In great ETF war, Vanguard topples iShares [Globe & Mail, 03Dec10] "Gus Sauter, Vanguard Group's chief investment officer, vividly recalls the first time he proposed exchange-traded funds to his boss. 'That's the dumbest idea you've ever had,' then-CEO Jack Brennan told him after a five minute discussion back in 1998. Sauter persisted... Today, Sauter's 'dumb' idea has grown to about $135 billion of Vanguard's $1.5 trillion of assets under management."
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November 2010

How to make an informed choice for charity [Globe & Mail, 29Nov10] "Every donor has his or her own funding priorities -- supporting cutting edge medical research, preserving the environment or helping those in need. For me, what matters most is that my contribution is used for charitable purposes, not fundraising and administration. Financial information about every Canadian charity can be found through Canada Revenue Agency’s charities listing... To find a charity, just type its name in the search box. Search until you find the charity that you’re looking for, and then click on 'return' or 'T3010 return'."
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After 35 years my final words of advice [Moneyville, 29Nov10] "In personal finance columnist James Daw’s last column, he passes along four important things he’s learned in a 35-year career."
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Are Index Funds on Track to Become Even Harder to Beat? [WSJ, 27Nov10] "Until now, index funds have had an Achilles' heel. One factor that makes indexing 'a horrendous idea,' the renowned value investor Seth Klarman of Baupost Group argued earlier this year, is that hedge funds and others have long beaten the index funds to the punch on trades that the autopilot portfolios are forced to make."
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A Dying Banker’s Last Financial Instructions [NY Times, 26Nov10] "The fact that Mr. Murray knew little up until that point about basic asset allocation among stocks and bonds and other investments or the failings of active portfolio management is shocking, until you consider the self-regard that his master-of-the-universe colleagues taught him. 'It’s American to think that if you’re smart or work hard, then you can beat the markets,' he said."
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Burton G. Malkiel: 'Buy and Hold' Is Still a Winner [WSJ, 18Nov10] "Many obituaries have been written for the investment strategy of buy and hold... But no one—either professional or amateur—has ever been able to time the market consistently... The one investment principle about which I am absolutely sure is that the less I pay to the purveyor of an investment service, the more there will be for me. As Jack Bogle, founder of the Vanguard Group, says: 'In the investment fund business, you get what you don't pay for.'"
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Meir Statman: Amateur investors expect impossible [SFGate, 16Nov10] "The market is not efficient. It's crazy, but the fact that it's crazy doesn't make you a psychiatrist. It's crazy like a wild animal. You wouldn't want to go against a wild lion because it's crazy. It's crazy in ways you cannot understand and cannot forecast. People in behavioral finance and standard finance come to the same conclusion - don't try to beat the market. Whether it is rational, as people in standard finance say, or crazy, as I say, don't try it. Practically speaking, individual investors should treat the market as unbeatable and realize that when they try to beat it because it is inefficient, they are likely to injure themselves, rather than gain at the expense of another."
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The Intelligent Investor: Are ETFs a Menace? [WSJ, 13Nov10] "In the end, I don't think investors need to fear that ETFs pose the 'systemic risk' the Kauffman report suggests. But, as Mr. Bradley says, 'How these things work is opaque at best.' When such a veteran investor struggles to understand ETFs, it is a sign that these funds still need to do a better job of explaining exactly how they work."
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‘I’m trying to work shorter days’ [Financial Times, 05Nov10] "Number one, always put your clients first. You are a trustee of their money, and you serve the client before you serve yourself... Over 50 years the impact of that [2.5%] annual fee is enormous. The investor will end up with less than 30 per cent of the market’s cumulative return, even though they put up all of the capital and took all of the risk... I believe it is prudent to own a balanced index fund, with 60 per cent in the stock market and 40 per cent in the bond market. Then forget it. Don’t worry. Stay the course."
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October 2010

This free online primer aims at DIY investors [Moneyville, 06Oct10] "Shakespeare’s Investment Primer aims to help you take control of your investments and offers a step by step approach to do that. From setting goals and developing a plan, to defining your tolerance for risk, the guide walks you through the important steps to building and managing a portfolio. "
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Moneyville [Toronto Star, 04Oct10] "You could sum up the four most important things you need to know about personal finance in four Tweets: Spend less than you make. Save what’s left over. Invest the remainder wisely. Adjust your plan as necessary... It also pretty much sums up the philosophy behind Moneyville, Canada’s newest and most comprehensive website for plain speaking personal financial advice."
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September 2010

August 2010

John Bogle and the Cost of Mutual Funds [Forbes, 26Aug10] "It's a bit late in coming but I'd like to officially retract a story FORBES published in May 1975. The piece, entitled 'A Plague on Both Houses?,' pooh-poohed the creation of Vanguard Group by John C. Bogle... I think he has done more good for investors than any other financier of the past century."
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Do you really have a pension? [Toronto Star, 10Aug10] "You may think you have a pension, but you may learn it’s not. The authors argue it’s not a true pension if it does not guarantee a certain income for life, an income that rises with prices, an income that will continue even if the company behind the guarantee does not."
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July 2010

How do investing costs hurt returns? Let us count the ways [Globe & Mail, 20Jul10] "Fees are the silent killers of investment returns. Many investors are only dimly aware that fees even exist, but over the long term, fees can cause serious damage to a portfolio... What’s more, those that are aware of fees often believe that higher costs are the price for higher returns, when in fact keeping costs low is the key to successful investing. With that in mind, today’s Investor Clinic provides a comprehensive list of the many fees and other costs investors face."
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June 2010

Morningstar Research Doesn't Get Respect it Deserves [Steadyhand, 27Jun10] "The report opens a window into the inner workings of the asset management industry and investors should look through it. Morningstar has used its clout and research depth to reveal what insiders know, but which until now has been invisible to the outside world... Ultimately, it’s up to the investor to decide how important the information is and where it fits into their decision-making process. In the meantime, I hope the Stewardship Grades get the industry and media stirred up because we need to make changes. Frequent manager turnover, high fees, and poor disclosure are not a road to mutual fund prosperity."
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IFIC tried to block Morningstar report on fund stewardship [National Post, 21Jun10] "Morningstar Canada released a controversial report on mutual fund 'stewardship' grades for the Canadian mutual fund industry... What wasn’t covered in initial media reports was an attempt by the Investment Funds Institute of Canada to discourage Morningstar from releasing the report."
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Morningstar fund manager ratings 'rough at best' [TorStar, 17Jun10] "Morningstar Research Inc. has started to rank mutual fund managers based on an assessment of the somewhat nebulous quality: Stewardship. Their analysts have completed a highly subjective assessment of how well the management culture, fees, compensation system and regulatory history aligns each company with the interests of its investors."
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Stocks for the Long Run? [Evanson Asset Management, Jun10] "Very long-term statistics often conceal problems which may arise for investors with portfolios heavily allocated to stocks. This paper will briefly examine historical data and argue for caution in uncritically accepting the hypothesis that stocks are always the best investment for the long-run... The prudent investor should look closely at risk and return data, worst returns data hidden in long-term statistics, and critically evaluate whether the widely accepted belief that stocks are always the best long-term investment fits their particular circumstances and temperament."
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Putting the Squeeze on Investors [WSJ, 05Jun10] "The investment industry is built on a single premise: 'Our actions improve your returns.' There is a simple way to see whether the premise is true. At year end, ask your broker or financial adviser to report not only how your portfolio actually did, but how it would have done if he had left it at a standstill, making no changes for the entire year... The standstill comparison wouldn't only show you whether your investment adviser did add value. It would also force him to ask whether each of his actions is likely to add value. That, in itself, might lower your risk and raise your return."
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May 2010

The high cost of annuities [50plus.com, May10] "One way to deal with the problem would be to create a system that enables RRSPs and defined contribution plans to be annuitized at a group rate. [Former Bank of Canada Governor David Dodge] told the committee that each $1,000 of lifetime annuity income costs a 65-year-old couple $12,000 or $13,000 at the wholesale (group) level compared to $17,000 to $18,000 at the retail (individual) level. 'It is quite a difference,' he observed. It certainly is: as much as 50 per cent."
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April 2010

Time to replace the 4% withdrawal rule? [MarketWatch, 22Apr10] "Sharpe's study, in essence, shows that retirees waste money by adopting the 4% rule. 'The 4% rule's approach to spending and investing wastes a significant portion of a retiree's savings and is thus prima facie inefficient,' Sharpe wrote... [yet] there's no practical mechanism to replace it with and that further research is required."
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The Warrior [AmericanWay, Apr10] "The plain fact of the matter is that the very structure of the modern financial system is corrupt to the core, extracting wealth from the nation’s ordinary people and placing it in the hands of a very few, and Jack has spent the better part of his life exposing these inequities. This has not made him a lot of friends in the business."
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Compensating financial advisers tricky [Toronto Star, 10Apr10] "Should mutual fund companies be allowed to pay financial advisers to sell their products? In Britain, the answer is an emphatic no. The Financial Services Authority recently served notice that the price of advice must be decided by investors, not by product providers. The U.K. regulator says that, by the end of 2012, advisers will have to be upfront with their clients about how much they charge and will no longer be able to 'hide the cost of their advice behind the cost of a product.'"
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March 2010

Old-fashioned investing advice still applies [LA Times, 28Mar10] "Invest consistently and for the long haul in a widely diversified portfolio of stocks and bonds. Pay attention to taxes and costs. But leave your investments alone... How does Bogle suggest you play this market? The same way you should have played it a decade ago -- or a decade from now. Invest your age in bonds, he suggests, and the rest in stocks."
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Why Fund Managers' Hot Performance Isn't So Hot [WSJ, 27Mar10] "When the first quarter's performance numbers come out next week, they will likely look impressive—again. In 2009, 95% of intermediate bond funds beat the Barclays Capital U.S. Aggregate bond index, according to Lipper Inc. And 68% of diversified U.S. stock funds beat the S&P 500-stock index. Year to date, 58% of stock and bond funds alike are earning fatter returns than their benchmarks. So does the average fund manager—long derided as the functional equivalent of a blindfolded chimpanzee—deserve an apology and a round of applause? In a word, no."
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Simplified wording urged for scholarship trust plans [TorStar, 27Mar10] "After a CSA investigation in 2003, regulators pressed marketers to stop misrepresenting fees, exaggerating the safety of investments, employing high-pressure sales tactics and calculating rates of return in an inconsistent manner. Yet families continued to complain they had been duped or treated unfairly by five marketing organizations that together manage more than $7.6 billion of families' education savings."
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Reveal the ‘true cost’ of the croupier’s take [Financial Times, 21Mar10] "Like death and taxes, which are anything but hypothetical, fund costs are one of nature’s few sure things. Mr Bogle likes to call them the 'croupier’s take'. As in the casino, they are capable of imposing a serious drag on performance. Costs are irrecoverable and compound over time... large-cap funds taken as a whole consume 7 per cent of the assets being managed as expenses and then generate another 2 per cent of losses beyond that"
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BC fraudster gets 9 years for ripping off friends, family in Ponzi-like scheme [Canadian Press, 04Mar10] "A man who stole millions from his friends and family with what the judge called a 'rampant sense of entitlement' and 'unabashed greed' has been given a nine-year-prison sentence. B.C. provincial court Judge Jocelyn Palmer gave Ian Thow two more years in prison than what was agreed to in a plea bargain, saying the law couldn't possibly redress the harm done to his victims."
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February 2010

The Perils of Prosperity: The Story Behind the Economic Crisis [RealClearPolitics, 03Feb10] "Modern, advanced democracies strive to deliver as much prosperity as possible to as many people as possible for as long as possible... The cruel contradiction is that this promise itself may become a source of instability, because the more it is attained, the more people begin acting in ways that ultimately invite its destruction... It might be better to tolerate more frequent, milder recessions and financial setbacks than to strive for a sustained prosperity that, though superficially more appealing, is unattainable and ends in a devastating bust."
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January 2010

Efficiency Thoughts [CanadianMoneySaver, Jan10] "Vanguard pointed out that Sharpe says the expected return for both active and passive strategies is the market return minus the average cost of the strategies. They then added something so obvious that it amazed me that I had never connected the dots before. Vanguard noted that Sharpe’s logic is not only unassailable, but that the conclusion holds true irrespective of whether the market is highly efficient or not."
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Inefficient Markets Are Still Hard to Beat [WSJ, 09Jan10] "Can't anyone here play this game? With the market so erratic at pricing stocks, it is tempting to think you can do better. Between the Dow Jones Industrial Average's record in October 2007 and the bear-market low in March 2009, Bank of America's stock fell 94%. Then, by year-end 2009, it went up 380%. It wasn't just financial stocks that acted like yo-yos: Over the same period, Alcoa's stock fell 87%, then more than tripled. How can such crazy swings in price be "efficient"?"
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A unanimous vote for index investing [Financial Post, 07Jan10] "With another RRSP season upon us and the second year for the tax-free savings accounts commencing this week, Canadians have plenty of tax-sheltered savings room to house new injections of cash. But how to invest it? Over the holidays I read three investment guides and was struck by a unanimous consensus that passive index investing is the only way to go."
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