June 2010
Morningstar escalates war of words with IFIC over mutual fund stewardship grades [Financial Post, 29Jun10] "The war of words between Canada’s mutual fund association and independent fund research firm Morningstar escalated today when the latter issued a rebuttal to a critical letter the Investment Funds Institute of Canada (IFIC) had distributed widely to its members."Discuss on FWF
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."
Discuss on FWF
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."
Discuss on FWF
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."
Discuss on FWF
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."
Discuss on FWF
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."
Discuss on FWF
May 2010
That Nagging Question Of Mutual Fund Fees [NY Times, 08May10] "Paul Samuelson, the late Nobel laureate in economics, compared mutual funds to a saloon. 'I decided that there was only one place to make money in the mutual fund business, as there is only one place for a temperate man to be in a saloon: behind the bar and not in front of it.'"
Discuss on FWF
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."
Discuss on FWF
April 2010
Wild Ride Hasn't Changed 'Verities' Of Investing [Index Universe, 26Apr10] "Costs still matter; passive still beats active in the long run because it has to by mathematical certainty; adhering to an asset-allocation policy still matters and the emotional discipline needed to adhere to that policy is even more important. The markets, at base, are a mechanism that distributes wealth to people who have a plan and can execute it from those who don’t or can’t... I think the thing that stunned everybody was just how fragile the largest financial institutions are,... how illiquid fixed instruments that we generally thought of as safe were,... [and] that in the wake of this crisis, risk-free yields are zero."
Discuss on FWF
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."
Discuss on FWF
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."
Discuss on FWF
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.'"
Discuss on FWF
March 2010
The lowdown on insurance salesmen and warranty peddlers [Globe&Mail, 30Mar10] "The point of insurance is to smooth your lifestyle over alternative universes. Insurance isn’t an investment or a form of protective magic. It is important to understand that the investment return from buying insurance is always negative. That is, you can’t make money 'on average,' and the insurance company make money 'on average' at the same time. Instead, they charge you–and everyone else–more than the amount they expect to pay out. Otherwise the company would go bankrupt, and you wouldn’t get paid either. So, take advantage of this risk pooling mechanism–but don’t go there for a leisurely swim."
Discuss on FWF
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."
Discuss on FWF
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."
Discuss on FWF
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."
Discuss on FWF
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"
Discuss on FWF
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."
Discuss on FWF
February 2010
Original Sin on Wall Street [The Atlantic Monthly, 19Feb10] "What makes a study of history and the Classics so important for business? 'It involves critical thinking,' Bogle explained. 'It involves some kind of perspective, it involves some ability to think "you know, this has happened before and it could be happening again now." It would certainly shun the argument that this time is different when the stock market goes to an all-time high.'"
Discuss on FWF
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."
Discuss on FWF
January 2010
Why Some Investors May Be Fooling Themselves [WSJ, 16Jan10] "If your financial planner says he can earn you 6% annually, net-net-net, tell him you'll take it, right now, upfront. In fact, tell him you'll take 5% and he can keep the difference. In exchange, you will sell him your entire portfolio at its current market value... Unless he's a fool or a crook, he probably will decline your offer. If he's honest, he should admit that he can't get sufficient returns to honor the swap. So make him explain what rate he would be willing to pay if he actually had to execute a total return swap with you. That's the number you both should use to estimate the returns on your portfolio."
Discuss on FWF
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."
Discuss on FWF
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"?"
Discuss on FWF
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."
Discuss on FWF