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The Retirement Plan

October 13, 2013

Essay. The pension fund industry has been fleeing “The Risk/Reward Equation” for more than a decade and, as result, has no technology for investment management that could not be understood by a shop owner in Brighton (The New York Times, July 20, 2013, Private Pension Plans, Even at Big Companies, May Be Underfunded and (of dozens of examples) The Wall Street Journal, April 4, 2013, Fears on Teamsters Pension).

The Retirement Plan

The Retirement Plan

The term “underfunded” has an actuarial meaning but at the end of day, in our sunsets, it means that there’s not enough money to pay us what they promised to pay us, and there’s nothing that we can do about it.

What has to be done, has to be done now, or we too can be living on jams & jellies and cold watermelon at our roadside stand.

The excuse for this failure of pension fund (and endowment fund) management that seems to fly with pension fund sponsors and the board, is that interest rates are not high enough – we really need 8% but can only get 2% – or the markets are volatile and unpredictable and we lost a lot of money in the recession of 2008 and 2009; or emerging markets have failed us; or there are problems in Europe and China; or our infrastructure and shopping centre investments will eventually save us (if they don’t fall down first).

To us, who are not managing any of these pension funds, that’s like saying that we lost the game because we didn’t practice enough, or maybe next year, rather than the other team was a lot better as in, for example, our recent Post, Dow 55,000 (And We Missed It!).

“Virtually all pension funds had assumed returns would be better, leaving them underfunded when their investments failed to perform as expected” or “The stock market’s poor performance has also convinced some companies that they no longer want to take the risk of guaranteeing pension payments” – ibid, The New York Times.

Efficient Frontier (B)(N) Boundary Open

Efficient Frontier and the Open (B)(N) Boundary

The problem is that our professional portfolio managers, hardened by years of investment experience, a consummate education and attendance at many investment conferences, believe in “The Risk/Reward Equation” just as much as the cuckoo believes that he is her only lover.

But the risk/reward equation doesn’t work like that and it’s not too hard to discover how it does work.

For more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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