Simple vs. Complex, 2018 Edition (Endowments vs Index Funds)

Yep I listen to some of them. Rick Ferri’s recent podcast I liked. I’m a big fan of dividend investing but have followed the Boglehead forum for countless years (prior to that Diehards) and find the conversation there on the forum at times to be extraordinary.

I think a strong home country bias is understandable particularly for retirees. Imagine the retiree trying to manage cash flow and dealing with a portfolio with large exposure to unhedged global equities. Of course if they’re concerned about concentration risk of ASX then there’s the option of hedged international equities. Local currency is just that, it can be through investing locally and / or investing in global equities / bonds hedged back into local currency. So I suppose one could suggest that local “currency” bias is more important than local assets bias?

The imputation system has also influenced home bias in Australia. However if Labor gets to abolish franking credit refunds this will reduce this bias for some investors.

The example of Japan nearly always pops up when discussing home country risk. But there are so many mistruths / faulty assumption even with this. @dunno one of PC’s brightest (wish he’d post more) had an excellent post on Japan’s market crash and aftermath:

Sequence of Return Risk

The traditional argument as one ages is that investors should own less equities and more bonds in local currency. As an income focused equity investor and huge believer in equities for a number of reasons I don’t subscribe to this view. But it does mean that when one invests increasingly more in global equities the currency issue might need greater consideration.

 

Easy. I find my risk tolerance increases with the amount of alcohol consumed. So in your case if wanting to seek higher risk adjusted returns the solution is simple. Drink more red wine. Invoice for advice is in the mail.

 

Interesting and I largely agree with the conclusion. Basically, we know that PE is a space where the best managers get the best opportunities, the top 10% make all the money for themselves and clients. The rest get the rubbish opportunities and the clients get stooged. This is probably true of the few hedge/market neutral strategies that may work and are capacity constrained, likewise the best and biggest real asset deals.

However, it is fair to say that the Index comparison is particularly flattering at the moment given the tear the US market has been on for the last decade. I wouldn’t want to have to bet that a public market limited strategy will outshine the larger endowments in the next decade.

Having said all that, it’s clear that for punters and small endowments, say up to $50mm there is no point trying to get fancy...you are either paying overs or getting rubbish or both. Index all the way.

Some may find this interesting;
Raphael Arndt – Australia’s Sovereign Wealth Fund CIO (EP.70) - Ted Seides to hear how Future Fund invests and what they pay. I am with Ozsuper purely because it’s exposure that cannot be properly replicated by a punter, let alone at the same price.

 

Great podcast thanks.

With Ozsuper from memory I thought you invested in the Aus shares and International shares options. Does your comment suggest you’re investing in Property (or other) as well now?

 

Used to be. High growth these days, have mentioned this previously as to why I use them

 

Thanks, my memory must be deteriorating.

 

Drinking may cause whatty what? You lost me at Warning.

 

You got it around the wrong way. I’m known for having a pretty good memory here but have abstained from alcohol during the last two days. This coincided with my memory loss. So the deduction is alcohol consumption is great for improving memory.