Manager of Managers and Misleading Statistics
On Tuesday evening I was given an invitation to attend an event sponsored by a wealth management company (that shall remain anonymous). If wasn't for the fact that I literally work across the street from the event, and that the starting time was right after when I had finished work, I really wouldn't have attended or given it a second thought. So I attended. The topic was "How to Recession proof your portfolio".
Knowing full well that the company is a wealth management company that would obviously be shilling their products, the main thing that drew me to the even was the complimentary food and to hear what sort of information they were planning on dishing out to the sheep, so to speak.
The company in question is one of those fee based wealth based management companies who charges a flat fee (percentage) of your assets. If you hold primarily fixed asset class investments, the percentage will be low but if one chooses something that has a more global scope and encompasses equities, the management fee can be as high as 2.5%.
Yikes i said to myself. I could easily build a low cost index fund based portfolio for much less.
What really angered me was how they misused statistics in their presentation.
They compared their 10 year performance relative the tsx index but here's where the statistics are misleading. Before I get into that I will explain how their 'strategy' works. They are basically a mutual fund reseller. They sell you mutual funds and charge another % on top of it. As they 'put' it, they said they are managers of managers. They manage mutual fund managers. Huh?
Anyway back to how their stats are misleading. They pulled up a chart of all the different years from 1999-2007. In each column they showed different funds that they invest in.
Here's where the statistics are misleading. As you know, every year funds perform differently. One year's top performing fund will most likely not be the top performer next year right?
So say you have fund A that earned 4% in 1999. fund B earned 10% and for arguments sake the tsx index earned 9%. They would highlight fund B and say "Look we beat the tsx in 1999".
They'd then take a look at 2000. fund A earned 5%. fund C earned 13%. fund B earned 2% and the TSX earned 11%. They would then highlight fund C from 2000 and say look we beat the tsx again.
Okay that's only good to know if someone actually had 100% of their portfolio in each of those winning funds EACH YEAR. There is no freaking way someone could have had the foresight to do that.
What angered me the most? They took the top performing funds from each year and averaged them and compared it against the TSX index. Well, if you're going to pick and choose like that, of course you're going to beat the index. After all, hind sight is 20/20.
Ridiculous. Perhaps the most ridiculous use of misleading statistics in my life. At least the food they served was good. Too bad their advice was utter garbage.
Knowing full well that the company is a wealth management company that would obviously be shilling their products, the main thing that drew me to the even was the complimentary food and to hear what sort of information they were planning on dishing out to the sheep, so to speak.
The company in question is one of those fee based wealth based management companies who charges a flat fee (percentage) of your assets. If you hold primarily fixed asset class investments, the percentage will be low but if one chooses something that has a more global scope and encompasses equities, the management fee can be as high as 2.5%.
Yikes i said to myself. I could easily build a low cost index fund based portfolio for much less.
What really angered me was how they misused statistics in their presentation.
They compared their 10 year performance relative the tsx index but here's where the statistics are misleading. Before I get into that I will explain how their 'strategy' works. They are basically a mutual fund reseller. They sell you mutual funds and charge another % on top of it. As they 'put' it, they said they are managers of managers. They manage mutual fund managers. Huh?
Anyway back to how their stats are misleading. They pulled up a chart of all the different years from 1999-2007. In each column they showed different funds that they invest in.
Here's where the statistics are misleading. As you know, every year funds perform differently. One year's top performing fund will most likely not be the top performer next year right?
So say you have fund A that earned 4% in 1999. fund B earned 10% and for arguments sake the tsx index earned 9%. They would highlight fund B and say "Look we beat the tsx in 1999".
They'd then take a look at 2000. fund A earned 5%. fund C earned 13%. fund B earned 2% and the TSX earned 11%. They would then highlight fund C from 2000 and say look we beat the tsx again.
Okay that's only good to know if someone actually had 100% of their portfolio in each of those winning funds EACH YEAR. There is no freaking way someone could have had the foresight to do that.
What angered me the most? They took the top performing funds from each year and averaged them and compared it against the TSX index. Well, if you're going to pick and choose like that, of course you're going to beat the index. After all, hind sight is 20/20.
Ridiculous. Perhaps the most ridiculous use of misleading statistics in my life. At least the food they served was good. Too bad their advice was utter garbage.
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