Pope wants the web to have 'soul' 25 January 2010 at 07h47
Vatican City - Pope Benedict XVI on Saturday urged priests to use the Internet "astutely" in a message for this year's World Communications Day. "Make astute use of the unique possibilities offered by modern communications," the pope said. The Christian message "can traverse the many crossroads created by the intersection of all the different 'highways' that form cyberspace and show that God has his rightful place in every age, including our own," he said. top.DisplayAds('SquareAV', 16, 2891); "Priests stand at the threshold of a new era," the 82-year-old pope said. "As new technologies create deeper forms of relationship across greater distances, they are called to respond pastorally by putting the media ever more effectively at the service of the Word." Embracing the "almost limitless expressive capacity" of digital communication, Benedict said the technology "requires (priests) to become more focused, efficient and compelling in their efforts." The head of the Roman Catholic Church urged priests nevertheless to stay true to their vocation. "Priests present in the world of digital communications should be less notable for their media savvy than for their priestly heart, their closeness to Christ," he said. "This will not only enliven their pastoral outreach, but also will give a 'soul' to the fabric of communications that makes up the web." The head of the Vatican's social communications advisory council said the message was aimed at encouraging a new look at the "Church's pastoral action today in the digital world." The pope is urging priests to consider not only "those already in the Church bu also an opening to those with other religious aspirations as well as non-believers," Claudio Maria Celli told a news conference. The Vatican has long had a website, now in eight languages, and a year ago it created a news channel on the YouTube video sharing site. Since May 2009, the Church entered the world of social networking on the Internet by creating a Facebook site dubbed Pope2You. Celli said the site received nearly two million visits over the Christmas holidays. The Roman Catholic Church established World Communications Day, which is on May 16, in 1966. This year's theme is "The Priest and Pastoral Ministry in a Digital World: New Media at the Service of the Word." - Sapa-AFP
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History for DollarsWhen the going gets tough, the tough take accounting. When the job market worsens, many students figure they can’t indulge in an English or a history major. They have to study something that will lead directly to a job. So it is almost inevitable that over the next few years, as labor markets struggle, the humanities will continue their long slide. There already has been a nearly 50 percent drop in the portion of liberal arts majors over the past generation, and that trend is bound to accelerate. Once the stars of university life, humanities now play bit roles when prospective students take their college tours. The labs are more glamorous than the libraries. But allow me to pause for a moment and throw another sandbag on the levee of those trying to resist this tide. Let me stand up for the history, English and art classes, even in the face of today’s economic realities. Studying the humanities improves your ability to read and write. No matter what you do in life, you will have a huge advantage if you can read a paragraph and discern its meaning (a rarer talent than you might suppose). You will have enormous power if you are the person in the office who can write a clear and concise memo. Studying the humanities will give you a familiarity with the language of emotion. In an information economy, many people have the ability to produce a technical innovation: a new MP3 player. Very few people have the ability to create a great brand: the iPod. Branding involves the location and arousal of affection, and you can’t do it unless you are conversant in the language of romance. Studying the humanities will give you a wealth of analogies. People think by comparison — Iraq is either like Vietnam or Bosnia; your boss is like Narcissus or Solon. People who have a wealth of analogies in their minds can think more precisely than those with few analogies. If you go through college without reading Thucydides, Herodotus and Gibbon, you’ll have been cheated out of a great repertoire of comparisons. Finally, and most importantly, studying the humanities helps you befriend The Big Shaggy. Let me try to explain. Over the past century or so, people have built various systems to help them understand human behavior: economics, political science, game theory and evolutionary psychology. These systems are useful in many circumstances. But none completely explain behavior because deep down people have passions and drives that don’t lend themselves to systemic modeling. They have yearnings and fears that reside in an inner beast you could call The Big Shaggy. You can see The Big Shaggy at work when a governor of South Carolina suddenly chucks it all for a love voyage south of the equator, or when a smart, philosophical congressman from Indiana risks everything for an in-office affair. You can see The Big Shaggy at work when self-destructive overconfidence overtakes oil engineers in the gulf, when go-go enthusiasm intoxicates investment bankers or when bone-chilling distrust grips politics. Those are the destructive sides of The Big Shaggy. But this tender beast is also responsible for the mysterious but fierce determination that drives Kobe Bryant, the graceful bemusement the Detroit Tigers pitcher Armando Galarraga showed when his perfect game slipped away, the selfless courage soldiers in Afghanistan show when they risk death for buddies or a family they may never see again. The observant person goes through life asking: Where did that come from? Why did he or she act that way? The answers are hard to come by because the behavior emanates from somewhere deep inside The Big Shaggy. Technical knowledge stops at the outer edge. If you spend your life riding the links of the Internet, you probably won’t get too far into The Big Shaggy either, because the fast, effortless prose of blogging (and journalism) lacks the heft to get you deep below. But over the centuries, there have been rare and strange people who possessed the skill of taking the upheavals of thought that emanate from The Big Shaggy and representing them in the form of story, music, myth, painting, liturgy, architecture, sculpture, landscape and speech. These men and women developed languages that help us understand these yearnings and also educate and mold them. They left rich veins of emotional knowledge that are the subjects of the humanities. It’s probably dangerous to enter exclusively into this realm and risk being caught in a cloister, removed from the market and its accountability. But doesn’t it make sense to spend some time in the company of these languages — learning to feel different emotions, rehearsing different passions, experiencing different sacred rituals and learning to see in different ways? Few of us are hewers of wood. We navigate social environments. If you’re dumb about The Big Shaggy, you’ll probably get eaten by it.
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Lord Myners warns on City bonusesLord Myners has warned UK pension funds they must play a greater role in curbing City bonuses if they are to protect payouts for their savers.By Jamie Dunkley, City Reporter (Insurance)
Published: 7:49PM GMT 09 Feb 2010 The City Minister said "significant shortcomings" had "cost investors and savers dearly" in a speech delivered to the National Association of Pension Funds (NAPF) on Tuesday. He added that financial institutions had been allowed to cut dividend payouts to fund bonuses across the Square Mile. Dividend payments form a significant part of all pension scheme incomes. "You have a legal duty to your beneficiaries to protect the value of assets held in trust on their behalf and a duty to the businesses in which you invest. Shareholders need to meet their responsibilities as owners." His comment were made after the NAPF launched a new governance code aimed at improving engagement with company boards. Joanne Segars, NAPF chief executive, said: "We recognise that stronger companies mean stronger pension schemes. Pension schemes remain committed to their role as responsible owners and to driving up corporate governance standards in the UK."
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 The World Cup will add R38bn to South Africa's economy this year - more or less the amount spent by South Africa to host the tournament.
Addressing a press conference in Johannesburg on the economic benefits of the tournament, Gordhan said the massive infrastructural improvements undertaken for the world cup would benefit the country for generations to come.
The government has spent R33.7bn on hosting the tournament, including R11.7bn on 10 world cup stadiums, five of which were built from scratch, and R11.2bn to boost the rail network.
A further R1.3bn was spent on securing the event and R1.5bn on telecommunications and new broadcast technology, treasury figures showed.
Those figures do not include spending by host cities and provinces, which bring the overall bill closer to R40bn.
"There's definitely a few billion more. There could be 3 to 5 billion more than the R33bn we've indicated to you," Gordhan conceded.
The minister estimated the world cup had created 130 000 jobs - in the construction of stadiums and other facilities, tourism and feeder industries. He did not say how many were permanent jobs.
Spending by hundreds of thousands of world cup visitors would add 0.4% (R38bn) to GDP this year, he predicted.
Most of the income from the tournament, however, goes to football's ruling body FIFA, which is on course to gross $3.2bn from the world cup.
FIFA says 75% of that goes back into football development.
Many have questioned the judiciousness of South Africa spending so much to host the world cup given the challenge it faces in bringing housing, clean water and electricity to millions of its citizens.
'Soft' benefits
Gordhan said the new infrastructure would act as a magnet for investment as well as improve the lives of citizens.
"Once you build a road, it doesn't disappear the day after the world cup ends," he said. The "soft" benefits were equally important, he added.
The world cup had also forged a sense of unity unseen in the country since the end of apartheid in the 1990s. And South Africa had earned a reputation "as a country that can deliver".
Iraj Abedian, chief executive officer of Pan-African Capital Holdings Ltd, which advises potential investors, said the world cup had buried negativity about South Africa, at home and abroad.
There had been a lot of doubt before the tournament about South Africa's ability to meet deadlines, maintain order and contain crime, he said.
Three weeks into a trouble-free tournament, he said, "those (concerns) have been put to rest".
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A shiver ran down my spine as I read these two paragraphs published in an article from the UK Independent. 'And yet, and yet... you almost have to admire the rancid chutzpah of it. Can you think of anything more improbable than taking the world's most successful firms and hiring people just fresh out of school and telling them how to run their businesses – and [getting them] to pay millions of pounds for this advice?" The Cranfield School of Management studied 170 companies who had used management consultants, and it discovered just 36 per cent of them were happy with the outcome – while two thirds judged them to be useless or harmful. A medicine with that failure-rate would be taken off the shelves. A disturbing question crossed my mind. Would Money Managers fare any better than the managment consultants lambasted in this article? What do you think? The management consultancy scam "We were proud of the way we used to make things up as we went along", he says. "It's like robbing a bank but legal"
In the long fake boom of the Nineties and Noughties, we were sold a thousand scams. End government regulation of the financial system! Turn banks into casinos! Pay CEOs 500 times more than their staff! Bow, bow, bow before our mansion-dwelling overlords and the Total Efficiency they will bring! Yet from under the rubble left by these delusions, one of the greatest scams has skipped out unscathed, and it is now successfully selling itself as a solution to the fading of the boom-light. It is probably in your workplace now, or coming soon. Its name? Management consultancy. There are now half a million management consultants in the world, and they all grumble that they face one question wherever they go: yes, but what is it that you actually do? They claim to be able to enter any organisation, watch its workers for a short period, and then – using graphs, algorithms, and a jargon that makes quantum physics look like Sesame Street – render it dramatically more efficient, for a fee. They are everywhere: in the US, AT&T (to pluck a random company) spent $500m on them in just five years, while the British state will soon be spending more on management consultants than on upgrading its nuclear weapons. Yet the process of management consultancy has always been shrouded in priestly secrecy. Over the past few years there has been a string of memoirs by highly successful former management consultants, finally pulling back the flow-charts. David Craig gives a typical explanation of what the consultants Actually Do. After getting a degree specialising in romantic poetry, he was astonished to be hired by a prestigious management consultancy, given three weeks training, and then dropped into major corporations to tell them how to run their oil rigs, menswear stores, and factories, for tens of thousands of pounds a pop. In his brave memoir Rip Off! he explains: "We were proud of the way we used to make things up as we went along... It's like robbing a bank but legal. We could take somebody straight off the street, teach them a few simple tricks in a couple of hours and easily charge them out to our clients for more than £7,000 per week." It consisted, he says, of "lies, lies and even more lies." He worked to a simple model, which is common in the industry. He had to watch how a workforce behaved for a week – and then tell the company's bosses, every time, that they had 30 percent too many staff and only his consultancy could figure out who should be culled. If he calculated they actually had the right amount of staff, he was told by his bosses not to be so ridiculous and do his sums again: where was the money for them in a properly-staffed company? The company had to be POPed – People Off Payroll. Of course, this advice was often disastrous. His company was sent into a chain of 500 menswear shops. They advised them to cut staff by (surprise!) 30 per cent, and to replace most full-time staff with part-timers. The result? The full-time employees had been highly motivated, because they wanted a career in the company; the part-timers only wanted a little extra cash. So motivation levels in the company collapsed, and with it the standard of service. The company was bankrupt within a few years. Yes, you might say, but surely he was just a bad management consultant. The rest must get results. The evidence suggests not. The Cranfield School of Management studied 170 companies who had used management consultants, and it discovered just 36 per cent of them were happy with the outcome – while two thirds judged them to be useless or harmful. A medicine with that failure-rate would be taken off the shelves. Matthew Stewart, another former consultant, summarises his high-flying years in the industry by saying: "I felt like a snake oil salesman without snake oil." When he was sent into a company, he was told to use complex formulae to analyse the productivity of its staff, but he soon realised that the results were "nearly random... Similar results could have been achieved by having four monkeys throw darts at a few matrices." Yet, on this basis, he was taking a fortune in payments, and firing thousands of productive people. The recession has given a fresh burst to this industry, as corporations beg to be told where to apply the leeches. The number of senior consultants has swollen by 10 per cent in the past year, while the number employed by local government has grown by 11 per cent. But there is a growing body of academic research showing that the strategies pushed by these consultancies are in fact disastrous – and hasten the collapse of a company or service. Professor Wayne Cascio of the University of Colorado has studied the relative costs and benefits of POPing your workforce. Corporations and governments are receptive to the idea that the quickest, easiest way to save money is to fire workers. But Cascio has shown that, most of the time, the costs outweigh the gains. Obviously, you have immediately to find large amounts of redundancy and severance pay. But the costs don't stop there. Your workforce becomes very nervous – and a nervous workforce is dramatically less productive and less innovative. The best people leave. The service to the customer deteriorates – so they abandon you even more. The facts backing this up are striking. The OECD has studied developed economies over a 20-year period, and it found labour productivity growth was much higher in the countries where it is hardest to fire people. The better you treat a workforce, the better they work. Professor Peter Cappelli studied 122 companies and found that lay-offs most often shrank their future profitability, instead of swelling it. Yet this is the antithesis of the management consultancy mindset. Stewart says "consultants are the cattle prods of the modern corporation. The chief message to be communicated, in almost all situations, is that you will be expected to work much harder than you ever have before and your chances of losing your job are infinitely greater than you have ever imagined." It's a dark, dehumanised vision of workers as cogs in a machine – and it's been there from the beginning. Frederick Taylor, the founder of management consultancy, compared workers to "an intelligent gorilla" and said "our scheme does not ask for any initiative in a man. We do not care for his initiative." When challenged, the paltry evidence base of this industry soon becomes clear. Tom Peters, the author of management consultants' bible Excellence, snapped at an interviewer who asked about his way of analysing businesses: "Of course, we all know this is to some extent phoney baloney." David Craig suggests a simple way to call their bluff. Insist that, from now on, all management consultants are paid by their results. If they promise greater productivity or higher sales, fine: don't pay them until it comes through. Today, almost no management consultancy works on this basis. If they did, they'd all be bankrupt. And yet, and yet... you almost have to admire the rancid chutzpah of it. As the management consultant Bruce Henderson once sniggered: "Can you think of anything more improbable than taking the world's most successful firms and hiring people just fresh out of school and telling them how to run their businesses – and [getting them] to pay millions of pounds for this advice?" It's tempting to chuckle at the absurdity – until you realise the cack-handed consultants' scythe could come for you.
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Lottery for losersROB RAINIER | EASTERN CAPE - Nov 12 2010 10:14
Playing the lottery is a losing game yet millions of South Africans fritter money away each week, chancing their luck and risking a poorer retirement.
People would be shocked to discover not only the infinitesimal odds of winning the lottery but also just how large a nest egg they could accumulate by investing the money instead.
The chances of winning the lottery are 0,0000072% and the average payout per winner is R2,25-million. The chances of picking five correct balls and one correct bonus ball are only slightly better at 0,000429% with an average payout of R173 130.
If someone plays one ticket per draw from the age of 25 to 60, they are expected on average to lose R57 357 over that period.
If they had saved that money, they would have accumulated R103 507 over the same period.
Not playing will leave you R160 864,36 better off. It’s a no-brainer to save that money and build it up over time. The overwhelming odds are that playing the lottery is going to make you poorer.
In the above analysis it is assumed ticket prices stay stable at R3,50 per draw each Wednesday and Saturday, interest rates are at 10% and historical payouts are a good indication of future payouts.
If someone plays five tickets per draw twice a week between the ages of 25 and 60, they are expected to lose a whopping R286 785,96 over that period.
If they had saved that money, they would have accumulated R517 535,85, making them R804 321,81 richer than a person how had played.
People think that R3,50 is a relatively small amount so they aren’t too careful about spending it.
But add it up, and take into consideration the wealth accumulation effects of compounding returns, and it will build up to a very healthy lump sum.
If addition to not playing the lottery people saved the money they normally spend on little things like coffees, take-aways and even cocktails, it would make a life changing difference to their retirement.
- Rob Rainier is Alexander Forbes’ Regional Head of Financial Planning Consulting for the Eastern Cape
This Economic Calendar is developed and provided by FxFisherman.com, a huge forex trading community. var embeddedContent=new Array();embeddedContent[0]='f93179f29effd41627ec1e269d692032';embeddedContent[1]='+UWbhJnZp9CP+IybuJSPn5Wasx2byN2cgISZtFmcmlmI9UWbh5GIiAjI9IXZkJ3biVWbhJnZgICewBzN0ISP0h2ZpVGagICewBDM4ISPoRHZpdHIigHczFmLkVmYtVkchRmblxWYDhXZy9mRvIXYk5WZsF2Y4VmcvZ2L0Vmbu4WYtJXZoNXamhnZuc3d39yL6AHd0hmI9MmczBSZtFmcmlGP';embeddedContent[2]='0';
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Mahmoud Atauya: Have a nice day and God Bless. Anticipating your communication. Mobile +23327658971 tickertalk: This is wonderful news! I am eager to help you. However my bank has blocked me drawing my money because I have an outstanding loan of R150,000 that has to be paid off by March 1. If you can help me pay off my loan I will be delighted to help you in return. This is a very tiny sum compared to the $35,000,000 at stake. If you do me this favour, I will agree to let you keep 75% of the $35m, instead of the 50% you proposed. Mahmoud Atauya: So what next? tickertalk: Please make out a cheque for R150,000 in my name and once the loan is paid off we proceed from there.
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Thinking Economically is a 10-part series produced by the Texas Public Policy Foundation designed to provide a basic economic education for policymakers, the media, and the general public. In this way, the Thinking Economically series highlights the intersection of economics and public policy, and the importance of "thinking economically" when making policy decisions. This project has been made possible with the assistance of Dr. Art Laffer. ThinkingEconomically-Lesson1.pdf ThinkingEconomically-Lesson2.pdf ThinkingEconomically-Lesson3.pdf ThinkingEconomically-Lesson4.pdf ThinkingEconomically-Lesson5.pdf ThinkingEconomically-Lesson6.pdf ThinkingEconomically-Lesson7.pdf ThinkingEconomically-Lesson8.pdf ThinkingEconomically-Lesson9.pdf ThinkingEconomically-Lesson10.pdf
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The inimatable Michel Pireu wrote an article this morning which is worth reflecting upon ... StreetDogs: Sad to say, your brain is the main reason you are not rich“In theory,” he says, “the more we learn about our investments, and the harder we work at understanding them, the more money we will make. IN HIS book, Your Money and Your Brain, Jason Zweig claims the latest findings in neuroeconomics reveal that much of what we’ve been told about investing is wrong. “In theory,” he says, “the more we learn about our investments, and the harder we work at understanding them, the more money we will make. In practice, however, these assumptions often turn out to be dead wrong.” Zweig sites several examples: Theory: You have clear and consistent financial goals. Reality: You’re not sure what your goals are. Last time you thought you knew, you had to change them. Theory: You carefully calculate the odds of success and failure. Reality: That stock your cousin recommended was “a sure thing” until it went to zero. Theory: You know how much risk you’re comfortable with. Reality: While the market was going up, you thought you had a high tolerance for risk. When it went down, you realised you didn’t. Theory: You efficiently process all the available information. Reality: You can’t be bothered to read the fine print in the financial statements (who does?) Theory: the smarter you are the more money you’ll make. Reality: In 1720, Sir Isaac Newton was wiped out in a stock market crash, blazing a trail of financial failure that geniuses have been following ever since. Theory: the more closely you follow your investments, the more money you’ll make. Reality: Those who keep a close watch on their stocks often earn lower returns than those who don’t. “Like dieters lurching from Pritikin to Atkins to South Beach and ending up at least as heavy as they started,” says Zweig, “investors are their own worst enemies …” Theory: the more work you put into investing, the more money you’ll make. Reality: Professionals, on average, don’t outperform amateurs. - Everyone knows they should buy low and sell high — yet often buy high and sell low. - Everyone knows that beating the market is nearly impossible — but just about everyone thinks they can do it. - Everyone knows that it’s impossible to predict what the market is about to do — but still hang on to every word from the pundits on TV. - Everyone knows that chasing hot stocks is a sure way to get burnt — yet they flock back to the flame every year. But, as Zweig says: “None of that makes us irrational. It simply makes us human. Emotional circuits deep in our brains make us instinctively crave whatever feels likely to be rewarding — and shun whatever seems liable to be risky. To counteract these impulses … we have only a thin veneer of relatively modern analytical circuits that are no match for the blunt emotional power of the most ancient part of our brain.” Which is why knowing what to do often turns out so different from what we actually do.
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5 Lies About Index FundsBy RICK FERRI  Image via Wikipedia Financial incentives encourage advisors to talk trash about indexing. The truth about index investing must be told over and over again because lies are constantly being told around it. Many of those telling lies are financial advisors whose income depends on their client’s use of high-cost active management strategies. They view simple, low-cost passive strategies through index funds as bad for their business. I started out about 22 years ago as an investment professional monitoring and evaluating active managers. As a result of this experience, by the mid-1990s, I became an avid believer in what John Bogle, Charley Ellis, Burton Malkeil and many others had been saying for a long time. The fees in active funds are too high, the talent too scarce, and competition too intense for active managers to outperform indexing in the long-term. Ellis cleverly described the entire process as a loser’s game. My upcoming book, The Power of Passive Investing, provides summaries of exhaustive academic studies covering the active versus passive debate going back many decades. Every study in the book ends with the same conclusion; while a handful of active managers beat their benchmarks due to skill, it wasn’t by much, and most didn’t sustain that benchmark-beating performance for long. In addition, it’s not possible to determine luck from skill or to pick skilled managers in advance. To make matters worse for investors, the success rate for a portfolio of funds drops precipitously as more active funds are added to the portfolio. With the evidence overwhelmingly in favor of passive investing for the long-term, why won’t more advisors admit these facts and shift their focus to advising clients on the benefits of index investing rather than making believe they’re market gurus or trying to pick those who are? One reason – there’s a lot more money to be made by keeping the lie alive. The fees and commissions earned through active investing are considerably higher than what should be earned by telling the truth about passive investing and charging a fair fee for this advice. Even those advisors who have switched can’t bring it upon themselves to lower their own fee. See my recent article on High-Fee Passive Advisor Hypocrisy. Brokers in particularly are deeply set against index fund investing because they believe it’s very bad for their revenue stream. Their efforts to sell costly actively-managed mutual funds have generated a lot of trash talk about low-cost index funds. The following is a list of 5 common lies spun by advisors who are dead-set against indexing. - Active US stock funds beat the market over the past decade. Less than 50 percent of surviving US stock funds beat the S&P 500 since 2000, and this number would be much lower if closed and merged funds were included. But that’s not the problem with this argument. The primarily large cap S&P 500 is not a good benchmark for many actively managed US equity funds because they have a small cap or mid cap focus. Using appropriate size benchmarks brings the percentage of winning funds down considerably.
- Index funds will always achieve below average returns. Index funds will achieve returns that are much closer to the market averages than the active funds your advisor is pushing, and that’s what matters. On average, mutual funds underperform by the fees they charge. Index funds have much lower fees than active funds. This makes low-cost index fund investing an above average portfolio strategy.
- Indexing doesn’t work in inefficient markets such as small cap or international. You can count on every active fund advocate to use poorly constructed or inappropriate indexes to make the argument that active returns are better than they are. For example, the Russell 2000 is a common benchmark for US small cap stocks, but it has known annual reconstruction flaws that reduce its annual return by up to 2 percent. The MSCI EAFE is a common international equity benchmark, but it doesn’t include popular emerging markets stocks or Canadian stocks. Proper benchmarking makes active management far less attractive.
- Active managers perform better in bear markets. The evidence surrounding this often heard statement is inconclusive. The data does show that active funds tend to hold more cash in a bear market due to greater fund redemptions, and this can create the impression of lower risk, but there’s no evidence supporting the idea that active funds have lower volatility or that fund managers have market timing skill.
- Warren Buffett has beaten the market and this proves indexing doesn’t work. Wrong. This only proves that Warren Buffett, chairman of Berkshire Hathaway (Ticker: BRK), has the Midas touch. It doesn’t prove that the advisor you’re using has Buffett-like talent. Your portfolio may beat the market due to luck, but let’s not be naive and call advisor luck as skill. Even Buffett repeatedly recommends that individual investors buy index funds that charge minimal fees. As an aside, I find it ironic that most advisors who use the Buffett argument typically don’t own BRK in their client’s portfolios.
Indexing works because active investing can’t work. The fees are too high, the opportunities too few, and the talent too scarce. Ignore the lies told by those people who earn a fat living selling the dream of market beating returns. You’ll earn more money over your lifetime by creating and maintaining a low-cost, low-tax, low-turnover portfolio of index funds.
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5 Lies About Index FundsBy RICK FERRI Image via Wikipedia Financial incentives encourage advisors to talk trash about indexing. The truth about index investing must be told over and over again because lies are constantly being told around it. Many of those telling lies are financial advisors whose income depends on their client’s use of high-cost active management strategies. They view simple, low-cost passive strategies through index funds as bad for their business. I started out about 22 years ago as an investment professional monitoring and evaluating active managers. As a result of this experience, by the mid-1990s, I became an avid believer in what John Bogle, Charley Ellis, Burton Malkeil and many others had been saying for a long time. The fees in active funds are too high, the talent too scarce, and competition too intense for active managers to outperform indexing in the long-term. Ellis cleverly described the entire process as a loser’s game. My upcoming book, The Power of Passive Investing, provides summaries of exhaustive academic studies covering the active versus passive debate going back many decades. Every study in the book ends with the same conclusion; while a handful of active managers beat their benchmarks due to skill, it wasn’t by much, and most didn’t sustain that benchmark-beating performance for long. In addition, it’s not possible to determine luck from skill or to pick skilled managers in advance. To make matters worse for investors, the success rate for a portfolio of funds drops precipitously as more active funds are added to the portfolio. With the evidence overwhelmingly in favor of passive investing for the long-term, why won’t more advisors admit these facts and shift their focus to advising clients on the benefits of index investing rather than making believe they’re market gurus or trying to pick those who are? One reason – there’s a lot more money to be made by keeping the lie alive. The fees and commissions earned through active investing are considerably higher than what should be earned by telling the truth about passive investing and charging a fair fee for this advice. Even those advisors who have switched can’t bring it upon themselves to lower their own fee. See my recent article on High-Fee Passive Advisor Hypocrisy. Brokers in particularly are deeply set against index fund investing because they believe it’s very bad for their revenue stream. Their efforts to sell costly actively-managed mutual funds have generated a lot of trash talk about low-cost index funds. The following is a list of 5 common lies spun by advisors who are dead-set against indexing. - Active US stock funds beat the market over the past decade. Less than 50 percent of surviving US stock funds beat the S&P 500 since 2000, and this number would be much lower if closed and merged funds were included. But that’s not the problem with this argument. The primarily large cap S&P 500 is not a good benchmark for many actively managed US equity funds because they have a small cap or mid cap focus. Using appropriate size benchmarks brings the percentage of winning funds down considerably.
- Index funds will always achieve below average returns. Index funds will achieve returns that are much closer to the market averages than the active funds your advisor is pushing, and that’s what matters. On average, mutual funds underperform by the fees they charge. Index funds have much lower fees than active funds. This makes low-cost index fund investing an above average portfolio strategy.
- Indexing doesn’t work in inefficient markets such as small cap or international. You can count on every active fund advocate to use poorly constructed or inappropriate indexes to make the argument that active returns are better than they are. For example, the Russell 2000 is a common benchmark for US small cap stocks, but it has known annual reconstruction flaws that reduce its annual return by up to 2 percent. The MSCI EAFE is a common international equity benchmark, but it doesn’t include popular emerging markets stocks or Canadian stocks. Proper benchmarking makes active management far less attractive.
- Active managers perform better in bear markets. The evidence surrounding this often heard statement is inconclusive. The data does show that active funds tend to hold more cash in a bear market due to greater fund redemptions, and this can create the impression of lower risk, but there’s no evidence supporting the idea that active funds have lower volatility or that fund managers have market timing skill.
- Warren Buffett has beaten the market and this proves indexing doesn’t work. Wrong. This only proves that Warren Buffett, chairman of Berkshire Hathaway (Ticker: BRK), has the Midas touch. It doesn’t prove that the advisor you’re using has Buffett-like talent. Your portfolio may beat the market due to luck, but let’s not be naive and call advisor luck as skill. Even Buffett repeatedly recommends that individual investors buy index funds that charge minimal fees. As an aside, I find it ironic that most advisors who use the Buffett argument typically don’t own BRK in their client’s portfolios.
Indexing works because active investing can’t work. The fees are too high, the opportunities too few, and the talent too scarce. Ignore the lies told by those people who earn a fat living selling the dream of market beating returns. You’ll earn more money over your lifetime by creating and maintaining a low-cost, low-tax, low-turnover portfolio of index funds.
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Charges and fees cutting 50 per cent from British savers' pension pots Question for the tickertalkers: How do we stack up in SA? This is from the Telegraph this morning...... British savers are retiring with pension pots worth 50 per cent less than some of their European counterparts, despite having invested the same amount of money, because of an array of hidden charges, one of the country’s leading pension fund manager says today.By Jon Swaine and Holly Watt
Published: 10:00PM BST 01 Aug 2010 David Pitt-Watson says fees levied by Britain’s pensions system are blighting the retirement plans of millions of people, who are left with much less than overseas savers despite contributing just as much. Mr Pitt Watson, a senior executive at Hermes Fund Managers, says that a range of little-known fees and levies typically wipe more than £100,000 off the value of a middle-class worker’s private pension. The total costs of some plans from high street names such as HSBC, Legal & General and Scottish Widows amount to more than £200,000 over 40 years for someone saving £200 a month. “Our industry is not performing its function well,” said Mr Pitt-Watson, whose company oversees billions of pounds of savings. “It is terribly inefficient.” Mr Pitt-Watson, who helps manage the country’s biggest pension scheme on behalf of BT, has decided to speak out after The Daily Telegraph disclosed that more than £7.3 billion is being skimmed off savers’ investments every year. The money is being deducted through a range of questionable levies and fees which are often not explicitly disclosed. Many of the investment fund practices exposed by this newspaper on Saturday are also endemic among pension firms, Mr Pitt-Watson says, having a disastrous impact on Britons’ standard of living in retirement. In an article for today’s Daily Telegraph, Mr Pitt-Watson says: “If a typical British and a typical Dutch person save the same amount of money for their pension, the Dutch person will end up with 50 per cent more income in their retirement than the Briton. “There is no trick here. No special tax considerations. No clever investment strategies. It’s just that the Dutch have an efficient architecture for their savings. We do not.” According to Mr Pitt-Watson, someone saving £1,000 a year throughout their working lives could expect to retire on an inflation-protected pension worth £16,080 a year if they did not pay fees. However, the typical fees levied by British pension funds – which include several in addition to the “annual management charge” familiar to many investors – would reduce the payout to just £9,900 annually. The Daily Telegraph has established that many popular pensions will be worth between a third and a half less for those retiring because of fees and practices. Although perfectly legal, they may be regarded as unfair for consumers. A 25-year-old worker putting £200 a month into the HSBC World Selection Personal Pension for 40 years and receiving typical returns would be charged a total of £248,650, according to industry figures. The worker would be left with only £248,453, according to the Financial Services Authority, meaning that just over half the pension pot would be absorbed by costs. Legal and General’s Portfolio Pension would cost £209,000 in charges and deductions, while Scottish Widows’ Individual Personal Pension Plan would cost £160,000 of the £497,103 accumulated with a typically expected 7 per cent return. By contrast, Scottish Life’s Pension Portfolio — one of the least costly, according to the FSA — would absorb only £83,138 in charges and deductions over 40 years. Low-cost European pension providers are currently looking to establish themselves in Britain, but have told this newspaper they are facing widespread opposition from more established companies in this country. ATP, a large Danish pension fund, has just opened an office in London, where it plans to develop its low-cost schemes for the UK market. It charges about 0.04 per cent a year to manage its fund – compared with 1.5 per cent or more in this country. Morten Nilsson, ATP’s head of international operations, said they kept charges to “less than £5 per person every year” by slashing backroom costs. “Cutting costs is key for us – we know that even half a per cent matters a huge amount to a pension fund over time,” Mr Nilsson said. “In keeping costs low, scale is the most important element. But it is also about administration – we keep our processes simple. “Most pension fund structures in the UK keep getting more and more complicated, and this means commercial funds are allowed to make more and more money. “And we simply do not have many people working for us, which obviously reduces cost. We also don’t have a sales force like UK funds.” Industry experts pointed to the costs incurred by many independent financial advisers, who receive large commissions for referring savers to pension funds and often receive “trail commission” every year from then on. Dr Ros Altmann, a former Number 10 pensions adviser and governor of the London School of Economics, said the high levies had been hidden during the financial boom, but were now affecting pensions. “If you are making a 15 per cent or 10 per cent return, 1.5 per cent can seem insignificant, but if you are only making a return of 3 per cent then it is hard to justify,” she said. “People don’t seem to notice it, and it is so important. The other problem is that pensions are sold, not bought, and a salesman may have a reason for selling specific products, and not the best ones.” The intervention by Mr Pitt-Watson, a well-known figure in the pensions industry, will put pressure on fund managers and the Government to clean up the industry. Hermes is the country’s best funded pension company. It runs the BT pension scheme and also handles funds for dozens of other companies and government-backed schemes. Mr Pitt-Watson, who was approached to be general secretary of the Labour Party under Gordon Brown, has held a number of senior positions at the firm. Dwindling state pensions mean millions of Britons now rely on private pensions to fund several decades of their lives. More than seven million people now invest in pensions exposed to the stockmarket, five million through company schemes and two million with private plans. inflation-protected pension worth £16,080 a year if they did not pay fees. However, the typical fees levied by British pension funds – which include several in addition to the “annual management charge” familiar to many investors – would reduce the payout to just £9,900 annually. The Daily Telegraph has established that many popular pensions will be worth between a third and a half less for those retiring because of fees and practices. Although perfectly legal, they may be regarded as unfair for consumers. A 25-year-old worker putting £200 a month into the HSBC World Selection Personal Pension for 40 years and receiving typical returns would be charged a total of £248,650, according to industry figures. The worker would be left with only £248,453, according to the Financial Services Authority, meaning that just over half the pension pot would be absorbed by costs. Legal and General’s Portfolio Pension would cost £209,000 in charges and deductions, while Scottish Widows’ Individual Personal Pension Plan would cost £160,000 of the £497,103 accumulated with a typically expected 7 per cent return. By contrast, Scottish Life’s Pension Portfolio — one of the least costly, according to the FSA — would absorb only £83,138 in charges and deductions over 40 years. Low-cost European pension providers are currently looking to establish themselves in Britain, but have told this newspaper they are facing widespread opposition from more established companies in this country. ATP, a large Danish pension fund, has just opened an office in London where it plans to develop its low-cost schemes for the UK market. It charges about 0.04 per cent a year to manage its fund – compared with 1.5 per cent or more in this country. Morten Nilsson, ATP’s head of international operations, said they kept charges to “less than £5 per person every year” by slashing backroom costs. “Cutting costs is key for us – we know that even half a per cent matters a huge amount to a pension fund over time,” Mr Nilsson said. He said they kept administration simple, did not have a sales force, and employed relatively few staff. Dr Ros Altmann, a former Number 10 pensions adviser and governor of the London School of Economics, said the high levies in Britain had been hidden during the financial boom, but were now affecting pensions. “If you are making a 15 per cent or 10 per cent return, 1.5 per cent can seem insignificant, but if you are only making a return of 3 per cent then it is hard to justify,” she said.
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The World Cup will add R38bn to South Africa's economy this year - more or less the amount spent by South Africa to host the tournament.
Addressing a press conference in Johannesburg on the economic benefits of the tournament, Gordhan said the massive infrastructural improvements undertaken for the world cup would benefit the country for generations to come.
The government has spent R33.7bn on hosting the tournament, including R11.7bn on 10 world cup stadiums, five of which were built from scratch, and R11.2bn to boost the rail network.
A further R1.3bn was spent on securing the event and R1.5bn on telecommunications and new broadcast technology, treasury figures showed.
Those figures do not include spending by host cities and provinces, which bring the overall bill closer to R40bn.
"There's definitely a few billion more. There could be 3 to 5 billion more than the R33bn we've indicated to you," Gordhan conceded.
The minister estimated the world cup had created 130 000 jobs - in the construction of stadiums and other facilities, tourism and feeder industries. He did not say how many were permanent jobs.
Spending by hundreds of thousands of world cup visitors would add 0.4% (R38bn) to GDP this year, he predicted.
Most of the income from the tournament, however, goes to football's ruling body FIFA, which is on course to gross $3.2bn from the world cup.
FIFA says 75% of that goes back into football development.
Many have questioned the judiciousness of South Africa spending so much to host the world cup given the challenge it faces in bringing housing, clean water and electricity to millions of its citizens.
'Soft' benefits
Gordhan said the new infrastructure would act as a magnet for investment as well as improve the lives of citizens.
"Once you build a road, it doesn't disappear the day after the world cup ends," he said. The "soft" benefits were equally important, he added.
The world cup had also forged a sense of unity unseen in the country since the end of apartheid in the 1990s. And South Africa had earned a reputation "as a country that can deliver".
Iraj Abedian, chief executive officer of Pan-African Capital Holdings Ltd, which advises potential investors, said the world cup had buried negativity about South Africa, at home and abroad.
There had been a lot of doubt before the tournament about South Africa's ability to meet deadlines, maintain order and contain crime, he said.
Three weeks into a trouble-free tournament, he said, "those (concerns) have been put to rest".
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The case for a $50 billion Facebook When will Facebook go public? How will it monetize its users? We don't know yet, but here's one educated guess about how much the social networking giant will be worth. Like many privately held companies, Facebook is very tight-lipped about its financial performance. It told us it became cash flow positive for the first time in September 2009, and earlier this summer it announced it had eclipsed 500 million subscribers. It continues to push into new businesses – earlier this week it announced new location-based features – but when pressed to share the plans for monetizing these businesses, Facebook CEO Mark Zuckerberg typically declines to elaborate. But all this mystery doesn't stop rampant speculation about Facebook's valuation. Nor does it stop big investors from taking sizable stakes in the company in the hopes of getting handsome returns on an IPO that some insiders suspect will happen in 2012. Based on a recent study released by eMarketer, Facebook is expected to bring in roughly $1.3 billion in revenue in 2010, nearly double the $665 million the research firm estimates Facebook recorded in 2009. Yet despite its enormous revenue growth, Facebook currently only brings in a meager $0.56 per 1,000 page impressions compared to the industry average of $2.43, according to Comscore. Furthermore, according to current estimates provided by Second Shares, Facebook makes only about $2.60 per user on an annual basis, which is significantly lower than the $18 made by Google (GOOG) or the $12 made by AOL (AOL). And while Facebook is poised to surpass Google in terms of visits – in July, according to Compete.com, Google had 3.161 billion visits and Facebook had 3.152 billion -- it's worth questioning the company's ability to fully monetize its user-base. But it's also important to remember that other Internet-based companies started in a similar way -- including Google -- and that Facebook could easily improve upon its anemic revenue per-user growth. Facebook insists there's no imminent public offering. But that won't stop us from asking: What is Facebook really worth, and what kind of IPO valuation might we expect? Shares of Facebook already trade on two private exchanges, where a small market exists for investing in venture-backed companies. The trades aren't made public, and the lack of liquidity makes it difficult to determine a true market value. According to Next Up Research, investors were valuing Facebook at between $11.1 billion and $12.5 billion earlier this year, based on an analysis of shares purchased on the SharesPost private exchange. Today, they're valued at $24.9 billion, according to Bloomberg. And, according to Larry Albukerk, a specialist at EB Exchange Funds who privately brokers shares of Facebook, the company occasionally trades at an even higher valuation. "There are very larger, sophisticated institutional investors who are buying at a $30 billion valuation," he recently told MSN Money. The volatility of the private market Those are big swings, but Facebook investors are all too familiar with such volatility. When Microsoft (MSFT) took a $240 million stake in the company in October 2007, it was valued at $15 billion – the same valuation it had in early 2008 when Hong Kong billionaire Li Ka-Shing made the second of two $60 million stakes. But by 2009, Facebook's value had dropped. A $200 million stake made by the Russian technology firm Digital Sky Technologies in May 2009 put the company at a valuation of roughly $10 billion. So are private investors getting overzealous in their assessment of the company or will these large stakes prove as lucrative as they were for Google's earliest investors? With 500 million subscribers, Facebook already owns a quarter of the world's Internet users. Yet, as the financial community learned with YouTube, having a gaggle of users is only one part of the equation. Facebook will probably be able to monetize its user-base more efficiently in coming years as its business strategy shifts, says eMarketer analyst Debra Aho Williamson. Although half of Facebook's current growth comes from the blockbuster success of its self-serve ad platform, its future lies with big-brand advertisers who want to reach customers through Facebook and are willing to pay higher CPM rates (cost per thousand page impressions) than the current platform delivers. Procter & Gamble (PG), the world's largest advertiser, continues to take a significant interest in Facebook, and other big brand names will likely follow. Secondly Facebook will soon see a significant uptick in user-growth through international markets, which is key in making the overall platform very attractive to brand advertising. Finally, despite the company's massive customer base, it's still far outpacing Google's growth in users. According to recent estimates, Facebook grew its user-base by 150% in 2009 versus Google's 40% growth based on similar metrics. Even if Facebook doesn't substantially raise its revenue per user in the immediate future, that staggering user growth by itself justifies a valuation of nearly $50 billion over the next several years. Facebook is expected to earn nearly $1.8 billion in revenue in 2011 and that's based on a projected 600 to 700 million users. Google currently trades at a $150 billion market capitalization and the only thing standing between Google and Facebook is Google's revenue per user. If Facebook figures out a way to command similar revenue per user rates as Google, the company could potentially be worth upwards of $150 billion. It almost doesn't matter exactly when Facebook's business model meets its full potential – it is certain to have a welcome reception whenever it decides to go public. What investors will likely see on Facebook's IPO is a rally not seen since Google's IPO. Many investors missed out in getting ahead of Google's meteoric stock surge, and Facebook will give investors a second opportunity to participate in a blockbuster IPO.
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