Are markets efficient? Fama debates Thaler

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#Hedgefunds don’t recruit from @NZSuperFund!? @VernonSmall @TaxpayersUnion

If the NZ Super Fund was any good at investing, rival investment houses will soon poach their staff to learn the secrets behind their self-proclaimed ability to beat the market.

Investment staff turnover at the NZ Super Fund is so low that you suspect they are overpaid.

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Source: New Zealand Superannuation Fund, information released under the Official Information Act.

The Fund has no information on whether hedge funds head-hunt their staff but I think it might have got out in gossip if someone had a spectacular pay rise at their next job.

98% top US economists disagree @NZSuperFund strategy @VernonSmall @JordNZ

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There is always one. Liran Einav had to be the only economist out of 100 or so top American and European economists who disagreed with the proposition that:

In general, absent any inside information, an equity investor can expect to do better by choosing a well-diversified, low-cost index fund than by picking a few stocks.

The New Zealand Superannuation Fund’s policy of active investing has one supporter out of 100 surveyed by the Initiative for Global Markets. I suppose it is better than none.

The chief executive of the fund quibbles by claiming there is a 3rd way between active and passive investing but there is not as William Sharp explained in his timeless 1991 article, The Arithmetic of Active Management:

    • A passive investor always holds every security from the market, with each represented in the same manner as in the market. Thus if security X represents 3 per cent of the value of the securities in the market, a passive investor’s portfolio will have 3 per cent of its value invested in X. Equivalently, a passive manager will hold the same percentage of the total outstanding amount of each security in the market2.
    • An active investor is one who is not passive. His or her portfolio will differ from that of the passive managers at some or all times. Because active managers usually act on perceptions of mispricing, and because such misperceptions change relatively frequently, such managers tend to trade fairly frequently — hence the term “active.”

An active fund is a fund that is not a passive fund. If you do not own a balanced portfolio of every security in the market, you are an active investor.

The majority of the New Zealand Superannuation fund is passively invested but some of it is not. It is invested in dogs like KiwiBank, in Z service stations and even in some bad Portuguese loans.

It’s "threadbare" to question @NZSuperFund’s investment strategy @TaxpayersUnion

There really is an issue on which economists are unanimous, a big issue to boot.

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Source: Diversified Investing | IGM Forum.

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Actively-managed mutual funds cannot earn excess returns over index funds because in aggregate they earn the same as index funds, less the difference in cost. This was proposed by Sharpe in his timeless 1991 article, The Arithmetic of Active Management.

Of course, certain definitions of the key terms are necessary. First a market must be selected — the stocks in the S&P 500, for example, or a set of “small” stocks. Then each investor who holds securities from the market must be classified as either active or passive.

  • A passive investor always holds every security from the market, with each represented in the same manner as in the market. Thus if security X represents 3 per cent of the value of the securities in the market, a passive investor’s portfolio will have 3 per cent of its value invested in X. Equivalently, a passive manager will hold the same percentage of the total outstanding amount of each security in the market2.
  • An active investor is one who is not passive. His or her portfolio will differ from that of the passive managers at some or all times. Because active managers usually act on perceptions of mispricing, and because such misperceptions change relatively frequently, such managers tend to trade fairly frequently — hence the term “active.”

… Properly measured, the average actively-managed dollar must underperform the average passively-managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement.

In 2008, Warren Buffett made a bet of $1 million with Protégé Partners LLC that, including fees, costs and expenses, an S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over the 10 years ending December 31, 2017.

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The wages of sin catching up with the Vice Fund v. S&P 500

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Source: VICEX USA Mutuals Barrier Investor Fund VICEX Quote Price News.

The Vice Fund is now known as the Barrier Fund because it extended out of sinful stocks into industries with high barriers to entry. Minimum Investment is $2,000.

image The Barrier Fund primarily invests in the following industries: Aerospace/Defense, Gaming, Tobacco and Alcoholic Beverages. These four industries were chosen because they demonstrate one or more of these compelling and distinctive investment characteristics:

  1. Natural barriers to new competition
  2. Steady demand regardless of economic condition
  3. Global Marketplace – not limited to the U.S. economy
  4. Potentially high profit margins
  5. Ability to generate excess cash flow and pay and increase dividends

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