29 June 2006

Buffett to give $54b to charity

For regulars to my blog, you'll know that I don't hand out praise often. Usually, I'll be bagging something pretty hard.

Today I'm going to break with that, today and say a big, warm, "Are you out of your freaking mind?" to the great man, Warren Buffett.

Buffett, the world's second richest man, is giving the bulk of his fortune (about AUD$54 billion) away to the Bill and Melinda Gates Foundation, making this easily the richest charity in the world today.

The Gates Foundation is probably best known for providing funds for diseases such as HIV/AIDS, malaria and polio - mainly ones that heavily affect third world countries.

But even though Buffett, regarded as something of a demi-god by his legion of fans, is a close mate of the Gateses, he has specified some pretty stringent conditions:

"Buffett's gift came with three conditions for the Gates foundation: Bill or Melinda Gates must be alive and active in its administration; it must continue to qualify as a charity; and each year it must give away an amount equal to the previous year's Berkshire gift, plus another 5 percent of net assets. Buffett gave the foundation two years to abide by the third requirement."

Given that Gates himself resigned from the day-to-day operations of Microsoft last week to dedicate himself to the Foundation, this is probably an indication of how much work the Gateses have ahead of them in order to spend Buffett's money.

It is said that Buffett himself plans to become a trustee of the Foundation at some stage.

He is considered a great man by some - now there is no excuse for him to not be considered a great man by all.

As an aside, even without $54 billion, this leaves AUD$6 billion for him to play around with - leaving him about as wealthy as Australia's richest man, and notorious scientologist, James Packer.

I've gotta say, I'm stunned.

Read it here:

Buffett-Gates merger creates 60 billion dollar charity giant

Buffett to give $54b to charity - Business - Business - smh.com.au

27 June 2006

What the hell is wrong with financial planning? (Part 2)

This is part 2.

Part 1 is here.

In part 1, we looked at some of the issues affecting financial planning in Australia, in particular, the small issue that financial advisers and their clients do not seem to be driving the agenda with regards to financial products.

The points that were raised were as follows:

  1. Financial planning licensees and/or fund managers appear to be deliberately and mischievously aiming to discredit the Efficient Markets Hypothesis.
  2. Financial planning licensees and their representatives are pushing active portfolio management as a benefit for clients.
  3. Financial planning licensees and their representatives appear to also be pushing directly held assets as a benefit for their clients.

This article will look at some more specific problems - some of which follow on directly from the problems we identified in Part 1.

4. Marketing driven investment strategies

In the Fin Review of Saturday, 29 April, 2006, an article appeared that suggested that fund managers and not client needs drive the agenda with regards to clients' investment strategies.

Keith Ambachtsheer, a Canadian, has suggested that things may not be as they appear when it comes to personal investment.

Ambachtsheer, regarded by the Fin as one of the world's leading thinkers on pensions and retirement savings, publishes a monthly letter where he has contends that there may be more than meets the eye on this topic.

In short, Ambachtsheer's contention is that it is not client requirements that drive new financial product innovation, it's marketing.

Now, this is something of a change from what common sense would dictate is the situation.

Financial advisers should normally be recommending stuff to suit clients' needs. The simpler the better, where possible.

Not only that, but terms like "alpha" and "beta" should be meaningful expressions that demonstrate a concept that an adviser might use to address client requirements.

They should not be terms used to flummox clients unnecessarily.

For example - Strategy A has a better alpha than strategy B, all other things being constant. So adviser recommends strategy A.

Why has the adviser chosen this? And what does this mean? And why can't advisers refer to alpha as "outperformance"?

In the Ambachtsheer Letter (#243, dated April 2006), Ambachtsheer bemoans the proliferation of terms that have lost all meaning as fund managers drain all use out of them in order to portray their offerings as being more attractive than others.

The subtext of all this is that Ambachtsheer has strongly indicated that what we in Australia like to call 'Structured Investment Products' are nothing more than cynically marketed dumps for money.

5. A plethora of meaningless terms

Ambachtsheer picks up on just a few terms in the Ambachtsheer Letter that he dislikes.

These are not the only ones.

So many terms without specific nailed-down meanings are thrown around now that we may have actually lost sight of what terminology we should be using.

I happen to work at a master trust. I remember speaking to a former colleague of mine some time ago who told me that the product I work on, "Isn't a master trust. It's a wrap account."

What it actually is isn't important. What is important is that we have all this terminology in the financial world that is defined in quite fluid ways.

And this is simply crap.

The implications of so many words without agreed meanings is that personal investment itself starts to resemble some of the woo that I hate.

The thing about woo, is that pseudo-scientific terms are thrown about, partially to attempt to legitimise and partially to deliberately obfuscate.

And this is not what investment should be about. Investment should be a lot clearer than this and should never be considered even remotely woo-like. It is far too important.

6. Structured Investment Products®

So what are these "marketing driven investment strategies"?

In the Fin of Saturday 24 June, 2006, reporter Chris Wright wrote an insightful article about the new breed of complicated investment products being promoted by financial advisers.

These started springing up in the nineties and involve much more complicated investing than your average managed fund.

First we had agribusiness schemes which were dodgy in the extreme. It's interesting to note that farmers are blaming these schemes for falling commodity prices.

I might even examine this claim in a future article - it's not as silly a claim as it appears.

These days, Wright writes (couldn't resist!), Structured Investment Products include the following:

    • Capital-protected products
    • Basket products
    • Inaccessible asset classes
    • Structured debt products
    • Funds of funds

    The issuer of quite a lot of these is Macquarie Bank, a company that has made a career out of making things as complicated as hell while stripping out a veritable treasure-trove of fees in the process. And each time they issue a new one, you get the usual positive spin about how "new" and "innovative" each product is.

    Sure, some fund managers actually might have new and innovative ways to manage money, but are these methods actually any good?

    Richard Capel, an adviser with Capel and Associates is worried that there is a new lack of transparency that is creeping in - the complexity is masking the actual act of investing itself.
    Indeed, finding out how some of these work through the promotional material is really, really difficult. Product Disclosure Documents (PDSs), whilst meant to be standardised offer documents under the Corporations Act, appear to be nothing more than slickly produced sales tools.

    The average PDS for a complicated investment is so opaque that you can't find out a lot of information. And the fees are quite high, despite what the fundies (fund managers, I mean) say.

    Peter Lucas, executive director of the financial products division of Macquarie Bank says this:

      "I understand the perception you've got there, that there are hidden fees and high fees. [But in many products there isn't a fee.] I can, hand on heart, say investors are not paying an MER on the Nikkei product [invested in via the ReFleXion product]."

      Lucas is being economical with the truth when he says that investors are not paying an MER. What he is expected to disclose at this point if he is in any way, shape or form a good bloke is that the Nikkei product does not magically run itself. Somehow, somewhere the investor is paying for this. And common sense dictates that Lucas should mention precisely where this is.

      (Unless, of course, Wright or a sub-editor at the Fin has selectively edited him)

      What Lucas fails to realise, or realises too well, is that a product like Macquarie's ReFleXion is too bloody complicated by half.

      And there is no track record in the same way there is with a conventionally managed Managed Fund. Capel alludes to this:

      "I wonder whether these structured products will work as intended?"

      Wright includes some wisdom at the end of his article from Warren Buffett, the Oracle of Omaha - he (Buffett) follows a strict maxim that he never invests in companies that he cannot understand.

      Wise words indeed.

      Financial advisers have lost sight of the little people. Their clients.

      They've been blinded by the dog-and-pony show being thrown at them by cashed up institutions and are willing to buy these claims that their clients will benefit without due examination.

      Advisers need to understand that their clients are people, too, and would do well to heed Buffett's advice on these matters.

      And advisers should also be unafraid to bring this to their clients' attention. It is very much the exception that clients, given the choice, would not wish to know how their money is invested.

      Advisers don't appear to know this, but they are there to keep institutions honest. Failure to exercise this power means that institutions will continue to walk all over the average investor.

      Disclosure: This blogger owns shares in Macquarie Bank Ltd.

      Standard but necessary disclaimer: This is not advice. Only a complete idiot would think that any of this constituted advice. Are you an idiot? I didn't think you were. If you are in any doubt as to the content of this, see a good, independent financial adviser immediately. They do exist.

      23 June 2006

      37th Skeptics' Circle

      The 37th Skeptics' Circle is up!

      This fortnight it's at Autism Diva's blog, and may I just say that she's done a spectacular job, particularly with the fishy subtext.

      Yes, I apologise for that particularly bad pun.

      Of interest to me this month is one by Skeptico where he criticises a book by a guy named Daniel Pinchbeck, a bloke who appears to be what's technically described as a "major kook".

      Pinchbeck appears to have had an apocalyptic revelation, strangely coinciding with an intake of ayahuasca.

      Skeptico has since published a sequel here.

      One issue that it raises is, can you legitimately criticise something that you haven't read?

      Personally, I haven't read Mein Kampf or Protocols of the Elders of Zion, but I believe that I know enough about them to be able to say without reservation that they are complete Croco-Stimpy's.

      In the case of Pinchbeck, when you add what Skeptico has written about this book to what Pinchbeck himself has posted on these two posts of Skeptico's, you really are left with the conclusion that Pinchbeck is one certifiable melonfarmer.

      I'm going to disclose that I haven't read Pinchbeck's book.

      Notwithstanding, I'm also going to disclose that I believe it to be 100% rubbish of the silliest possible kind.

      Apart from this, as always, there is all sorts of wonderful stuff for everyone here. Get amongst it.

      Read it here:

      37th Skeptics' Circle

      14 June 2006

      Doggerel Index & Suggestions

      Rockstars' Ramblings is an excellent blog with lots of little, um soundbites - actually, I'm really not sure what the blogosphere equivalent of this word is at all.

      Anyway, I was going to serialise Bronze Dog's excellent series Doggerel, but he's gone ahead and stuck an index out there, which he's retroactively updating. Rather than re-invent the wheel, just go straight here for the good stuff.

      My personal fave has been "Science doesn't know everything," so far, but he'll probably outstrip that one some time soon.

      Find it here:

      Rockstars' Ramblings: Doggerel Index & Suggestions

      12 June 2006

      Guantanamo inmates deaths a "good PR move"

      The detention centre at Guantanamo Bay represents all that is hypocritical about the USA.

      First of all, for all US posturing about the rights of accused to a fair trial, not one charge has been laid against most of the inmates.

      Secondly, despite having been in a state of war in, firstly Afghanistan and then secondly, Iraq, the USA refuses to acknowledge that anyone captured in battle in either of these war zones is entitled to the provisions of the Geneva Convention.

      Lastly, why does the USA insist on keeping the "internment camp", as they've termed it, here at the upturned arse-end of the world rather than on US soil? Nothing to do with the US Bill of Rights, I don't suppose?

      This camp has been referred to by Amnesty International as "the gulag of our times". Inmates are kept blindfolded, are tortured frequently, kept in isolation regularly, the inmates are referred to as "enemy combatants" for convenience rather than anything else and it is all justified by "the war on terror" - a phrase which means something along the lines of "we needed an excuse to deprive people of their civil rights and just how good are terrorist attacks for this?"

      Now there have been 3 suicides in custody at Guantanamo Bay.

      Normally, the correct procedure is for the authorities concerned to apologise to the families of those who took their own lives and express some regret for the circumstances in which this happened.

      But not the US authorities.

      In what appears to be the most insensitive use of spin doctoring since, well the last invasion of Iraq, actually, the US have deemed it necessary to describe the deaths as "coordinated acts of protest."

      US State Department Deputy Assistant Secretary, Colleen Graffy, has told the BBC the deaths were part of a strategy and "a tactic to further the jihadi cause". (Thank you SBS, Reuters, BBC and AFP)

      The SBS news put a little more starkly - they paraphrased this as being considered "a good PR move."

      This is, as far as I'm concerned, the last straw.

      The fact is, for all the USA's high and mightiness about these people not even valuing their own lives it appears that the USA appears to trivialise human lives more than they would like to believe possible.

      Rear-Admiral Harry Harris said this:

      "They have no regard to life, neither ours nor their own. And I believe this was not an act of desperation, rather an act of asymmetric warfare waged against us."

      And that just about says it all. Doesn't he see the irony in such a public statement?

      Seriously, how these nozzlefucks can live with themselves is just beyond me. They are completely and utterly bereft of any sense of normal goodness towards their fellow human beings.

      36th Skeptics' Circle

      This time around, the 36th Skeptics Circle is being hosted by The Examining Room of Dr Charles which is yet another quality blog moving to ScienceBlogs.

      And he's done a very good job.

      And as always, there's something for everyone. Andrew West over at WongaBlog wrote an incisive article on Life Coaching which actually has some personal relevance to me - and no, as Bart Simpson would say, "I didn't do it!"

      Read it here:

      The Examining Room of Dr. Charles: 36th Skeptics' Circle

      06 June 2006

      Six! Six! Six! The Number Of The Beast!

      "Woe to you, Oh Earth and Sea, for the Devil sends the
      beast with wrath, because he knows the time is short...
      Let him who hath understanding reckon the number of the
      beast for it is a human number, its number is Six hundred and
      sixty six."

      Thank you, Iron Maiden. Thanks a lot.

      Thanks to you I have had this little ditty rampaging around my head all day.

      I have not been able to turn around all day without hearing a voice in my head, that of Bruce "The Human Air-Raid Siren" Dickinson screaming out:

      "Six! Six! Six! The number of the beast!
      Hell and fire were spawned to be released!"

      I thought that I was immune to the whole 06/06/2006 thing, but it would appear that I'm not.

      And Maiden, your triple-pronged guitar attack is squarely to blame.

      IRON MAIDEN LYRICS - The Number Of The Beast (1982)

      04 June 2006

      Great debacles of our time: Snowy Hydro

      The road to privatisation for non-core government assets is riddled with potholes.

      But that's not to say that most of them cannot be avoided.

      In the case of the recent Snowy Hydro fiasco, it appears that the driver of this particular car fairly aimed all four wheels at the same hole. At once.

      What we ended up with was a complete mess.

      Morris Iemma, premier of New South Wales has come out of this in perhaps the worst shape of his political career. Steve Bracks, premier of Victoria hasn't ended up much better.

      In fact, the whole sordid affair looks more and more likely to bury the New South Wales labor government.

      Meanwhile, the architects of this disgraceful little episode, the PM and Senator Bill Heffernan, look like heroes to their core constituents, as well as some unlikely prestige in the eyes of the green/left vote.

      Who woulda thunk it?

      I for one have to get my two cents in and tip a bucket over the federal government for this.

      The thing is - would they have done anything else?

      John Howard has revealed himself to be a policy maker on the run, incessantly chasing after votes from the lowest common denominator.

      Iemma needed these funds real bad. The NSW government, after years of financial mismanagement by the ALP have a fiscal black hole that needs some serious plugging.

      And as for Bracks, well, at least he was able to back out with some pride when the rug got pulled.

      But none of this is the point.

      None of this finger pointing actually achieves anything. Incidentally, Alan Kohler speculated in Saturday's Age that Howard was going to fry Bracks and Iemma all along. The theory being that, even though the federal government is all for privatisation and would, "plough on through any opposition, even Alan Jones," to achieve it, they would much rather embarrass two state labor governments if they could.

      The point is that all the reasons for not privatising Snowy Hydro were all wrong.

      Kohler himself points out the following:

      "The Snowy hydro-electric scheme is no more iconic than the Loy Yang power station, the national phone network, or even the TABs."

      "In withdrawing it from sale the [federal] Government has capitulated to the paranoid and cynical campaigns of vested interests."

      "Snowy Hydro is, in fact, an investment bank — selling derivatives and insurance products to the electricity industry."

      Quite a scathing indictment, actually.

      Elsewhere, some quite fraudulent arguments were uttered by the Victorian branch of the Australian Greens about who owned the water.

      Bill Heffernan weighed in with some concerns that foreigners could end up controlling it. (So what?)

      What is nearly worst about this tawdry chapter is that our government once again, just like with the failed bid by Royal Dutch Shell for Woodside Petroleum, has shown the rest of the world that while we talk the talk about open and fair economies, we don't walk the walk.

      This is a DISGRACE.

      What is the worst is that it shows that the federal government is not above using populist rubbish like this for their own political gains, once again proving that democracy is at times, frustratingly undemocratic.

      01 June 2006

      The Chaser takes the war to religion.

      Adam Scanlan's blog Crazy World is one of the most honest blogs I know.

      This time around he has included a snippet from The Chaser's War on Everything which is enormously funny - and it has a go at Australia's biggest megachurch, Hillsong.

      I can't believe I missed this episode. I love the work of the Chaser/CNNNNN boys. Love it lots.

      Anyway, this is a song titled "I Have All Heaven's Riches Thanks To You Stupid Bitches."

      Elsewhere in the episode, they set up a stall at a market and peddle all sorts of made up woo.

      Cannot believe I missed this one.

      Crazy World - The Chaser takes the war to religion. - WhitePage