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Weekend reading: Spin the wheel of satire

Weekend reading

Good reading from around the Web.

I Ctrl+C copied the URL of an article on Oblivious Investor this week to forward it to my co-blogger, The Accumulator, only to open up my email folder and find he’d already emailed it to me.

After that, it wouldn’t only have been rude if I hadn’t made it my post of the week. It would probably have been bad luck!

In the article, the site’s guest blogger highlights a new breed of ETF that delivers returns based on the spin of roulette wheel:

Index roulette ETFs, such as Roquefort’s ROQ, simply bet on red and black equally. Roquefort uses random numbers generated by a proprietary atomic decay device, and cites academic research that claims this reduces the standard deviation compared to traditional selection methods.

Roquefort also offers two chromic strategy ETFs: REDS, which always bets on red, and BLAK, which always bets on black. Stoker notes that these are riskier: “Be sure you know which color you like before investing.” Roquefort has just introduced OO, which bets on the double zero. The potential for 3500% returns is attractive, but Roquefort notes that due to volatility it may not be suitable for all investors, only for better-than-average investors like you.

There’s plenty more in that vein. Obviously (I hope!) it’s a satire of spurious investment products created to be sold, not to deliver returns.

Sticking with gambling, long-time Monevator reader Niklas Smith highlighted an academic paper that considered whether poker was skilful or not. The researchers argue poker is not gambling, because a small subset of skilled players competing in the 2010 World Series of Poker achieved positive returns, at the expense of less skilled losers.

Niklas highlights the fun bit for our adventures in investing:

The economists say that similar tests of persistence in returns have also been used to detect whether mutual-fund managers have genuine expertise. In contrast to the case of poker, they point out, those tests have tended to find “little evidence of skill in this domain”.

That means that you can’t reliably choose a fund manager who will outperform the market, but you can choose a poker player who will outperform. Perhaps it’s time to start demanding fund managers and investment advisors get lottery licences?

Alternatively, perhaps fund managers should be forced to call themselves exciting poker-style names like Volatile Vince, Leveraged Lucy, Double-Dip Dave, and Dave ‘The Churn’ Dudley.

At least that way the public could see where most of them are coming from.

From the blogs

From the mainstream money sites

  • Drain or gain? Emigration from poor countries – The Economist
  • Emotion and personality determine returns – FT
  • Fund managers resist calls to cut fees – FT
  • Tech opportunities beyond the big IPOs – FT
  • John Lee’s latest portfolio update – FT
  • Alphaville looks at US graphs [and gets it all ass-about-tit!] FT Alphaville
  • Pension schemes will invest young in cash [stupid!]Telegraph
  • IPPR: Keep tough mortgage rules  to prevent bubble – Telegraph
  • Sorry end to one UK land banking scam – Telegraph
  • How to solve Britain’s pensions crisis – Independent
  • The 20 cheapest investment trusts – The Motley Fool
  • How to track UK small caps – The Motley Fool
  • The amateur landlord with 120 properties – The Guardian

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{ 4 comments… add one }
  • 1 Lemondy June 4, 2011, 10:50 pm

    Interesting about NEST using a low-volatility/low-risk asset allocation in the early years of contribution; always nice to see the government forcing people to buy more gilts 😉

  • 2 Niklas Smith June 5, 2011, 11:55 am

    Thanks for the link 🙂 And a great idea to encourage investment managers to adopt more colourful names. I don’t think they’d appreciate your argument though!

  • 3 Ash June 6, 2011, 4:58 pm

    I would much rather give my hard earned cash to a poker great like Daniel Negreanu or Phil Ivey than a great fund manager. The difference in skill between what they can do and what I can do is far greater in the former case.

  • 4 The Investor June 6, 2011, 10:03 pm

    @Lemondy – Indeed, and then they force pension funds to hold gilts, too. It’s all very well, but it means the average person is going to need to save far more than the minimum amounts being talked about given that long0run government bond returns are less than 2% real pa, versus more like 5% real for equities.

    @Niklas – Yes, sort of wish I’d done it as a post now. I may revisit the idea in a satire of my own.

    @Ash – No doubt there’ll be a poker star ETF along soon enough… 🙂

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