Abacus: I don’t have money in Australia for the main reason that I don’t like the government and cultural attitudes towards wealth creation, i.e. the prevailing attitude of socialism. There are probably good individual companies in Australia. It’s just that, as an Australian citizen, if I had my money there, it would get taxed to shit by the Australian government. As a non-U.S. citizen with my money in the U.S., I don’t get taxed to shit. I’m distinguishing between being an investor and being a citizen/tax payer. I live in Taiwan, not Australia, so I don’t believe I should let the Australian government tax the shit out of me.
Also, for what it’s worth, though this macro-economic issue is actually a non-issue for me (since I don’t live in either country), although the U.S. is currently in a bit of a heap and Australia seems to be flying high, I believe the U.S. has a much more robust economy. Australia is a bit of a banana republic being driven by mining and a very small number of other sectors. Industry is in much worse shape, as is innovation generally, than the U.S. Another thing is that some of Australia’s largest companies are banks. I think, though I can’t remember correctly, that all four of the major banks are in the top ten companies. That’s a little too much concentration for my liking, especially given their exposure to the real estate market and the massive real estate bubble right now.
GaoBohan: The famous essay by Warren Buffett addresses this very issue:
http://www.scribd.com/doc/39169365/The-Super-Investors-of-Graham-and-Doddsville
The recurring theme? Value investors (though that is by no means the only way to make money). Of course, past performance is no guarantee of future performance, but if someone were to find just the guys Buffett mentions in that essay (such as himself, or the guys at Tweedy, Browne), let alone younger versions of them, and invest with them, it would not be dumb luck. You are right that those who outperform the market are statistical anomalies. However, that’s like saying that Denmark is a statistical anomaly in terms of its standard of living. Indeed, it is. However, upon examining the way that country is operated and then looking at other countries operated in a similar fashion, I think it’s reasonable to make inferences about certain modes of operation being much more likely than others to be successful in running a country.
Also, I’m not saying this about you or your business school per se, but I have a very dim view of the business educational community. They’re the clowns who produced both the economists and the business leaders who contributed to America’s current financial woes. Either whatever they’re teaching – especially regarding business ethics – is wrong and they’re incompetent, or they’re in some way complicit in the fiasco. Again though, a lot of this (and the bad performances of various financial institutions) can be avoided by asking some very simple questions about what the captains of industry have their money invested in and how they are compensated. I would posit that someone who won’t answer such questions plainly should be avoided like the plague, and I would also posit that someone who would and turns out to have his or her interests aligned with the person whose funds he is managing is more likely than average to also view investing broadly, and individual stocks specifically, in a much different light. Such an attitude would probably give him out-sized performance over the long term.
I think some people mistake me, at times, as being an apologist for Wall Street because I am an avowed capitalist. Nothing could be further from the truth. I think that the reason most funds underperform the market (even taking account of the fact that we’d expect 50% to underperform) is because most either get caught up in the irrational exuberance or blind panic of the market, or (more importantly) because the fund managers’ or CEOs’ interests barely align, if at all, with those they supposedly represent. All their interests are in pumping a stock price in the short term and then doing a runner. Very few actually have to live with all that for a two or three decade period. Look at those guys and you’re likely to see a much different set of results.
Lots of people are lying down with dogs and then wondering why they’re getting up with fleas.
pqkdzrwt: Something like 20% or 25% of the Australian populace gets some form of handout from the government. I’d call that a love affair with socialism. Plenty of people don’t have enough money for retirement, or won’t in coming decades, for a whole lot of reasons I’ve already listed. Those people are not simply going to disappear quietly into the night. They’re still going to be voters in retirement. Anyone else who has any money more than them is going to increasingly be a legislative target for them and their elected representatives. I don’t want to be such a target. Not now, not ever.
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