In Search of the Perfect Investment

 From the Australian Business Review:

Fund managers from fancy schools perform far worse than their peers from humble backgrounds, according to a landmark new study that finds family wealth matters far more for returns than qualifications or experience.

Managers born into the richest quintile of families – defined by parental income, home value or rent – produced fund returns 2.2 percentage points worse than their peers from the lowest quintile, according to a study of around 300 US fund managers from 1975 to 2012.

That’s equivalent to about double the average annual fund management fees in Australia.

“Managers endowed with a low economic status at birth face higher entry barriers into asset management, and only the highest-quality candidates succeed in entering the profession,” the study said. While all managers underperformed the relevant benchmark index by 0.5 per cent per cent a year on average over the 37 years, those from the richest families cost their funds about $US40 million a year more.

“Mutual fund managers from wealthier backgrounds deliver significantly weaker performance than those descending from less wealthy families,” the authors said, noting the dispersion of ability was much greater among managers in the sample higher up the socio-economic tree.

Geoff Wilson, founder of Wilson Asset Management, which manages $1.6 billion, said his firm consciously tried not to hire people from privileged backgrounds. “We weight people more highly who’ve had to work hard to achieve what they’ve got,” he said.

The analysis also found managers from families in the bottom quartile of wealth needed to demonstrate annual returns 6.6 percentage points a year higher to stand as likely a chance of promotion as their higher status peers from the 75th percentile. “Poor managers are more likely to be selected when they prove their skill whereas the selection of the wealthier managers is less skill-dependent,” the authors said.

Gabriel Radzyminski, managing director of Sandon Capital, an investment firm in Sydney, said it was harder to hide behind social networks in funds management than in other industries.

“It’s so black and white: you’ve either done well or you haven’t,” he said.

The study only included solo-managed funds where performance could be observed and attributed to individual managers, who oversaw almost 500 US equity funds with maximum annual average value of almost $US3 billion.

The authors, Denis Sosyuara from University of Michigan and Oleg Chuprinin from the University of NSW, found that background –a “powerful signal of managerial ability” — had no effect on US investors’ investment decisions. “This is hardly surprising given the information on managers’ descent is difficult to collect and investors lack the skills and resource to undertake it,” they said.

Managers with MBAs produced significantly worse returns, while having a family member who had worked in the finance sector tended to improve them. Mr Wilson was disappointed the study didn’t included women. “They are better fund managers. They don’t have the testosterone, the ego; bravado doesn’t get in the way,” he said.

Sociologist Nicholas Harrigan said directors of Australia’s top 100 corporations were about five times more likely to have attended elite high schools.

I was born in Australia to an Austro-Romanian gypsy family. I have an MBA — that came later. Maybe all that explains my investment performance?

How Tennis Pros Build Size and Strength Without Losing Speed

Click here.

Challenge your body in every direction with tennis. From The Globe and Mail (from Canada)

Tennis requires dynamic motion – something many of our bodies are starving for. When we do move it tends to be in linear and repetitive ways (think walking, cycling, or the elliptical). The cumulative effect is a body that is stiff and somewhat robotic.

I am a fan of racket sports because they don’t just improve fitness; they also force you to move in multiple directions in response to differing stimuli – think a ball whizzing across the court. Having to react challenges the brain, improves agility and co-ordination and strengthens muscles and bones at multiple angles.

Click here.

A new favorite Donald Trump story. From Bloomberg:

Donald Trump the Mortgage Broker Was in Trouble From Start

Donald Trump had heard all the chatter, the idle talk about how the U.S. housing market was overheating and trouble was looming. He was unfazed. It was the spring of 2006 and he was pushing a new mortgage business, Trump Mortgage LLC.

Trump had big plans for the company. It’d be based in his iconic 40 Wall Street building and broker $3 billion in loans in the first year alone, some $100 billion within a decade. His son, Donald Jr., had helped him shape the business plan. That April, when asked about the signs of cracks emerging in housing, he was dismissive, telling CNBC that it’s “a great time to start a mortgage company.”

A year and a half later, Trump Mortgage was out of business. Along with dozens of other lenders and brokerages, the firm unraveled when the housing market imploded and the U.S. economy sunk into its worst recession since the Great Depression. The company never got near its fundraising goals, and it left at least one lawsuit in its wake, by a former broker who alleged she was stiffed on a $238,000 commission.

Of all of Trump’s ventures outside his core real estate business — the steaks, the vodka, the airline, the board game, the travel web site, the magazine — it is this one, perhaps more than any other, that clashes with the image of financial guru that he’s cultivated on the presidential campaign trail. Not only did the episode expose the billionaire’s rush into a market on the verge of collapse but it came in an industry that’s intimately linked to real estate.

“Trump picked about the worst time to jump into mortgage lending, waiting close to the tail end of the boom,” said Cliff Rossi, a finance professor at the University of Maryland’s Robert H. Smith School of Business. It’s true, of course, that other financial executives were caught off-guard by the housing crisis. Still, Rossi, a former consumer loan risk officer at Citigroup Inc., said that angst among those in the mortgage industry was palpable by 2006, with many warning about how risky the business had become.

Trump spokeswoman Hope Hicks didn’t return requests for comment.

For the rest of the article, click here.

Beware of ticks

The outdoors is crawling with them. They’re everywhere. Seriously.

The consequences of being bitten are horrendous. If you don’find the tick and remove it immediately, it can screw up the rest of your life.

they call it Lyme Disease and Ehrlichiosis.

Friends have had it for 10+years. It comes and goes. When it’s awful, it’s really awful. You don’t want to be alive.

Stay away from the woods. Check yourself for ticks every evening. Check the kids.

I prefer long pants tucked into my socks.

Don’t believe me? Google this stuff. A dear friend has come down with what he thinks is Ehrlichiosis. He’s on a heavy 40-day doze of Doxy. That should catch it. God willing.

Republicans to Pull Money from Trump Ads and Spend it on Alcohol

WASHINGTON (The Borowitz Report)-Calling it “the best use of our resources at this time,” the Republican National Committee has decided to pull money originally earmarked for Trump campaign ads and spend it on alcohol instead.

According to the R.N.C. chairman Reince Priebus, the decision to reallocate the funds from television advertising to alcoholic beverages came after careful review of the polling in crucial battleground states.

“With about seventy days to go until the election, we had to consider what was the optimal way for us to get through those seventy days,” he added. “We are confident that we have found that way.”

“The decision was unanimous,” he added.

In the crucial state of Pennsylvania, twenty thousand litres of vodka, gin, tequila, and an assortment of fine whiskeys are already being distributed to Republican Party offices.

“It’s questionable whether the ads we were thinking of buying for Trump would work,” Harland Dorrinson, the Pennsylvania G.O.P. chairman, said. “We received the first shipment of alcohol this afternoon, and I can tell you that it’s already working.”

According to the most recent filing with the Federal Election Commission, after the outlays for wine and spirits, the R.N.C. will still have a million dollars cash on hand, which will go to beer.

Harry Newton. We all have bad habits. My worst is sugar. I like the stuff. I know it’s poison. But not the worst. Worse than sugar are the fake sweeteners they put into “diet” sodas. Maybe I can learn to like water?

Trump is a good argument for Invest only in what you know.

They’re playing last year’s U.S. Open tennis matches on The Tennis Channel. More fun than watching CNBC.