BBC Economics editor Stephanie Flanders started off her own editor's blog last week by suggesting that the current problems were a "bolt from the blue" and that no-one had predicted the recession we are in. This was met with a torrent of comments from people pointing out that many 'punters' saw the problems coming from a mile off yet the 'professionals' did not. Quite right too....
This opens up a can of worms relating to how crowd behaviour skews performance in a number of professions. 3 pertinent examples spring to mind: Journalists, Economists and Fund Managers. In these cases, it is seen as being less risky to 'fail with the crowd' than risk being 'proved right alone'. There's a famous quote by Keynes: "the market can stay irrational longer than you can stay solvent". Namely, you could be right in the long-term but the irrational behaviour would get you the sack before that happens!
So why bother listening to these people or investing with them????
Errrmmmm..... Pass.
In the case of fund managers, there have been a number of studies exploring the returns from tracker funds (automated funds for things like the FTSE 100). In most cases they provide better than average returns than funds with active managers. Between extra charges and listening to daily noise, the active managers end up doing worse than if they had done nothing!
Madness...
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Damn good points well made and even without the poor returns, the actual cost of using a "professional" and paying for their flash cars and bling is outrageous (probably about 1/3 of your entire pension returns over 40 years if you have a private pension).
ReplyDeleteI hadn't seen Stephanie Flander's new blog but the most surprising part to me is that I credited her with giving the first early warning I saw in the mainstream media. I'm not sure where she has been for the last couple of years, but just before she bowed out of Newsnight on maternity a couple of years ago one of her last pieces was all about CDOs, the opacity of the new banking instruments and the underlying risks that some people were starting to shout about.
So it seems odd she should have forgotten her own warnings... madness indeed!
Despite the piece, I think Stephanie is actually pretty good - always talked sense on Newsnight. She's just come back from maternity in the last few weeks, so has been off the scene about 6 months.
ReplyDeleteShe just seems to be touching on an area that frustrates a lot of armchair commentators - the inability to recognise mistakes were made and things missed by a long list of people who get paid vast sums to be 'experts'.
As to the difference in returns, I've seen research showing that compound returns can be 2-fold over 30-odd years. I've got some fund holdings and it does not deliver the same returns as most of my individual stocks - makes me wonder how much is being trousered!!
I certainly regard the compound effect of these things as being to big to ignore...