is good to talk to someone else on the topic.
@Dividend Growth — Yes, Tesla is a lottery ticket for sure, or perhaps more accurately a high-risk private equity style bet on its incredible founder and the radical disruption he’s bringing to the auto sector. (I think one thing critics often miss is the fact the car is electric is only one part of the Tesla disruption. From the factory floor to the customer driving away with the car is very different, as is the post-sale analytics and aftercare.) I think the share price is rational, but there’s a decent chance it will go to near-zero over time. On the flipside the potential upside is a 2-5-10x bagger.
As you say, who knows?
Jack Bogle misses the point. There is a huge difference between simple value and deep value indices.
„If you are familiar with the indexes that institutions use to evaluate money managers, the Russell Value Index and the Russell Growth Index which takes the 1000 largest companies and breaks them into: are they either value or are they growth and puts equal market caps in both. And these consultants conclude that over time that they
both do the same, so a smart strategy is to have your portfolio diversified into value and growth. This is the premise of the advice given by lots of consulting firms to institutions. One will work while the other doesn’t. Of course, the Russell Value Index is not a value index. It is not a value index in the academic sense. It is just a
bunch of stocks that have some characteristics of value, but you are not capturing deep value or the academic version of value.” Richard Pzena See page 19. http://www.rbcpa.com/Complete_note_%20on_Specia_%20Situation_Class_Joel_Greenblatt_20050907.pdf
Or just see the MSCI world value indices vs. MSCI world Enhanced value Indices.
Just finished How To Own The World. It ought to be fairly easy to write a better book on investing.
There are two themes; the world is growing and inflation is vastly understated. Logically as growth is deflated if inflation is understated than growth is likely to be overstated(or profit ratios will be rising). So I found this theme unconvincing.
In terms of actions it recommends budgeting, saving and keeping fees down. It recommends some sort of diversification. You should also own quite a lot of gold/silver, and some cash to by on dips(I missed the bit on identifying dips!), take up spreadbetting, learn all you can on charts and fundamental analysis. The book ended without really explaining how to actually do any of this. Handily the author has a website with a £10 per month membership fee to sort this sort of stuff out. The sample portfolio on his website is a bit wacky, and nothing like the book which would seem to go with a lot of gold, a bit of tracker and cash.
The author sometimes uses incorrect ratios deliberately to back up their point I feel. Increases in gold prices which the author likes are nominal, as are increases in government debt as this backs up the case against government backed pensions. House prices are converted to real prices and come with caveat the inflation is probably higher and so they are not so great investments.
The book fails to really explain risk or volatility, it seems to imply you can get 10% grow per year(not sure if real or nominal) and so the odd down year doesn’t really matter. Probably the target reader needs to be in their late 20s!