Instead of a mission statement
Let us get the obvious observation out of the way: of course, any weblog is an indulgence and a bit of an ego trip. Many of them are no more than that. But a weblog also has the potential of being something more. It may provide stimulating food for thought for its readers and provoke a lively discussion. Whether this one will be more will ultimately be decided by its readers; if there will be any.
What will it be about?
During my career, I wrote quite a few documents and made all kinds of presentations to a wide range of audiences. I usually expressed my opinions quite freely. But naturally, the message was usually commercial in nature. Since I was fortunate throughout my career in being associated with firms of impeccable ethical standards and with whose commercial message I could broadly agree, I am quite comfortable with the messages that I transmitted.
But there are other, more general topics that are interesting and important for which there never seemed to be enough time. Now there is and I intend to write about those issues. They mostly cluster where investment theory meets investment practice. Many years ago, I complained about “(z)ero correlation between theory and practice in financial economics” in an article in the Finanzmarkt und Portfolio Management journal. The issues that I evoked there have not gone away. Practitioners continue to abuse theory and academics continue to provide theories devoid of any practical significance. The poor Capital Asset Pricing Model is still blamed for all sorts of shortcomings and market efficiency remains one of the most misunderstood concepts of economics. At the same time, guidance on such crucial issues as the choice of strategic asset allocation is limited to boilerplate statements that tend to focus on utility functions and other unobservable voodoo elements. Thus, a first subject that I intend to pursue is the question of usefulness – or toxicity if you prefer – of academic findings for the strategic decision-making of practitioners. Issues here will include strategic allocation decisions, market efficiency, its cousin, the active vs. passive debate and the successful selection of managers and products.
A second area that I will pursue in future posts is the question of long-term capital preservation. Endowments and wealthy families seek to maintain the purchasing power of their capital over the long run while maintaining their portfolio’s risk at a survivable level. I would argue that this high wire act is likely to fail for most investors, i.e., the real value of capital of most investors will erode over the long run. Behavioral issues and demography play major roles here.
A third area, a bit closer to home, is the management of pension plans. Switzerland has a pension system that is the envy of the world but we seem to be determined to destroy it through a mixture of institutional inertia, increased regulation and political cowardice. Misunderstandings abound and I will try to look at some fundamental questions in as simple a manner as possible. I do not believe – as many of the experts do – that pension plan mathematics is too complicated for the members to understand. The problems associated with Old Age Pensions are quite universal and non-Swiss readers may find the issues pertinent in their countries as well.
There will also be, from time to time, comments on items that I found in the media and in the advertising of financial firms. The comments may not necessarily all be complimentary.
On an occasional basis, I intend to publish “oldies”: various items from the stone age of modern finance.
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