The more questions I ask about investing, the more questions I have. While talking derivatives last week, Simon mentioned arbitrage. It’s a term smart folks like to use a investment conferences. When they do, I nod and hope people can’t really smell fear.
In this episode I find out arbitrage is a lot like being Batman – all you really need is a ton of money and dead parents. I’m only half kidding. When a share is traded on more than one market, price differences creep in. Arbitrage is when you buy the cheaper share on one market and sell it at the higher price on the other market. I thought this sounded like a pretty awful way to earn a living, but it turns out computers can do it for you while you do things that are fun. Like be Batman.
This is a show about questions. Send yours to ask@justonelap.com.
Kris
PS - we still waiting on iTunes to approve our submission :(
Sometimes it seems like derivatives exist simply to vex me. I know, academically, that the world doesn’t revolve around me, but seriously derivatives: what the hell? In this episode of The Fat Wallet, I reach for that eureka moment. Then I stop reaching because injuries are a real risk.
I’ve been trying to get at derivatives for about four years. Brilliant Lauren Bodington from 28E Capital once spent what must have been a long, frustrating hour explaining the bare bones. I thought I was pretty smart after that conversation, but every time I add a single new fact, my tower of knowledge crumbles like this metaphor.
Here’s what I know: futures contracts are the easiest derivatives products to understand. They are contracts to buy something at a set price at a future date. Their slightly more nasty cousins are contracts for difference (CFDs). Those are bets on what the price of something is going to be at some future date. Warrants, options and swaps were on the list of things I wanted to talk about, but they are so ugly I didn’t even look at them. They’ll get their own episodes once I muster the energy.
For now, brace for impact.
I like to think about investment fees. A man in a clown suit can lure me into a panelled van with a cheap ETF. Over the last week or so, however, I’ve come to realise that an ETF’s price tag is only one part of a much bigger picture. Yes, Big Bad Industry, I realise this is common knowledge to you, but I’m a retail investor, remember? Until now nobody told me.
Following the now fabled conversations with Roland Rousseau – the unofficial mascot of The Fat Wallet Show – I’ve been paying much more attention to things like sectoral exposure and risk in ETFs. I enthusiastically share my findings on exposure the NewFunds GIVI in this Periscope.
I’m starting to discover cheapness is relative when it comes to ETFs. So far, I’ve been focusing on a combination of total expense ratio (TER) and brokerage fees. However, Roland mentioned churn in ETFs. I knew churn wasn’t part of the TER, but I had a sneaking suspicion that I was paying for it anyway.
In this episode, I talk to Simon about churn, we take a little trip to spread and finally end up at tracking error. I have to go back and back again a few times to wrap my head around it. I’m here to learn, so that’s okay.
I think every question deserves an answer. If you’ve been wondering about personal finance or investment concepts, drop your questions to ask@justonelap.com. I’ll try to help you find the answer.
Fund of funds with Keith Mclachlan
Fund of funds are the Russian nesting dolls of investment. When you strip away all the layers, are you left with fees or profit? In the second episode of The Fat Wallet Show, Simon and I bedevil industry boytjie* and small caps fund manager Keith Mclachlan about these products.
Keith reckons the collective investment scheme tax shuffle, institutional fee efficiency and access to products not ordinarily available to retail investors make funds of funds worthwhile. He has a point, until he starts talking about “fuzzy logic” (which, I’m pretty sure, is a type of washing machine setting) and how you have to trust the fund manager.
Is there a person in the world that I trust enough not to fleece me on fees and to make decisions that will benefit me and not him? Haha! Yeah, right.
There is a moment right in the middle when we all go really quiet to process everything. Not great radio-ing, I know, but sometimes the brain needs a while to catch up to the information. We recorded this episode at the JSE right before Keith did a very enlightening presentation on buying small caps. He talks about the process of selecting a good stock that will be valuable to any investor. It’s worth a watch here.
* I once called him something way worse in a poker game. I know he’ll forgive me.