What is this man’s secret?
Thursday, 15 March 2018
By Bernd Struben
- Investing in the future
- Does not compute…
- In the mailbag
When stock markets are hitting record highs week after week, almost anyone can pick a winner.
When markets are tumbling it’s a heck of a lot tougher.
But regardless of whether markets are rising or falling, there’s one basic expectation every investor has of their fund managers and financial advisers. And that’s beating the benchmark.
The ASX 200, for example, is up 3.8% since this time last year.
If you paid for financial advice and your Aussie stock portfolio only gained 2.8%, you paid for less than nothing. Your money would have been better off in a low cost, index tracking exchange traded fund (ETF). Like the SPDR S&P/ASX 200 ETF.
The Dow Jones, over a shorter time frame, is down 7.0% since 26 January this year.
Ideally, you’d like to see your fund manager still achieve positive returns during that time. But you would likely take some consolation if they only lost, say, 4.0% on your US allocated investments.
What you really wouldn’t want is to pay someone to lose 10.0% on your US stocks. Not when a simple investment in something like the SPDR Dow Jones Industrial Average ETF would have ‘only’ lost around 7%.
Outperforming the benchmark of similar investments is often referred as ‘alpha’.
And, as discussed in Tuesday’s Port Phillip Insider, the majority of fund managers fail to achieve alpha in any given year. And of those who do beat the benchmark, few are able to repeat that achievement the next year.
Of course, there are exceptions.
More, after the markets…
Overnight, the Dow Jones Industrial Average closed down 248.91 points, or 1.00%.
The S&P 500 lost 15.83 points, or 0.57%.
In Europe, the Euro Stoxx 50 index finished down 6.37 points, or 0.19%. Meanwhile, the FTSE 100 fell 0.09%, and Germany’s DAX rose 16.71 points, or 0.14%.
In Asian markets, Japan’s Nikkei 225 is up 27.58 points, or 0.13%. China’s CSI 300 is up 0.39%.
In Australia, the S&P/ASX 200 is down 9.01 points, or 0.15%.
On the commodities markets, West Texas Intermediate crude oil is US$61.09 per barrel. Brent crude is US$65.01 per barrel.
Gold is trading for US$1,325.49 (AU$1,681.88) per troy ounce. Silver is US$16.54 (AU$20.99) per troy ounce.
Bitcoin has taken a tumble. One bitcoin is worth US$8,146.18.
The Aussie dollar is worth 78.81 US cents.
Investing in the future
Before getting to the exceptions to the rule, let’s look at those who make up the rule. Meaning the vast majority of fund managers, who fail to beat the index.
From The Australian:
‘Most Australian fund managers again failed to beat their respective benchmarks in 2017, and those that did are almost certain to fail to repeat the feat for more than a year or two, according to S&P Dow Jones Indices…
‘Over 10 years to the end of 2017, more than 85 per cent of international equity and Australian bond funds and more than 70 per cent of Australian general equity and A-REIT funds lagged their respective benchmarks…
‘S&P also measured the persistence of outperformance over longer periods and found only a minority of Australian funds could repeat the trick and remain in the top quartile for three consecutive years.
‘Fewer still maintained these traits consistently for five consecutive years…
‘Only 1.1 per cent of top performers maintained a top-quartile rank over the subsequent four consecutive years, and only 1.0 per cent of funds consistently beat their benchmarks over five consecutive years across all fund categories, S&P said.’
You may have heard these statistics before. And you may still employ the services of a financial planner. That’s your decision to make.
If so, I hope that your financial advisor falls into the highly exclusive 1% group. The group that can consistently beat their benchmarks for five consecutive years.
Which brings us to our in-house investing guru, Sam Volkering.
Sam wears so many hats at Port Phillip Publishing, I’m not sure he sleeps.
Sam not only writes for our free e-letter, Money Morning, he’s also the editor of Australian Small-Cap Investigator. And Sam Volkering’s Secret Crypto Network. And Crypto Tech Investor.
All of these are highly popular, and highly successful services. You can review just how successful in the Alliance Report Card.
But one of Sam’s investment advisory services tops all these others. And that’s Revolutionary Tech Investor.
This was Sam’s very first service, launched back in June 2013. That means the track record goes back almost five years.
And he’s done more than just beat the returns delivered by the ASX 200 over that same time. He’s smashed them.
I showed you this table on Tuesday, but it’s worth having a look again. It comes from the Alliance Report Card, where Revolutionary Tech Investor was the only service to receive the highest possible score.
Source: Port Phillip Publishing
Click to enlarge
We’ll stick with the annualised performance returns to account for the relatively long holding period for many of Sam’s trades, which works out to an average of 710 days.
But even on an annualised basis, Sam beat the benchmark by 21.95% during the bull market run dating back to February 2016.
Over a period of almost five years, he beat the benchmark by a stellar 21.62%. While this may not have technically included a bear market, there were some tough times for tech stocks during these years. From 4 December 2015 through 12 February 2016 the tech heavy Nasdaq, for example, fell 15.65%.
So what is Sam’s secret?
There are, of course, many essential ingredients to his success. Hard work and hours of daily research included.
But one thing that sets Sam’s investment advice apart is his future vision. Not that he’s clairvoyant. But he goes well beyond detailed fundamental analysis of a company and the market it operates in.
Sam is always looking at how he expects the world to be next year…and in five years. Which is why he recommended bitcoin to subscribers of Revolutionary Tech Investor back in November 2016. That’s when it was trading for around US$730.
(The bitcoin returns, by the way, were not included in the returns calculated above. Sam’s crypto recommendations have since been moved to Crypto Tech Investor. Had his crypto recommendations been included, the returns — and ‘alpha’ — would have been even higher.)
And he’s always on the lookout for companies on the cusp of major tech breakthroughs. Advances that can see their share prices rocket.
His three favourite current recommendations are involved with what he calls the ‘Black Box’ equation. An equation that, once unravelled, could see machine learning leap forward at an exponential rate, and usher in true artificial intelligence (AI).
While these three stocks aren’t directly involved in solving the multibillion dollar equation, they stand to benefit immensely when Silicon Valley’s tech giants finally crack the code.
Does not compute…
AI, as you know, is already being used in the investment world. Unfortunately, today’s computers appear to be having a hard time with the recent market ructions.
And they too are failing to beat their benchmarks.
‘Hedge funds that use artificial intelligence and machine learning in their trading process posted the worst month on record in February, according to a Eurekahedge index that’s tracked the industry from 2011. The first equity correction in two years upended their strategies as once-reliable cross-asset correlations shifted.
‘While computerized programs are feared for their potential to render human traders obsolete, the AI quants lagged behind their discretionary counterparts. The AI index fell 7.3 percent last month, compared to a 2.4 percent decline for the broader Hedge Fund Research index.’
The machines’ penchant to ride the trend of rising markets is largely to blame. I imagine it’s hard to program a computer to account for wildcards like Donald Trump.
A single tweet from the Donald, or the dreaded, ‘You’re fired!’ uttered to yet another cabinet member, is usually enough to send markets into a tailspin.
That’s where unsupervised learning comes in. The kind of learning that will enable machines to learn simply by observing, rather than needing to be programmed and taught every step by a person.
And that’s what could see Sam’s top three tech plays deliver triple digit returns before the end of the year. You can find out more here.
In the mailbag
Yesterday, my colleague Jason Stevenson stepped in to cover Port Phillip Insider. And he offered some compelling insight into the next gold bull market.
In line with that, a reader wondered if there were similar opportunities in platinum and palladium.
‘Good afternoon, do we have any pure plays in Plat/Palladium precious metals?
‘This is another opportunity, that rises with gold?
‘Alliance member Gordon’
I passed this on to Jason this morning. Below is his reply:
‘The only company I have come across on the ASX producing PGMs is Zimplats Holdings. It’s worth ~$720 million but the thing is, it’s extremely illiquid and difficult to get an entry.
‘Aquarius Platinum got acquired by US$2.6-billion dollar Sibanye Gold in 2016. The best way to get access to PGMs is to go international. Start by looking at Ivanhoe Mines and Platinum Group Metals.
‘The main risk is that most quality PGM mines are located in South Africa and we all know what’s happening over there with their water, economic and political issues.’
Please note that the companies Jason mentions are simply ones you can look into further on your own. They are not recommendations.
For Jason’s actual recommendations, you can find his top gold plays here.
And finally, this from The Australian Tribune:
‘Pensioners Squeezed — Labor Backflips on Compensation’
‘You’d think Bill Shorten would consult with his finance spokesman before making any sweeping compensation promises.
‘But you’d be wrong.
‘Shorten, as you likely heard, wants to amend the system that prevents company earnings from being taxed twice. Currently, when companies pay a dividend…’
If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.
And it’s absolutely free.
Sign up here to get The Australian Tribune delivered free to your inbox five days per week.
You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.