Benchmarking

One of my past employment function I was a Quality Assurance Engineer, and one of the critical aspect of my function was benchmarking our processes to our competitors, because I know that I am not one of the smartest guy’s in the room, and that plagiarism is the most since form of flattery, and this is especially true for my investments.

So when I come across an article in the various publications that provide data on how well programs administered by professional managers have performed, I add it to my list of benchmarks for comparison to my investment performance.

Such an article was this one recently posted on the Bloomberg.com by Martin Z. Braun and Henry Goldman, 2013-05-31, concerning the New York City Pension, Larry Schloss the Chief Investment Officer and the search for in-house investment managers.

In the article some performance numbers for 5 pension/retirement funds were cited.   The New York City Pension, Ontario Teacher Pension Fund, California Public Employees’ Retirement System, Pennsylvania Public School Employees’ Retirement System, and New Jersey’s Pension Fund.

The article reported that the New York City Pension since 2003 has averaged 8.0 percent annual return.  Ontario Teacher has averaged 9.6 percent annual return since 2003.  No end date for this 10-year performance figure was cited in the article. California Public Employees 10 year annual return cited was as of 30 June 2012, and it was reported as 6.1 percent.  Pennsylvania Public 10 year annual return as of 30 June 2012 was cited as 7.2 percent.  Finally the New Jersey Pension 10 year annual return as of 30 June 2012 was reported as 6.4 percent.

These funds are either managed internally, some split between internal and external managers and in one case entirely externally managed.  My portfolio is managed internally.

Well how did I do compared to the professional money manager?  For the period 1/1/2003 to 5/30/2013 my portfolio IRR as calculated by Quicken, was 10.35 percent, for the period 1/1/2003 to 1/1/2013 my portfolio IRR was calculated to be 9.80 percent.  My portfolio performance 7/1/2002 to 6/30/2012 calculated to be 8.90 percent.

Compare that the to reported 8.0 percent for New York City either number is not bad.

Compared to Ontario Teacher Pension reported 9.6 percent, again either number is on par with the professionals.

When I compare my portfolio performance for 10 year period ending 6/30/2012 to reported 10 year annual returns of 7.2 percent for Pennsylvania, 6.4 percent for New Jersey, and 6.1 percent for California pension plans I gain some confidence and validation in the investing strategy that I have chosen for these past 40 years.

By way of another comparison according to calculations provided by following web site http://dqydj.net/sp-500-return-calculator/ the SP 500 annualized return including dividends reinvested for the various periods are as follows.  For the Period July 2002 to June 2012 inclusive the site reported an annualized return of 5.984 percent.  For the period January 2003 to January 2013 the annualized return calculated was 7.256 percent.  For the period January 2003 to May 2013 the annualized return calculated was 7.971 percent.  For easy of comparison I decided to put it into a table

	Jul 2002-Jun 2012	Jan 2003-Jan 2013	Jan 2003-May 2013
SP-500	5.984	7.256	7.971
Mine	8.90	9.80	10.35
Pennsylvania	7.2
New Jersey	6.4
California	6.1
Ontario		9.6	9.6
New York		8.0	8.0

So how did the professional do against the just the SP500. Pennsylvania, New Jersey, and California did provide more of a return than the SP500.  In the case of Pennsylvania significant majority of their return was just from the SP500.  In the case of New Jersey and California almost all of their return was just from the SP500.

The Ontario Teacher Pension did out perform the SP500 but again I would suspect that a majority of their return was just from the SP500.

In the case of the New York City Pension which slightly out perform the SP500.  I would say just like New Jersey and California almost all of their return was from the SP500, note this fund was managed externally by professionals.

Not a single one of these pension to any degree out perform the market as represented by the SP-500 to any exceptional degree including mine, and why should they, it is one of the basic benchmarks that I know I use and I suspect that the respective management of the various funds use to compare their performance with.

	Jan 2002-Jun 2012 Percent SP-500	Jan 2003-Jan2013 Percent SP-500	Jan 2003-May 2013 Percent SP-500
Mine	66.0	74.0	77.0
Pennsylvania	83.0
New Jersey	94.0
California	98.0
Ontario		76.0	83.0
New York		91.0	99.6

In all fairness these various pension funds, they have a great deal more monies to invest compared to what I have to invest, and that any major movement of capital by them will typically affect the market in observable way.  Any major movement of capital by me would be very insignificant to the market, I just do not have that much, and additionally I take great pains to keep any movements small.

The Pension funds have to content with monthly retirement payments to make, but this should be offset by monthly retirement contributions being made, and at the end of the day I would suspect that this aspect of their management activities is pretty much of a wash.

Finally they have to content with numerous individual account holder making allocation changes, but many if not all have instituted rules that limit how many such events an account holder can perform in attempt to reduce this source of volatility.

My investment strategy has been for the most part very simple, one to be invested, and two to be invested in various low cost/fee broad index funds.  Allocated between Stocks and Bonds on average with roughly 77 percent allocated to Stocks, and 23 percent Bonds.  The Stocks are further allocated between Large Cap Indexes, International Stocks Indexes, and Small Cap Indexes.  The Bonds are allocated between Total Bond Indexes, Long Term Treasuries, Inflation Protected Treasuries, and High Yield Commercial.

Nothing fancy, nothing exotic, and nothing that really requires a great deal of tinkering on my part.

During the course of generating this post I decided that I would be an excellent candidate to manage the City of New York Pension Fund.  So with that thought in mind, here goes.

Dear Mr. Schloss;

With all due respect I am submit my name for consideration to manage the City of New York’s Pension Fund.  I have presented data in this post to indicate that my performance is just as good if not better than what you have received to date.

The salary discussed in the Bloomberg article is quite acceptable.  We would have to hold discussions on other aspects of an employment contract, but nothing that I would suspect that we couldn’t come to some mutual beneficial agreement.  Mr. Schoss my investment method is not rocket science, even though at one time I was a rocket scientist.  My investment method is Open Source, can be found on the Internet with a little searching, and completely transparent.  If you are not so inclined to research my method please E-Mail me and I will provide you with a copy, electrons are free.

Thank you for allowing me this opportunity applying for this position.

News Flash from New Jersey

As reported by Bloomberg, “NJ Taxes Cause Rich to Move, Economist Says”

And here I thought it was that the “Garden State” is not really a garden, given that it is the only state that has every one of its counties deemed to be “Urban” as defined by the Census Bureau’s Combined Statistical Area.

Or is it because of the great locations to choose from you know Hoboken, Weehawken, Perth Amboy, Trenton, Bayonne, Plainfield, Camden, Paterson, Passaic, and who can forget the jewel in the crown Newark.

Yep, anyone who is making over a million dollars a year wants to leave New Jersey, at least that is what Charles Steindel, the New Jersey state treasury department’s chief economist either implied or stated.  What Mr. Steindel did not provide was how many of these lucky, plucky individuals are relocating or have relocated.  Additionally he was silent on just where they went.

But it gets even better,  this announcement is the results of a survey of subscribers to the state’s online newsletter which according to the article “includes financial advisers to high-wealth clients”.  Additionally the article states that, “More than half of the respondents said their clients had recently left or express interest in leaving”.  Leaving and expressing interest in leaving are to entirely different propositions; the latter is like asking your teenager if they would like a new car (The answer is Hell Yes).  The former is having your teenager spend his or her own allowance/savings to buy that new car (No Fracking Way).

Just speculation, but it might be that given the current real estate crunch that these lucky plucky few cannot sell their leverage houses for enough to allow them to move, and you thought there was not an up side to real estate mess.

A secondary issue maybe finding a mark who is willing to move to New Jersey or who already lives in New Jersey and does not want to leave, who is willing and able to purchase their house for their asking price.

The statement from Mr. Steindel implies that it is a bad idea to raise the taxes on the very rich, because they will just get up and move, or at the very least threaten to get up and move.

I almost feel sorry for these tax refugees, being periodically uprooted and forced to flee their recently financed mansions, as the tax man comes a knocking.  I have images of the Clampett’s loading up all their possession in the back of their Escalades and driving off into the night in their search for their next mansion where life is good, the services are excellent, and the taxes are low.

Ah the American Dream.