Book review: The Match King: Ivar Kreuger and the Financial Scandal of the Century by Frank Partnoy

Book review: The Match King: Ivar Kreuger and the Financial Scandal of the Century by Frank Partnoy Book review

Finished reading: 30 August 2017

https://www.amazon.com/Match-King-Kreuger-Financial-Scandals/dp/1586488120

The Match King

The Match King is a historical account of Ivan Kreuger who perpetrated one of the largest financial frauds in history.

The book is a thorough account of how Ivan Kreuger went from being a nobody in Sweden to one of the largest players in global finance prior to the Great Depression rivalling The Morgan banking dynasty. Ivan initially started off by acquiring monopolies to produce matches in various European countries

Ivan manages to keep his empire intact for much longer than anyone would expect, however it finally comes undone through the great depression and Ivan eventually commit suicides.

Ivan comes across as a extreme financier who manages to fend off ever-increasing concerns and questions over the legitimacy of his Match King Empire by maintaining an ere of confidence which enables him to raise increasing amounts of capital to ensure that distributions to existing shareholders and bondholders can continue to be made.

On a positive note Ivan was responsible for many of the financial innovations that we use today such as having various classes of shares that entitled holders to different economic returns.

Ivan’s Match King empire was a mix of a ponzi scheme that required increasing greater amounts of capital to pay distributions, however the underlying busineses were not fictious and made real returns such as when the companies within his Empire were liquidated the returns to shareholders were much greater than zero.

The takeaways I got from the book were that in times of easy money and euphoria people continue to turn a blind eye to the rest and do not even enquire about the most basic common sense financial questions. Ivan attracted capital by offering high returns to investors similar to what the finance companies in NZ did prior to the GFC to attract funding.

The lax financial reporting requirements at the time men that investors we're not provided with adequate financial information but even information they were provided with was not being analysed in an independent and objective manner instead I even used his Charisma to allay any concerns invested may have.

It also shows the slippery slope that humans can encounter once they let their ethics slip. It is easy to keep making further and further transgressions that, although seems small at the time, become increasingly ethical trespasses.

There are also a number of traits that Ivan experienced in his youth that were born out in later years such as even cheating on examinations and forging documents work she also did on a much larger scale near the end of his career.

Conclusion
A good book about human emotions and the euphoria at the time pre-great depression which helps to recognise patterns that may exist in conduct in the financial market in today's frothy environment.

Book review: The Money Code: Become a Millionaire With the Ancient Jewish Code by H.W. Charles

Book review: The Money Code: Become a Millionaire With the Ancient Jewish Code by H.W. Charles

Finished reading: 16 April 2017

https://www.amazon.com/Money-Code-Become-Millionaire-Ancient-ebook/dp/B009ZIU2QA

"The Superinvestors of Graham-and-Doddsville" is an article by Warren Buffett promoting value investing, published in the Fall, 1984. The article highlights how it is more than just coincidence that a group of investors who invest using particular value philosophy have outperformed the market and a value investing approach can deliver higher than market returns over a long period of time.

However, following a value investing approach is easier said than done and requires a terrific amount of discipline and fortitude to keep adhering to the philosophy even in times when it is out of favour.

Having read the article I thought what are the traits of investors that are likely to lead to outperformance and the obvious one to me was race.  Through my readings on business and investment I continue the come across a large number of Jewish people who are extremely successful in building large amounts of wealth.  My gut feeling was that Jewish people are severely over-represented on a per capita basis in both income levels and absolute wealth, however I have not seen much publicized about this perhaps because the Jewish people have had a long history of being persecuted and would rather not raise attention to this observation.

When looking into the richest people in the world  I found an article that suggests more than 100 of the 400 billionaires on Forbes' list of the wealthiest people in America are Jews. Six of the 20 leading venture capital funds in the US belong to Jews, according to Forbes.

Since the mass immigration some 100 years ago, Jews have become richest religious group in American society. They make up only 2% of US population, but 25% of 400 wealthiest Americans.

Eleven of the 50 richest people in the world are Jewish, according to the 30th annual Forbes billionaires list released Tuesday. The list features five Jews in the top 15 and seven in the top 25 spots.

In 1957, 75% of US Jews were white-collar workers, compared to 35% of all white people in the US; in 1970, 87% of Jewish men worked in clerical jobs, compared to 42% of all white people, and the Jews earned 72% more than the general average.

These statistics make it clear that my gut feelings were correct the question from here is why the characteristics of Jewish people make them extremely wealthy and on average much more wealthy than the average person.

Again I would start with my hypothesis that the Jewish people were treated very poorly historically especially during World War 2 and had many assets repossessed.  Therefore when Jews were forced to relocate to new countries they only had one option to work extremely hard and focus on education to improve themselves.

In trying to answer this question and let me to the book the money code which attempts to explain why so many Jews are millionaires and extremely successful.

In this book, H. W. Charles laid out 7 practical money code (tips), each in their own chapter.

The first code is wisdom which basically professes that the more you learn and the more that you can apply practically those learnings the more fulfilled your life will be and as a byproduct of that the greater your wealth will become . Wisdom can be achieved through practicing humility reading books and from interacting with others

The second code is tradition and the Jews view wealth and success is a blessing and gift from god and not something that should be shied away from. What a man thinks of himself that really determined his fate and because the Jews think of wealth and prosperity as positive and something to strive for many achieve that status. There is a focus on working hard and then accumulating wealth and then making that money work hard for you through wise investments that yield passive income.

The third code is work. The takeaway from this chapter is that most Jews work for themselves and hire employees instead of being employees.  There is also a focus on perseverance and I believe that success is achieved and maintained by those who try and keep trying.  Whatever you do should be with complete focus with no interruptions as interruptions break our train of thought.  

The 4th code is investing highlighting a focus on building your wealth through making successful investments.

The 5th code is law and placing importance on honesty and business matters and don't try to get rich quickly. Wealth obtained by ill gotten means will be lost or as well again by hard work will be kept. It is also encouraged to take care complete day of rest on the Sabbath.

Code 6 is Tithe which is a practice where you should give away at least 10% of your earnings regularly.

Code 7 is charity and the Jews are very charitable with the population making up in the approximately 2% of the US American population, however they represent 30% of America's most generous donors. There are different levels of charity from the lowest to highest level the lowest being giving begrudgingly and the highest being in a beam the recipient to become self reliant

To sum it up it is earn as much as you can save as much as you can invest as much as you can give as much as you can. Money is a great treasure that can the only increases as you give it away.

Conclusion

The Jewish people have overachieved in a variety of industries & countries. They have some very sensible philosophies which like the value investors highlighted in Warren Buffett's Superinvestors of Graham and doddsville article lead to above average wealth accumulation. Furthermore, their philosophies extend wider to  seek ultimately a more fulfilled life which all races could learn from.

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Funds Management in Australia

Fund Management in Australia

The funds management industry in Australia seems to be going from strength to strength with a plethora of new funds coming to market aided by the tailwinds from compulsory superannuation.

The role of active equity managers in Australia does not seem to be diminishing compared to overseas markets such as the US where there has been significant outflows from active managers into passive.

The other noticeable theme in Australia has been the increasing popularity of global funds as domestic equity managers have  struggled for differentiation in an increasingly competitive market that will increasingly become disrupted by enhanced passive investments.

One byproduct of this has been that active managers in Australia have had to lower their fees in some instances.  An example of this has been K2 Asset Management and Platinum Asset Management which have both lowered their management and performance fees across their retail funds in response to declining funds under management.

K2

Platinum

The other feature of funds management in Australia of recent times has been the popularity of permanent capital investment vehicles which target the self managed superannuation market in Australia.

Historically these structures have been listed investment companies (LIC) and the investors in the fund have borne the cost of establishing the fund which can be as high as 3%. Therefore investors start day one already having lost money.

Newer structures such as VGI Partners Global investments Limited LIC and Magellan's Listed Investment Trust (LIT), which is raising up to 9 billion dollers, are having the fees paid by the manager and not buy that investors in the front which is a preferable outcome for investors.

VGI’s LIC

1. The Manager will not receive any Management Fees until all of the Company’s establishment costs, including the costs of the Offer, have been recouped. As a result the Company is expected to list on the ASX with a net asset value equal to the Offer’s $2.00 issue price (see Section 7 for further details).
2. The Manager will pay the vast majority of the Company’s ongoing operating costs, including ASX and ASIC fees, audit costs, legal and tax advice costs and any fees charged by the Company’s fund administrator. The Company remains liable for some operational costs and expenses. For example, for corporate governance reasons, the Company remains liable for, and must pay, the costs and expenses of the Directors (including director fees and insurance costs)1 .
3. The owners of the Manager will commit to reinvesting (on an after tax basis) any performance fees the Manager earns from the Company into Shares, and enter into long-term voluntary escrow arrangements in respect of those Shares

Magellan's offer includes  a "valuable loyalty reward" worth 6.25 per cent to existing investors in their funds up to a total investment amount of $30k.

The outcome from these scenarios if we look at a fund manager's economics as a technology company we are seeing falling ARPU, higher customer acquisition cost but lower churn. The Interesting question is whether the lifetime value (LTV/CAC) ratio is improving?

The fact fund managers are seeking to raise money and permanent capital structures is also indicative of where we are in the market cycle and suggests that the managers believe we are in an environment where capital is easy to raise and they are willing to pay a premium on customer acquisition cost to benefit from not having the risk of redemptions i.e. a higher LTV. Those managers that have secured permanent capital will be able to invest much more aggressively in a downturn and should benefit from improved returns from not having to take a more conservative approach by needing to hold higher levels of cash to meet redemptions which tend to peak as markets are capitulating.