Interesting FT Articles on Fund Performance , Nick Train and Executive Pay

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There have been some very interesting articles in the FT in the last few days. On the 25th February John Authers discussed market timing and passive versus active management. He quoted consumer research group Dalbar who have compared active and passive funds. Although passive funds have beaten active funds in the long term, because of their lower costs, investors in active funds have received higher returns in the last 15 years. How can that be? It’s because to quote: “Holders of passive funds are generally terrible timers, buying at the top and selling at the bottom”. So the message is “The easier it is for us to time the market, the more we take advantage of the opportunity to time it badly”. That’s a very important message for all private investors who invest in funds of all kinds.

On the 27th February there was a profile of fund manager Nick Train (manages top performing trust Lindsell Train and others). Interestingly he discounted the wisdom of meeting company management – he was quoted as saying “But the truth is that there is no correlation between access to company management and superior investment performance”. He apparently prefers to spend time reading – a part of his library is devoted to books on Warren Buffett for example. Like many master investors, he is clearly an avid reader. It’s an interesting article although I am not sure that I would altogether discount the wisdom of meeting management. From my experience, even a brief contact, e.g. at an AGM, can often tell you a lot about whether you wish to back the management or not although it’s certainly not a foolproof process. There are a lot of bullshitters in this world who get to be company directors – readers no doubt know a few.

On the same day there was also an article by Daniel Godfrey, one of the founders of “The People’s Trust” (we expect to publish an interview with him in the next ShareSoc Informer Newsletter). He tackled the issue of executive pay and made an interesting suggestion. This was to go for a “salary-only” model where part of the salary is paid in shares which have to be held for seven years. No need for any other performance incentive – if the company performs then the shares become worth more.

Well that seems eminently fair, workable and simple to me. Complexity of late in remuneration policies has become an absolute nightmare and has led to the ramping up of pay. What do readers think about this idea?

Roger Lawson

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