A Few Site Updates

1.  Since I assume most of you are not on Twitter, I’ve added a Twitter box on the right side of the page that will post my (re)tweets.  Often I’ll link to good reads that never make it onto the blog so now you can find them here.  If you’re on Twitter you can find me @MebFaber.

2.  I created Hedge Fund Letters to serve as a rescource for information on hedge funds.  I never had time to work on the site so it always just sat there.  After a few unsuccessfull attempts at outsourcing running the site, I have found a few great writers that are working on it now.  They will be cleaning up some of the old/poor profiles as well as adding content to about 50 new ones in the next month or two.  (For example, they recently finished the Hayman, Eclectica, and Bridgewater profiles.)

If you have any more ideas here or want to get involved please let me know.

3.  I plan on doing a (recorded) webinar for a number of new research pieces we plan on putting out soon.  I feel like so much context is lost with just the printed word.  If anyone has suggestions on what is best software/website for putting on a webinar that can be recorded for archived playback please let me know.

Recs so far:

Webex (up to 3000, but have heard it gets blocked by firewalls.  $49/month up to 25 people.  Unknown cost after that since you have to talk on phone with sales specialist.)

GoToWebinar ($99/month up to 100 attendees, $499/month up to 1000 attendees)

No webinar, but recording by Camtasia ($300 one time).  Leaning towards this but would not allow for Q&A.

MeetingBurner (in Beta, < 50 attendees)



Can record a webinar of a PowerPoint, then allow playback on demand.

Can open the webinar up to questions from participants.

Cannot be blocked by firewalls, etc.

Unlimited attendees (within reason)

Who Isn’t Getting Coal in Their Stockings?

QVT Financial, Carl Icahn, Rentech, Scout, and Ruane, Cunniff, and Goldfarb are all up over 15% YTD (top 10 holdings, long only via AlphaClone).

Active Management

I think this is a really big deal.  The average active mutual fund has a 0.3% to 2.0% per year tax disadvantage to an ETF (passive or active).

Was waiting for someone to put out a study like this – Managing Tax Challenges (granted it is by iShares so they are blowing their own horn).  Further reading from my buddy Peter Mladina  “Portfolio Implications of Triple Net Returns”.

“In 2007, open-end mutual funds paid the largest capital gain distributions on record.  That year, 67% of mutual funds paid capital gains while only 3% of iShares ETFs paid capital gains.  In 2009 and 2010, 16% and 25% of mutual funds paid capital gains, respectively; only 2% of iShares ETFs paid capital gains in both years.”

Gotta Hand it to Them

Morningstar does produce some beautiful publications:

Deja Vu All Over Again

The Real World is Not Normal






After my post the other day on Real Returns, my father thought he would send me a real time example.  So, I opened a letter the yesterday with a check inside.  The check was written by my great grandfather in the 1910s for $0.50.  He was a farmer that immigrated from Les Martigny-Baines, Voges France and ended up in Nebraska.  That $0.5 is about $13 today…

Look at that penmanship!


You Are Not Anonymous

My blog is too boring/academic to get many hecklers (though I still get a few).  And almost always, the hecklers are anonymous (or at least try to be).  You have to have a thick skin to be a writer, and I can’t imagine the inbox of some of my fellow writers like Altucher.

I once used to grab some meals with a fellow professional money manager (AUM > $100mln) when I would visit his city.  At the same time over the course of a few years I would also get consistently harassed by an anonymous commenter on a consistent basis.  It only took about five minutes to figure out who it was, and shockingly, it was the same manager.  (FYI people, you are never, ever, anonymous.)

Also just read a (published) paper that plagiarized, word for word, a lot of my work.  I guess at some point you just take it as a compliment and move on…so, with that, to cheer myself up I read this missive that this is the best time in history to be alive, and, a fun Xmas picture from The Big Picture


Taxes and Inequality

Here is a PPT on inequality from Prof. Hendricks, as well as a table of tax rates from “How Tax Efficient are Equity Styles?” by Israel and Moskowitz.

Click to enlarge:


Real Returns (or, I Remember When a Coke Cost 25 Cents)

The post below is very important, and is something most investors never really grasp. I used to consider writing a book on this topic, and still might, but condensed it into a really short post below.  Let me know what you think.

I remember hearing about the magic of compounding in high school.  The example was that if you started saving now, and compounded your money at 9.4% a year (US returns since 1900), you could retire a millionaire!  Granted, this sounded pretty awesome to all of the students in the class.

In this example, a $100,000 account that had a 9.4% return would be worth $3,600,000 after 40 years! They would then show a chart like the below (although I include the more correct log chart after).  They of course are the exact same chart:    


So what is the problem here?  Well, these returns simply don’t exist.

They are nominal returns, or returns before the effects of inflation.  To demonstrate what I mean, the US experienced about 3% inflation over the period.  So, the returns to an investor were not 9.4% but closer to 6.4%.

This has the effects in our example of reducing the final balance from the $3.6 mln to a more modest $1.2 mln.  Respectable for sure, but a final value that is 70% less than the nominal amount, a big difference!  


The Coke that costs about $1 now will cost over $3 in retirement (funny how this example would have been $0.25 and $1 from my parents generation).    

That is the good news. The bad news is that there was wide variability in the returns for different countries, with some countries performing significantly worse.  Australia and South Africa were the standouts with around 7% real returns, whereas Italy only did about 2% a year.  

All countries experienced big losses at some point, including 90% losses in Germany and the US and 100% losses in China and Russia.

Bonds and bills did even worse.  The BEST real returns per year for bonds was a measly 3% a year in Denmark with the worst being a -1.7% a year in Italy.  Short term bonds (like T-Bills) were even worse at 2.3% for Denmark and -3.6% for Italy.  Losses for bond holders in countries such as Italy, Japan, and Germany ranged from 70-100%. Investing in bonds and bills are certainly not wealth building strategies (ie example in the US now where bills yield zero with inflation ~3%), and can and have exposed investors to very large losses.  

Even investing in a 60/40 portfolio is only expected to return around 3% a year in real terms while STILL exposing investors to 70% losses.  These strategies should all be seen as simply strategies to keep up with inflation.  That is depressing of course, but true.  The worst outcome is the cash under the mattress strategy which will expose the investor to anywhere from 2% to 7% losses per year.  You may not notice the effects, kind of like a boiling frog, but at some point you look back and say, “wow, I remember when a Coke cost 25 cents….”

(Data source:  Triumph of the Optimists / Credit Suisse Sourcebook)

Fireside Chat with Hendry and Drobny

I had a good breakfast with my buddy Steve Drobny the other day here at the beach.  Steve runs Drobny Global and is a macro fund manager/research/writer, and I thought I would repost this great video of an interview with always entertaining hedge fund manager Hugh Hendry of Eclectica.  While I didn’t like  The Gap in the Curtain as much as he did, Hugh is always worth listening to for his insightful commentary and often contrarian analysis.  Not to mention, he is one of the few fund managers having a great year.

Link to Eclectica website public fund performance here and here, and profile on Hedge Fund Letters here.

Hugh Hendry, Eclectica Asset Management and Steven Drobny, Drobny Global Advisors from LSE SU AIC on Vimeo.


Knowledge Tracking

Fun video.  (HT: AF & Sea)

Roger Craig – Knowledge Tracking from Steven Dean on Vimeo.


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