On the 6th June we had our Aged Care Presentation delivered by Jayne Maini of Millenium Aged Care Consultants. Below is the presentation with audio of the very informative session in case you were unable to be there.
https://vimeo.com/275741144
Author: Simon Ereaut
Some Good Books
Suzanne Duncan’s inspiration to help others, especially single parents, comes from her own very personal awareness of the challenges facing all parents today. Suzanne truly never imagined she would be living as a single parent, but she was thrust into that challenge when her husband tragically lost his battle with cancer in 2011. With her husband’s death, Suzanne has raised her children on her own, and she has an inherent understanding of the difficulties single parents face. Promoting a strong, loving relationship between children and parents became the focus and is the topic of her latest book.
All by Myself & Rocking It! (How to Be Successful at Single Parenting) is not just another single-parenting guidebook, but rather it provides insightful, practical, doable ideas to help you manage life as a single parent and teaches you how to look after yourself while nurturing your children, how to raise children with a good sense of self-esteem, and how to find the inner courage to be successful at raising happy, healthy children on your own.
The book has been an unqualified success in helping those who need support. As one single parent said, “I needed a book like this to help me, to inspire me, and remind me I wasn’t completely alone with everything, and that life can get good again.”
Suzanne Duncan had been interviewed on many notable radio and podcast shows namely The Positive Phil Show, Twelve Minute Convos with Engel Jones, Mom Talk Radio, School for Startups, and The Timeless Family Podcast. She has also been featured and is a regular contributor to various media outlets such as She Savvy, Family Capers, WOW Magazine – Women of Worth, Carol Roth Business Unplugged™, and The Coaching Institute.
The Author
Suzanne Duncan started her own coaching consultancy, Discovery Within, as a single mother of three. She holds a science degree, a graduate diploma in education, and is an accredited coach. She routinely draws on her own experience to inform, educate, and support others to rediscover their potential, embrace their learning opportunities, and generate positive relationships.
Betrayed, Released and Free to Fly
An Unconventional Path to Freedom
A few days before Christmas, some years ago, Evelyn’s husband confessed that he had committed corporate fraud and was likely to go to jail. She was flabbergasted as she had no inkling of these activities. At that time he was a recently retired partner of a globally recognised accounting firm in Melbourne.
Ostensibly, Evelyn was living in a comfortable home, married to a man who had experienced the rewards of professional success. They had two older children in tertiary education, and she was looking forward to a life of semi-retirement. The fraud amounted to seven figures. The legal process was confronting and painful. The adjustment to a less comfortable lifestyle was emotionally and physically exhausting.
At the time, the prevailing (and unspoken) attitude was to cover over the activity and just move on: adopt the “stiff upper lip”. Obviously the accounting firm did its best, successfully, to avoid any publicity. Evelyn feels that while her experience was not unusual, her response was unique. She wanted to share to empower others. Many women have found themselves in similar situations. Interesting that now the #MeToo movement is encouraging women to speak up about abuse at all levels.
In her book, Evelyn talks about some of the unconventional tools she used to not only help her deal with her situation, but also propel her forward into a happier, more stable and fulfilling life. She would like to encourage others who face difficult situations to find the strength within and move through the pain to a better place. Evelyn’s book about her experiences, “Free to Fly” was released in 2014.
At the time of the confession, she recalls that her thoughts were “Oh $%#@@, I have always said to others that it is not what happens, but how you deal with it that counts. What are you going to do now, Evelyn?”. Despite the trauma, she forced her thoughts to fly to the future and how that might look for her.
In time she gathered together her past life collections and gave away, sold or threw out that which no longer served, including the large family home. Fortunate to have connections with Michael Tratt through the University of Melbourne, she was drawn to APC for advice and support to manage what she had been able to salvage financially.
Today she lives on the Gold Coast, having created a new way of life, new friends and businesses. In reviewing the experience, it has been a gift that has allowed her to find the strengths she did not know she had.
The Author
Born overseas, like so many in our amazing Australian population, Evelyn came to live in Melbourne with her family when she was 11 years old. Educated at Camberwell Girls Grammar School on a scholarship, she went on to complete an Arts degree at Monash University, majoring in Latin and Greek. From Monash, she was recruited into the same Computer Programming Course as Michael Tratt, with the organisation that is now Telstra.
A career in IT followed, during which she also completed an MBA at Melbourne University. Leaving full-time employment while raising her family, she pursued a number of part-time activities before returning to study a Post Graduate Diploma of Internet Software Development in anticipation of returning to the work force full time.
As a result of her husband’s activities, she found herself back in the workforce more quickly than anticipated. Full time employment allowed her time to gather some resources while at the same time completing her Yoga Teacher Training for which she had enrolled prior to her husband’s confession.
Alongside her conventional education, Evelyn studied Yoga, Astrology and Esoteric studies from her mid-teens. As the general population is now more open to these concepts, Evelyn is sharing her knowledge through Yoga and Astrology, whilst addressing the needs of the ageing physical body with supportive products. Evelyn enjoys life in Queensland, and still finds time to connect regularly with her son and his family in Melbourne and her daughter in Vancouver.
More information about current activities can be found on her website www.qalma.com.au.
Free to Fly is available on-line through Booktopia, Amazon; hard copies can be obtained by contacting Evelyn directly at evelyn@qalma.com.au.
2018 Federal Budget
The focus of this year’s budget was on reining in spending, cutting taxes for middle Australia and small to medium sized enterprises, and giving older Australians a bit of love.
The Government revealed a seven-year personal income tax plan for “lower, fairer and simpler taxes” with relief for low and middle income earners, starting 1 July 2018. The measures will also tackle bracket creep. From 1 July 2018, the Government will provide a tax offset of up to $530 for tax payers in the 2018-19, through 2021-22 financial years. Those earning up to $37,000 who currently face a 19 per cent tax rate will have their tax bill reduced by up to $200. These savings will increase incrementally between $37,000 and $48,000 to a maximum saving of $530 for those earning between $48,000 and $90,000. The benefit will then gradually reduce to zero at an income of just over $125,000.
Bracket creep measures will see the upper threshold of the 32.5% tax bracket increase from $87,000 to $90,000 from 1 July 2018 and to $120,000 from 1 July 2022. The Low Income Tax offset will also increase from $445 to $645 from 1 July 2022. This will be followed by a flatter personal tax system by 2024-25 where the 37 per cent tax bracket will be abolished completely. Australians earning more than $41,000 will then pay only 32.5 cents in the dollar all the way to the top marginal tax rate threshold that will be adjusted to $200,000.
The top marginal tax rate of 45 per cent will apply to incomes above $200,000.
Small to medium sized enterprises
Attention to small to medium sized enterprises was targeted at keeping them competitive globally. The Government extended the $20,000 instant asset write off for a further 12 months to 30 June 2019 for businesses with a turnover of up to $10 million.
Tax cuts for small business began in 2016-17 when companies with a turnover of less than $10 million had their tax rate cut to 27.5%. This rate was extended to companies with annual turnover less than $25 million in this financial year and from 1 July 2018 will be expanded to include companies with annual turnover less than $50 million. The Government also announced tough new antiphoenixing measures to stop businesses who deliberately go bust to avoid paying their bills and potentially affecting other businesses through their demise.
Superannuation
The focus on superannuation was on lost super and allowing Australians to build their super balances by saving unnecessary fees and unwanted insurance. The ATO will be given powers to send lost super to people’s active super accounts. Fees on accounts with balances of less than $6,000 will be capped at 3 per cent and superannuation fund exit fees will be abolished for those wanting to switch funds.
For superannuation fund members aged under 25, they will need to opt in should they wish to have insurance within their super policies.
For SMSFs, the maximum number of members will increase from 4 to 6 people from 1 July 2019. This will allow for greater flexibility for larger families. In addition, the audit requirements for SMSFs will move from annually to three year periods for funds with a history of good record keeping and compliance.
For Older Australians
The Pension Loans Scheme will be open to all Australians, including full rate pensioners and self-funded retirees to enable them to boost their retirement income by up to $17,800 pa for a couple, without affecting their eligibility for the pension or other benefits.
An expanded Pension Work Bonus will allow pensioners to earn an extra $1,300 a year without reducing their pension payments. This will also be extended to self-employed individuals who can now earn up to $7,800. People aged 65-74 with a total superannuation balance below $300,000 will now be exempted from the work test for voluntary contributions for the first year they would otherwise fail to meet the work test.
Aged Care, Skills Training, Medicare and the PBS
For older Australians who would like the choice to remain in their homes and avoid residential aged care facilities, there will be a total of 74,000 high level home care places funded by 2021-22.
A new Skills Training Incentive will provide mature aged workers with the opportunity to update their skills. And, employers will be incentivised with $10,000 wage subsidies for employing mature workers.
Extra funding into Medicare and the PBS will see new medications being funded including those to treat spinal muscular atrophy, breast cancer, refractory multiple myeloma and relapsing-remitting multiple sclerosis and an HIV preventive drug.
Market Corrections. How Bad Can They Get?
Market “pullbacks”, “corrections” and “bear markets”
Sharemarket declines are often labelled differently depending on the degree of share price losses sustained. Let’s talk about the semantics first: Although opinions can vary, the worst – but best known – sharemarket downturn is called a “bear market” which tends to be defined as a peak-to-trough decline in prices of 20% or more. By contrast, sharemarket declines of more than 10% (but less than 20%) are typically called “corrections“. Smaller market declines (less than 10%) go by many names, but I like to call them “pullbacks“. At the time of writing, the S&P 500 has already experienced a maximum decline of 10.1% from its closing recent peak of 2,872.8 on January 26 – placing this decline in the “correction” territory so far.
What do typical market declines look like?
As seen in the table below, market pullbacks are the most common form of market decline – analysing the US S&P 500 Index, there have been 466 pullbacks since the market recovery from the Great Depression(1), with an average decline of 1.5% taking place on average over one and a half weeks. Recovery on average takes a further week. Note the vast bulk of these pull backs (93%) involve declines of less than 5%. In short, market declines of 5% or less are very common and hard to get too worried about.
By contrast, there have been nine bear markets, with an average market decline in these periods of 35.8%, over an average of 65 weeks(2). On average it takes almost twice as long – 116 weeks – for the market to recover its previous (price) peak. As the saying goes, the market goes down the elevator but up the stairs.
What about corrections? The table indicates there have been 11 “corrections” which, perhaps surprisingly, is only slightly more than actual bear markets. Even if we include 10 to 20% market declines during a market recovery (i.e. before prices have reached their previous peak) the number of corrections grows to 13 – which still implies an average of only 1.4 corrections for every bear market.
Of the 11 strictly defined corrections, the average market loss has been 13.2%, which takes place on average over 20 weeks – or almost six months! Note, moreover, that unlike during bear markets, the average time of market recovery following a correction is considerably quicker than the downturn – only 11 weeks.
Breaking this down further, it’s apparent that 9 of these 11 corrections (82%) were less than 15%. All 11 corrections, along with their depth, length and date of market trough are detailed in the chart below. Also included is the latest correction.
All up, this analysis suggests that if we are truly in only a market correction then chances are that we’ve almost reached bottom. That said, it could take a few more weeks (even months) before the actual bottom is in place.
Has market behaviour changed over time?
To gain an insight into long-run trends over time, the chart below details the peak-to-trough declines in closing daily prices of the US S&P 500 Index over this period.
Just eyeballing the chart, it’s evident that overall market volatility does not appear to have appreciably lessened. If anything, since the early 1990s there have been two relatively extended periods of low volatility but also two relatively deep and more extended bear market periods. This is consistent with the “Great Moderation” in macro-economic volatility in recent decades, but also the potentially greater threat now posed by financial market imbalances in creating bear markets.
Indeed, the two greatest bear markets since the Great Depression also happen to be the two most recent – the early 2000s dotcom crash and the 2007-09 financial crisis.
What’s the implication of all this? To the extent the recent extended period of low volatility does manage to reassert itself for a time, history suggests this may build up pressure such that the next inevitable bear market could also prove relatively deep and protracted.
(1) The Great Depression period was excluded because it was such an outlier in terms of the depth and length of the market downturn. It was instead decided to focus on the more recent post-war period – which still covers more than 50 years!
(2) A week is defined as 22 trading days.
The Royal Commission
Someone said to me recently, ‘if you want to understand employee behaviour, understand how they are remunerated’. It was a discussion about ethical behaviour in the workplace and I believe it has significant relevance to what is being highlighted in the current Royal Commission into Banking and Finance. The ‘sales’ culture in banks and the payment of bonuses based on ‘sales targets’ promotes behaviour that is not, in my opinion, consistent with the concept of acting in the ‘client’s best interest’.
Australian Private Capital’s remuneration policy has always been structured to encourage our team to deliver to our published client service standards. Our team are all salaried and have no individual ‘sales’ targets for which they are measured against. Their personal performance review includes measurements such as the scores our clients provide APC in our regular client survey as well as specific activity KPIs that relate to their role and how they help deliver on our ‘client first philosophy’. The team’s internal KPI’s unambiguously promote APC’s expectation that everyone performs an important role in the overall delivery of timely, accurate, conflict of interest free and highly personal financial advice.
Conflicts of Interest
Recently, APC produced an Adviser_Q_and_A document to help individuals who were considering working with an adviser. It highlights what some of the questions they should ask are, if they wanted to understand where (if any) conflicts of interest existed. I attach this for your information and would encourage you to read it. I would also encourage you to give it to anyone you know who is considering obtaining advice or developing a long-term relationship with an adviser.
Also attached is the advertisement as part of our 2017 Principal Partnership of the MBS Dean’s Leaders Forum. It controversially was entitled ‘Does Conflict Free Advice Really Exist?’. The answer is YES but it is rare.
Commissions
Unlike many, over the years APC has successfully removed nearly all of the embedded commissions from our implementation solutions. We have done so by using where possible wholesale offerings, which unlike their retail cousins, have no adviser commissions included.
Where this is not possible, APC’s Commission rebate policy ensures that any commission received is returned to our clients 100%. Australian Private Capital will this year in July once again return commissions received from insurance companies and banks over the financial year, to our clients. It is anticipated that the cumulative value of our policy will exceed $750,000 of rebated commission this year.
For our clients it lowers the cost of personal insurance by approximately 30% per annum. Importantly it ensures that our clients have no more insurance than their strategy requires at any given time. Our commission rebate policy also lowers the cost of borrowed funds.
A final word
As like many, I look at the findings of this ongoing Royal Commission with some disbelief. The lengths to which large and some not so large companies have gone to place their interest ahead of their client’s is disappointing to say the least. It reinforces in my mind the validity of the decisions Australian Private Capital took many years ago to be ‘ahead of the curve’ when it came to removing any possibility of conflicts of interest in the delivery of personal advice in Australia.
We continue to look at ways to further enhance our implementation solutions and this remains an ongoing theme at APC. There are several projects underway with this in mind and over the course of the coming months you will see these come to fruition when you are in our offices for your next Regular Planning Meeting. However underpinning them all is our central commitment to delivering timely, accurate, conflict of interest free and highly personal financial advice to you.
My warm regards,
Robert Sarafov
Director – Australian Private Capital
Bitcoin and the Blockchain Presentation
As promised, we have the audio from the Bitcoin and the Blockchain presentation combined with the Powerpoint slides for those who missed the presentation or anyone that was there who would like to re-listen to what Myron and Andrew had to say on this topic.
https://vimeo.com/265678941
Our next presentation / information evening will be on Aged Care. Please see the APC Event Schedule on the “Client Portal” page for further information.
Stories from Around the World
We here at APC consistently hear about the amazing stories and experiences of our clients from around the world. This E-news’ shared experience comes from Barry Goss who walked 50km with a team of 4 in the OXFAM Trailwalker event to raise money and awareness, “Challenging Poverty”.
We firstly would like to thank all those who donated to the team and some who apologised but wished us well. We finished in 57 place in the 50km walk winning the over 60’s with ease. Elapsed time was 12:07 with a walking time of about 10:30 (we did have three breaks).
The thunderstorms along the way slowed our progress and I had a few strange back problems on the flat rail trail. A few of Gregs neurofen helped so i came good for the final hilly sections. Dinner was supplied at Millgrove by our wonderful support crew of Lorraine, Toni and Gay and a special thanks to our drop off driver Geoff who made sure we did not miss the start.
We had stayed dry until check point 1 on the 50k trail, then it poured after the lightening and thunder warned us of what was to come. Not too bad but slower than planned on the rail trail but on the last leg after a pleasant stroll along the old O’Shannesy aqueduct we headed up over Mount Little Joe. Donna Buang was being lit up by lightening across the Yarra Valley to our north, and as night fell a flash followed by a clap of thunder told us that we were about to be cooled down again.
Down came the rain and the once dusted track turned to mud. Navigation became tricky as the markers were being obscured by rain on glasses and the fog of hot breathes. The girls almost lead the train of walkers down the wrong path over a yell from me and a whistle from greg brought them back on track. After that I navigated w=down the long decent towards the bottom of the famous last climb. (remember that climb Emma?). I found the going very difficult as I had to not only try and see my feet though the rain coming straight on but also look out for markers to show we were on the right trail. We had passed numerous teams of 100km wakers but had not been passed by any 50km teams until we started up Little Joe. In the rain we were still catching 100km teams but I only met 1 lone walker who might have been a 50km entrant who might have gone down the wrong track (the one the girls started down) as he joined from the right and said oh a marker at last. he headed off up the last climb and I waited for the team to appear. We then started up the climb, I tried to keep track of where the team was but looking back in the pouring rain one set of lights looks much the same as any other.
The old saying that you do the flats and the down hill together but “you climb alone” is very true as everyone has there own pace and method, I am the “don’t stop to the top” slow plodder, while others are fast forward, stop rest then fast forward. I plodded up to the top where the last turn before the down hill was known gathering spot. Going up the sides of the runoff trenches cut across the track proved to be tiring as they were now mud. Thank god for walking poles. At the top I looked back again and i thought our team was not far behind me as I thought the light I had been keeping track of was Wendy’s, however there were now 25 lights all coming up the slope in the rain, normally a pretty sight but not then. A number of 50km teams passed by as I waited usually a climber lead to the top and waited until the rest arrived then headed for home. All the teams that were chasing us from Millgrove now seemed to appear at once.
Our light appeared and the team regrouped and headed off down the final slippery slope together Greg acted as the sheep dog keeping Wendy on the best track until we reached the bottom, then a quick dash through the final path to the finish line awaited. I suggested a running finish to catch the team in front but this was overruled. Our support was waiting with champers, chips and dry cloths.
Greg suggested we do it next year ro try for the >70 category, Gay did point out the name of our team (One Last Time) while Wendy said “never again”. Greg, Chris and myself are now all Oxfam legends having completed at least 5 Oxfam’s, Greg and Barry having completed the first 100km and now the first 50km walks. Maybe they will have a 25km for the over 80’s!!!
Emerging markets may struggle to repeat 2017’s golden year
When hedge fund legend Howard Marks from Oaktree Capital wrote a book on investing he devoted a chapter to the importance of being attentive to cycles. Marks said he lived by a rule that most things would prove to be cyclical. He went on to say that some of the greatest opportunities for gain and loss would occur when other people forgot this rule. This message could well be applied in 2018 to emerging markets, where stock markets have delivered extraordinary gains on the back of a cyclical upswing in earnings. The earnings growth of 24 per cent in emerging markets was fuelled by strong domestic economic growth and favourable exports. Data shows that Asia had some of the strongest-performing stock markets in world in 2017 with emerging market economies Vietnam, India, Philippines, Malaysia and Indonesia leading the pack.
Retail and institutional investors obviously felt good about the prospects for companies in emerging markets last year, judging from the data showing total inflows of $US85.5 billion in 2017. But when you combine the funds flow data with the latest outlook for emerging market earnings there are reasons to be cautious, according to Jonathan Garner, chief Asia and emerging market strategist at Morgan Stanley. He echoes Marks when he says investors need to be aware that economic and earnings cycles are turning. First, he notes that the cumulative number of positive weekly fund flows into dedicated emerging market funds (ex-China A-share funds) in the 10 weeks leading up to the end of the 2017 was the strongest since 2010.
Slower earnings forecast
He says that when you match the flows up against the Morgan Stanley base case for 2018 earnings for companies in the MSCI Emerging Markets Index there is reason to be cautious. Asian countries included in the MSCI EM Index include China, India, Indonesia, Malaysia, Philippines, Taiwan and Thailand. Countries outside of Asia include Russia, Brazil, Turkey, Colombia, Egypt, Greece, Poland, Mexico, Peru, South Africa, the UAE and Qatar. Garner says earnings for companies in the MSCI EM Index are forecast to more than halve this year. Earnings were 24 per cent in 2017 and are forecast to be 11 per cent in 2018 and 7 per cent in 2019. The strong earnings in 2017 help explain why the MSCI EM Index rose 36 per cent over the past 12 months.
One of the big reasons for the earnings drop in 2018 is because of the end to the bullish global cycles for NAND and DRAM memory chips. Morgan Stanley says these cycles will turn in 2018 because of oversupply. Both products have been in upward cycles since January 2016. The IT sector makes up about 28 per cent of the MSCI EM Index compared to about 16 per cent for the MSCI World Index. A sell-off in IT stocks in emerging markets that began in November has abated. Another valuation measure that Garner says is sending an amber warning signal is the price to sales ratio for emerging market stocks. This ratio is calculated by dividing the company’s market cap by the revenue in the most recent year.
Turning cycles
Garner says the price-to-sales ratio for emerging market stocks in the Asia-Pacific ex-Japan and ex-financials is higher than the 90th percentile relative to their 20-year history. The most interesting aspect of this analysis is to look at what happened to the performance of stocks when the cycle turned. The four previous high average price to-sale ratios were between December 1993 and September 1997 (1.8), December 1999 and September 2000 (1.6), September 2007 and May 2008 (1.75) and December 2010 and January 2011 (1.41). In the subsequent four years after the May 2008 peak the index fell 4.5 per cent. After other peaks it fell 2.5 per cent and 1.5 per cent and on one occasion rose 1.3 per cent. The message is that the turn in the cycle could lead to sub-par returns in the years ahead. Other reasons for caution are the higher oil price, which tends to hurt emerging markets more than developed markets, the low volatility as measured by the VIX.
Index, the buoyant IPO market in Asia and the low spreads between high-risk and low-risk bonds in the US market. Nevertheless, Garner and his colleagues in the Morgan Stanley equity strategy team in Hong Kong do recommend being overweight China, Brazil and India. They recommend being underweight Indonesia and Korea. The turn in the cycle in the oil market should be positive for energy stocks. The gap between price to book and price to sales ratios for semi-conductor manufacturers/tech hardware stocks and energy is at an all time high. But that should change in 2018.
Decelerating Chinese growth
Another cycle that has turned is the Chinese economic growth cycle, according to Garner. He says this is clear from the recent movements in the proprietary Morgan Stanley China Economic Index, which tracks electricity production, car sales, steel production, fiscal expenditure, real exports and real imports. Other economists predicting a deceleration in China’s GDP growth include Shuang Ding, the chief economist, Greater China and North Asia at Standard Chartered Bank. He has five key predictions for 2018. First, he says growth will decelerate to 6.5 per cent from an estimated 6.8 per cent in 2017 as the government pursues deleveraging and aims to reduce pollution. Second, CPI inflation will surprise on the upside at 2.7 per cent. Third, the People’s Bank of China will raise monetary operation rates by a total of 20bps, following the trend of monetary policy normalisation by major central banks. Fourth, the USD-CNY will reach 6.45 by end-2018, based on his assumption of a weakening US dollar. Finally, the debt-to-GDP ratio will continue to rise, but at a slow pace. The debt ratio is forecast to hit 277 per cent by the end of 2018, versus an estimated 270 per cent at the end of 2017.
Where to look
Those investors wanting to confirm their bullish bias toward Asian stocks should read the latest forecasts from HSBC for emerging markets and the buy recommendations from Japanese broker Nomura for the Philippines. Nomura is one of the few international brokers with a strong presence in the Philippines. Nomura says share price performance in the Philippines will depend upon earnings growth of about 13 per cent across the market in 2018. It is bullish in relation to Philippine banks, consumer discretionary, industrials and property sectors. Earnings growth for some of its buy recommended stocks are as high as 32 per cent and yet price earnings multiples are in the mid-teens. The consensus is that India will have the fastest-growing economy in Asia in 2018, which continues an upward cycle kicked off by the election of Narendra Modi in 2014. Garner at Morgan Stanley says the world’s institutional investors are overweight India but much less than they have been over the past few years. He expects real GDP growth to accelerate to 7.5 per cent in 2018 and further to 7.7 per cent in 2019, from 6.4 per cent in 2017.
“More importantly, we are confident that a recovery in private capex will be under way in 2018, for the first time in six years,” he says. Now that is a positive cycle to watch. Marks says that ignoring cycles and extrapolating trends are the most dangerous things investors can do.
Warren Buffett Bet
With 2017 over, Warren Buffett has sealed his victory over hedge funds in a bet he made a decade ago.
The Berkshire Hathaway chairman in 2007 bet $US1 million that the S&P 500 would outperform a selection of hedge funds over 10 years.
As of Friday, his S&P 500 index fund had compounded a 7.1% annual gain over that period. The basket of funds selected by Protégé Partners, the managers with whom he made the bet, had gained 2.1%, according to The Wall Street Journal.
Buffett agreed to give the prize money to Girls Inc. of Omaha, Nebraska, a nonprofit he has previously supported.
Each side first put $US320,000 into a zero-coupon Treasury bond that they estimated would be worth $US1 million by 2018. But it was moved into Berkshire Hathaway’s class B shareswhen the bond’s value rose faster than expected. The 11,200 shares they bought in 2012 were worth $US2.22 million on Friday, The Journal noted.
Buffett has long taken issue with hedge funds’ promise of outperforming the market and their high fees that take away from the returns their clients earn.
He has turned out to be right on both fronts.
Actively managed funds have seen outflows while passive funds have gained since the financial crisis. Meanwhile, an abundance of exchange-traded funds has made it cheaper and easier for investors to buy into just about any group of stocks.
“My guess is that doubling down on a bet with Warren Buffett for the next 10 years would hold greater-than-even odds of victory,” Ted Seides, a founder of Protégé Partners, wrote in a concession piece on Bloomberg View in May. “The S&P 500 looks overpriced and has a reasonable chance of disappointing passive investors.”
Look Malcolm! A Windmill
We always like to hear about the talents and successes of our clients. Budding artist, Tom Anderson has had his painting, “Look Malcolm! A Windmill” nominated for a ‘Bald Archy’ award. Some of Tom’s work is on display in our office with an underlying political satire theme addressed in many of his works. The winner is announced in Sydney on March 20th and we wish Tom all the best, and hope his painting wins the award!
Don Quixote, ancient knight and seeker of windmills, had tried to describe them to the non-comprehending Prime Minister. When he finally spots one, he attempts to alert the sleeping politician. Unfortunately, neither is able to recognise the wind turbine for what it is, and the window of opportunity passes by.