4 February 2013

'100% Return' on Stocks in 10 Years?

This headline (Jim Bogle via CNBC)is designed to make the mouth of every red-blooded investor water. But what is easily overlooked iJs that behind this attention-grabbing number is the mundane fact that any holding doubling over a period of ten years would have provided an annualised return of 7 percent. While this is nothing to sneeze at - many investors would give their right arm to be able to achieve this performance - it also is not earth-shattering. Above all it reminds us that just a short period of under - or even negative - performance can make it nearly impossible to achieve this return over a period of ten years as any loss has to be made up before the clock starts ticking again in the investor's favour. So the avoidance of mistakes and maximum discipline in keeping the costs of portfolio management as low as possible should be foremost in investor's minds.

1 February 2013

Meagre Performance for Private Banking Clients

Private Banking clients find it notoriously difficult to obtain meaningful performance comparisons. Private Banks or Wealth Management departments are reluctant do showcase their performance. To some extent they are justified by arguing that each client requires a different approach as the risk tolerance or tax situation varies in each case. On the other hand, this can easily be used as a smokescreen to disguise poor performance before or after the client engages the firm. The solution for this dilemma should really be that fund management firms offer model portfolios that clients can choose if they are happy with the parameters that are set out in the investment rules for these model portfolios. Clients would then have a choice between a quasi-discretionary approach or a standardised formula that can be subjected to stringent performance evaluation. A look at this survey conducted by a magazine in Austria offers a shocking insight into the poor performance that clients experienced during the past 10 years. Most of the managers just were able to scrape together an annualised performance of around 3-4 per cent. Interestingly it made little difference whether to portfolio was deemed to be 'conservative' or 'dynamic'.