Rudi's View | Sep 23 2021
In this week's Weekly Insights:
-Data, Statistics, Indices And... Lies?
-The Telstra Turn-Around
-Share Buybacks And Franking Benefits
-NextDC And The Relative Proposition
-All-Weather Model Portfolio
By Rudi Filapek-Vandyck, Editor FNArena
Data, Statistics, Indices And... Lies?
We are all familiar with the Vanguard chart of indices suggesting equities are but a profitable investment, as long as investors stay the course. Don't try to time the market, it's time in the market that counts!
Or as Vanguard itself puts it: History shows, despite the peaks and troughs, average market returns will trend upwards over time.
When the 30-year charts were being updated, as at 30 June 2021, the numbers were there for all to see (all % per annum):
-Investment return for Australian shares: 30.2% over one year, 11.5% over 5 years, 9.4% over 10 years, 8.4% over 20 years and 9.7% over 30 years
-Investment return for international shares: 27.5% over one year, 14.7% over 5 years, 14.8% over 10 years, 5.1% over 20 years and 8.3% over 30 years
-Investment return for US shares: 29.1% over one year, 17.5% over 5 years, 19% over 10 years, 6.5% over 20 years and 10.8% over 30 years
It's a fine amalgamation of market data and many inside the finance industry absolutely love it because of its underlying implication: stick with shares long enough, and you cannot lose.
But, of course, that's where the trouble starts because we all know, or should know, there are many important details hiding underneath those generalised calculations. Such as the fact that in the long run, which is what Vanguard's exercise is trying to embody, only a minority of stocks can truly hold its own and continue creating shareholder value that is sustainable.
Or, to put that statement in practical terms, everyone who bought CSL ((CSL)), ResMed ((RMD)), REA Group ((REA)) and the likes back in 2011 has since enjoyed an absolutely tremendous return, simply by holding on and not selling through periods of turmoil. Thanks for the advice, Vanguard!
Now try googling Woodside Petroleum ((WPL)), or Westpac Bank ((WBC)), or Telstra ((TLS)) and those returns calculated by Vanguard seem like from a galaxy, far, far away.
If anything, the real underlying implication from Vanguard's 30-year investment returns overview seems to be that investors might simply be best off when buying an index instead of individual shares, which makes all the sense as this is what Vanguard does: marketing and selling index-oriented investment products.
But wait, we haven't yet uncovered the real twist in this narrative.
As I never tire to explain to aspiring investors: to become a great and successful investor, one has to be a reader. And when you read a lot, you come across some genuinely interesting and surprising information.
Last week it was David Rosenberg's turn. Once upon a time, Rosenberg made his mark through self-confident, anti-consensus market calls as chief economist and strategist for Merrill Lynch. Nowadays, he runs his own service and newsletter through Rosenberg Research.
Last week, Rosenberg had asked the question: with the Dow Jones Industrial Average (DJIA) not that far off anymore from the 36,000 level as predicted by the book written by authors James Glassman and Kevin Hassett in the late 1990s, what would have happened if the index had not been updated and refreshed regularly along the way?
The answer will surprise you.
Had it not been for the many deletions and new additions post 1997, the index would today be a full -65% lower than where it is - 12,500 instead of 35,000.
How's that for an optical illusion to inspire the masses?!
Those Vanguard index charts are as much about getting rid of the losers and taking on board new winners regularly as they show the long term value of investing in equities, through regular changes made to indices.
The Vanguard chart can be downloaded here: