Carpe Diem

Sunday morning links

1. From The Economist: “The S&P 500 Index has now outperformed its hedge-fund rival for ten straight years, with the exception of 2008 when both fell sharply. A simple-minded investment portfolio—60% of it in shares and the rest in sovereign bonds—has delivered returns of more than 90% over the past decade, compared with a meager 17% after fees for hedge funds (see chart). As a group, the supposed sorcerers of the financial world have returned less than inflation. Gallingly, the profits passed on to their investors are almost certainly lower than the fees creamed off by the managers themselves.”

Note: The expense ratio on a Vanguard S&P500 Index ETF is only 0.05%, which is 1/20th of 1 percent, or just $50 per $100,000 of investment funds, or basically almost free.  So you can invest for almost free using index funds and ETFs, or pay hedge fund managers large fees to earn much lower returns.

2. Tyler Cowen sits down for lunch with the Financial Times and explains his sure-fire way of hunting down cheap, tasty food.

3. Going Galt: New tax increases in California stir debate about the exodus of high-earners from the cash-strapped state.

4. From the Institute for Justice: Court Gives a Christmas Victory to Atlanta Street Vendors as Court Strikes Down Government-Granted Vending Monopoly.

5. Empirical evidence suggests a sure fire way to dramatically lower gun homicides: repeal drug laws.

6. Memphis Officer, Dallas Man Killed in Separate Drug War Incidents, Becoming #63 and #64 Drug Enforcement Deaths in 2012.

7. Thanks to the shale revolution, North Dakota is America’s Fastest-Growing State, with 2.2% population growth since 2011, nearly three times the 0.75% growth for the U.S.

12 thoughts on “Sunday morning links

  1. #1, S&P 500 + world govmint bonds 10 yr performance > Hedge Fund Global (HFRX) 10 yr performance:

    What’s a hedge fund? A simple explanation and example.

    We know the make-up of the Vanguard S&P Index but I wonder what the make-up was of the world sovereign bond mix? The Vanguard fund is a passive investment but is the world bond fund also passive, and is it very low cost?

    • If you look at the Vanguard Total Bond Market Index fund (US investment grade bonds) its expense ratio is .22% and if you have 10k to invest the fees are .1% or ten basis points. Given that the S&P 500 is made up of US companies this is a good comparison. Any world sovereign bond fund even if indexed would have higher fees due to the extra effort to manage a fund that is international. Vanguard appears not to offer a global bond fund however. Fidelity does at .45% fees.

  2. “Empirical evidence suggests a sure fire way to dramatically lower gun homicides: repeal drug laws.”

    It’s cheaper to have criminals kill each other than putting them in jail.

    One way to reduce homicides may be to reduce gun restrictions. For example, I doubt there were many mass school shootings in the past, e.g. the 1950s, when there were fewer gun restrictions, and less illegal drug use.

    Chart: Murders Per 100,000 Americans 1900-2010:

    http://www.google.com/imgres?q=U.S.+homicide+rate+per+100,000+chart&hl=en&sa=X&tbo=d&rlz=1W1ADRA_en&biw=1024&bih=540&tbm=isch&tbnid=-Vxnbm2mI5PRBM:&imgrefurl=http://reason.com/blog/2012/07/20/how-likely-are-you-to-be-a-victim-of-a-m&docid=r9TLD_nwc0vvYM&imgurl=http://media.reason.com/mc/_external/2012_07/murder-rate-trend-1900-2010.jpg%253Fh%253D474%2526w%253D600&w=600&h=474&ei=B0HXUIT1Nsie2wXs6ICQCg&zoom=1&iact=hc&vpx=359&vpy=126&dur=968&hovh=199&hovw=253&tx=136&ty=126&sig=105986929295322149889&page=1&tbnh=146&tbnw=186&start=0&ndsp=14&ved=1t:429,r:2,s:0,i:96

  3. A simple-minded investment portfolio—60% of it in shares and the rest in sovereign bonds—has delivered returns of more than 90% over the past decade, compared with a meager 17% after fees for hedge funds.

    This may well be true but we need to keep in mind that the only reason why shares have performed ‘well’ is related to government manipulation and bailouts of markets. The financial institutions in the US and most countries were over-leveraged but were saved by governments and central banks even as the hedge funds who had too much leverage were allowed to fail. (As they should have been.)

    The Economist, which has been consistent in showing its statist stripes over the years, is implying that investors need to avoid the hedge funds because they do not get the same level of protection from taxpayers and regulators as are provided to the banks and other national businesses. While that may be true for a while it is far more likely that once governments and central bankers lose control the sovereign bonds will take huge hits and the values of most shares, which depend on central bank liquidity and government protection from competition, will see massive losses.

    This does not mean that one should rely on hedge funds because those are designed to benefit the managers and institutions that run them rather than investors. The best approach is to hold gold and shares directly rather than to risk not having access to what one believes is owned when the crisis takes hold.

  4. Note: The expense ratio on a Vanguard S&P500 Index ETF is only 0.05%, which is 1/20th of 1 percent, or just $50 per $100,000 of investment funds, or basically almost free. So you can invest for almost free using index funds and ETFs, or pay hedge fund managers large fees to earn much lower returns.

    Gold is cheap and holding it does not cost you anything. Why not buy a few eagles and a bag or two of junk silver instead of risk holding overvalued companies at a time when profits look to be heading down and the economy is addicted to the type of cheap liquidity that will create a huge inflation problem?

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