BeyondProxy linked to this rare footage of Cundill speaking of his investment philosophy (Value) and approach to capturing the value premium. Peter, a Canadian, found that no matter what was happening in the home market, there was usually a market in which one could find plenty of beaten up stocks. He made it his mission to spend several months each year in the country that had stocks that had been beaten up the most in the prior year. Hence, There is Always Something To Do, which can be found in the bookstore above.

Peter suffered from a neurological condition, which was diagnosed soon after he gave this lecture, and he died in 2011.

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I was happy to participate in this video production (make sure your YouTube settings are on HD for the best experience).

I have come to know the participants in the video as outstanding individuals, who volunteered their valuable time to promote the CFA Charter and the Members of the CFA Society of South Florida. The video is already being viewed in Charlottesville as an “inspiration” for others.

We hope our members receive the accolades, employment, and business they deserve for their exceptional achievements and commitment to high ethical standards.

To find a Financial Adviser near you who has earned the CFA Charter, go to www.cfasouthflorida.org and click on “Find a Financial Adviser” at the bottom of the menu on the left-hand side.

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“Brokers, like those at the Toffels’ bank, are technically known as registered representatives. They are required only to recommend “suitable” investments based on an investor’s personal situation — their age, investment goals, time horizon and appetite for risk, among other things. “Suitable” may sound like an adequate standard, but there’s a hitch: It can mean that a broker isn’t required to put a customer’s interests before his own…“

“There are some specific situations when brokers must act as fiduciaries — for example, when they collect a percentage of total assets to manage an investment account, or when they are given full control of an investor’s account. But under current rules, a broker can take off his fiduciary hat and recommend merely “suitable” investments for the same customer’s other buckets of money…”

“It may be less confusing for consumers to simply pay for advice through “fee-only” independent financial planners who are fiduciaries.”

http://www.nytimes.com/2014/10/12/business/mutfund/before-the-advice-check-out-the-adviser.html?ref=your-money

The Washington Post has also jumped on this confusion.

http://www.washingtonpost.com/business/get-there/find-a-financial-adviser-who-will-put-your-interests-first/2014/10/23/21f3a898-596f-11e4-bd61-346aee66ba29_story.html

H/T: Mark Ukrainskyj on LinkedIn

Of course, the Wall Street Journal has covered this issue for a long time, so it is interesting to note the NYT and WaPo’s recent interest.

http://blogs.wsj.com/moneybeat/2013/08/09/look-whos-locking-horns-over-retirement-accounts/

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Readers of my blog know that I respect Jason’s ideas, books, and columns on portfolio and wealth management, especially given his connection with the Graham/Buffet/Klarman approach to investing. Jason’s weekly column, which appears on the front page of the Business & Finance section of the WSJ every Saturday, is a must read for me and I hope you, too.

http://blogs.wsj.com/totalreturn/2014/09/06/read-em-and-reap-smart-people-for-investors-to-follow/

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I usually have a negative knee-jerk reaction to anyone who says “it’s different this time” and true to form, I disagree with Sufi’s argument that capital can replace labor completely. His is a Luddite argument that has been made since the industrial revolution and never materialized. Capital can only replace labor when (if?) we reach the Singularity and machines can reproduce themselves. (By machines, I mean both mechanical and electronic.) Until then, back-breaking labor will be replaced by machines that, in order to propagate, will need engineers and programmers and maintenance workers and chip makers, and entrepreneurs who can employ machines in purposeful activity, etc.  That reminds me; I also added Ray Kurzweil’s website to the blogroll.

http://blogs.cfainstitute.org/investor/2014/07/23/debt-and-secular-stagnation-amir-sufi-discusses-the-us-recovery-video/

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At this month’s CFA Institute Annual Conference in Seattle, Sharpe said that Smart Beta made him sick because it implied that index investors had to be “dumb beta.” Sharpe believes the so-called dumb beta investors would eventually gravitate to Smart Beta strategies because no one is that dumb for long, and then the advantages of Smart Beta would simply melt away into average beta.

As regular readers know, Fama and French (F&F), and later Lakonishok et al. (LSV)  (See F&F and LSV tab above) demonstrated as early as 1992 that two factors consistently resulted in outperformance in the long run: Value and Small Cap. It is largely these two factors that put the “smart” in “Smart Beta.” F&F and LSV were not the first academics to publish papers on the value and small-cap factors, but they certainly popularized the factors in academia. Before these academics came along, we had research from practitioners Ben Graham from the 1930s through the 1970s; Warren Buffett from the 1950s to today; and Seth Klarman from the 1980s to today; that demonstrated that value strategies consistently outperform the market in the long run.

Since F&F and LSV published their research in the 1990s, there has been an overwhelming amount of academic research that demonstrates that value strategies outperform. Most of that research proves that value outperforms for reasons that are not related to risk, therefore value has consistently delivered alpha in the long run.

Most Smart Beta strategies are nothing more than systematic ways for managers to capture some of the factors that are known to deliver this alpha in the long run. The adoption of this approach in a more systematic and passive way somewhat proves Sharpe’s theory that no one stays that dumb for long. However, value and small-cap strategies outperform over long periods not necessarily because value and small-cap investors are smarter than everyone else, but because behavioral flaws and institutional constraints do not permit EVERYONE to FULLY capture the alpha in value and small cap. I remind you that it did take over 150 years for Smart Beta to be born.

Only small investors with contrarian streaks (see my future post on Investor DNA) can fully exploit these factors. Even Smart Beta strategies will fail to fully exploit these factors because of the amount of capital that Smart Beta will need to invest. Much of that capital will have to be allocated to large cap firms, but most of the alpha in these factors is found in relatively unknown and un-followed small-cap firms.

So, my answer to Sharpe’s queasiness is this: Smart Beta is just a label. Would he have taken less umbrage if that label were “Behavioral Beta” or “Factor-Focused Beta?”

http://advisorperspectives.com/newsletters14/Bill_Sharpe-Smart_beta_makes_me_sick.php

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http://post.nyssa.org/nyssa-news/2011/05/book-review-the-big-secret-for-the-small-investor.html

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“Would you rather retire in Diamond Head Hawaii or Diamond Bar California? If you invest with value investing principles, you can retire in Diamond Head. If you invest as if markets were efficient, you will probably not be able to afford Diamond Head.”

The Haugen claim–backed by significant research–that was most shocking to those indoctrinated in the Efficient Market Hypothesis (EMH) was that value investors not only earned the best long-term returns, but that they did so with much less risk than the risk assumed by index fund investors.

Haugen’s book was a rare part of the CFA curriculum that criticized the EMH. It resonated with me. The fourth edition of The New Finance has been added to the Value Investing Bookstore tab above. It is out of print but can be bought through Amazon.

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I also discovered that among the ten or so dinner attendees, there were about seven or eight opinions on just about every investing process and idea. Paradoxically, the difference of opinions left me feeling optimistic about value investors and value investing because more than anything it is groupthink that creates outsized risk. Buffett famously demonstrated that there was very little overlap in the “Superinvestors” investing ideas or processes. The one thing they had in common was a Graham-Dodd philosophy.

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