A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
The Of Dollars and Data blog highlights an important issue and some pending big decisions for aging investors,
"When using a lump sum (i.e. investing money without adding or subtracting additional funds), the order of your returns do not matter. If you don't believe me, spend a minute trying to prove how 3 * 2 * 1 is not equal to 1 * 2 * 3. Now, what happens if you add money to your invested funds over time? Is there a difference between +10%, +25%, -10%, -25% and -25%, -10%, +10%, +25%? Yes. When you are adding money over time it is best to have the higher returns at the end, not the beginning, of your investment life."
The post-financial crisis equity rally may have room to run but it's also a fact that valuations are high enough that market history strongly suggests weaker mid and longer term returns. For investors with 20 year time horizons, this doesn't matter much. But, those retiring in the next few years will be rightly tempted to reduce risk, even if it means trying to time the market.
"The End is Everything" – Of Dollars and Data
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Ok, some perspective is needed on this "the rise of passive investing threatens the world order" argument. It's written by Renaud de Planta of Pictet Asset Management, who clearly benefits from active management – there is a "talking his book" risk here for sure. There are, however, some reasonable points that concern me also,
"Under index-tracking, the shares of companies with large weightings in the major indices attract more capital irrespective of their underlying performance. So in a system in which passive funds monopolise investment flows, the price of a security ceases to function as a gauge of a firm's underlying prospects. This distorts the cost of equity and the price of credit.
"In such conditions, serious misallocations of capital would become the norm, creating asset bubbles on the one hand and leaving innovative firms starved of funds on the other. That wouldn't be good for productivity or growth."
"The hidden dangers of passive investing" – Financial Times
"Passive investing is worse than… the misuse of antibiotics" – FT Alphaville (free with registration)
"Bogle Says If Everybody Indexed, Markets Would Fail Under Chaos" – Business Insider
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Pundits and oil executives attempt to explain why oil is having trouble hanging on to the $50 level,
"Why#oil is lacking support. $50 looks difficult to sustain @robinenergy jumps into the post #OPEC debate." – CNN
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Diversion: The Internet is Broken – New York Times . I was struck by this quote,
""I thought once everybody could speak freely and exchange information and ideas, the world is automatically going to be a better place," Mr. Williams says. "I was wrong about that… "There's a lock on our office door and our homes at night. The internet was started without the expectation that we'd have to do that online."
Tweet of the Day: "@SBarlow_ROB NBF: " share of first-time [Canadian] homebuyers with a low credit score recently fell to a multi-year low of 4%." " - (chart) Twitter
Scott Barlow