Keep investing simple
Friday 25 April 2008
David F. Swensen manages investments for the $22.5 billion endowment at Yale.
Picture by Alan S. Orling for The New York Times
I have mentioned David F. Swensen in my blog before. He is one of these interesting personalities, along with Warren Buffett who have an uncanny knack of allocating capital with optimal returns over time. Wonderful if you could persude these guys to look after your money! However more likely instead as an investor you will end up with one of the thousands of asset managers attempting to emulate Swenson’s success. Yet many investors think they have found the next Buffett or Swensen or at least thats what the investment managers tell them!
What is interesting is what Buffet and Swensen say about Joe Average investor...by the way that's you if you are reading this...and you are not alone as there are another 99% or so of you all in the same boat...which means you need a methodology when investing your capital.
What does Swenson say? What methodology can you learn from him? In an article in The New York Times on February 17, 2008 entitled “Keep It Simple, Says Yale’s Top Investor” By GERALDINE FABRIKANT….
“What should an individual investor do? Don’t try anything fancy. Stick to a simple diversified portfolio, keep your costs down and rebalance periodically to keep your asset allocations in line with your long-term goals.
For most people, he recommends a very basic approach: use index funds, exchange-traded funds and other low-cost instruments, and stick to your long-term asset allocation — even when the markets are in tumult.”
Our point is that we believe exactly what Swenson has said. It is our view such a philosophy and methodology is the route to a successful investment experience over time.
Categories: Asset Class Management, Philosophy
posted by Murray Round Wealth Management @ 16:39,
Academic Articles
Thursday 24 April 2008
Much of our investment philosophy is based on empirical research. We have detailed below a number of academic and industry articles. Some are highly technical while many are easier to read.
Financial Theory
Portfolio Selection by Harry Markowitz
Characteristics, Covariances, and Average Returns: 1929-1997 by Davis, Fama and French
The Cross-Section of Expected Stock Returns by Fama and French
The Costs and Benefits of Waiting to Invest by The Schwab Centre for Investment
Asset Allocation
Determinants of Portfolio Performance by Brinson, Beebower and Hood
The True Impact of Asset Allocation on Returns by Roger G. Ibbotson
Investment Policy Explains All by Surz, Stevens, and Wimer
Market Efficiency
The Parable of the Money Managers by William F. Sharpe
The Arithmetic of Active Management by William F. Sharpe
Stock Market Forecasting by Alfred Cowles
Random Walks in Stock Market Prices by Eugene F. Fama
The Loser's Game by Charles D. Ellis
Asset Management: Active versus Passive Management by Rex A. Sinquefield
Mutual Fund Performance and Manager Style by James L. Davis
Market Efficiency, Long-Term Returns, and Behavioural Finance by Eugene F. Fama
Online Investors:Do the Slow Die First? by Brad M. Barber
International Investing
Where are the Gains from International Diversification? by Rex A. Sinquefield
Performance of UK equity unit trusts by Garrett Quigley and Rex Sinquefield
Categories: Articles, Asset Class Management, Research
posted by Murray Round Wealth Management @ 15:36,
Panning for gold..it takes time but if you are persistent….
Thursday 10 April 2008
This is a long video, yet it does have nuggets of gold for investors. Warren Buffett has built a reputation as an investor or as he puts it a specialist who allocates capital. If you have time, listen to it…there are some interesting points which can help an investor's understanding.
There are also some lovely quotes…."you only need to get rich once"…yet investors keep risking assets they don’t need to risk. There is sometimes a loss of perspective by investors simply because old habits don’t die easily. Part of our remit is to help investors put the right mind set to investing.
There is also a fascinating insight into the problem of Long Term Capital…suffice to say the firm imploded in 1998 losing $4.6 billion in less than four months. Buffett sums up with more quotes “Why smart people do dumb things”…and about the owners, who were all rich and very smart, he says “to make money they didn’t have and didn’t need, they risked what they did have and did need”…. “why risk something that is important to you, for something that is unimportant, that doesn’t make sense, whatever the odds”
Clearly, understanding the risks is the problem and investors often need outside analysis to help see the wood from the trees. Moreover, even the smartest people find it difficult to make forecasts, yet most investors employ advisers and fund managers that do exactly that…make forecasts. Most are nowhere near as smart as those at Long Term Capital - and with their Nobel prizes as well!
Our approach is somewhat different and Buffett provides simple advice to investors which we endorse. An example is diversification. Of course many investors think they are diversified, but often knowing what you are invested into and the risk is more difficult than it appears. See our blog about Fund Classification.
Moreover, we do not make forecasts. John Kenneth Galbraith said "The only function of economic forecasting is to make astrology look respectable." Say no more!
Our approach to investing is based on science, not speculation. We do not make investment decisions with our clients' or our own money based on our personal "beliefs." Our disciplined investment management process is based on decades of objective financial research and removes emotional interference, providing our clients with fewer surprises and a smoother investment journey.
Categories: Diversification, Asset Class Management
posted by Murray Round Wealth Management @ 10:32,
The king is in the altogether…again and again…and again
Wednesday 9 April 2008
I like the phrase as I have used it many times and it is as true in the land of reality as it is in fiction.
A recent article in the FT by Vince Heaney on March 30 called “Era of fat fees/slim gains numbered”, discussed the fees charged by hedge funds. Yet it is not specifically that hedge funds that need to be targeted, but fundamentally actively managed funds. I have included below part of the article…I will let you read it and then I will pass comment.
“Martin Wolf, meanwhile, also writing in the Financial Times, recently argued that incentive structures of this sort encourage unscrupulous hedge fund managers to invest in strategies with a high probability of a modest gain and a low probability of huge losses in any period. Eventually, the low probability disastrous event will occur, but by then the manager has grown fat on his 2/20 rewards and no system of clawbacks exists for the repayment of losses. Hedge funds, essentially, are a scam.
Mr Wolf makes some good points, not least that it is hard to distinguish between talented and untalented managers. Indeed in recent years this problem may have become worse. The credit crisis has revealed that, during the bull market that preceded it, many managers were not generating true alpha. Instead they were taking advantage of exposure to “alternative betas”, such as the premia earned for the illiquidity of certain assets, which were under priced in the frantic search for yield. Investors should be wary of any manager touting a strong track record for 2002-06, who explains away losses in 2007 as “unavoidable” because of the wider market malaise.”
Well, I think someone could write a book based on these comments.
I want to ignore today whether hedge funds are a scam, but investors need to understand the comment made about distinguishing between talented and untalented managers. Every investor can be given a plausible reason why to invest with a particular manager, the marketing is always excellent but whether there is substance is a different matter. You have guessed it, the king is in the altogether again. As an investor you need to satisfy yourself that the manager can outperform and if you cannot, do not guess, use a different approach. Go a little more scientific.
Our approach to investing is based on science, not speculation. We do not make investment decisions with our clients' or our own money based on our personal "beliefs." Our disciplined investment management process is based on decades of objective financial research and removes emotional interference, providing our clients with fewer surprises and a smoother investment journey.
In that way, there is no need for the king to pretend he or she is something they are not.
Categories: Hedge Funds, Wealth Management
posted by Murray Round Wealth Management @ 16:25,
Apples and oranges…yes that’s a realistic method of comparison..isn’t it?
Tuesday 8 April 2008
It is important to be able to understand where your assets are invested so you can begin to compare. Unfortunately it is not that easy for investors.
...even the FT states “Broad fund sector classifications are making it increasingly difficult for investors to compare the performance of equity funds on a like-for-like basis.”
In an article entitled Sector revamp needed to aid fund selection By Catherine Neilan
Published: April 4 2008 the writer states ”The number of strategies, styles and philosophies contained under one heading becomes apparent when you consider how the top performers fare once there is a change in the cycle.
The IMA, the industry body, admits it has not been able to find a workable solution to make the comparisons easier for investors.
This means investors often have to carry out their own due diligence on what a fund invests in, and how risky it may be compared with its so-called peers.
Mona Patel at the IMA says the industry body has considered dividing up the larger sectors, but has so far failed to find a solution.”
This is not to say it is impossible to make fair comparisons, to compare 'like with like', 'apples with apples' so to speak, the point of the argument, is to make it easier. Yet it will never be easy simply because it is actually complicated, and investors should ask their fund managers and advisers to provide the due diligence. Which brings me back to a fundamental problem facing investors…how would an investor know to ask about due diligence? It's not the answers that are important, it’s knowing what questions to ask in the first place? Knowing these questions is part of our role…want to know what you should ask?
Categories: Benchmarking, Research, Asset Class Management
posted by Murray Round Wealth Management @ 13:56,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
Welcome to our Blog
Our Blog focuses on the three Ts...truth, transparency and trust. The world of investment management is fraught with self interested parties keen to sell investment products but wrapped up as 'advice'. Only with totally transparency, can investors make informed and successful decisions. We have included various categories for simpler navigation, alternatively search our Blog using key words you think are relevant. We hope you find something of interest to you.
Contact Us
We welcome your enquiry to us. Simply click on Contact Us' link at the top of the page. You may also email us at service@murrayround.co.uk or telephone 01743 248108.
Visit us again!
