Forum Archive Index - February 2000

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

> 
> Unfortunately those that make up the 15% are seldom the same every year.
> I've been hunting for an article I read, I think on the Morningstar (US)
> site, which analyses previous and subsequent performance of individual funds
> who outperform the index on a specific year. Very few of them consistently
> out perform year in year out. The trick is picking those that do and when
> you find one there is no telling that the manager who has been helping his
> fund outperform for the last 5 years isn't going to be headhunted by some
> other fund.
>
>
I can't disagree with your comments Brian, re the difficulty in 
selecting 'good' fund managers.   I think the lesson to take is, 
don't write off all fund managers because  *some* are no good.  And 
when you are choosing a fund manager, choose carefully, and don't be 
swayed by that funds performance 'last year'.  

Personally I fell this 'Fund Guru' thing is overrated.   These Gurus 
have highly trained and professional underlings who are doing the 
'real work'  for the' man at the top'.    These underlings do not 
suddenly become stupid or abandon their investment rules just because 
the man at the top goes.

The alternative, trying to follow individual overseas companies using 
your own research, is also risky, although thanks to the internet 
at least a possibility.
>
>
> <If they didn't have entry and exit fees they may be hijacked by day
> traders, which would reduce their appeal to the long term investor.>
> 
> Sorry, I'm no expert, but how can a day trader affect the price of an index
> whose price is governed by the weighting of the stocks which make up the
> index rather than the demand for the index itself?
>
>
The price of an index *is* based on the demand of the index itself, 
(which is in turn based on the price of the individual shares it 
holds).    I don't see the distinction between the two that you seem 
to.   

 These index funds, like TENZ,  really do own  the top ten 
stocks that make up their index.    A day trader  with enough 
clout (like George Soros for instance)  could withdraw a 
large amount of their capital from the TENZ fund (for free) , forcing 
TENZ to sell top ten stocks so they had enough money to meet the 
Soros payout.   That would be cheaper and easier than Soros owning 
Telecom shares and selling a large block  'on market' to try and 
depress theTelecom  price.  In fact it wouldn't cost Soros a cent  if 
TENZ had no entry and exit fees.
>
>
> Can you give me an
> example of how a day trader had "hijacked" an index fund, especially during
> the heady days of the last 12 months.
>
>
No,  because I don't know any index funds that don't have entry and 
exit fees. 
>
> 
> Problem is the turnover of the 500 stocks in the S&P is, I understand, about
> 4%, where the average actively managed equity growth fund is closer to 60%
> and higher, bought about by managers constantly trying to chase the average.
>
>
I'd be surprised if actively managed funds churned as much as that, 
but I may be wrong.  I guess if you are a highly paid fund manager 
you would want to be seen to be doing something, even if the smart 
thing to do is to do nothing.
>
>
> <  How much cash (in percentage of your
> total assets terms) do you think it is prudent to sit on?>
> 
> 
> I like to sit on about 10% cash. Sure there is an opportunity cost of not
> having that money in the market but it means I have a bit up my sleeve for
> an emergency and gives me the flexibility to move if things do drop. A
> contrarian investor might tell you that the stronger the market grows the
> more cash you should have in reserve.
> 
>
My feeling is that NZrs can get away with less than 10% 
'investment' cash,  because of the number of high yielding shares on 
the NZ market.   When you can buy shares with a much greater yield 
than you would get on bank money the downside on those shares must be 
limited.    And as you imply, if the market doesn't grow, and the NZ 
market performance hasn't exactly been steller, you can afford to 
have less cash on hand.

And yes you should have ready access to cash for an emergency, but 
that money should be ringfenced from whatever is tied up in your 
overall investment strategy, IMHO. SNOOPY





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