Two investors, Mr. and Mrs. Smith, who I know well, were bemoaning the performance of their mutual fund investments the other day. Back in 2003 they had a lump sum of money they wanted to invest. This money was by no means meant to sustain them in retirement as they were well away from it at that point. From speaking to them it's clear they wanted their money to grow a bit but deep down they are very conservative investors, evidenced by the fact that their desired approach now is to go all-in to GICs (I will discuss this in my next post). I've heard this story a ton of times from other colleagues, friends, and family members and the background info I collect is always the same.
They went to one of the Big Banks and used an in-house investment adviser. The individual seemed knowledgeable enough and showed them that with the specific fund he was recommending or the specific allocation created by the mix of funds he was using, they could expect a roughly 8% annual rate of return on investment. See my previous posts here and here to learn why this is only partially true. Then he invested their money and the rest is history. I'm not sure what funds he invested in or how often he changed the funds. But the fact that he was able to achieve 0% return on investment over an 8 year time frame is astonishing and pathetic. And exceedingly common.
What is the defense of advisers when questioned about these results? The Big Crash in 2008 did you in. When I heard this was the defense leveled in this particular case as well, I decided to dig a little deeper to answer 2 questions.
1. What was the return of a balanced portfolio of low-cost index funds with a lump sum investment starting in 2003 and ending today? Maybe this adviser merely matched the market.
2. Not knowing what funds he used, what is the likelihood of choosing such a poor portfolio given the investment needs and style of the clients?
Question 1:
Since the time period in question was marked by one of the largest stock market declines in history, it stands to reason that the more aggressively a portfolio invests in equities and less in fixed income funds, the lower the return should have been. The data bear this out. However, even the most aggressive mixed portfolio (35% Canadian equity, 32% US, 33% international) of low-cost index funds still yields a return of 4% annually. In order to achieve such dismal results, the adviser would have had to invest in 100% US equity which would have been absolutely idiotic. It is clear this was not the case but demonstrates the magnitude of failure.
Question 2:
What if the adviser knew nothing else than past performance? If he created a conservative portfolio of 60% bonds, 20% Canadian stocks, 10% US stocks, and 10% international stocks, as guided by the couple's investment style, he could pick funds in 3 ways as I see it. He could choose the top performing funds in each fund category for the years prior to 2003. Or he could choose the lowest performing funds (although this may seem ridiculous, in financial markets, battered investments usually rebound quite nicely). Finally, he could just recommend a balanced fund. This is one of those prepackaged funds made for investors with different styles. The Big Banks sell them and so do all the big investment houses. I've used TD in all my examples but only to make the data field manageable. But tellingly, back around 2003 I was in a similar situation to this couple and was recommended something similar by a TD adviser. More recently I was recommended the newest rendition of this product by a different adviser so it seems this approach is popular.
If the adviser chose the top-performing fund his company sold in 2003 based on past performance in each fund category (fixed income, Canadian, US, Intl) and purchased them and let them sit, he would have gained this couple 4.13% per year. If he picked the worst, only proving my previous point, he would have achieved 6.82%. And if he put them in TD Managed Income in 2003 and then switched it to the fund du jour in 2009, TD Comfort Conservative Portfolio, they'd be at 4.49%. Not too shabby in all cases. And the second example is quite remarkable given the market returns. But no bank adviser that I've ever met would try and sell a client on investing in the worst funds going even if it does make mountains of sense.
So here I was at an impasse. This man had clearly achieved the impossible. He had added no value to the investments for these clients. In fact, he had subtracted value. Could that be so? Could not some other reasonable selection method have led to this failure? What if he was cycling the portfolio? What if, every year, he reviewed the past year's performance in each fund category and changed what fund he had the money invested in based on which fund was tops, or conversely, which was in the can? Close, but no cigar. Selling everything and reinvesting in the top performing fund in each category from the previous year yielded a 5.65% annual return, 3.5% in the case of the worst funds. (This does not disprove my previous point as the performance he was assessing was only annual. Each time he purchased there was a good chance he was still riding a wave of success.)
But there must be a way to construct a conservative investment portfolio (assuming he cared even a little bit for his clients' investment style AND considering that even the most aggressive mixed index portfolio still didn't suck as bad as 0%) and completely strike out. Turns out there is....almost.
If I look in hindsight NOW at the worst funds performing over the last 10 years in each fund category for TD and construct a theoretical conservative portfolio with a $100 000 lump sum investment back on January 3, 2003 (as I did for all the projections noted through GlobeInvestorGold, of which I am a paid subscriber), I achieve a return of only 1.25%. Now this couple didn't tell me their return was 0%. They used the term "practically nothing". To many people, gaining only $10 000 on $100 000 (just using this for arguments sake) over 8 years would be considered just that, especially considering that the annual rate of inflation over the same time period was 2.05%. In real terms, they actually lost money.
But I digress. What are the odds of constructing such a disastrous portfolio? First of all, consider that there would have been nothing but chance guiding the purchase of these funds in 2003 as they were not really on the radar. Decidedly mediocre. Only in 2011 with the gift of hindsight can I truly see that they were awful.
Just for shits and giggles though, let's run the odds. To do this I must determine how many funds existed in each category with TD in 2003 and then multiply the odds together. For Canadian Equity it was 1 in 20, US Equity 1 in 16, International Equity 1 in 22, and Fixed Income 1 in 20. So to pick the lousiest 10-year fund in each category would require 1 in 140 800 odds. However, given the frequency with which I hear this story from other investors, this may well be one of the most common rare occurrences in our universe.
Either this adviser was incredibly unlucky, created a portfolio with an asset allocation that was so out of tune with the needs and desires of the clients, or churned the portfolio relentlessly to generate commissions. It might seem that in the first instance, the adviser could be forgiven. Sadly I'm not in a forgiving mood today. If he would have kept it simple by creating a conservative balanced portfolio with broad-based mutual funds (I won't be so daft as to suggest an in-house bank adviser would recommend index funds), purchased them once and just let them be, at absolute worst they'd be sitting at 4% annualized return. That is something I know that they could live with.
The important lesson from this story is that it really doesn't matter who Mr. & Mrs. Smith are, how much money they had to invest, their investment style, or which bank they used (or in a broader sense, with few exceptions, which financial adviser they used). The fact is that the same thing happened to thousands of Canadians in the last 8-10 years. But it all gets written off as normal. It's pushed aside as a natural result of investing in the equities market. "That's the risk you take with investments" we're told and we tell ourselves. But it's not. The fact of the matter is, not taking risk is just as, if not more likely to result in poor returns AND it is the very nature of the investment advice culture that creates poor returns. I hope to prove the last two points in two followup posts, so do please read on!
But what am I to do, one might ask. I don't have time to invest on my own. I don't have the knowledge. I vehemently disagree with both precepts on the basis of my own experience but I'm willing to concede the point because these topics interest me. Educating myself in these matters is not a chore, it's a hobby. That will not be the case for many. So here is my revolutionary manifesto for investors:
1. If you are relatively far from retirement or have a small portfolio, you may want to consider educating yourself. Or just do as little reading as is necessary to construct a Couch Potato Portfolio a la Money Sense (just Google Money Sense Couch Potato Portfolio and you'll be laughin'). The advice I give below would be so expensive for someone with a small portfolio, it would eat away most returns you may achieve. As well, many fee-only advisers won't look at small investors. Finally, in most cases, if the portfolio is small and/or the investors are far from retirement, there isn't a lot of complexity there and you should be able to figure out most of it on your own, with the help of some knowledgeable friends (none of whom sell mutual funds please).
2. If you are closer to retirement or have a large portfolio, or your retirement investments consist mostly of assets you will sell, you need professional help. I rail against traditional financial advice, but even I will be seeking help as I creep over 50. If you have a large portfolio, you can likely afford a professional fee-only planner. These people strictly offer financial advice. They sell no products so their advice is unbiased. Even if your portfolio is meek, if you are closer to retirement, you need assistance. Planning becomes much more complicated as you near the time when you will need to use your retirement funds. There are tax considerations, annuities, RIFs, estate planning, etc. etc. As well, as you get closer to retirement, you need to think about protecting what you've already built. All of this should be done with professional, knowledgeable, and unbiased advice. I'm willing to bet you'd miss out on at least 2 of those factors if you search for it at the bank. So don't. Check MoneySense for directories of fee-only planners. Or call around and find some. They're out there, though not in droves yet.
3. If you are at any stage, consider a sober second opinion. This is the option offered by Weigh House Investor Services. Check them out. They basically take a look at your portfolio and investment plans and tell you (although not literally) whether you are off the rails and need to fire your adviser or whether he's a damn genius and you should bring him brownies. Even if you are a DIYer like myself, they have a nifty DIY coaching program where they are there to help when you need it and review everything with you once a year, just to make sure you don't think you know more than you actually do.
Regardless of which option you choose, do yourself a favor. Either go it alone or hire someone whose paycheque does not depend on or is not partially composed of commissions and trailer fees from the products they sell. It's your money. You earned it. So don't let someone else piss it away.
Tuesday, August 23, 2011
Sunday, August 7, 2011
R.I.P. Active Fund Management
As I promised in my previous post, I've analyzed whether the average investor can use mutual funds to produce market beating returns. You have to understand that most individual investors will rely on the advice of an investment advisor, whether through a bank or insurance company, to purchase their retirement mutual funds. Both my experience and the evidence presented in the previous post show that investment advisors are good at 2 things: chasing past performance and failing to pick winning funds.
So if it were 2004 and I were listening to an advisor, s/he might suggest I invest in one of the top 10 funds in each asset class based on the last 3 years performance. This of course assumes this advisor has at their disposal the whole universe of Canadian mutual funds, which would be a very rare thing indeed. Most advisors, particularly those at banks, sell only their company's mutual funds. That goes for insurance companies as well. If you deal with an investment house like Edward Jones, they have a slightly broader offering, but not the whole universe. In fact, to access all the funds I researched, you'd have to be with a high price broker or use an online discount broker. You'll see why that would make no sense though because you'd be better off just using the very small and easy to understand universe of index funds.
Here's my methodology. I analyzed the rolling 3-year returns of mutual funds in the following 4 asset classes: Canadian equity, US equity, international equity, and Canadian fixed income. I used the data at FundLibrary for this purpose. I then identified the top 10 mutual funds in each rolling 3-year period. For the period starting 2004 (3-year average of 2003, 2002, 2001), I looked at the rank of the top 10 funds for the 10-year return ending 2010. For the top 10 funds in the 10-year return, I looked at where they ranked back in 2004. So I'm looking for 2 things here. If you invested in the top performers in 2004, did they end up performing big over 10 years? Also, looking at the top 10 funds based on 10 year performance, would there have been a way for you to easily identify them back in 2004?
The main conclusion from my research is that playing the mutual fund game is like rolling at the craps table. For example, of all the asset classes, the exact average ranking of the top 10 funds is 5.5. What is the average ranking in the 10-year performance measure? 16.33. The whole group as an average moves down 11 ranks. But when you look at the distribution of the rankings you see how much of a mess it is. While they start from 1-10 in 2004, they end up ranging anywhere from 1-72 on 10-year return. And it's no different when you look in reverse.
The top 10 funds based on 10-year performance, if past performance is a true predictor of future performance, should have been very easy to pick out among the universe of funds in 2004. While the top 10 over 10-years are by necessity ranked 1-10, they started out ranked anywhere from 1-88. Not quite as bad odds as the lottery but worse than some casino games.
But what if you just invested in the top funds based on highest 3-year performance? I did as such using GlobeInvestorGold. I made a hypothetical portfolio with equal weighting for each of the aforementioned asset classes. I invested $10 000 each year for 8 years. In the end, I had a personal rate of return of 1.71% per year, or a dollar growth of $5797.
I then created a similar portfolio but using only low cost TD e-series Index Funds mimicking the same asset classes. The result? 2.12% per year, or a dollar growth of $7275.
Now you might be saying, what's 0.5%? Well, over a 40-year investment span investing $10000 per year, it'll cost you about $53 000. And, the above projection significantly underestimates the underperformance of the actively managed approach for a few reasons.
1. Investment advisors often convince investors to sell and buy frequently in order to churn up commissions. This increases fees and reduces returns.
2. As documented in John Bogle's book mentioned in my previous post, most investors (and their advisors for that matter) don't have the discipline to stay on cruise control. Trying to time the market and chase performance always leads to diminished returns.
3. The projection above used No-Load funds when possible because the database seemed to have more data for them. Most of the time, if individuals are purchasing these funds through investment advisors, whether they know it or not, they are either paying a front-end load (pay a % fee when buying the fund) a back-end load (pay when you sell) or a deferred-sales charge. This would reduce returns further.
4. The top performing funds in many cases had fairly high initial investments so are unavailable to many individual investors.
5. I'm willing to bet MOST Canadians get their mutual funds through one of the big banks. There were a remarkably small amount of top performing mutual funds sold by the big banks. If I did a separate study showing just funds offered by those banks, it would not be pretty.
6. A good portion of the top performing funds were index funds. They actually skewed the performance higher. If I were to remove them, it would push the cumulative returns lower. I decided not to for 2 reasons. 1, I was tired of looking at data. 2, realistically, those funds are part of the pool from which an investor has to choose. Unlikely an advisor would recommend them, but you never know. Stranger things have happened.
7. Finally, survivor bias. By definition, all the funds I looked at still exist today. That means they are at least semi-respectable at performing or they would have been sacked. In John Bogle's similar study to mine, of 350 or so funds that started out the study, roughly 75% of them ceased to exist by the end of the study. But in hindsight, I can't include their performance because the data to which I have access no longer lists them. Their presence would significantly skew the returns downward. The other notable finding from my research is how few mutual funds on offer in each asset class even have 10 years of data under their belt. That's because the industry has to keep coming up with new and improved funds to draw in investors.
The final obvious conclusion from this little experiment is, even if you assume none of 1-7 to be true, and the performance difference is only 0.5%, the fact that there is a performance difference at all in favor of passive investing should put the whole argument to rest. And I repeat: I literally spend 5 minutes of my time each month managing my e-Series index portfolio. No meetings with investment advisors. No sales pitches for tied-in insurance products. I have asset diversification and low cost investing all in one package. Plus, every comparison I've ever run on my investments against those recommended to me by investment advisors have come out in my favor. (And yes, some of those comparisons have run from the time the investor made the recommendation, not looking in hindsight.) And no, it's not something of which only I'm capable. All you need is a little bit of knowledge, some patience, and some discipline when the market starts doing funky stuff.
As a final note, given how terrible the investment climate has been since I started investing in 2007, one would think my portfolio should be in the red. Well, it's nothing to write home about, but it is sitting at a respectable 2.8% per year. The total market has seen a decline over that same period. However, my superior performance is clearly due to dollar cost averaging. If you simply look at $10000 invested in November 2006 in index funds versus the theoretical market, the market is up 1.90% (this "market" being 25:25:25:25 as above) while the indexing is down 1.26%. How powerful then that simply investing a set amount of money at regular time intervals can increase my annualized return from a negative to a positive? Don't try and time the market. Let the ups and downs fall where they may.
There you go. Average is within your grasp. And you don't need a financial planner to get there. You may need one for other financial matters, but most certainly not for the majority of your retirement investing. And if and when you do need one, stick with a fee-only planner. You work hard for your money, so why should you be so quick to hand it over to someone else to take care of that knows little more about investing than what you can read in books?
Educate yourself. It's honestly not that hard. Just subscribe to MoneySense Magazine and you'll be set. Seriously. I've done a lot more reading than just that but for most people MoneySense will completely enlighten you and help you take control of your financial future.
So if it were 2004 and I were listening to an advisor, s/he might suggest I invest in one of the top 10 funds in each asset class based on the last 3 years performance. This of course assumes this advisor has at their disposal the whole universe of Canadian mutual funds, which would be a very rare thing indeed. Most advisors, particularly those at banks, sell only their company's mutual funds. That goes for insurance companies as well. If you deal with an investment house like Edward Jones, they have a slightly broader offering, but not the whole universe. In fact, to access all the funds I researched, you'd have to be with a high price broker or use an online discount broker. You'll see why that would make no sense though because you'd be better off just using the very small and easy to understand universe of index funds.
Here's my methodology. I analyzed the rolling 3-year returns of mutual funds in the following 4 asset classes: Canadian equity, US equity, international equity, and Canadian fixed income. I used the data at FundLibrary for this purpose. I then identified the top 10 mutual funds in each rolling 3-year period. For the period starting 2004 (3-year average of 2003, 2002, 2001), I looked at the rank of the top 10 funds for the 10-year return ending 2010. For the top 10 funds in the 10-year return, I looked at where they ranked back in 2004. So I'm looking for 2 things here. If you invested in the top performers in 2004, did they end up performing big over 10 years? Also, looking at the top 10 funds based on 10 year performance, would there have been a way for you to easily identify them back in 2004?
The main conclusion from my research is that playing the mutual fund game is like rolling at the craps table. For example, of all the asset classes, the exact average ranking of the top 10 funds is 5.5. What is the average ranking in the 10-year performance measure? 16.33. The whole group as an average moves down 11 ranks. But when you look at the distribution of the rankings you see how much of a mess it is. While they start from 1-10 in 2004, they end up ranging anywhere from 1-72 on 10-year return. And it's no different when you look in reverse.
The top 10 funds based on 10-year performance, if past performance is a true predictor of future performance, should have been very easy to pick out among the universe of funds in 2004. While the top 10 over 10-years are by necessity ranked 1-10, they started out ranked anywhere from 1-88. Not quite as bad odds as the lottery but worse than some casino games.
But what if you just invested in the top funds based on highest 3-year performance? I did as such using GlobeInvestorGold. I made a hypothetical portfolio with equal weighting for each of the aforementioned asset classes. I invested $10 000 each year for 8 years. In the end, I had a personal rate of return of 1.71% per year, or a dollar growth of $5797.
I then created a similar portfolio but using only low cost TD e-series Index Funds mimicking the same asset classes. The result? 2.12% per year, or a dollar growth of $7275.
Now you might be saying, what's 0.5%? Well, over a 40-year investment span investing $10000 per year, it'll cost you about $53 000. And, the above projection significantly underestimates the underperformance of the actively managed approach for a few reasons.
1. Investment advisors often convince investors to sell and buy frequently in order to churn up commissions. This increases fees and reduces returns.
2. As documented in John Bogle's book mentioned in my previous post, most investors (and their advisors for that matter) don't have the discipline to stay on cruise control. Trying to time the market and chase performance always leads to diminished returns.
3. The projection above used No-Load funds when possible because the database seemed to have more data for them. Most of the time, if individuals are purchasing these funds through investment advisors, whether they know it or not, they are either paying a front-end load (pay a % fee when buying the fund) a back-end load (pay when you sell) or a deferred-sales charge. This would reduce returns further.
4. The top performing funds in many cases had fairly high initial investments so are unavailable to many individual investors.
5. I'm willing to bet MOST Canadians get their mutual funds through one of the big banks. There were a remarkably small amount of top performing mutual funds sold by the big banks. If I did a separate study showing just funds offered by those banks, it would not be pretty.
6. A good portion of the top performing funds were index funds. They actually skewed the performance higher. If I were to remove them, it would push the cumulative returns lower. I decided not to for 2 reasons. 1, I was tired of looking at data. 2, realistically, those funds are part of the pool from which an investor has to choose. Unlikely an advisor would recommend them, but you never know. Stranger things have happened.
7. Finally, survivor bias. By definition, all the funds I looked at still exist today. That means they are at least semi-respectable at performing or they would have been sacked. In John Bogle's similar study to mine, of 350 or so funds that started out the study, roughly 75% of them ceased to exist by the end of the study. But in hindsight, I can't include their performance because the data to which I have access no longer lists them. Their presence would significantly skew the returns downward. The other notable finding from my research is how few mutual funds on offer in each asset class even have 10 years of data under their belt. That's because the industry has to keep coming up with new and improved funds to draw in investors.
The final obvious conclusion from this little experiment is, even if you assume none of 1-7 to be true, and the performance difference is only 0.5%, the fact that there is a performance difference at all in favor of passive investing should put the whole argument to rest. And I repeat: I literally spend 5 minutes of my time each month managing my e-Series index portfolio. No meetings with investment advisors. No sales pitches for tied-in insurance products. I have asset diversification and low cost investing all in one package. Plus, every comparison I've ever run on my investments against those recommended to me by investment advisors have come out in my favor. (And yes, some of those comparisons have run from the time the investor made the recommendation, not looking in hindsight.) And no, it's not something of which only I'm capable. All you need is a little bit of knowledge, some patience, and some discipline when the market starts doing funky stuff.
As a final note, given how terrible the investment climate has been since I started investing in 2007, one would think my portfolio should be in the red. Well, it's nothing to write home about, but it is sitting at a respectable 2.8% per year. The total market has seen a decline over that same period. However, my superior performance is clearly due to dollar cost averaging. If you simply look at $10000 invested in November 2006 in index funds versus the theoretical market, the market is up 1.90% (this "market" being 25:25:25:25 as above) while the indexing is down 1.26%. How powerful then that simply investing a set amount of money at regular time intervals can increase my annualized return from a negative to a positive? Don't try and time the market. Let the ups and downs fall where they may.
There you go. Average is within your grasp. And you don't need a financial planner to get there. You may need one for other financial matters, but most certainly not for the majority of your retirement investing. And if and when you do need one, stick with a fee-only planner. You work hard for your money, so why should you be so quick to hand it over to someone else to take care of that knows little more about investing than what you can read in books?
Educate yourself. It's honestly not that hard. Just subscribe to MoneySense Magazine and you'll be set. Seriously. I've done a lot more reading than just that but for most people MoneySense will completely enlighten you and help you take control of your financial future.
Saturday, August 6, 2011
Aiming for Average
There are very few instances in life where I aim for average. I most certainly do not want to be an average North American bodyweight. I don't want my pharmacy to provide average service. And when I was in school, I was not satisfied with average grades. But there is one area where not only do I want to be average, but it makes absolute sense. Sadly, because there is so much money and marketing behind convincing the "average" citizen to perform well above average in this regard, my outcome is likely to be anything but average, if you catch my drift.
I speak of course of investing. Anyone who invests in mutual funds for their retirement either on their own or more likely through an investment advisor, needs to read this post. And since the source of my inspiration is "The Little Book of Common Sense Investing" by John Bogle, it follows that they should read it as well.
The aim of most investors and the pitch made to them by their financial advisors is to "beat the market". But if you do enough reading you will learn that it is next to impossible to do just that. I have written before on passive index investing and its advantages so I refer you to an earlier post on the topic here.
What I want to do here is to highlight a few key points in Mr. Bogle's book that really jumped out at me. Even though the author is preaching to the converted when I read this book I still found it fascinating mostly because he insists on doing something of which I'm a big fan: backing up his assertions with data. Someone new to the beautiful simplicity of index investing will likely be quite skeptical because their investment advisors have always told them different. And these are individuals we should be able to intrinsically trust, right? Sadly, most investment advisors are either woefully uneducated OR they are making recommendations that mostly serve to benefit them. A good test to see if you have a good advisor is to ask him or her if they recommend index funds. If they say no, go find someone else. And the excerpts from Mr. Bogle's book below will help convince you why. If they don't, take the book out from the library. It's a quick read but it will change the way you save for retirement and while you'll be aiming to do "just as good" as the market, you'll end up trouncing the Joneses.
On buying funds based on past performance, an issue I've also addressed previously here.
1. "In short, selecting mutual funds on the basis of short-term performance is all too likely to be hazardous duty, and it is almost always destined to produce returns that fall far short of those achieved by the stock market, itself so easily achievable through an index fund."
2. Quoting Nassim Nicholas Taleb, author of Fooled by Randomness. "Toss a coin; heads and the manager will make $10 000 over the year, tails and he will lose $10 000. We run the contest for the first year for 10 000 managers. At the end of the year, we expect 5 000 managers to be up $10 000 each, and 5 000 to be down $10 000. Now we run the game a second year. Again, we can expect 2 500 managers to be up two years in a row; another year, 1 250; a fourth one, 625; a fifth, 313. We have now, simply in a fair game, 313 managers who made money for five years in a row. And in 10 years, just 10 of the original 10 000 managers. Out of pure luck...a population entirely composed of bad managers will produce a small amount of great track records.
3. Quoting Ted Aronson, partner at money management firm Aronson+Johnson+Ortiz: "It takes between 20 and 800 years of monitoring performance to statistically PROVE that a money manager is skillful, not lucky. To be 95% certain...it can easily take nearly a millennium. Investors need to know how the money management business really works. It's a stacked deck. The game is unfair.
4. Quoting author Jason Zweig: "Buying funds based purely on their past performance is one of the stupidest things an investor can do." (To understand why this is so true, read my post linked at the beginning of this section, or do some reading on "reversion to the mean".)
On whether advisors add any value in choosing winning mutual funds:
1. A recent study by a research team led by two Harvard Business School professors concluded that, between 1996 and 2002 alone, "the underperformance of advisor-sold funds relative to funds purchased directly by investors cost investors approximately $9-billion per year."
2. Here's a real knockout punch from the same study listed in #1. "The study's conclusion: the weighted average return of equity funds held by investors who relied on advisers (EXCLUDING all charges paid up front or at the time of redemption [these are known as front-end or back-end loads, quite common in funds sold by advisors and would make the returns look even worse]) averaged just 2.9% per year compared with 6.6% earned by investors who took charge of their own affairs.
As an aside here, that percentage difference initially looks small. But let's assume for a minute that someone starts investing $10000 per year at age 25 and retires at 65. One individual trusts his advisor and invests in the funds they choose. They other goes it alone. Here is the difference in the value of their portfolios at age 65.
Advisor-assisted: $740 000
Self-directed: $1.8 million
So you essentially paid that advisor $1.06 million over 40 years to give you lousy returns. That's $26 000 a year. Not a shabby salary for him and the fund company but a real kick in the pants for you.
The last quote I leave you with is from the book discussing a unique study initiated by the New York Times in 1993.
"The editors asked five respected advisers how they would invest $50 000 in a tax-free retirement account holding mutual fund shares for an investor who had a time horizon of at least 20 years. The comparative standard would be the returns earned by Vanguard 500 Index Fund...By 2000, 7 years later, the Times reported their accomplishments. The hypothetical $50000 portfolios run by the advisers had turned in a profit, on average, of $88 500, ranging from $62000-$105000
...not one of these advisers was able to outpace the results of the Vanguard 500 Index Fund...$138 750. That is, the average adviser produced a paper profit on his portfolio of recommended funds that was about 40% less than the profit on the index fund...In mid-2000, the Times abruptly terminated the contest without notice."
Still not convinced? In my own experience, my simple portfolio of index funds purchased monthly and rebalanced annually that takes 5 minutes of effort every month has outpaced the recommendations of the adviser I fired 4 years ago by at least 5-10% in annual return. And when I went to setup an RESP for our newest addition I was confronted with the same old story by the in-house "adviser" (who has no more education than that offered by the bank and had less sophisticated knowledge about investments than myself). She was totally incredulous that I was using index funds and wanted me to switch to a Comfort portfolio, probably the worst form of mutual funds known as a Fund of Funds. That is, the fund itself holds various other funds sold by that company so you get hammered by the overarching fees of the fund itself and the hidden fees in the embedded funds. I politely declined and then she went on about its great past performance (which is pretty rich given that it was started at the nadir of the last stock market recession, so sure it looks damn good).
And finally, as a little thought experiment. What if I took the advice of MOST retail investment advisers to which most average individuals have access and purchased funds in my portfolio that have the best past performance? Starting in 2004, I'll identify the top 10 funds in each year for each of my portfolio asset classes, that is: Canadian Equity, US Equity, International Equity, Fixed Income. I'll then see where those funds rank in the subsequent year in terms of performance. My hypothesis is that they will show a stark and significant reversion to the mean. I will also run a hypothetical portfolio on Globeinvestor Gold to determine what would actually happen if I invested $10000, equally weighted into each asset class, each year and held the investments until present day. Stay tuned for the results.
I speak of course of investing. Anyone who invests in mutual funds for their retirement either on their own or more likely through an investment advisor, needs to read this post. And since the source of my inspiration is "The Little Book of Common Sense Investing" by John Bogle, it follows that they should read it as well.
The aim of most investors and the pitch made to them by their financial advisors is to "beat the market". But if you do enough reading you will learn that it is next to impossible to do just that. I have written before on passive index investing and its advantages so I refer you to an earlier post on the topic here.
What I want to do here is to highlight a few key points in Mr. Bogle's book that really jumped out at me. Even though the author is preaching to the converted when I read this book I still found it fascinating mostly because he insists on doing something of which I'm a big fan: backing up his assertions with data. Someone new to the beautiful simplicity of index investing will likely be quite skeptical because their investment advisors have always told them different. And these are individuals we should be able to intrinsically trust, right? Sadly, most investment advisors are either woefully uneducated OR they are making recommendations that mostly serve to benefit them. A good test to see if you have a good advisor is to ask him or her if they recommend index funds. If they say no, go find someone else. And the excerpts from Mr. Bogle's book below will help convince you why. If they don't, take the book out from the library. It's a quick read but it will change the way you save for retirement and while you'll be aiming to do "just as good" as the market, you'll end up trouncing the Joneses.
On buying funds based on past performance, an issue I've also addressed previously here.
1. "In short, selecting mutual funds on the basis of short-term performance is all too likely to be hazardous duty, and it is almost always destined to produce returns that fall far short of those achieved by the stock market, itself so easily achievable through an index fund."
2. Quoting Nassim Nicholas Taleb, author of Fooled by Randomness. "Toss a coin; heads and the manager will make $10 000 over the year, tails and he will lose $10 000. We run the contest for the first year for 10 000 managers. At the end of the year, we expect 5 000 managers to be up $10 000 each, and 5 000 to be down $10 000. Now we run the game a second year. Again, we can expect 2 500 managers to be up two years in a row; another year, 1 250; a fourth one, 625; a fifth, 313. We have now, simply in a fair game, 313 managers who made money for five years in a row. And in 10 years, just 10 of the original 10 000 managers. Out of pure luck...a population entirely composed of bad managers will produce a small amount of great track records.
3. Quoting Ted Aronson, partner at money management firm Aronson+Johnson+Ortiz: "It takes between 20 and 800 years of monitoring performance to statistically PROVE that a money manager is skillful, not lucky. To be 95% certain...it can easily take nearly a millennium. Investors need to know how the money management business really works. It's a stacked deck. The game is unfair.
4. Quoting author Jason Zweig: "Buying funds based purely on their past performance is one of the stupidest things an investor can do." (To understand why this is so true, read my post linked at the beginning of this section, or do some reading on "reversion to the mean".)
On whether advisors add any value in choosing winning mutual funds:
1. A recent study by a research team led by two Harvard Business School professors concluded that, between 1996 and 2002 alone, "the underperformance of advisor-sold funds relative to funds purchased directly by investors cost investors approximately $9-billion per year."
2. Here's a real knockout punch from the same study listed in #1. "The study's conclusion: the weighted average return of equity funds held by investors who relied on advisers (EXCLUDING all charges paid up front or at the time of redemption [these are known as front-end or back-end loads, quite common in funds sold by advisors and would make the returns look even worse]) averaged just 2.9% per year compared with 6.6% earned by investors who took charge of their own affairs.
As an aside here, that percentage difference initially looks small. But let's assume for a minute that someone starts investing $10000 per year at age 25 and retires at 65. One individual trusts his advisor and invests in the funds they choose. They other goes it alone. Here is the difference in the value of their portfolios at age 65.
Advisor-assisted: $740 000
Self-directed: $1.8 million
So you essentially paid that advisor $1.06 million over 40 years to give you lousy returns. That's $26 000 a year. Not a shabby salary for him and the fund company but a real kick in the pants for you.
The last quote I leave you with is from the book discussing a unique study initiated by the New York Times in 1993.
"The editors asked five respected advisers how they would invest $50 000 in a tax-free retirement account holding mutual fund shares for an investor who had a time horizon of at least 20 years. The comparative standard would be the returns earned by Vanguard 500 Index Fund...By 2000, 7 years later, the Times reported their accomplishments. The hypothetical $50000 portfolios run by the advisers had turned in a profit, on average, of $88 500, ranging from $62000-$105000
...not one of these advisers was able to outpace the results of the Vanguard 500 Index Fund...$138 750. That is, the average adviser produced a paper profit on his portfolio of recommended funds that was about 40% less than the profit on the index fund...In mid-2000, the Times abruptly terminated the contest without notice."
Still not convinced? In my own experience, my simple portfolio of index funds purchased monthly and rebalanced annually that takes 5 minutes of effort every month has outpaced the recommendations of the adviser I fired 4 years ago by at least 5-10% in annual return. And when I went to setup an RESP for our newest addition I was confronted with the same old story by the in-house "adviser" (who has no more education than that offered by the bank and had less sophisticated knowledge about investments than myself). She was totally incredulous that I was using index funds and wanted me to switch to a Comfort portfolio, probably the worst form of mutual funds known as a Fund of Funds. That is, the fund itself holds various other funds sold by that company so you get hammered by the overarching fees of the fund itself and the hidden fees in the embedded funds. I politely declined and then she went on about its great past performance (which is pretty rich given that it was started at the nadir of the last stock market recession, so sure it looks damn good).
And finally, as a little thought experiment. What if I took the advice of MOST retail investment advisers to which most average individuals have access and purchased funds in my portfolio that have the best past performance? Starting in 2004, I'll identify the top 10 funds in each year for each of my portfolio asset classes, that is: Canadian Equity, US Equity, International Equity, Fixed Income. I'll then see where those funds rank in the subsequent year in terms of performance. My hypothesis is that they will show a stark and significant reversion to the mean. I will also run a hypothetical portfolio on Globeinvestor Gold to determine what would actually happen if I invested $10000, equally weighted into each asset class, each year and held the investments until present day. Stay tuned for the results.
Friday, July 22, 2011
Insight into the Obesity Epidemic
My sister forwarded me an excellent article from the New York Times on new research published in the New England Journal of Medicine. As I do in these instances, I accesssed the original research instead of taking the journalists word for it. Anyone interested in obesity and weight management and how lifestyle choices impact the course of weight gain over our life should read this.
What the authors did is look at the lifestyle choices over time of the individuals in three massive cohort studies (the Nurses Health Study, the Nurses Health Study II, and the Health Professionals Follow-Up Study). In total this included 98320 women and 22557 men. When all was said and done they had amassed 1.6 million person-years of followup. That is a lot of followup in case you're wondering. What they were looking for was which lifestyle factors were associated with weight gain over the study period. They wanted to know which ones were positively associated (if you do more of that thing you increase your rate of weight gain) and which were inversely associated (the less you do of that thing the faster you gain weight or the more you do of it the slower you gain weight).
The average weight gain across all three cohorts was 3.35lb per 4-year period, equating to 16.8 lb over a 20-year period. This about fits with the traditional knowledge that weight gain is not sudden but instead very sneaky, with the average person gaining 0.5-1 lb per year during their adult life. The really interesting stuff I highlight below. Enjoy.
1. Almost EVERY dietary factor was independently related to weight change, either up or down.
2. Dietary factors with largest positive associations with weight gain were, in descending order:
-potato chips
-potatoes
-sugar-sweetened beverages
-unprocessed red meats
-processed meats
3. The weight gain associated with increased potato consumption was due mostly to increased french fry consumption. In fact, FRENCH FRIES, OF ALL THE FOODS STUDIED, HAD THE STRONGEST POSITIVE ASSOCIATION WITH WEIGHT GAIN.
4. Weight gain associated with increased consumption of refined grains was similar to that for sweets and desserts.
5. Inverse associations (consumption of food goes up, weight gain goes down) with dietary patterns and weight gain were found for increased consumption of:
-vegetables
-whole grains
-fruits
-nuts
-yogurt
-in descending order, meaning that the more yogurt one ate, the less their weight changed, even more so than with vegetables; weird.
6. Lifestyle changes aside from diet had more modest impacts on weight change
7. Interestingly, ABSOLUTE levels of physical activity, rather than the changes in activity a person was doing, were not associated with weight change. Makes sense but goes against common wisdom. It doesn't matter how much exercise you do because you have adjusted your caloric intake to match it. What matters is if you start doing significantly more or less exercise.
8. Thanks Captain Obvious: Increases in alcohol use were associated with weight gain. Wow.
9. The sweet spot for sleep was 6-8 hours per night. More weight gain was seen with less than 6 OR more than 8 hours of sleep a night.
10. The impact of lifestyle changes did not seem to change depending on ones age or starting weight or BMI. Interesting. Never too late to change I guess.
11. I love this part so I'll just quote it verbatim:
"Some foods---vegetables, nuts, fruits, and whole grains--were associated with less weight gain when consumption was actually increased. Obviously, such foods contain calories and cannot violate thermodynamic laws. Their inverse associations with weight gain suggest that the increase in their consumption reduced the intake of other foods to a greater (caloric) extent, decreasing the overall amount of energy consumed. Higher fiber content and slower digestion of these foods would augment satiety, and their increased consumption would also displace other, more highly processed foods in the diet."
12. They are totally baffled by the finding that yogurt had one of the strongest inverse associations with weight gain. The authors suggest that the finding is likely confounded by some factor not accounted for by their study methods. That is, those who change their yogurt consumption habits have other weight-influencing behaviors that weren't caught by the study.
13. The study found that increased consumption of almost ALL liquids, with the exception of water and dairy, was positively associated with weight gain.
14. Dairy was neutral. Too bad for the dairy lobby.
15. The traditional "wisdom" on diet did not stand up in this study. That is, calories matter, but are not everything. In fact the quality of the diet seems to determine the quantity of calories consumed, not vice versa. Fat doesn't seem to make a hell of a lot of difference (no differences between whole milk and low-fat milk, nuts inversely associated with weight gain even though they're incredibly high in fat). High energy density foods aren't always bad (nuts are very high energy density, low density beverages were associated with weight gain). And refined carbohydrates caused weight gain regardless of whether the sugar is added (sweets and desserts) or not (refined grains).
16. Between 1971 and 2004, the average dietary intake of calories in the US increased by 22% for women and 10% for men, mostly due to increased intake of refined carbs, starches, and sugar sweetened beverages.
17. A habitual energy imbalance of 50-100 calories per day is sufficient to cause weight gain in most individuals. This means unintended weight gain occurs easily but, conversely, that modest, sustained changes in lifestyle can mitigate or reverse this imbalance.
18. Not once did they mention in the article that any of these things were associated with weight loss. ALL of the cohorts gained weight over the study period. It did not in fact say that if you eat more fruits and vegetables you'll lose weight, you'll just gain LESS over time than you would have otherwise. We'll see what the media does with this one.
Reference
Mozaffarian D, Hao T, Rimm EB, Willett WC, Hu FB. Changes in Diet and Lifestyle and Long-Term Weight Gain in Women and Men. N Engl J Med 2011;364:2392-404.
What the authors did is look at the lifestyle choices over time of the individuals in three massive cohort studies (the Nurses Health Study, the Nurses Health Study II, and the Health Professionals Follow-Up Study). In total this included 98320 women and 22557 men. When all was said and done they had amassed 1.6 million person-years of followup. That is a lot of followup in case you're wondering. What they were looking for was which lifestyle factors were associated with weight gain over the study period. They wanted to know which ones were positively associated (if you do more of that thing you increase your rate of weight gain) and which were inversely associated (the less you do of that thing the faster you gain weight or the more you do of it the slower you gain weight).
The average weight gain across all three cohorts was 3.35lb per 4-year period, equating to 16.8 lb over a 20-year period. This about fits with the traditional knowledge that weight gain is not sudden but instead very sneaky, with the average person gaining 0.5-1 lb per year during their adult life. The really interesting stuff I highlight below. Enjoy.
1. Almost EVERY dietary factor was independently related to weight change, either up or down.
2. Dietary factors with largest positive associations with weight gain were, in descending order:
-potato chips
-potatoes
-sugar-sweetened beverages
-unprocessed red meats
-processed meats
3. The weight gain associated with increased potato consumption was due mostly to increased french fry consumption. In fact, FRENCH FRIES, OF ALL THE FOODS STUDIED, HAD THE STRONGEST POSITIVE ASSOCIATION WITH WEIGHT GAIN.
4. Weight gain associated with increased consumption of refined grains was similar to that for sweets and desserts.
5. Inverse associations (consumption of food goes up, weight gain goes down) with dietary patterns and weight gain were found for increased consumption of:
-vegetables
-whole grains
-fruits
-nuts
-yogurt
-in descending order, meaning that the more yogurt one ate, the less their weight changed, even more so than with vegetables; weird.
6. Lifestyle changes aside from diet had more modest impacts on weight change
7. Interestingly, ABSOLUTE levels of physical activity, rather than the changes in activity a person was doing, were not associated with weight change. Makes sense but goes against common wisdom. It doesn't matter how much exercise you do because you have adjusted your caloric intake to match it. What matters is if you start doing significantly more or less exercise.
8. Thanks Captain Obvious: Increases in alcohol use were associated with weight gain. Wow.
9. The sweet spot for sleep was 6-8 hours per night. More weight gain was seen with less than 6 OR more than 8 hours of sleep a night.
10. The impact of lifestyle changes did not seem to change depending on ones age or starting weight or BMI. Interesting. Never too late to change I guess.
11. I love this part so I'll just quote it verbatim:
"Some foods---vegetables, nuts, fruits, and whole grains--were associated with less weight gain when consumption was actually increased. Obviously, such foods contain calories and cannot violate thermodynamic laws. Their inverse associations with weight gain suggest that the increase in their consumption reduced the intake of other foods to a greater (caloric) extent, decreasing the overall amount of energy consumed. Higher fiber content and slower digestion of these foods would augment satiety, and their increased consumption would also displace other, more highly processed foods in the diet."
12. They are totally baffled by the finding that yogurt had one of the strongest inverse associations with weight gain. The authors suggest that the finding is likely confounded by some factor not accounted for by their study methods. That is, those who change their yogurt consumption habits have other weight-influencing behaviors that weren't caught by the study.
13. The study found that increased consumption of almost ALL liquids, with the exception of water and dairy, was positively associated with weight gain.
14. Dairy was neutral. Too bad for the dairy lobby.
15. The traditional "wisdom" on diet did not stand up in this study. That is, calories matter, but are not everything. In fact the quality of the diet seems to determine the quantity of calories consumed, not vice versa. Fat doesn't seem to make a hell of a lot of difference (no differences between whole milk and low-fat milk, nuts inversely associated with weight gain even though they're incredibly high in fat). High energy density foods aren't always bad (nuts are very high energy density, low density beverages were associated with weight gain). And refined carbohydrates caused weight gain regardless of whether the sugar is added (sweets and desserts) or not (refined grains).
16. Between 1971 and 2004, the average dietary intake of calories in the US increased by 22% for women and 10% for men, mostly due to increased intake of refined carbs, starches, and sugar sweetened beverages.
17. A habitual energy imbalance of 50-100 calories per day is sufficient to cause weight gain in most individuals. This means unintended weight gain occurs easily but, conversely, that modest, sustained changes in lifestyle can mitigate or reverse this imbalance.
18. Not once did they mention in the article that any of these things were associated with weight loss. ALL of the cohorts gained weight over the study period. It did not in fact say that if you eat more fruits and vegetables you'll lose weight, you'll just gain LESS over time than you would have otherwise. We'll see what the media does with this one.
Reference
Mozaffarian D, Hao T, Rimm EB, Willett WC, Hu FB. Changes in Diet and Lifestyle and Long-Term Weight Gain in Women and Men. N Engl J Med 2011;364:2392-404.
Monday, April 25, 2011
The myth of right-wing fiscal responsibility
During this Canadian federal election, I've been utterly dismayed but what seems like the Canadian electorate completely ignoring everything the Conservatives have done so far. Any time I ask Conservative supporters or those leaning in that direction, how they can possibly think of voting for Harper's team, I'm met with an almost universal response: they're the least of 3 evils. One colleague commented thusly: "I don't share the political values of the Conservatives but I just can't vote for anyone else because they'll just raise taxes and spend all our money. The Conservatives, although they've done some questionable things in Parliament, are the only ones I can trust with taxpayer money."
This seems to be a common conception. I set out to determine whether it is valid.
Consider before delving into this discussion what the cost of the accumulated federal debt is to the average taxpayer. It currently stands at $30.66 billion, costing the average Canadian $16383 per year. Public debt charges currently account for 10% of government revenues.
The question: Are Conservative governments better at managing federal finances than Liberals? (Unfortunately we have no precedent to evaluate the fiscal responsibility of further left parties such as the NDP as they have never formed the federal government.)
Hypothesis: The Conservatives are actually considerably worse at managing our nations coffers, despite their fiscally conservative policies. My impression is that although they speak to responsible fiscal management, they are unable to deliver. I also have some empirical evidence on which to base my hypothesis. The article to which I've linked shows, among other things, that right-wing (read: Republican) Presidents of the US have managed federal finances worse than Democratic presidents (although further to the left than the Republicans, one could not call them leftist; they likely sit right of Canadian Liberals). However, the impression in the States was the same. Republicans are fiscally conservative so, by extension, they must manage finances better. The data show quite the opposite. Since the author looked not only at the impact of each government on federal debt (that is did they run a deficit or surplus each year) but also deficit or surplus as a percentage of GDP (governments ruling during times of economic crisis will have a harder time balancing the books so this rules out the effects of broader economic factors) and the impact of each government on the GDP (that is did GDP increase or decrease during their tenure).
Methods: I looked at the fiscal results of all Canadian federal governments since 1922. I chose this date for two reasons. First of all, this is the point at which women received universal suffrage in Canada so the governments were a better representation of the electorates will. As well, most economic data I needed to utilize did not go further back than this point. For the Parliaments prior to 1999 I had to access the archived budget speeches for each year and extract the value of the federal deficit or surplus. I then converted this number to constant 2011 dollars using the Bank of Canada's inflation calculator. For 1999 to present, the Department of Finance has consolidated financial statements online which made it relatively simple. I put all these figures alongside the prime minister and political party in government at that time. I also included the gross domestic product for each year in constant 2011 dollars. This served to determine whether the increases in deficit were either due to economic decline or, conversely, whether the spending was done efficiently enough to induce economic growth. Whatever the case may be, standardizing the deficits or surpluses against the greater economic measure of GDP allows a comparison that comes closer to apples-to-apples. Finally, I also looked at disposable income per capita in 2011 dollars since 1961 (earlier data is difficult to locate). This helped me determine whether, although Conservative governments may run higher deficits, maybe it is better for the voters pocket. That's the reason many people vote Conservative. "They'll cut taxes and the size of government so I'll have more money in my pocket which will in turn help stimulate the economy."
Results:
Let me summarize by saying that everything you assume about Conservative management of federal finances is wrong, unless you hold assumptions contrary to the greater public.
First off, let me say that since the 1920s, Canada is a decidedly Liberal nation. Of the 89 years since 1922, Liberals have been in office roughly 70% of the time. However, in the short time they've been in office the Conservatives have done considerable damage to the nations financial situation. 90% of their years in office resulted in deficit compared to 60% for the Liberals. The raw size of the Conservatives average deficit was $22 billion compared to $7 billion for the Liberals. The size of their deficit on average accounted for 3% of GDP compared to roughly 1% for the Liberals (if you take out 4 years of the Second World War where deficit financing accounted for roughly 20% of annual GDP; even if you include those years, Liberals still have smaller deficits at 2.3% of GDP).
As well, even though they've only been in office 30% of the years since 1922, the Conservatives have been responsible for roughly 70% of the accumulated public debt.
Let's finally consider whether all of this has occurred for greater economic growth or increase in personal disposable income for Canadians.
Of their years in office, the Conservatives experienced only 1.1% annual GDP growth versus almost 6% for the Liberals. And the final nail in the coffin: Conservative governments have caused inflation-adjusted increases in disposable income of only 1.6% annually versus 2.6% for Liberal governments.
Conclusion:
Based on the data since 1922, it appears that if we want to get our financial house in order, we need to reconsider our perceptions of Conservative fiscal management. This says nothing about which way you should vote. But if you want to vote strictly on an economic or financial basis, you might want to reconsider putting an X next to the Conservative candidate. And in case you think the current manifestation of Conservative deviates from the past, consider this. After Brian Mulroney accumulated the debt to over 70% of GDP, the Liberals under Chretien and Martin slashed it to roughly 35% of GDP. Once Harper took over, it started back on the upswing.
UPDATE: IN RESPONSE TO A COMMENT BY A READER, I AM INCLUDING MY SOURCES BELOW. NORMALLY I DO THIS BUT I NEGLECTED TO THIS TIME. I APOLOGIZE.
FISCAL RESULT DATA:
1. SPEECHES OF PAST BUDGETS PRESENTED IN PARLIAMENT.
http://www.parl.gc.ca/parlinfo/compilations/parliament/budget.aspx
2. ARCHIVED ANNUAL FINANCIAL REPORTS FOR 1999-2004.
http://www.fin.gc.ca/purl/afr-archives-eng.asp
3. ANNUAL FINANCIAL REPORTS FOR 2005-2010.
http://www.fin.gc.ca/purl/afr-eng.asp
GDP & DISPOSABLE INCOME DATA:
All from StatsCan through CanSim, the paid database of StatsCan. I have access to it through my University library for free.
UPDATE: IN RESPONSE TO A COMMENT BY A READER, I AM INCLUDING MY SOURCES BELOW. NORMALLY I DO THIS BUT I NEGLECTED TO THIS TIME. I APOLOGIZE.
FISCAL RESULT DATA:
1. SPEECHES OF PAST BUDGETS PRESENTED IN PARLIAMENT.
http://www.parl.gc.ca/parlinfo/compilations/parliament/budget.aspx
2. ARCHIVED ANNUAL FINANCIAL REPORTS FOR 1999-2004.
http://www.fin.gc.ca/purl/afr-archives-eng.asp
3. ANNUAL FINANCIAL REPORTS FOR 2005-2010.
http://www.fin.gc.ca/purl/afr-eng.asp
GDP & DISPOSABLE INCOME DATA:
All from StatsCan through CanSim, the paid database of StatsCan. I have access to it through my University library for free.
Saturday, March 26, 2011
Nuclear debate
Anyone wondering what to think of the nuclear crisis in Japan should check out the following articles. One is pro-nuclear, one pro-renewable, and the other is an infographic giving some perspective on radiation dose, a poorly understood concept in the public arena. Enjoy!
Pro-Nuclear: Why Fukushima made me stop worrying and love nuclear power: George Monbiot
Pro-Renewables: George Monbiot is wrong. Nuclear power is not the way to fight climate change: Jeremy Leggett.
Infographic: Radiation doses. This is really cool. If you don't want to do any reading, check this one out. It is very informative and really puts things in perspective.
Pro-Nuclear: Why Fukushima made me stop worrying and love nuclear power: George Monbiot
Pro-Renewables: George Monbiot is wrong. Nuclear power is not the way to fight climate change: Jeremy Leggett.
Infographic: Radiation doses. This is really cool. If you don't want to do any reading, check this one out. It is very informative and really puts things in perspective.
Wednesday, March 16, 2011
Nuclear impact
I'm not going to comment on the nuclear crisis in Japan because it is a very emotional topic. However, I will make a more oblique statement on the economic impact of the crisis that seems counter-intuitive. When the earthquake first hit Japan, oil prices took a quick dive. The inclination was that if the 3rd largest oil importing nation in the world has suffered a catastrophic natural disaster, their demand for oil will plummet, and so, in turn, will the global demand for oil, thus driving prices down. This seemed a bit shortsighted to me at first given that Japan has never been a society to stand idly by and lay down to adversity. They rise up stoically against the challenge. When Japan cleans up and rises out of this disaster their demand for oil may be even more voracious than before given the massive reconstruction effort that will inevitably ensue.
Then the nuclear crisis began to unfold and now there will be a new potential upward demand pressure on oil. If public fear is allowed to rule the day and the nuclear industry experiences another downward spiral of construction and productivity, the ambitious plans of Japan to provide 50% of their electricity needs with nuclear generation will be thwarted, regardless of how appropriate or not they may have been. Thus, a nation with absolutely no natural hydrocarbon resources at its disposal will be even more reliant on imported oil than it was before the earthquake. If the fear reverberates around the global nuclear industry and stops expansion plans in countries as diverse as Germany and China, many of which made those plans because they have few available hydrocarbon resources, the global oil demand will only increase.
Call me crazy, but I'm predicting $200 a barrel oil before my oldest is in high school.
Then the nuclear crisis began to unfold and now there will be a new potential upward demand pressure on oil. If public fear is allowed to rule the day and the nuclear industry experiences another downward spiral of construction and productivity, the ambitious plans of Japan to provide 50% of their electricity needs with nuclear generation will be thwarted, regardless of how appropriate or not they may have been. Thus, a nation with absolutely no natural hydrocarbon resources at its disposal will be even more reliant on imported oil than it was before the earthquake. If the fear reverberates around the global nuclear industry and stops expansion plans in countries as diverse as Germany and China, many of which made those plans because they have few available hydrocarbon resources, the global oil demand will only increase.
Call me crazy, but I'm predicting $200 a barrel oil before my oldest is in high school.
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