Interview Preparation

I completed my presentation slides on Thursday and today went over to a colleague's house to run the presentation by him. I was meant to meet him on campus on Friday, but he didn't show up. He works at the college I'm applying to but not in the unit I am applying for. He wrote a reference letter for me. He recommended mainly organizational changes in my presentation to give people a bit better roadmap of where I'm going and emphasize more what is new or different in my work.

Meanwhile the Snorkparents are settling in. We took them to look at the view of the city and mountains from the Telstra Tower (in the backgroun in the picture above) and for some shopping in Dickson... Tomorrow we might go to the open day at Government House (in the foreground). I've never been inside the grounds.

Moominmama February 2009 Performance

Moominmama's portfolio saw another loss this month of 3.66% in USD terms. The MSCI World Index was down 9.73% and the S&P 500 close to 11%. Moominmama lost in all asset classes apart from US Dollars cash (this asset class must have a positive return in USD terms :)). On a preliminary basis Moominoid and Snork Maiden lost around 5%. So we both outperformed the markets for a second month running. But we're still losing money.

Hedge Fund Performance for January

While the HFRX index saw a gain for January, HFRI * had a loss of -.04%. That's still great compared to the equity markets. Credit Suisse/Tremont saw a gain of 1.09%.

* For a review of the difference between HFRI and HFRX see my post on that topic.

Abolishing Corporation Tax Makes More Sense

Apparently momentum is growing to abolish Australia's system of dividend imputation. In Australia companies pass on tax credits attached to their dividends to their Australian shareholders for Australian tax paid. As the corporation tax rate is 30% (note for Americans - much lower than US rates and we're worried it's too high!) a taxpayer in the 30% marginal tax bracket pays no tax on the dividend. Taxpayers in higher brackets pay 10 or 15% and taxpayers in lower brackets get a refund. Superannuation funds pay zero tax on these dividends instead of their 15% for ordinary income. If you claim expenses for holding your shares (like margin interest) you lower your effective tax rate further and boost your refund. Last year I got a nice refund due to this strategy.

Imputation is meant to avoid double taxation of dividends (the US has introduced "qualified dividends" with the same aim). The arguments against it in the article are valid. Another argument is that imputation discriminates against reinvestment in the business (or favors borrowing to invest) because credits can only be attached to dividends paid out. Australian taxpayers will favor dividends over capital gains.

Of course I would personally be disappointed by the elimination of imputation. I'd cut our allocation to Australian shares and boost our allocation to foreign shares dramatically as a result. I'm not sure that the comments in the article about this move boosting the Australian stock market are valid as most Australian shareholders would do likewise (while foreign investors would increase their allocation to Australia).

It'd make a lot more sense in my opinion to abolish corporation tax and simply tax dividends and capital gains equally in the hands of recipients. This includes foreign investors. Foreign investors currently face withholding taxes on dividends that don't have attached credits but not on so-called "franked dividends" and no tax on capital gains (though of course they may be taxed in their own country).

Career, Financial, and Family Update

Yesterday, I went to a meeting at the government department that is funding my research project. One person left early and the most relevant person substantively didn't show up but still there was some useful exchange between us and one guy who directs a section in the ministry. But overall they don't have a very focused idea of what they are looking for from us, which I guess is good because then I can more or less do what I want :) I'm told that there is now an office at the university with my name on the door (one of the perks of academia is not working in a "cubicle" or shared office) but I still don't have a contract. It's entangled in the bureaucracy. After a recent restructuring no-one knows who is responsible for what, making the usually cumbersome university bureaucracy all the more so.

At least CommSec finally deposited my money in my Colonial First State account and started up my $A500 a month automatic savings scheme. So a little progress on the financial front. I have a bunch of financial stuff that I should post on but have been busy working on the project/paper/presentation for my interview on 2nd March. The 2nd March deadline has just been a good excuse to complete this project or get it to the stage where I can present on it. I also submitted a version to a conference in Europe later this year and there are plenty of follow up stages that can be done. Sorry I can't post more details on this blog of what topic I'm working on. I also now have scheduled a presentation at another major University for 26th March.

We successfully reorganized our apartment over the weekend for the visit of the Snorkparents. It looks pretty good. I quite like my office in one end of the long living room where the doors to the balcony can be opened wide... They should be leaving China late tonight I think.

Yesterday was our first wedding anniversary. Among other things we went out to eat (Korean food) and then took the car through an automatic car wash for the first time (can't have a dirty car to pick up the Snorkparents), while eating ice cream. Snork Maiden said it was one of the best value entertainments in Australia :)

Bounce in the Baltic Dry Index

As is the case for non-US crude oil prices there's been a bit of a bounce in the Baltic Dry Index of shipping costs. Of course, it could just be a case of a technical bounce following overshooting to the downside.

Ordering Computer

Some progress on the job front. A computer is being ordered for me from the project funds and a meeting being set up with the funders to discuss feasible goals for the project. But the rest is still entangled in the bureaucracy.

LinkedIn

I just joined LinkedIn. I don't really understand how it works or whether it is useful, but figured it is yet another portal to channel people to my professional website. I wish I could post a link here, but sorry that would blow my cover completely :) I'd appreciate any tips on how to use the site more effectively.

BTW in the last month this blog got 14 times as many visits as my professional site. But then there are more than 900 posts for people to hit on the blog and maybe 10 pages on the professional site.

Cable TV

I went along to my local TransACT office to ask about changing our broadband/phone plan into one that includes cable TV. Snork Maiden's parents will be visiting from China very soon. As they don't speak a word of English we want to provide them with television in Chinese besides the daily news broadcast from SBS. Otherwise we have a pirated set of all the Ghibli movies in Chinese for them to watch on DVD :) We haven't quite figured out how to provide them with an internet connection yet as the broadband internet connection is in the room that we are planning on using as our bedroom while they're here (and the desktop computer is going to be moved out of there...) and Snork Maiden's old laptop doesn't seem to work with our wireless internet for whatever reason... Anyway, I'm getting sidetracked.

The guy in the office said: "We're upgrading our system so we can't sign on any new customers for the next six weeks!". I'd never heard anything like that before. Foxtel don't seem to have a Chinese channel - or anything in foreign languages - which I find rather odd. But he could give me a new mobile phone and number on the spot. So now we have two. Again, this is primarily for the Snorkparents so when they are stranded in this foreign landscape they can call up to be rescued :)

Credit Suisse Yearbook

Great report from Credit Suisse on global equity returns.

Why Petrol Has Gone Up in Price Though Crude Hasn't

I've noticed that petrol (gasoline) has gone up in price from a low of $A0.99 a litre ($US2.41 a gallon) to around $A1.25 a litre ($US3.04 a gallon) while the US crude oil futures contracts have gone nowhere and neither has the Australian Dollar. Even the Ford dealer tried to distract me by talking about the price of petrol when I complained about the price of Ford parts. Yahoo has an interesting article about the issue, explaining that the price of other varieties of crude oil has risen above that of West Texas Intermediate Crude, which remains depressed. Could this be a sign of economic recovery elsewhere in the world?

Commonwealth Securities Service Deteriorating

After ranting yesterday about Ford, today it's Commonwealth Securities turn. I don't like putting down companies but I feel that criticizing companies on blogs is one way consumers can pressure them to perform better. CommSec's service has shown a very sudden deterioration since the beginning of this calendar year. It's almost as bad as Citibank now:

1. I sent in a request to buy units in a Colonial First State fund (another subsidiary of the Commonwealth Bank) through CommSec. Nothing happened. I contacted CommSec and was told to contact CFS. I contacted CFS and was told to contact CommSec. They told me they had no record of my application and instructed me to send in a new application. Which I did. Two weeks later, I get a call from CommSec: "Mr Moom - the form you sent in to buy CFS funds had a different account number than that of the funds which are on your margin loan". "Um, yes, that was on purpose, I sent the application to you to avoid the 4% load I'd have to pay if I sent the form direct to CFS. But as I've already sent in another application please just cancel this one...".

2. Still nothing has happened with my second application I sent in around 2 weeks ago...

3. I requested to withdraw x thousand units of my total shareholding of y thousand EBI.AX to the new unlisted EAIT. I see online that all y thousand of my units have disappeared from my CommSec account. I phone them up and am reassured that that is just a formality and the y-x thousand units will appear back in my account after the deal closes. I just opened the letter from Everest Financial welcoming me as a new unitholder of y thousand shares in EAIT... I guess not such a big deal, except all that money is now locked up for one year...

How Much Does That Cost?!

We got the major part of our car repairs done cheaply. Today we finally picked up from the Ford dealer the silver trim that goes on the bumper. The price: $A193! ($US125) Unbelievable. I guess I should have asked the price before placing the order. I assumed it would be $A20-30 at the most...

So, I'm back in much colder Canberra. A lot to do in the next couple of weeks before my interview at the university. I want to do more work on a project that I will give them a presentation on. Also in this time frame Snork Maiden's parents will be arriving from China and maybe my one year job will actually get going and I'll be involved in getting my office set up, bureaucracy etc....

I did get some good ideas for the one year project (I'll have to come up with a better name) while at the conference and also someone at another major Australian University wants me to apply for one of a few senior jobs (Professor or Associate Professor) that they might be able to advertise later this year. Today, he expressed interest in me giving them a presentation. Snork Maiden happens to be going there for a meeting in late March so maybe we can work something out. We'll just have to "babysit" her parents - i.e bring them with us and find them stuff to do there. They don't speak a word of English and though they have travelled quite a lot outside China it was on an independent basis. Her stepfather though has visited his daughter in San Francisco. He does seem a bit more adventurous.

Kuranda Trip

I signed up for a trip to Kuranda - a small town or village about 30km from Cairns. They pick you up by bus and take you to the terminal of the "Skyrail" outside town. This is a cablecar that runs for 8km up the mountains over the rainforests to Kuranda. Then you make your own way back on the scenic railway which winds its way down along the river valley back to Cairns. The station is a few blocks from my hotel. Cost is $A89 ($US55) - the tickets individually are $A40 for each of the trips so the bus out to the terminal is $A9. This morning I was pitched a bus tour to Cape Tribulation and back for just $A10 more (much reduced) - all day including hiking, swimming, crocodile spotting (not in the same location as the swimming!) and lunch included. Cape Tribulation is at the end of the sealed road on Australia's East Coast - in other words the end of the "civilized world" and the edge of the Outback. I'd have loved to go on that trip but it departs at 7:30am and unfortunately I need to organize some things here at the hotel in the morning and can't leave that early. Hence the trip nearer to town.

Talking about good travel deals, this evening I saw a round the world ticket advertised at $A1599 ($US1000) and London roundtrip for $A1250 ($US800) at a travel agent here in Cairns. Granted that there are likely a bunch of taxes and stuff on top of that, but still those are amazing prices. My flight to Cairns was $A625.

Cairns

I'm on my first business trip of my new job at a conference in Cairns, which is on the coast of northern Queensland deep in the tropics. I haven't been in tropical Australia before though I have been in the tropics in Thailand, Malaysia, Singapore, and Hong Kong. Cairns is the central location for trips to the Great Barrier Reef and to the rainforest of the Wet Tropics World Heritage Area. The city is surrounded by rainforest clad mountain ranges and across the bay I can see from the hotel the extensive mangrove forests along the coast. I'm hoping to manage to sneak in a trip to see some rainforests if I can instead of attending all the conference sessions. I don't plan on going to the reef. I have seen a coral reef before. In fact the most northerly reef in the World at Eilat in Israel. And swimming in the hotel's swimming pool this morning was about what I can manage, I don't think I'm up to snorkelling. I've never been a good swimmer though I like being in the water.

Back home all the paperwork is still in process and I don't know for sure what department at the university I'll be based in. But that doesn't stop them from paying for my trip here. I already, gave my presentation this afternoon. My first in more than a year and a half and it seemed some people at least liked it. As well as lots of academics and PhD students there are heaps of "public servants" here at the meeting in Cairns as always at these Australasian conferences. You never see this in the United States.

January 2009 Report

In USD terms we pretty much matched the MSCI index this month. Of course, this was its worst January ever. In Australian Dollar terms performance was flat and net worth increased slightly.

Income and Expenditure



Expenditure was $3,036 ($A5,015). Car repairs cost $A550. We bought a barbeque ($A365) and there were about $A260 of medical expenses which were partly refunded by Medicare in February. And the car depreciated another $A500. Before taking into account foreign exchange movements non-retirement accounts gained and retirement accounts lost money. They both lost in USD terms after taking into account the change in exchange rates.

Net Worth

Net worth fell by $17,337 to $188,160 or in Australian Dollar terms rose by $A735 to $295,060.

Investment Performance

USD returns were -8.92% vs. -8.51% or -8.43% for the MSCI and SPX respectively. In AUD terms we returned -0.19%.



All asset classes lost apart from hedge funds, which gained massively mainly due to the delisting of EBI as EAIT. Returns for both EAIT and the Man managed futures fund are now going to be estimated at the time of writing these accounts reports and adjusted later in the month (mid-month and month's end respectively) after the actual returns are available.

Using my preferred time series method, portfolio beta to the MSCI index was 1.31 with an annual alpha of 1.9%. Other methods now give a negative alpha.

Asset Allocation

At the end of October the allocation was 51% in "passive alpha", 57% in "beta", 0% was allocated to trading, 4% to industrial stocks, 5% to liquidity, 4% to other assets, and we were borrowing 21%. Due to the use of leveraged funds, our actual exposure to stocks was 98% of net worth. When we take into account borrowing by the leveraged funds we are invested in, borrowing per dollar of equity was 60 cents. Looking at asset classes:



Shifts in the allocation are mainly due to relative performance this month. We moved further towards our long-term asset allocation, though not for a good reason, but mainly because Australian stocks underperformed and we are overweight in them.

I Won't Get a $950 Tax Bonus

According to an article in the Australian Financial Review today, I won't be eligible for the Australian government's $A950 stimulus payment. Only people who paid tax and earned less than $A80,000 will get the full payment - with reduced amounts for those earning between $A80 and $A100k. I paid negative tax in the 2007-8 tax year, so no bonus for me. There are a bunch of other special classes of bonus, but I don't qualify for any of them either.

The bottom line is that poor people who don't fall into a special category - for example students - won't be getting a payment from the government in either this stimulus package or the previous one. I don't understand the logic of this. It isn't as if the poor don't vote in Australia (unlike other countries such as the US), as we have compulsory voting.

At least Snork Maiden should get a payment.

A Little Normalcy Returns

While stock indices had their worst January in history, globally, hedge funds did fine. The return of uncorrelated returns :)

NDS Deal Closes

The deal to take NDS private finally passed its last hurdle today. I last bought back into the stock on 19th December at $49. The takeover price is $63. I plan to redeploy some of the funds freed up in my Interactive Brokers account. I've been holding NDS in my Ameritrade account.

"NDS Announces Receipt of Final Court Approval of Scheme
Last update: 2/4/2009 11:48:00 AM
NEW YORK & LONDON, Feb 04, 2009 (BUSINESS WIRE) -- NDS Group Limited ("NDS") announced that earlier today, the High Court of Justice in England and Wales approved the remaining elements of the scheme of arrangement pursuant to which News Corporation and two subsidiaries of funds advised by Permira Advisers LLP will take NDS private. The scheme is expected to become fully effective on February 5, 2009, upon the registration of a copy of the court order with the Registrar of Companies in England and Wales and the last day for trading in ADSs is expected to be February 4, 2009."

Venture Capital: 1992 vs 2000

Interesting comparison of the outcomes for venture capital invested in 1992 vs. in 2000. The 2000 vintage is only now beginning to pay off in terms of distributions, but still has lost money overall. As in 2007 venture capitalists invested heavily at the top of the market. On average they don't seem a lot smarter than anyone else. Though there is some evidence that the best are good.

Why $950?

The Australian government announced its second stimulus package today. Included is a bonus payment of "up to $A950" for every worker earning less than $A100k per year. What an odd number. But the exchange rate with the U.S. Dollar is currently 63 U.S. cents to an Australian Dollar, and if you haven't guessed already, $A950 is exactly $US600, which was the amount of the "stimulus payment" in the first U.S. stimulus package.

EBI Saga Finally Resolved

In the end 27% of shareholders (including 6000 of my own shares) opted to participate in the new unlisted hedge fund of funds EAIT. The remainder will stay in the listed EBI which will be managed by Laxey Partners - an Isle of Man based hedge fund. The plan is to wind up the fund and distribute the proceeds. Unless there is another complete collapse in global share markets this is a great investment - buy $2.38 worth of assets for just over a dollar and get the proceeds redistributed to you mostly in the next couple of years. I may in fact buy more units when I can. I'm bumping the value in my accounts of the unlisted fund to NAV. This will be the biggest positive contribution towards this month's results.

Moominmama January 2009 Performance

Moominmama lost 1.39% in January. That's not bad considering the MSCI World Index lost 8.51% for the month. This is the portfolio breakdown:



And here is a new view in terms of asset classes:



Portfolio diversification worked pretty well this month (for a change).

When You Have $60 billion, Losing $4 Bllion isn't so Bad!

The Future Fund reported its results for the last quarter of 2008

Levitt on Credit Cards

Following up on my post about EFTPOS policies Steven Levitt is commenting on credit cards. Nothing much new there, but one of the commenters makes the very good point that taking cash payments also has costs to the retailer - having cash, making change, risking robbery, and spending time taking the cash to the bank and depositing it. But I guess, unless they banned cash payments altogether there is little marginal cost in taking a cash payment - as they have to do all those things already apart from give change.

Saving

Now that I am going to have a job I'm setting up a regular savings plan of $A500 a month from my salary to match the plan we already have going for Snork Maiden which is also now $A500 per month. I'm going to invest it in the CFS Diversified Fund in an account inside of my margin account at CommSec. I'm not going to be adding borrowed money to this investment but rather it will help reduce the loan to value ratio on my loan over time. If my job contract includes required salary sacrifice into superannuation (i.e. employee contributions to a retirement fund on top of the employer contributions) I plan to also set up salary sacrificing for Snork Maiden. Her employer currently contributes 15.4% on top of her salary to superannuation (the legal minimum is 9% in Australia).

Bank Santander Compensates Clients Hit by Madoff

Any chance Man Financial will do this for its clients who suffered losses (if relatively small) in RMF?

Happy Year of the Buffalo

Buffalo sounds better than Ox :) We should celebrate with mozzarella cheese :P

Second Round Interview

This morning I met my colleague who helped me with the grant application and began to work out the details. It'll take a little while to push everything through the notorious university bureaucracy. We don't even know yet exactly which program I'll be in though the overall school/college is determined. My flight is already booked to a conference in February and my colleague will see if he can get me onto the workshop schedule to give a short presentation about my planned project.

This evening I just received a message from the chairman of the department where I interviewed yesterday. he says he thinks I'm a good fit in his program and wants to do a second round interview including a seminar presentation. Either in early February or early March. I'd prefer March to give me more time and they have plenty of other people coming to give presentations in the meantime. Unless that looks like I'm not enthusiastic? I wouldn't be starting in their program till July.

I feel a bit nervous and sad for some reason and don't know why.

Interview

At least I was dressed smarter than my interviewers. I had my shirt tucked in :) Not sure how well it went, I should hear early next week if they want to pursue it further.

It felt like they treated the research funding I got almost as a negative as it would delay my potential start date with them. They were still talking about starting immediately though I couldn't start till after a second interview and seminar presentation and teaching starts on 22nd February and I need to prepare to teach a course at a new institution. At first the chairman said, well maybe we'll get you to give a seminar in our regular schedule some time in the year, I don't want to keep the position open for a year and maybe some other opportunity would come along for you in the meantime anyway. So I asked when he'd expect any of his U.S. based candidates to start. July (the start of the second semester here). So maybe I could start in July if we negotiate some arrangement with the other program? OK - maybe we'll ask you to give a seminar in March when we're finished interviewing the other more junior candidates.

I got across all the points I wanted to make. But I felt like I wasn't very articulate when talking about my research. I kept searching for the right words to use...

Tomorrow, Friday, I have a meeting to iron out the details of the research position.

Rear View Mirror Retirement Allocation Advice

Christopher Joye in an article in the Business Spectator today performs a retirement portfolio optimization using historical Australian data for 1982-2008 much like I did in in this post. But while I was asking what portfolio would have performed best in the past he is using the results to recommend the portfolio that superannuation (retirement) funds should adopt in the future. His conclusion - allocate heavily to residential property (a property class that no institutions in Australia invest in apparently for tax reasons) - government bonds, and cash. These asset classes have had the best risk adjusted performance in the past. If we know anything about investment theory it is that mean reversion is likely and that equities and commercial property will probably perform better in the next decade than in the last, while government bonds and Australian residential property perform worse.

Research Proposal Approved

I just heard that my research proposal was approved. We haven't got any details yet but we proposed that I work on the project for one year at either 3 or 4 days a week - i.e. I will get paid the same as a post-doc (about $A61k per year) but have a more senior position - "Fellow" - equivalent to a senior lecturer in the Australian system or an Associate Professor in the U.S.

On Thursday I have my long-delayed preliminary interview for the continuing position as senior lecturer.

EFTPOS Miminum Payments: A Silly Policy

On our way back from the Ford dealer where we put in an order for the missing bit of silver trim, we stopped off in the suburb of Dickson to have lunch at the Asian Noodle House. This is a great restaurant with good food at good prices, but when it came time to pay they told me there was a $30 minimum on EFTPOS cards, which are an Australian version of debit cards. So I had to walk a few blocks to the bank where there is an ATM and then back to pay. I don't mind walking much, even if it is 34C today, but I'm sure some customers mind a lot more. It's hard to get any hard numbers on the EFTPOS fees charged by banks to merchants - it could be somewhere around 40 cents per transaction. Credit card fees are higher, which is why Aldi, for examples, charges a surcharge for using a credit card - but no extra charge for an EFTPOS card. Now I suppose someone could come into the restaurant and order a $3 coke and then try to pay with an EFTPOS card, but that's going to be rare. It makes sense for the restaurant to either build the expected value of EFTPOS fees into prices or charge a fee for transactions with EFTPOS and credit cards rather than forcing the customer who spends $24 but has no cash to walk to the bank and back. I guess the restaurant thinks it is so good that it can afford to do this.

Car Repairs: $550 or $1250

The back of our car got run into a stone wall - like most car accidents it happened close to home - in the driveway of our apartment building... The panel above the right rear wheel was dented in and lots of paint was now on the wall rather than on our car. We'd accumulated a couple of other holes in the paintwork on the rear bumper. One had happened on our wedding day when my brother was driving our car and backed it straight into the neighbors car in the underground car park.

Anyway, it needed repairing and we drove to a local industrial area where most of the crash repairers are located. One of the biggest who is approved by our insurer said it would cost $1200 to $1300 (all figures in Australian Dollars). He couldn't do the job until after the 29th of January and it would take a week. The excess on our insurance is $500 and then making a claim would reduce our 45% no claim bonus. Not sure whether this was a good plan we drove round to the guy who inspected our car prior to purchase (for free) and where we'd already got one service (as we promised in return for the free inspection). He had a "mate" in the neighboring town just over the state boundary who could do it in the shed in his backyard. We drove straight there. His estimate: $550, in cash and he could do it right away. At any reasonable discount rate this made sense. Given the damage was non-structural - just a gouge in the side of the car - and this "bloke" was recommended by our friendly mechanic I agreed to the repair - we left the car with him and took the bus the ten miles home on Friday lunchtime.

Sunday morning he phoned us up with the job complete apart from a cosmetic piece of silver trim we can get at the Ford dealer and stick on ourselves supposedly. The car looks great.

Janus US Short-Term Bond Fund

This is the other bond fund in my Mom's portfolio. It has done very well in recent years, though it didn't do much just after we bought it in 2003. I am trying to get access to Janus World's website to get more info - they haven't yet sent me a password but I managed to get the charts above from UBS's website. If it is similar to the short-term bond fund marketed in the US then it is heavy in US government issues which explains its strong performance recently. I'm thinking of selling half and putting it in Man-AHL Diversified, a managed futures fund that we only have a small allocation to at the moment (2.2%). Such a move move would take the allocation to Man AHL up to 7.5% and to the Janus bond fund down to 5.3%. The overall bond allocation would go down to 23% from 27% and the alternatives allocation up from 19% to 24%. Maybe I'd leave a bit in cash...

The rationale is that US interest rates are very low and many people are talking about a US bond bubble. On the other hand I think we should retain some exposure to US bonds and this fund seems pretty good. On the other hand, it is a short-term bond fund and so should be relatively little impacted by a rise in interest rates. And would be impacted in a good way if new bonds they buy have higher yields in the future?

Buy High, Sell Low

Investors in TFS Capital's Market Neutral Fund continued to buy high and sell low as a group in the four months ended October 31st, as I've documented for previous periods. The gap between average buying and average selling prices was greater that in the first six months of the year at 81 cents (vs. 41 cents). More than ten times as much was also received in early redemption fees (for shares held less than six months). The total shares in the fund continued to increase very significantly at 28.6 million vs. 17.4 million at the end of June. The fund now has twice as many shres as in mid 2007 even though the number of shares on issue declined significantly in the second half of 2007.

HFRI vs. HFRX

Here are the HFRI hedge fund indices for December and 2008 which differ quite a bit from the HFRX results I posted before. HFRI tracks around 2000 hedge funds while HFRX only tracks 55. The HFRI data go back to 1990, HFRX only to 2003. HFRX is available on a daily basis, HFRI monthly. HFRI indices are equal weighted rather than capitalization weighted, while HFRX is calculated by "representative optimization" - "Constituents are weighted according to HFRX Methodology in order to achieve representative performance of a larger universe of hedge funds."

Anyway, HFRI shows a positive performance overall for December and some of the subindices like convertible arbitrage didn't do as badly in 2008 as indicated by HFRX, though they still did badly.

Final Credit Suisse Indices for December and 2008 are also now available:

Invesco Sterling Bond Fund

This is my Mom's largest single investment at 12.6% of the portfolio. It wasn't planned this way. I instructed Citibank to buy a given amount of this fund in US Dollars. They bought the same number in Sterling. Soon after that we ditched Citibank. The fund had been doing great when we bought it in November 2005:



But this year it severely underperformed its index. On top of that Sterling has declined against the USD so we lost more in USD terms but that's an unfair comparison as this money was likely to be kept in Sterling or Euro investments in any case. The reason for this year's poor performance is of course the corporate bond market which is 80% of the fund:



So, I guess we'll hold on and wait for corporate bonds to recover?

Man to Sue over Madoff

Man Investments will sue over its Madoff related losses. Don't know if it will do any good but that's better than nothing.

Wordle

This is a graphic of this blog created using Wordle. I posted a couple of these created by Paul Kedrosky earlier.

Breaking the Buck was the Problem

A discussion of Bernanke's speech yesterday argues that it was the impact of the Lehman collapse on the Reserve Money Market Fund and the consequent run on all money market funds that caused the September-November collapse in financial markets and that the other impacts of the Lehman collapse were not significant.

Social Class and Choice

A comment I posted on "Graceful Retirement" as part of the ongoing discussion about Meg's blogposts:

"I'm not too sure about the correlation you make between being born poor and choices. Poorer parents might not have very high expectations for their children but those children's opportunities are often limited by going to bad schools and hanging out with an unambitious crowd of friends. Children who have money to back them up can do things like graduate degrees in non-professional fields, being an artist, working for NGOs etc. without worrying about increasing their net worth. So I think it cuts both ways. I grew up what I considered lower middle class in England - compared to most of my middle class friends we had a smaller house, car etc. My Mom had a degree in classics and training as a nurse (came from a working class background in Australia and studied on scholarship). My Dad came from a relatively wealthy family in Europe but was a refugee/prisoner/factory worker in the Second World War and then gradually built a career as an engineer without a formal degree. So I think we had higher social class attitudes than our actual income/wealth. My parents were definitely ambitious for us to get well educated and my Dad was somewhat concerned that we don't study something he considered useless but there wasn't big pressure to follow some particular type of career etc. I ended up as a professor - I studied geography which my Dad thought was "useless" and economics and just followed the do what you like and are good at route without worrying much about the money. My brother studied civil engineering and then later switched to computer programming."

Endowment Style Portfolios for December 2008

When I tried to optimize the performance of the asset mix used for the portfolios in my post about endowment style portfolios by maximizing the Sharpe ratio using historical data I ended up with a 100% allocation to the real estate fund. But this fund lost 7% in December. Now the optimal allocation is 9% managed futures, 4% hedge funds, 66% real estate, 20% bonds, and 1% gold. It has a beta of 0.03 to the MSCI stock index. No stocks of course as they have returned too little with too much volatility in the last 12 years. A portfolio with 1/7 in each of these assets plus Australian Dollars has about the same returns historically but double the volatility (but 1/3 the volatility of stocks still). It would have returned 2.7% in December in USD terms (it has a beta of 0.28 to the stock market)

P.S.

Following the discussion in the comments I want to say that this isn't intended as a serious exercise in choosing a portfolio allocation but as a kind of thought experiment about what would have historically been the best portfolio with perfect hindsight. I'm pretty skeptical also about so-called "forward looking" portfolio optimizations too. They need to make some pretty strong assumptions. But all of this can be useful inputs into developing a portfolio allocation that works for you.

Preliminary Credit Suisse Indices for December 2008

Yesterday I reported on HFRI's indices for December 2008. Today Credit Suisse/Tremont released preliminary results for the month. Credit Suisse's indices are capitalization weighted while HFRIs are not (I think). Credit Suisse estimate their index rose 0.3% in December. They also include managed futures (which did well) and short bias funds (which did not). Their estimates for convertible arbitrage and distressed securities show less severe losses for December and the year. Of course, their equity market neutral category shows a big loss for the year, while HFRI does not. This is due to the Madoff funds that were included in the Credit Suisse Index.

Hedge Fund Indices for December

By comparison the MSCI All Country World Index rose 3.67% in December but lost 41.85% for 2008. Macro - the strategy made famous by the likes of George Soros - was the most successful both for the month and year - while convertible arbitrage has been significantly worse than being long stocks in 2008 and in December.

SuperAlphaFund

Superfund is now offering a fund in Australia. This company, which originated in Austria, offers managed futures products to retail investors in many countries around the world.

The fund is invested 37.5% in managed futures, 37.5% in a market neutral stock trading program and 25% in Australian cash equivalents. They plan to hedge returns into the Australian Dollar. Minimum investment is $A10,000 which compares favorably to the Macquarie and Select Funds managed futures products. Fees are steeper than most hedge funds with a 3% management/administration fee and a 27% performance fee with no hurdle. The fund is not a FIF. It seems that they plan on paying all fund income out in order to avoid entity level taxation.

Comparing the Quadriga B managed futures fund that Superfund offers in the US to Man's AHL Diversified Fund we find that between November 2002 and November 2008, Quadriga returned 1.92% per month but had a monthly standard deviation of 11.4%. Man AHL returned 1.40% per month but with a much lower standard deviation of 4.9%. In other words, the Man fund is higher quality. Quadriga had a correlation of 0.06 to the MSCI World Index while Man had -0.10. The correlation between Quadriga and Man is high at 0.73. I don't have any data on their stock trading program.

Bottom line is I wouldn't recommend this fund at this stage except to someone who was very heavily into managed futures and wanted to diversify across managers to reduce risk.

CALPERS Allocation

CALPERS (the California state retirement fund) provides detailed information on their asset allocation. CALPERS has much more of a traditional US allocation than the other portfolios I've examined. The top part of the table now shows Moom and Moominmama's allocations (updated for January) the Australian and Californian public retirement funds, the three Ivy Leagues, the average US university endowment and the Australian Future Fund. The lower part of the table shows the "distance" between the four selected portfolios at left and the the portfolios listed across the table. Moom is most dissimilar to CALPERS, Moominmama, and Yale and most similar to PSS(AP). Moominmama is most dissimilar to Moom and most similar to PSS(AP), CALPERS, and the typical US university endowment. PSS(AP) has a similar level of dissimilarity to all the portfolios but is most dissimilar to Princeton, Yale and CALPERS and most similar to Harvard and the Future Fund. CALPERS is most dissimilar to Moom and most like the average US university endowment.

If you'd like me to analyze any other portfolios or make any comparisons let me know.

Duration and Stock-Bond Allocation

Interesting discussion from John Hussman about changes in "duration" and the optimal allocation between stocks and bonds in a portfolio. Duration for bonds is the sensitivity of the bond price to a change in interest rates. Bonds with distant maturities are much more sensitive than short-term bonds and therefore more volatile. Hussman also talks about a duration for stocks which is the sensitivity of stock prices to changes in the discount rate applied by investors to company's cash flows. He argues that this is equal to the reciprocal of the dividend yield.

Anyway, the lower the duration of an asset the more an investor with a given time horizon can allocate to it. Given the increase in stock yields and the fall in US Treasury yields recently investors should allocate more to stocks and less to treasuries. This is an alternative argument for valuation based market timing.

BTW I checked the CREF Bond Market Fund's holdings and less than 10% is in long-term treasuries. So there is no reason to dump that fund based on the high prices of long-term U.S. bonds.

Moominmama December 2008 Performance

Moominmama gained 0.73% in USD terms for the month but individual investment results were all over the place partly due to big movements in currencies. As you can see, Sterling was down 9% and her local currency up 4%. Unfortunately, the biggest posiitve movers were some of the smallest positions.

SIPC Testimony on Madoff and Lehman Brothers

SIPC actions and testimony look like good news for small investors with Madoff. The SIPC sent out claim forms to 8000 Madoff investors. So they should get at least $500,000 back. More than that has been identified in assets of the brokerage firm that is being liquidated. This says nothing explicit at all about investors in the feeder funds. I suspect they (including my exposure of about $A50) get nothing?

Alternative View of December 2008 Performance

Turns out that it's pretty easy to compute the table above from my existing spreadsheets. Maybe this is a better way of presenting the contributions of investments to the monthly result than the position level approach I've used up till now.

EBB, EBI, and EAIT

Received the documentation and forms for the revised version of the planned EBI delisting today. I'm going to withdraw 6000 of my 8707 shares from EBI and apply for shares in the new unlisted EAIT. The number that I'll keep in EBI is exactly the number that I was going to withdraw from EBI in the previous delisting proposal. No redemption of EAIT units will be allowed till the end of this year. Keeping EBI shares allows for some liquidity and reduces my EAIT stake to 5% of net worth (at the NAV value). The plan is to gradually wind up EBI and distribute the proceeds. My impression is that a big chunk will be distributed this year and then the remainder over the next few years. There can still be some hitches in this process mainly concerning financing. Currently EBI holds $1.57 in assets for every $1 in equity. This is accomplished through a swap provided by Macquarie Bank. Macquarie still hasn't said whether this financing arrangement will be maintained for EBI once EAIT is delisted and Laxey Partners become the effective investment manager for EBI. Financing for EAIT is in place (subject to some conditions).

In the meantime, the share price of EBB the current manager of EBI has skyrocketed from a low of 3.5 cents on December 8th to 12 cents at today's close and an intraday maximum of 14 cents. In response to an ASX query EBB stated that there is no news that the market is unaware of and that they will be announcing a positive operating profit for the financial year that closed 31st December. Actual P&L will be a loss due to writing off of intangible assets. The real news is that the various companies controlled by Steve Eckowitz have been selling shares in EBB including sales by Harsit Holdings of 17.7 million shares on 17th December and 14.9 million shares on 31st December. In total they have sold a net 34.3 million shares of the 48.8 million that they held last December. Ecko Investments sold essentially all of its 3.8 million shares - most of them in December and Pointyen Pty sold all its 225 thousand shares on 31st December. This seems to be due to margin calls related to ANZ from what I can tell. I suppose that traders think that the (forced) selling must now be over. Wingate Group's purchase at 4 cents a share is now looking like a brilliant move. I hold 20,000 shares with 10,000 bought on 17th December for 6.1 cents.

What is the Fed Up To?

Paul Kedrovsky's blog pointed to this blog by Woodward and Hall which has a very interesting post about the changes in the Fed's balance sheet. I just wish they'd explain more about what are the changes in monetary policy that has occurred that mean we need to interpret the Fed's actions differently than in the past. I guess one is paying interest on bank reserves? That would explain the huge increase in that variable.

December 2008 Report

Finally an up month, and a market beating one at that, in US Dollar terms at least. However, due to the rise in the Australian Dollar this month we lost in AUD terms and AUD net worth also declined.

Income and Expenditure



Expenditure was $5,181 ($A7,420). We bought a TV (Samsung 32", Full HD (1080), LCD, about $A,1400), some furniture (about $A400), a bike for Snork Maiden ($A750), and health insurance for her stepfather who will be visiting Australia (about $A350). Non-investment income of $6,465 due to the refund of Snork Maiden's China trip costs. Retirement contributions were $684. Before taking into account foreign exchange movements non-retirement accounts gained and retirement accounts lost money. They both gained in USD terms after taking into account the change in exchange rates.

Net Worth

Net worth rose by $10,158 to $205,660 or in Australian Dollar terms fell by $A4,202 to $294,558.

Investment Performance

USD returns were 4.12% vs. 3.67% or 1.06% for the MSCI and SPX respectively. In AUD terms we returned -2.41%.Using my preferred time series method, portfolio beta to the MSCI index was 1.36 with an annual alpha of 1.4%. Other methods now give a negative alpha. Individual investments made the following contributions to the result:



International and small cap Australian stocks made positive contributions. The top performer was the Challenger Infrastructure Fund which made an asset sale at carrying value during the month boosting confidence in its valuations. The fund is still trading at a massive discount to NAV. A similar positive valuation effect was seen for NDS following the European Union approving the buyout by News Corp and Permira. However, private equity funds MVC, 3i, and IPE all fell as did the TIAA Real Estate Fund and Everest Brown and Babcock despite the seeming resolution of the negative issues surrounding the fund.

Asset Allocation

At the end of October the allocation was 46% in "passive alpha", 60% in "beta", 1% was allocated to trading, 3% to industrial stocks, 5% to liquidity, 5% to other assets, and we were borrowing 20%. Due to the use of leveraged funds, our actual exposure to stocks was 104% of net worth. We regeared slightly. In November we were borrowing 17 cents for each dollar in equity; we are now borrowing 20 cents. When we take into borrowing by the leveraged funds we are invested in, borrowing per dollar of equity rose from 63 cents to 65 cents. Looking at asset classes:



Exposure to non-US foreign stocks rose due to market gains and purchases and exposure to hedge funds fell mainly due to the poor performance of EBI. We moved slightly towards our long-term asset allocation. The story of total assets (includes assets owned by leveraged funds) over the last few months is shown in this chart:



Our ownership of US stocks was particularly badly hit (13% of gross assets in August 4% now) due to market declines and subsequent margin calls.

Economics Text Analysis

Interesting word clouds generated by Paul Kedrosky based on session and paper titles from the American Economic Association meeting. I've only been to this conference twice - the first time because I was getting interviewed for jobs and the second because I was interviewing candidates. I maybe went to one session. It really isn't very interesting to me at all. The AEA is very undemocratic and each year's conference program is designed by the current year's President. So it might not be very representative of economics as a whole. All papers must be submitted way way in advance. You have very little chance of getting your paper onto the program unless you are part of an organized session and preferably one invited in advance by the President. This is diametrically opposed to say the Association of American Geographers where every submitted paper is accepted. The majority of people at the AEA meeting are there for job markets reasons in my impression. As the AAG meeting takes place in April it is too late for the North American academic job market which is extremely cyclical. Most decisions for the following year are made by March or April.

Goals for 2009

Unlike previous years I'm not going to set any quantitative financial goals for this year as there is too much uncertainty. On the investment management side I would like to:

1. Improve alpha to return to positive numbers or a more positive number depending on which method you use to estimate it.

2. Continue to progress towards a long-term asset allocation that is more like an endowment fund approach as the markets permit.

The major goal though is to get a decent job (3). In any case, I want to (4) continue the progress I've made on getting my academic research back on track (I now have 3 papers I've submitted for review). At the end of the year some should be accepted for publication and I should have that number under review again. If I can (5) make some progress on the business front of trying to do something with my trading models that would be good too. And finally (6) I want to lose some weight. Trying to eat better and get more exercise via cycling etc. will be the methods.

Six goals is plenty I think :)

2008 Summary

I will be doing a report for December, but after such a financially disastrous year, I'm not in the mood for a detailed analysis of the numbers for 2008 as a whole. In US Dollar Terms we lost more than half our net worth and in Australian Dollar terms more than 40%. These results were partly due to the general decline in the markets and partly due to me not understanding the scope of the crisis and re-equitizing when only part of the decline was complete. I thought the collapse of Bear Stearns was the peak of the crisis. I was very wrong on that score. If we'd kept the conservative stance we had at the beginning of the year through to October or November we would be in a pretty good situation now with maybe a 20-25% decline in net worth in USD terms I think. Maybe better. In Australian Dollar terms we might have been down just 10% or so.

Some of the damage is permanent in realized capital losses and some is hopefully temporary due to currently depressed asset values. We're looking at realized capital losses of $A71,000 so far this year, with about $A14,000 of realized capital gains partly offsetting that. At least we won't be paying any capital gains tax any time soon :)

I started the year trying to be a short-term trader using my quantitative models for predicting short-term market direction. While I am convinced the models have some validity I found it very difficult to trade on their basis both due to being based here in Australia with most of the market action occurring overnight in US markets and my general problems of discipline in trading. I may still look to work with someone else in implementing the models to run a managed futures fund. Though given the Madoff Scandal there is likely to be less interest in blackbox models now. I'll return to look at these again once I have a couple more academic papers submitted. If you are a fund manager and are interested in working with me on this let me know.

Now at the end of the year I've moved much more towards an asset allocation/rebalancing approach to investing with limited market timing. I'd still expect to reduce exposure as the market rises and more so if the yield curve inverts. But I'd re-equitize much slower in any future market slump and never get as leveraged as I did this time around.

The year ended somewhat positively with what seems to be a gain for the month in USD terms though at the moment it looks like we lost in AUD terms. There were some positive signs also on my career front with an upcoming screening interview at a university and I'm getting my research back on track and now have two papers under review at academic journals and more in progress. Having an active research "pipeline" is important in getting an academic job at a good university. The two personal highlights of the year were getting married and visiting China and Hong Kong for the first time. My mother and brother visited us in Australia - my mother's first visit back here since she left more than 45 years ago and my brother's first visit to the country of which he is a citizen. Another positive personal thing is that in the last couple of months I have gotten back to doing a bit of cycling. Hopefully I can lose some weight in the coming year. We also bought Snork Maiden a bicycle and we've been on a few short rides together.

Career Progress Report

The academic job I applied for (there are 3-4 positions available) got more than 250 applicants from around the world. They are now narrowing these down to about 40 who will get an initial half hour interview (most at a big academic meeting). I just heard from the chairman that I made it into the 40. So I'll be having a short interview in a couple of weeks time when he gets back from the conference. After this round they'll likely select about 12 for a full on-campus interview which in the academic world last 1-2 days and includes a seminar presentation.

I'll have to think about how to prepare - Last time I did an interview was back in early 2002. And should I wear a suit and tie?

U.S. Cheque Funds Available

We were told that there would be a 21 day hold on the proceeds of the U.S. cheque we deposited. But today (the first time I checked) the Commonwealth Bank site says that all that money is included in our "Available Funds". So I transferred $A1000 to our CBA credit card. The site didn't object to the move. The other moves I have planned are to Commonwealth Bank subsidiaries too. In line with the savings policy I plan to transfer another $A1000 to my margin loan, $A1000 to Snork Maiden's Colonial First State account and $A1000 to my CFS account. I plan to invest her contribution in a bond fund for two reasons: 1) To allow some liquidity in the account in case we need to withdraw some money; 2) A bond fund will move the allocation in the account a bit nearer our planned overall target allocation. After this move the planned allocation in her account will be:



In other words: 60% in stocks with double the allocation to Australian stocks as to foreign stocks and the remaining 40% split between hedge funds, real estate, and bonds. This allocation will be achieved by the following allocation to funds:



You won't get the asset allocation by adding up the percentages in each fund as the first two funds are geared. Overall the account effectively borrows 20 cents for each dollar of equity. I'll submit a new regular savings plan on this basis too soon. The new plan will also increase the regular savings amount to $A500 per month following an increase in her salary.

I'll put my contribution in the CFS Geared Global Share Fund. This makes sense as though we are at target weighting in non-US foreign stocks we are underweight US stocks and we're very overweight large-cap Australian stocks.

Depositing a U.S. Check in Australia?

We received a check for just over $US3,000 for Snork Maiden's costs getting to and attending the conference in China in October. I'd like to turn it into Australian Dollars if possible. Tomorrow I'm going to see if Commonwealth Bank can do this at a reasonable cost and delay. Otherwise we'll have to mail it to her account in the U.S. But the only way to convert it to Australian Dollars is for her to then write me a US check which I would then mail to the US and then I'd do a transfer to one of my brokerage accounts and then finally I could do a wire transfer back to Australia. I don't think TD Banknorth HSBC would agree to do a wire transfer to Australia with us the account owners not present in the U.S. Or maybe they would? Anyway, let's see what CBA have to offer first.

Net Asset Values of Infrastructure Funds are not Exaggerated

Often I read in the media that the values of real estate and infrastructure assets owned by listed and superannuation funds are exaggerated. That really these funds couldn't realise as much as the carrying values of the assets if they sold them. Today, Challenger Infrastructure Fund sold a £100 million stake in Southern Water at carrying value. Given this, this fund is extremely undervalued. NAV was estimated at $3.75 per share in June but the shares were last trading at only $1.60. Given the fall in the Australian Dollar and this sale at carrying value, it is unlikely that the NAV has fallen from this last reported figure.

"22 December 2008, Sydney - Challenger Infrastructure Fund (CIF) today announced that it has sold £100 million of Southern Water (representing one-third of CIF’s stake). The stake will be managed by UBS Global Asset Management, the manager of the UBS International Infrastructure Fund, on behalf of a major institutional client. Financial close occurred on Saturday, 20 December 2008. The sale price of £100 million (approximately $221.4 million1) for CIF’s equity interest was completed at the 30 June 2008 Net Asset Valuation (NAV). Proceeds from the sale will be utilised to repay 50% (or £50.4 million) of the redeemable preference securities (RPS) on issue, fund an on-market buy-back of CIF securities and potentially fund future opportunities within CIF’s existing assets or fund further capital management initiatives. CIF also announced an estimated interim distribution of 12 cents per stapled security for the six months ending 31 December 2008. The interim distribution, which will be fully funded from operating cash flow, ensures a clear alignment of securityholder returns with the underlying performance of the fund’s assets. Chief Executive of CIF, Steve Bickerton said: “Over the course of 2008 CIF has undertaken a number of capital management initiatives designed to maximise securityholder value. The first example was the sale of three minority assets at a collective premium to NAV earlier this year, highlighting the embedded value in the portfolio and reducing CIF’s net proportional debt by over $1.1 billion. The sale of a third of our interest in Southern Water at NAV is another example of CIF’s capital management efforts, resulting in de-risking and de-leveraging of the fund and a further $560 million reduction of CIF’s proportional net debt. “The sale of a third of Southern Water at NAV is a pleasing outcome for CIF, particularly in current volatile equity and financial markets. The transaction has given CIF financial flexibility to undertake an on market buy-back, repay 50% of the RPS and furthermore arm CIF with the capacity to fund future opportunities from within our existing assets. CIF will continue to actively manage its capital position for the benefit of securityholders,” concluded Mr Bickerton."

Markopolos and Madoff

The report which Harry Markopolos submitted to the SEC in 2005 with his suspicions about Madoff is pretty amazing. This is how the SEC responded. They addressed the most minor aspect of the issue.

Australian vs. Foreign Shares

The chart shows the MSCI All Country World Index converted into Australian Dollars and EWA including dividends converted to AUD. From an Australian perspective, Australian shares have outperformed unhedged foreign shares over the last 12 years. But they have also been more volatile. I also show a couple of diversified portfolios with 33% and 50% foreign shares. The mix with the maximum Sharpe value is 100% Australian shares. Of course, the portfolio without an overweight to Australian shares on a global basis will be indistinguishable from the foreign share index.

These results show why, in addition to the tax benefits, Australian investors might rationally overweight Australian shares very dramatically in their portfolios.

Though hedged foreign shares follow a very different time path than unhedged ones, the Sharpe Ratio is still maximized by a 100% allocation to Australian shares if we consider this option as well.

Australian Managed Fund Distributions Fall Dramatically

This isn't a surprise at all but I just checked our distributions from Colonial First State which were paid on 14th December. Snork Maiden received $18.53 (distributions from Platinum International and BT Property) and I received $32.55 (from CFS Global Resources which was automatically reinvested). Her last distribution was $205.17 in June when she had far fewer units. I received $4,500 just from the Global Resources Fund back then. I'm not expecting much in the way of distributions any time soon due to all the capital losses the funds have received.

Record Low Returns for U.S. Large Cap Stocks

According to this chart, at the end of September the ten year return on U.S. large cap stocks was as low as it had been only four times before:



And now the return is negative.

But I'm a bit puzzled - how could the 10 year average return in 1932 be so high?



Clearly the Dow was lower than in 1922 then and even with a 5% + dividend yield it's hard to see how the returns could have been as high as shown on the chart above? This chart from Jeremy Siegel also shows what appear to be positive returns in that period, though not as high maybe?



Perhaps the explanation is that by the end of 1932 stock prices had risen around 50% from the bottom which occurred in July (see Yahoo historical data which start in 1928 unfortunately) and Goetzmann's data are annual year end numbers? But at the end of 1922 the Dow was just below 100 and at the end of 1932 at 60. A negative 5% yield. Did dividend yields average more than 10% over this period? If we use annual averages for 1922 and 1932 (about 80 and 64 respectively) we might be getting close to Goetzmann's supposed numbers but the dividend yield still doesn't seem high enough:



Conclusion, the Dow could have shown positive 10 year returns in 1932 but probably not as high as shown in the first chart in this post.