Forum Archive Index - January 2000

["hugh webber" <hugh.webber@clear.net.nz>]

 Brian wrote "Firstly, I strongly believe in the use of Index Funds as a
basic
> foundation of any investor with a long term view.
> In the last 10 years in the US 85% of Mutual Funds have under
> performed their comparative Indexes. I have no reason to believe NZ
> Mutual Funds have done any better 
So why not invest in the 15% that outperform the index?"

I guess there are several comments one of them being that the members of 
this Forum are typified by a natural interest in business and investing and
believe
rightly or wrongly that they have more incentive and ability to look after
their own money
than a hired fund bureaucrat. In the medium term, after one or two
mistakes, they're going to 
outperform the fund bureaucrats. I've managed to and I don't see why any
intelligent person
with a natural interest in the area who does the background reading can't
do the same. 

I know its true that active funds have underperformed passive funds, at
least on a rising
market but that doesn't cover the whole field. You also have the real
professionals like 
Warren Buffett, Ron Brierley, George Soros (he's made a few mistakes but
other Forum members 
could mention some other super investors) etc who leave the funds for dead
by doing
some penetrating analysis and choosing a relatively small number of
winners.
The techniques are best discussed by Mary Buffett in Buffettology and more
locally
but not so well (in my opinion e.g. unjustified reliance on charting and
superficial dismissal
of value investing) in Making Money on the NZ Sharemarket by Briggs &
Newman.
As said before I think the Funds guarantee a mediocre return (it maybe high
on a rising market but still
rather lower than what they should be achieving) by covering too many
stocks at once and by not doing 
the right sort of analysis. How many NZ Fund Managers have read and reread
Benjamin Graham's The Intelligent
Investor and Buffettology and understand them and use the techniques? How
many Fund managers are not bound by
the terrible pressures of quarterly reporting instead of a more long term
view?

A note to Phil Eriksen et al; You're right Phil that Buffett does use
earnings per share and 
their growth and the % retained in his analysis but I'm afraid we don't
have anything like the
easily available research sources that are available in the States.
Buffettology states p 131 
"Value Line Investment Survey covers 1700 different companies and lists key
financial figures dating back 15 years. 
Its a key tool in the game and one that Warren regularly uses (its
available for example in US public libraries)".
So I tend to use gross dividend % as a short hand proxy when I'm in a
hurry. In trying to come up with 
the sort of data required I immediately struck serious discrepancies
between data from different NZ sources. 




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