The Time Has Come (the Walrus said) Archives

Eddy all fall down go boom

Today shares in ABC Learning (Australia’s biggest operator of child-care centres) took a dive. Reason: the company is loaded with debt, and at the moment any company with lots of debt is suddenly on the nose and the shares are sold down.

Only a few months ago, ABC Learning was one of the stars, could do no wrong, onward and upward forever.

A few observations:

- Hedge Funds seem to be indulging in blatant market manipulation by finding companies where the management have a lot of shares secured against borrowed money (”on margin”), then by clever buying and selling they can trigger a “margin call” resulting in a forced sale by said management. The forced sale drives the price down further, the Hedge Fund can buy at the lower price and make a tidy profit – especially if using short selling. Sooner or later this kind of market manipulation will have to be examined and probably outlawed, because not all market players are equal. Those who have a lot of money can screw those who don’t, and those in the know on the strategy win while the little guys lose. Once this was called insider trading, now there is nobody on the inside, merely somebody on the outside who can change the market dynamic so radically they might as well be on the inside.

- Large amounts of debt have always carried a higher risk. A benign environment has meant that companies and individuals have got away with it for so long that when the environment changes they are like rabbits in the headlights: confused and wondering where it all went wrong, just before being smashed into little bits. That said, though, careful use of debt has had a useful place for a long time, and will continue to do so. There seems to be a degree of market overreaction at the moment.

- (and finally) I’ve always been a bit suspicious of ABC Learning. They have grown very rapidly in a fairly capital intensive business (all that real estate… unless its leased) and (probably worse) they have a very high dependence on the government subsidies for child care. For a big owner of ABC Learning shares, a change in government policy is all that stands between a nice dividend, and wondering how to put bread on the table. That level of dependence on government largesse has always left me feeling a bit underwhelmed.

Who knows where the credit crunch will take us, and how many more companies will suffer terrible falls in share prices. And who knows how many companies will be so badly hit that they end up being broken up and sold off at bargain prices, where the shareholders get next to nothing. Such is the way of market upsets. All a good argument for having a diversified portfolio of carefully run companies.

Fund Damagers

It’s probably no secret (just go read some of the “Pages” off on the right hand side, about money and investing) that I’m no great fan of Fund Managers.

Fund Damagers is what I normally call them, a bunch of blood-sucking leaches.

There are a rare few who don’t, but most – the majority – of managed funds charge a management fee. This fee is usually structured as a percentage of funds under management. Some add a performance fee.

The effect of these fees is that the fund manager gets paid out of your money, even if they make your investment go backwards, because they take a percentage of funds under management. And in the good times they still take that fee, as well as helping themselves to a portion of the “outperformance”.

The net effect of this is that the chaps from the fund manager get to drive a new Beemer each year, because you and I pay for it come what may.

So…

In spite of my dislike of Fund Damagers, 5 years ago I tipped some money into 3 managed funds. I did this to build a fund for the children’s education – figuring that I’ll try and invest my own money for my future but in case I screw it up, I’ll rely on the much-lauded, much applauded fund managers to safely handle a few quid to pay the kids HECS fees when they need it.

Measuring fund managers performance in good times is a pointless exercise, because even a dead donkey can make money in a rising market. Measuring fund managers performance in bad times sorts out the wheat from the chaff.

Now, 5 years after investing with those funds, we are in the midst of the current market meltdown, so its a good time to reflect on their performance.

Each fund was bought at the same time – 5 years ago, all within about a 3 or 4 month period.

Each fund is set up so that the fund distributions are reinvested.

So how have our funds gone?

  Fund 1 Fund 2 Fund 3
Amount Invested $3330 $3853 $9504
Current Value $3274 $4443 $9439

The amount invested includes the distributions from the funds over the 5 years, so the original amounts were less. However, I pay tax on the distributions and the tax paid is not included here.

What this shows is that the fund managers, over 5 years, have gone backwards in 2 of the 3 cases. When the tax I pay is taken into account, they have all gone backwards.

Thank you, Fund Damagers!

I thought it appropriate to remark on the performance, because it’s the time of year when the Fund Managers evaluate their performance and go on an orgy of self-congratulation about how well they have done, and hand out awards for the best performing fund in the last year.

Perhaps they should look at total return over a longer period!

Sorry!

I’ve just watched the speeches of Kevin Rudd and Brendan Nelson from the “Sorry-fest”.

You can find the whole deal on the ABC web site. 1/2 hour of Mr Rudd, and out the same from Mr Nelson.

Mr Rudd presents very very well. Look on this oh Howard, and weep at your lost opportunity! Ten years you squandered with no vision, just being a mean-spirited weasel.

Mr Nelson tried hard, and clearly has some strong feelings, but his party is torn apart and don’t know which way to go. His message was a bit mixed up. Rudd is setting the agenda, and the Liberals are trying to maintain some dignity. They have succeeded in the main, just.

I’ve had very mixed feelings about all this (hence no blog posting until now), but after seeing Mr Rudd I suspect that maybe, if he does not get hijacked by other crises, then just maybe he and the new BIPARTISAN Commission can actually make a difference.

By making a clear point that words don’t actually make history, actions do, he has also tied his words to some deeds; and the deeds will define the real result of all this.

I’m now more optimistic that there might be a decent future for Aborigines than I’ve been for about the last 15 years. That said (written), it will be long and difficult to actually make a difference. Decades. But you can be sure there will be no difference at all if they don’t try.

To sit through two politicians speeches lasting a total of an hour is unheard of for me, I normally have such contempt for the species. Tonight, watching from the ABC web site, I was riveted.

So full marks, for the first time in years we have a polly who may yet turn out to be both inspirational and a statesman. He’s sure starting out with that kind of promise. I wish him, and Mr Nelson, well.

Forward, gentlemen, with goodwill. May the forces of evil be defeated as they try to ambush you.

Another death in the family

Poor Mr W. died on Saturday.

We were using his services, much like we do every weekend, and he just gave up the ghost on us, with barely even a whisper. One moment there, the next, dead as a dodo.

Mr W. had been struggling for the last few weeks. At certain times he was making a strange, unnatural, and rather loud whining. Much as though something was not quite right but he couldn’t find the right way to say what it was.

Then, last weekend, I really upset him by giving him a special tonic. I think that was the final insult – trying to fix things after years of neglect was all too much and he couldn’t handle it any more.

So we’ve replaced Mr W. Seeing as he rather abruptly withdrew his services, we decided to unilaterally give him the sack. Death is no excuse, as any boss and student of the not-yet-withdrawn workplace laws knows only too well.

Unfortunately Mr W has left us with the funeral expenses – something that most employers would object to, but our kindness and humility knows no bounds.

———

For those concerned about our callous and cold-hearted behaviour, Mr W is our new washing machine, purchased only in 1992.

After 15 years, he’s carked it:dscn2730.JPG

For some time we’ve been finding deposits of gunge in the clothes, mostly this seems to be scale. It got a whole lot worse while we were away in Tasmania, during which time there was a heat wave and the house got very hot. Lack of use, drying out, and heat made the scale deposits fall off in ever-larger chunks. This reached the stage of picking out lumps of grey stuff about a centimetre square:
dscn2729.JPG

The spin cycle had been getting louder, the high-pitched scream could be heard hundreds of metres away, past several neighbours houses, and that was with the doors shut.

Then finally, last weekend, he wouldn’t pump out. That previous wash cycle with the de-scaling laundry powder did far more harm than good, and he was knackered.

We’ve replaced him with a nice new thingy from Mr Fisher and Mr Paykel. Normally we’d buy a locally made Simpson, but they looked so ugly that I’d prefer to poke my eyes out with a needle. So a kiwi appliance is the next best thing.

Current tally of dead appliances in the last 18 months:

- Dishwasher: CHECK
- Hot Water Service: CHECK
- Washing Machine: CHECK
- Car Air Conditioner: CHECK
- Range Hood: CHECK (but repaired)
- Clock Radio: CHECK
- Electric Shaver: CHECK (but repaired temporarily)

Tot up the value of that lot :(

Why?

Why is chocolate (by the block) always wrapped in aluminium foil?

Why not waxed paper?

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