How To Lose Money In The Market

Do most mutual fund managers add value in their attempts to identify 'mispriced' securities? 

Based on a recent analysis of the CRSP (Center for Research in Security Prices) Mutual Fund Database returns data through 2012, we have a pretty good idea of the answer.

This CRSP report documents survivorship and performance in the U.S. mutual fund industry, and illustrates the negative impact of high fees and turnover on returns.  In summary, for the periods examined:

*Outperforming funds were in the minority
*Strong track records failed to persist
*High costs and excessive turnover may have contributed to underperformance

The underperformance among mutual funds points to an important guiding investment principle:  Choosing a long-term winner involves more than seeking out funds with a successful track record, since past performance offers no guarantee future success.  Investors must consider other variables, including a mutual fund’s underlying market philosophy, investment objectives, and perhaps most importantly, cost. 

The competitive landscape makes the search for future winners a formidable challenge. Confronted with so many fund choices – and lacking an investment philosophy to guide their search – some investors resort to picking funds that have strong track records, reasoning that past outperformers will continue to outpace their benchmarks.

According to the CRSP analysis, only about a quarter of the equity funds with past outperformance during the initial three-year period (2007-2009) continued to beat their benchmarks in the subsequent three-year period (2010-2012).  The results for funds with good five- and seven-year track records were similar – only about a quarter beat their benchmarks in the subsequent period.

So, do most mutual fund managers add value in their attempts to identify 'mispriced' securities?  This CRSP analysis of U.S. mutual fund industry performance tells us the answer is a resounding, "No!"  It’s more proof that a broad, low cost investment approach is the best one.

Bad Calls

Even opposing teams agree: Iowa State athletics and its fans have been blatantly robbed three times in less than eight months in big, nationally televised games.

The latest cut came last week in football, when a Texas running back seemed to lose the football near the goal line, and replay officials claimed they didn't have indisputable visual evidence to overturn the call that everyone else could see.  Thus, a 90+ yard, ISU game winning fumble return TD was turned into a Texas win.

This piles on top of the two other blown officiating calls that cost ISU dearly in basketball this year. First, the no-call charge debacle against Kansas in February, and then the block-charge screw-up in the NCAA basketball tournament against Ohio State a month later.  Both occurred very near the end of the game, and both were clearly declared to be wrong later.  (How wrong?  Well, the Big 12 apologized and reprimanded the Kansas game officials.  And since the Ohio State game, the NCAA has clarified the rules relating to when a player can take a charge.)

National media personalities agree these were all crappy calls, but then most of them eventually say that it doesn't come down to one call.  That's true, but also stupid.  Bad calls late in a game are much worse than other times, because the offended team has no time to adapt.  Don't say there were other times that plays could have been made, when in fact the play of the game was made, but taken away by the officials.

The commiseration from national sports media folks on all of these bad officiating calls is nice I suppose, as is the commiseration from other teams' fans.  (I wore ISU gear to a Nebraska football game in Lincoln this past weekend, and no fewer than 4 fans spontaneously told me something to the effect of, "You got screwed!") But it doesn't change outcomes or better the attitude of Cyclone Nation.  They're just left to know that karma is a bitch - Kansas and Ohio State later lost heartbreakers in the NCAA tournament, and this year's Texas football team is already circling the drain.

It's probably best to simply accept that, home or away, when in doubt, officials' calls are going to favor the traditional national power.

Overly Dramatic TV

In my most recent attempt to stay in touch with pop culture, I had to spend the past few weeks getting caught up on, to the extent possible, with TV's Breaking Bad.  I even watched the main cast appear together on Conan.

Not having seen all of the episodes, there's no way for me qualify how good it really was, but it made me consider some of the other TV dramas shows that everyone seems to think are so great:

Lost - It was great.  Saw all but the first few episode.  Finale was a bit of a downer though.

Mad Men - It is great.

The X-Files - Became must-see TV for me, and I don't even like science fiction.

The Walking Dead - hasn't been on long enough to know for sure yet.

Boardwalk Empire, Homeland, Game of Thrones, The Sopranos, The Wire - These are/were all on premium cable which I don't get, and I haven't rented the DVDs, so there's no way to know.  I know The Sopranos finale disappointed, and I'm just going to say Boardwalk Empire and Game of Thrones are overrated, and Homeland and The Wire are underrated.

So there you go.

People > Pets

I grew up on a farm where we had a dog, and I loved that dog.  (We also had a bunch of cats, but I couldn't have cared less about those cats.)  Under the right circumstances, I could see owning a dog one day, but I've never had a pet as an adult.  Too much hassle and expense to have one in the city.

In summary, I certainly do not hate pets.  I do, however, hate pet-owners who can't follow the etiquette of being a pet-owner.  I've lived in a house on a corner lot for a long time, meaning there's a lot of sidewalk and parking, and the number of times I've had animal waste in my yard is sickening.  (Actually, the sickening part is having to clean it up.)

That's not really the worst of it.  There's always the neighbors who got a dog a long time ago, and also a long time ago decided they were too lazy to actually take their pet for a walk.  So they just let Fido out to do his/her business on their lawn.  This is especially true in the winter, but in any season, their lawn literally looks like crap, and it doesn't exactly raise property values.

But even that isn't really the worst of it.  The worst of it is pet-lovers who want to convince you - and themselves - that a pet is equivalent to a child.  Not just their pet, mind you, but any pet.  How else do you explain our local TV stations leading off the late news with a story about a pet, as opposed to the joy and/or suffering of actual human beings?

I've written about this before, but it seems it's time for a reminder.  This week a local TV station had a pet as its top story - in front of a story about a local policeman who had been killed.  This happens here a lot of weeks.

Nothing wrong with having a pet.  But take care of it, and remember: A dog is a dog, a cat is a cat, and a pet is not a human being.  Get a clue.

The Paranoid Truth

I don't spend much time on Facebook.  I'm not out there always updating my status, or posting pictures of my kids, or my food, or my kids eating food.  But every once in a while, I feel compelled to comment on someone else's status, especially strange ones.

This week I had an exchange that I enjoyed enough to blog about.  It all started with me replying to a comment from a friend-of-a-friend who was complaining about pot laws, but then suggested our government allowed us no more freedoms than that of China.

Here's the entire exchange, verbatim, with no fact checking.  Watch the other guy's paranoia (and the ALL CAPS) elevate:

ME
Hey [name], what color is the sky on the planet where you're living? If you think China is a more tolerant and free society and treats its citizens better than the U.S., go over there and smoke weed and complain about their government, and post how that turns out for you. Might be difficult since you won't have free or uncensored access to the internet as you obviously do in the U.S., but that's OK, China doesn't allow computers in the prison camp you'll be working in the rest of your life anyway.

HIM
William have you been to China? YOUR GOVERNMENT tried to pass CISPA/SOPA, AND PASSED NDAA, HR347, National Defense Resource Preparedness Act. You KNOW nothing of China but what you are TOLD to THINK. Why are you talking about China again? A TRUE PATRIOT is pro-people and questions their out of control government.

THEN HIM AGAIN
It is more so people are to distracted or brainwashed by the TV which is CONTROLLED information. If people can use Facebook then they can use the WORLD WIDE WEB to educate, inform, and research stuff the TV tells them. 90% of the mainstream media is OWNED by 6 corporations tied to banks and the war machine. I WISH people would instead of vomiting misinformation or ignorance BUT instead go to Google, A SEARCH ENGINE and read about it or watch educational films.

ME
I'm guessing brown...the color of the sky on [name's] planet is brown, the same as it is in Beijing because their government enforces no environmental laws either. You should live there, I'm sure you won't have to worry about the government controlling the information or what you think. At least that's what I read on the internet.

HIM
William why are you talking about Beijing? How many times have you been there? This conversation is about wanting a better future for our country. You can love your country WITHOUT loving your government. The founding fathers LOVED America that is why they fought to set the foundation we are letting to shit. So while patriots talk about wanting to preserve the Constitution, the law of the land that many died for you talk about Beijing. I have found lately when people bash the direction this country is headed people say things like racist, Bush or Beijing?? Are you trying to change the subject? WILLIAM if the TV told the world was flat, would you research it? Would you question it? Would you talk about Beijing? OH, and who said the world was brown?

ME
Hey [name], read the comment thread. I'm talking about China (and the sky in your world being brown) because you suggested we had no more freedom in the U.S. than they have. You might want to Google 'Tiananmen Square' sometime and start getting up to speed. You apparently have no idea what freedom is. No one here has a problem with those who responsibly question their government, it's essential to its operation and that's why it's done and even encouraged. But if you did the same in China you'd get a visit from someone in a uniform and/or tank, and no one would ever hear from you again.

I didn't get a reply to that.  I'm certain he would have, but I suspect he had to crash after being up all night smoking dope and eating Doritos.

I love how the guy is convinced the internet is the source of all accurate information.  No wonder he's on Facebook all of the time.  That and the fact he clearly has no job.  I still 100% support decriminalizing pot, but no one who turns into a full-time delusional stoner ever amounts to anything.

Two Guys, A Girl, And A Pita Place

You can't make this stuff up.  You can only satirize it once it really happens.  Thank you to my favorite alien-politicians.

http://www.thedailyshow.com/watch/wed-september-11-2013/two-guys--a-girl-and-a-pita-place

Lessons From A Drunk

One of the big news stories in Iowa this week also gained some nationwide attention - a drunk girl was arrested at the University of Iowa football game.  Doesn't sound like much, does it?  How was it different than the other 100 or so arrests (typical number for every Iowa home football game), most of them also alcohol related?

Two things: 1) Her blood alcohol content was 0.341%, and 2) she bragged about it on Twitter and it went viral.  I'm not sure which of those two things is more stupid, but let's explore the first thing.

Until now, I hadn't really paid attention to how drunk one could get without dying of alcohol poisoning.  So I did a little Google research, and got a bunch of facts(?) from Wikipedia.

Turns out a .341% blood alcohol content isn't even Twitter-worthy.  There are many documented cases (which is to say, people were arrested) in the U.S. of over .5%, and some over .7%.  In fact, this drunk Iowa girl was only halfway to the state record of .627% which was apparently set just a year ago.

And don't even get me started on the international scale, where there are numerous incidents of folks whose blood alcohol was tested to be OVER 1%!  More impressively, some of them were still conscious!

[Yes, I know, this is from Wiki and might be a total fabrication - but you should still look at the entry on blood alcohol content.]

What lesson(s) can be learned here?  I mean, besides not bragging about being stupid, especially when it's about something that isn't as epic as it first sounds.

How about this for a lesson - a civilized society should not accept and glorify alcohol substance abuse, while at the same time attaching a stigma to (and incarcerate) those who would casually smoke marijuana.  Tell me which substance is more likely to make people do stupid and dangerous things.....

I'm waiting.