It’s worth reading in its entirety for the insights. I don’t agree with everything there, and I certainly don’t agree with the widely held view (not among the authors) that the universe of countries included in the survey is supposed to be somehow representative of the world.
The countries chosen have an absolutely clear bias in their selection. They are successful economies with successful financial markets. They are included by virtue of their long-term success and capital growth and returns for investors.
The authors know this, but many readers don’t. The returns per this survey are an overly rosy view of possible future returns.
The Technical Provisions Task Group and KPMG ran a workshop for industry participation on risk-free rates recently. The idea was to see whether we could improve the extent and quality of industry comment on key, controversial areas of the proposed SAM regime.
Turnout was good, but not great, but the discussion and points raised were all fantastic. Plenty more to do from here onwards, but I thought it might be useful to include the presentations somewhere publicly available.
Some of the concepts that were on the agenda
Swaps vs Bonds, the theory as well as practical implications for insurers, banks and the capital markets
Extrapolation methods and what challenges this creates for practitioners
Identifying and measuring illiquidity premiums, credit spreads and the difference between Expected Default Loss and Credit Risk Premiums
European developments on Matching Adjustments and Countercyclical Premiums. Should we follow their path? Is bottom-up or top-down more practical?
Do we need a methodology for nominal and/or real yield curves?
Non-South African countries – what is the practical answer to requiring multiple yield curves?
Reducing regulatory arbitrage between banks and insurers for credit and market risk on swaps and bonds
Presentations (reproduced with permission from the authors)
What’s interesting for me here is that none of these arguments require or allow for market efficiency. It’s a totally separate way of looking at the issue with empirical evidence to support it.
I suppose the market efficiency counter would be that the change in valuation over long periods should be exactly as required to provide an appropriate risk-adjusted return to investors given the expected changes in all other variables. I don’t know if I buy that or not.
The key message for me is the counter argument to the “obvious” view that high growth emerging markets necessarily provide greater equity returns in the long run. The same can be said for why high growth companies don’t necessarily provide higher equity returns in the long run. As the low-growth companies are spitting out dividends to investors, the high-growth companies are diluting existing investors as they raise more capital.
The one question I haven’t full settled in my own mind is whether real dividends being correlated with economic growth is the best measure. High dividends now should result in low dividends in future. Low dividends now should result in high dividends in future. We should expect a point-in-time correlation between high growth economies (and companies) and low dividend yields. I would think that this correlation is needed in addition to the time series analysis performed by Dimpson, Marsh and Staunton since there can be weird lag effects that diminish the correlation there.
All the same, food for thought, especially living in a low-moderate growth emerging market country!
Paulson and Soros still think Gold is a buy, adding to their stakes as the price declines. It’s also not very brave of me to blog about this now as gold has declined when for much of the financial crisis it was increasing in price. I’ve been watching other things.
The idea that the gold price must increase because of massive monetary easing reflects a broken understanding of the economy and a liquidity trap. The money isn’t going anywhere. It is being hoarded in bank vaults. Very few people want to borrow, and aside from banks buying up gold with their excess cash (which would effectively be a massive speculative prop-trading bet on the direction of the gold price) there are few reasons for gold to be spiking massively.
One possibility is the simple safety argument. If you don’t know where else to put your money, put it into gold because it’s gold and it’s safe. Except why should gold be safe? The price swings all over the place like many commodities, but unlike most commodities it has limited industrial uses. Gold arguably has very little intrinsic value.
I’m not saying gold is going to tank. I really don’t know. I also don’t think anybody else really has a good idea of where the gold price is going to and much of the speculation is by people who think it’s going to rise. Therefore it may have been overbought already (whatever that means when it comes to gold, that is).
Hyperinflation is not here. Gold price increases are not guaranteed. If your entire investment view is centered on monetary policy giving rise to massive inflation, you’re in for a painful ride.
(The one risk that does remain is that when the economy starts turning, and I’m thinking maybe as far away as 5 or 10 years out, if the liquidity isn’t quickly pulled back, we might have high inflation and increases in gold prices. I don’t see this as a major part of the view of current gold bugs. There are too many ifs and too much time and far too much uncertainty.)
Of course it’s not the only possible reason. It’s also not absolute proof that putting women onto a men-only Board would improve performance.
The problem is cause and effect. It might be that enlightened Boards add well-performing companies are more likely to add women to their Board. It might be that successful companies spend the time to get their Board composition right.
Finally, it might be stronger than the diversity argument. Women may simply be better at running companies than men. It’s a pity there are too few women-only boards to compare their performance to help answer the question whether women are better board members than men or is the benefit simply one of diversity. Interesting implications for other forms of diversity on Boards too.
The Make a Million competition, as I’ve mentioned before, is an awful idea. It doesn’t promote investing or even “normal” trading, but rather massive, speculative risk-taking trading because the prize for performing well is nothing and the prize for performing best is significant.
I’m continually disappointed that Moneyweb continues to partner with this distraction.
As I’ve done in the past, I’ve analysed very quickly some of the results of the most recent competition. As background to that, the basic rules are:
Put up R20,000 of your own money
Trade over three months in currencies, commodities single stock futures and some index trackers.
Whoever has the most at the end wins a million rand
Everyone keeps what is left of their initial “investment”
So let’s be clear, there are no long-term investment learnings here.
The winner did return 165.5% over 3 months, which is not an impressive performance even though it might look like it. The point is, given the volatility of the investment universe available for the competition and the encouragement towards rampant risk-taking, it’s entirely pedestrian performance. It’s very likely an individual’s performance will be good given the wide range of possible outcomes.