There is a marvellous line in the movie Wall Street where Gordon Gekko is referring to fund managers and says, “They are sheep – and sheep get slaughtered”. But in much the same way as the mainstream media follows a specific narrative and ignores alternative opinions, so the financial community portrays itself as full of ‘experts’, and you, the investor, can rest easy in your bed knowing they are hard at work on your behalf.
Mostly it isn’t true, especially when it comes to your KiwiSaver: a chilling prospect. What isn’t widely known in New Zealand is you can start your own super scheme, shovel lots of cash into it and invest the money yourself for retirement – assets safely out of reach of such things as divorce and bankruptcy. Your own private penetralia where you can sit, wee drinkie in hand, and marvel at the wonders of the capitalist economic system.
A good example of what I am meaning, lest anybody think I am making things up, is the widely advertised ASB KiwiSaver scheme. It invests several billion dollars (which used to be a couple of billion more) in predictable things like Apple (down 21 per cent in the last year), Fisher and Paykel Healthcare (down 28 per cent) and Facebook (down 66 per cent), all whilst charging its members a fee to do so. Not only that but they risibly claim, “We now harness BlackRock’s world-class expertise in asset allocation and currency decisions, to provide better investment outcomes to our customers...” (yes, that BlackRock).
Let me assure you that the ASB KiwiSaver folk are 100 per cent serious – they genuinely believe what they tell investors and don’t understand the laughter they attract when running a TV advert with a large chap talking about “getting all my ducks in a row” (hint: guess who is getting shot at duck shooting time?). The irony is entirely lost on the ASB “investment management team”. Oh and BlackRock’s share price is down 24 per cent, which should tell you something rather salient.
Now compare this with a (ahem) ‘good friend’ of mine. He was reading the Australian Financial Review back in January, which has an annual “Worst Investments” column (i.e. worst investments of 2021), and one particular company caught his eye – [calm down; I am not going to name them] – a gold mining company in Western Australia whose share price had collapsed. Further investigation revealed there is no question their mines are chockablock with gold.
Instead of worrying too much about the share price (which is what fund managers do) it was time to look at the ‘big picture’. The entire company was valued at $42 million on the ASX; the question to ask was ‘How much would you pay for a gold mine?’. If the company simply sold everything up – sold its various gold mines as going concerns – the price would be in the $1 billion range (probably more). So perhaps it wasn’t quite the “worst investment” of 2021, but more like paying four cents for something worth $1 (if you get my meaning). So several million shares were quickly vacuumed up with other large purchases during the year.
What amazes me is how no fund manager in the world ever seems to do a simple exercise of asking ‘is this a good business?’ or ‘how much would you pay if you bought the company outright?’ to decide if what they are doing is a good idea. They focus on short term nonsense and following the leader whilst being largely unaccountable for their actions. “World-class expertise”? Pfft, what a joke.
