It’s okay to feel good

John Osbon - August 15, 2012

Here’s a headline you’re not ever likely to see: “Good news breaks out!” The media always prefers a crisis.  Nonetheless, behind the relentless drumbeat of negative news coverage (Europe! Deficits! Slowdown!), there is unmistakably good market news across the board so far in 2012.  Let’s look at a few facts.

What’s up?

Remarkably, almost all major asset categories are up.   The S&P 500 is up more than 13 percent this year and its cousin, the Dow Jones Industrial Index is up more than 9 percent with dividends.  Likewise, there is good news in the bond world as the yield on the benchmark 10 year US Treasury has declined from 1.97% to 1.65%, propelling prices upward.  Gold is up, just barely, but up.  Real estate, as represented by REITS, is up 15 percent.

Broadly speaking, stocks, bonds, and alternative investments are higher in 2012, though the media are chasing other, more depressing stories.

Feeling bad

By contrast, some very well off, supposedly privileged investment groups have been having a hard time with returns, and with fees.   The Kauffman Foundation, one of our country’s largest philanthropies, just released its study of venture capital returns, and the news is not good.  The CIO’s conclusion is that over 22 years they did not see a venture capital firm that could beat public markets by any meaningful amount.  With all that money and access to the so-called best information and investments, the report is a firsthand indictment of a venture capital industry that hasn’t delivered.

On the expense front, this study of 50 state pensions sees overcharging and underperformance.  “The vast majority of public pension systems in the United States contract with Wall Street firms to select the publicly traded stocks and bonds that comprise the bulk of the systems’ investment portfolios,” says the study.  Quoting further:  “According to the findings, state public pension funds spent over $7.8 billion in fees last year alone – a 15-percent increase over three years – despite the consistent failure of money managers to hit target returns or outperform passive equity index funds, which charge lower fees.”

This is not new news to indexers, who “refuse to pay for what they don’t get”

Happiness is possible

So there you have it – a simple story in the third week of August that points out how indexing, cost control, and avoidance of complicated investment strategies can put a smile on the faces of many investors.  The happiness is not necessarily permanent or ever-present, but at the same time, it’s important to recognize when good news does indeed break out, as it has so far in 2012.

 

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This article may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.

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