Quotes Lecture 2 Flashcards
Who was this quote from: “Dear investor, In line with the rest of our industry we are making some changes to the language we use in our marketing … Zilch Capital used to refer to itself as a “hedge fund” but 2008 made it embarrassingly clear we didn’t know how to hedge. At all. So like many others, we have embraced the title of “alternative asset manager …It is also time to move on from the concept of delivering alpha
…. Upon reflection, we have decided that we’re actually much better at giving you smart beta. This term is already being touted at industry conferences and we hope shortly to be able to explain what it means.”
The Economist From Alpha to Smart Beta
The lexicon of hedge funds: the industry’s language is changing
What does the article “The Economist From Alpha to Smart Beta” mean?
alpha is a risk measure of out-performance, hedge funds do not outperform the market. Instead gives you smart beta access to asset classes you would not be able to access yourself.
“Investors paid €100.39 for [German] bonds knowing that it was worth €100, which is what they will get back.
Bonds are really just an IOU, so think about who you would give $101 dollars to – and be content to get back $100 in five years time.
There are now 13 countries with a cash rate below zero, where investors pay for the privilege of having the money on deposit.
According to JPMorgan, there’s $US2 trillion ($2.6 billion) of bonds, or more than 25 per cent of the European government bond market, that have negative yields, or below zero”
“Bad deals in Europe’s bond Wonderland” by Philip Baker 27 Feb 2015 Australian Financial Review
If you are willing to pay someone to look after your money, what does that imply about your views about the alternative investment opportunities?
It is likely too unsafe (risky) to invest your money elsewhere.
This is the situation in much of the world today.
Investors have lost confidence that there is sufficient demand to make investments profitable.
Australia’s Banks are now worth more than Europe’s– How is that Possible?
After the financial crisis the RBA guaranteed a large portion of deposits with Australian banks. This makes the banks close to risk free.
-Price increase- E(R) decrease.
Rate cuts put retirees’
living standards at risk
By Chris Joye AFR
“With the Reserve
Bank of Australia’s 2.25 per
cent cash rate not covering inflation before tax, retirees have no choice but to expose
themselves to risks they
would never normally assume,
if they want to maintain their living standards”
Real Interest Rate
=
Nominal Interest Rate - Inflation
“The Myth of Time Diversification: Analysis, Application and Incorrect New Account Forms” by Jack Duval, what are th 3 overlooked points?
a) Risk of end of period loss decreases with more time- but this is exactly offset by the size of wealth at risk.
b) The longer you are invested in a risky asset the more likely it is that you will suffer a loss.
c) Most investors are not in it for the long run… they are concerned about their short term horizon.
“Most of the time the buy-and- hold common stock investors do beat their more cautious neighbors; and, as the time horizon N becomes larger, the odds do grow that the bold holders of stock will win the duel. But it is also true that a longer time brings bigger losses when an inevitable loss does occur.”
Paul Samuelson
Nobel Prize Winner in Economics
