How to Buy a Glider Afordably, or Euro vs ContraFund

[[email protected]]

A year ago I suggested that the way to counter the high Euro was to
invest your money and wait. As an investment vehicle I recommended the
Fidelity ContraFund (FCNTX). Now, I am not one to make idle
suggestions: I am personally heavily invested in this fund.

Here are the results one year later:

Euro: DOWN 9.4%
ContraFund: UP 20.4%

Difference: 30.2%

Of course, most will have to pay capital gains on the ContraFund, which
is 15% max in the U.S., so the 20.4% becomes 17.3% (or more).

Tom Seim
Richland, WA

[Andy Blackburn]

At 06:06 22 November 2005, wrote:
>A year ago I suggested that the way to counter the
>high Euro was to
>invest your money and wait. As an investment vehicle
>I recommended the
>Fidelity ContraFund (FCNTX). Now, I am not one to make
>idle
>suggestions: I am personally heavily invested in this
>fund.
>
>Here are the results one year later:
>
>Euro: DOWN 9.4%
>ContraFund: UP 20.4%
>
>Difference: 30.2%
>
>Of course, most will have to pay capital gains on the
>ContraFund, which
>is 15% max in the U.S., so the 20.4% becomes 17.3%
>(or more).
>
>Tom Seim
>Richland, WA

People should look up 'suvivor bias' to gets a sense
for how to assess backward-looking views of investment
performance (example below).

Start up ten or twenty investment newsletters, and
in each of them publish a different prediction about
where the market is headed: 'The bulls will return!',
'The bear draws near!', 'Market to flat-line!'. At
the end of the year discontinue the newsletters that
got it wrong but keep publishing the winners--with
new random predictions. Start up a fresh batch to replace
the losers. After a few years you'll always have a
newsletter lying around that you can point to as proof
of your financial genius--the one that, by dumb luck,
got it right five years running. If only investors
had subscribed they'd all be rich by now! If anybody
mentions the losers just tell them you are skilled
enough to know when to cut your losses, then show them
a pretty chart on glossy paper depicting the fortunes
they'd have made if only they'd followed your advice.


This scam depends on 'survivor bias', since only the
successful newsletters are still around you seem to
have a good track record. Only if someone looks back
at the failed publications will they realize you operate
on sheer dumb luck. Welcome to the world of financial
publishing, investment advice--and mutual fund management.


9B

[Bob Johnson]

wrote:
> A year ago I suggested that the way to counter the high Euro was to
> invest your money and wait. As an investment vehicle I recommended the
> Fidelity ContraFund (FCNTX). Now, I am not one to make idle
> suggestions: I am personally heavily invested in this fund.
>
> Here are the results one year later:
>
> Euro: DOWN 9.4%
> ContraFund: UP 20.4%
>
> Difference: 30.2%
>
> Of course, most will have to pay capital gains on the ContraFund, which
> is 15% max in the U.S., so the 20.4% becomes 17.3% (or more).
>
> Tom Seim
> Richland, WA
>


Only if you sell --- there's the rub 8>)

Bob Johnson
Midland, TX

[[email protected]]

I am not sure what you are recommending - if ANYTHING! It sounds like
you are in the "hide it under a mattress" crowd. Be my guest,
especially if you hide it under MY mattress! What I recommended a year
ago wasn't backwards, it was forwards. Guess what? I was right. Your
use of the perjorative word "scam" clearly indicates your bias. Still,
the question is, what is the best strategy for buying a glider
afordably. Do you have any REAL suggestions, or are just passing gas?

Tom

[Roy Clark, B6]

wrote:
> I am not sure what you are recommending - if ANYTHING! It sounds like
> you are in the "hide it under a mattress" crowd. Be my guest,
> especially if you hide it under MY mattress! What I recommended a year
> ago wasn't backwards, it was forwards. Guess what? I was right. Your
> use of the perjorative word "scam" clearly indicates your bias. Still,
> the question is, what is the best strategy for buying a glider
> afordably. Do you have any REAL suggestions, or are just passing gas?
>
> Tom

Here's Tom's original post.

Tom Seim
Nov 15 2004, 8:44 pm show options

Newsgroups: rec.aviation.soaring
From: (Tom Seim) - Find messages by this author
Date: 15 Nov 2004 20:44:56 -0800
Local: Mon, Nov 15 2004 8:44 pm
Subject: Re: US Dollar sinks to new low against Euro
Reply to Author | Forward | Print | Individual Message | Show original
| Report Abuse



(Mike Stringfellow) wrote in message
om>...
> The US dollar is now valued close to 0.75 Euro, down from its peak of
> 1.25 a couple of years ago. Analysts say it may go even lower, with
> some projecting exchange rates of 0.7 (1.4 dollar to the Euro).

> This has pretty much put the kibosh on my goals of buying a new
> European sailplane. A model at, say, Euro 85,000 cost around $70,000
> a couple of years ago, is now around $110,000 and may soon be at
> $120,000.


> Economic models would suggest a strong incentive for sailplane
> manufacture in North America, but I wonder if the numbers of potential
> sales would justify this.


> Any thoughts?



Yes, invest your money and wait. For instance, if you put your money
in a high quality mutual fund you will begin accumulating principal.
Take your $70,000 and put in a Morningstar 5-star fund (i.e. Fidelity
Contrafund). If you average 15% return the numbers are:
Year Amount
0 $70000
1 80500
2 92575
3 106461
4 122430
5 140795
6 161914
etc.

At some point the price of the glider, converted from euros, is going
to be less than your investment. BUY THE GLIDER! This is, simply, the
power of compounded interest.


Don't agree with my numbers? Then put your damn money into a mattress
and see what happens!


The moral of the story is that patience is on the side of the buyer.

-end-

[Andy Blackburn]

At 04:06 24 November 2005, wrote:
>I am not sure what you are recommending - if ANYTHING!
>It sounds like
>you are in the 'hide it under a mattress' crowd. Be
>my guest,
>especially if you hide it under MY mattress! What I
>recommended a year
>ago wasn't backwards, it was forwards. Guess what?
>I was right. Your
>use of the perjorative word 'scam' clearly indicates
>your bias. Still,
>the question is, what is the best strategy for buying
>a glider
>afordably. Do you have any REAL suggestions, or are
>just passing gas?
>

Only point was that one would need to know your predictions
for what to do for, say, the past 10-20 years to know
if your 2005 prediction was good or just lucky. Stock
newsletter writers have used 'survivor bias' in market
forecasting for years - trumpet your successful calls
and hide from the rest.

But rather than trying to go back a decade, we can
just start now. For those considering buying gliders
later in 2006, what's your forecast for the $/Euro
rate 12 months from now?

My recommendation is, if you have a glider on order,
hedge the FX rate, but if you think you can out-guess
the market, you're probably only half right.

9B

[[email protected]]

> Only point was that one would need to know your predictions
> for what to do for, say, the past 10-20 years to know
> if your 2005 prediction was good or just lucky. Stock
> newsletter writers have used 'survivor bias' in market
> forecasting for years - trumpet your successful calls
> and hide from the rest.
>
> But rather than trying to go back a decade, we can
> just start now. For those considering buying gliders
> later in 2006, what's your forecast for the $/Euro
> rate 12 months from now?
>

Well, I started about 35 years ago, but who's counting?

For the next 12 months I predict that the Euro will continue its
decline, probably leveling off at a $1.05 to a $1.10. I would
definitely not hedge the Euro, however. I would - and will - keep a
substantial portion of my holdings in the ContraFund (but I also own a
couple of dozen other funds, ContraFund is my largest holding). And, at
this point, I would put the glider on order (if I were in the market
for a new glider).

> My recommendation is, if you have a glider on order,
> hedge the FX rate, but if you think you can out-guess
> the market, you're probably only half right.
>
> 9B

I don't out-guess the market; I find fund managers who have a proven
track record of doing that. And I monitor there performance to ensure
that they remain in the top 20-30% of their peers.

Tom

[André Somers]

Roy Clark, B6 wrote:

> Yes, invest your money and wait. For instance, if you put your money
> in a high quality mutual fund you will begin accumulating principal.
> Take your $70,000 and put in a Morningstar 5-star fund (i.e. Fidelity
> Contrafund). If you average 15% return the numbers are:
> Year Amount
> 0 $70000
> 1 80500
> 2 92575
> 3 106461
> 4 122430
> 5 140795
> 6 161914
> etc.
>
> At some point the price of the glider, converted from euros, is going
> to be less than your investment. BUY THE GLIDER! This is, simply, the
> power of compounded interest.

If you wait long enough, you might be able to get yourself that same ship
secondhand for even less money. Sorry, but I find these "advises" a bit too
obvious. Of course you can make some money if you invest your money in a
clever way, and you can put that profit towards a nice ship from Europe. So
what? I don't think somebody interested in buying a new ship is interested
in waiting a couple of years for their investment to grow big enough (if
indeed they did the right investments it does grow): they want their ship
for the next season! They want to go chase that wave or that cumulus
street, not to stare at it from the ground knowing that the money that they
could have put towards a nice ship now might in a few years be enough to
buy a great ship then.

Then again, the idea that you can invest your money in order to get more
money doesn't only work for buying gliders, it works in general. So, what
exactly is the relevance to soaring, other than the fact that gliders cost
(a lot of) money?

My advice? If you want to buy a ship, just look for a ship you can afford
*now*. For me, the important factor of a ship is it's fun/price ratio. You
can always find one that fits your wallet and your level of flying.

André

[Andy Blackburn]

At 12:42 24 November 2005, wrote:

>For the next 12 months I predict that the Euro will
>continue its
>decline, probably leveling off at a $1.05 to a $1.10.
>

No guts, no glory - good for you!

Current FX is 1.18. If on Thanksgiving of 2006 the
rate is between 1.05 and 1.10 you'll be 2 for 2, and
can start your own currency trading newsletter. If
not, you'll be at 50% - on par with a coin flip.

We could make it an annual event!

9B

[BB]

> I don't out-guess the market; I find fund managers who have a proven
> track record of doing that. And I monitor there performance to ensure
> that they remain in the top 20-30% of their peers.

In the business, we call this "chasing past return", an investment
fallacy sort of like setting the MacCready value on the last thermal.
The catch of course is if that they don't stay in the top 20-30% of
peers, you've already lost your money.

I looked up contrafund just for fun

http://quicktake.morningstar.com/Fund/TotalReturns.asp?Country=USA&Symbol=FCNTX

Looks like they made one good move in not losing as much as the average
2001-2003; other than that they track large cap growth pretty
perfectly. And they charge a hefty 0.92% expense ratio!

John Cochrane
BB

[[email protected]]

I see you guys need to take in course in Investing 101.

"Chasing returns" means buying a fund that is the top category
performer in a given time period, be that a month, quarter, or year.
Then, at the end of that period, you sell that fund and buy whatever is
the new top performer.

I, on the other hand, find fund managers (note that I didn't say
"funds") that are consistently in the top 10-20% of their peers over a
long period of time. In the case of the Contrafund they have been in
the top 20% for a 10 year period. This does not happen by luck. And I
don't think they were THE top performer in any of those years, but that
is unimportant to me. Rarely do I have to dump a fund that has been a
consistent performer in the past, but it does happen. I am a long term
investor, a bad quarter or two can be overlooked.

Your complaint about the expense ratio shows you haven't done your
research: the Contrafund is one of the cheapest in its category, which
is 1.26%. Believe it or not, but you have to pay these guys to manage
your money. Perhaps you are independently wealthy and work for free,
but I have no idea.

Tom

[M B]

misc.invest
or
misc.invest.funds
or
misc.invest.misc

might be a good place to post these comments and get
some more relevant feedback.

Happy Thanksgiving!

At 08:30 26 November 2005, wrote:
>I see you guys need to take in course in Investing
>101.
>
>'Chasing returns' means buying a fund that is the top
>category
>performer in a given time period, be that a month,
>quarter, or year.
>Then, at the end of that period, you sell that fund
>and buy whatever is
>the new top performer.
>
>I, on the other hand, find fund managers (note that
>I didn't say
>'funds') that are consistently in the top 10-20% of
>their peers over a
>long period of time. In the case of the Contrafund
>they have been in
>the top 20% for a 10 year period. This does not happen
>by luck. And I
>don't think they were THE top performer in any of those
>years, but that
>is unimportant to me. Rarely do I have to dump a fund
>that has been a
>consistent performer in the past, but it does happen.
>I am a long term
>investor, a bad quarter or two can be overlooked.
>
>Your complaint about the expense ratio shows you haven't
>done your
>research: the Contrafund is one of the cheapest in
>its category, which
>is 1.26%. Believe it or not, but you have to pay these
>guys to manage
>your money. Perhaps you are independently wealthy and
>work for free,
>but I have no idea.
>
>Tom
>
>
Mark J. Boyd

[[email protected]]

Boy, this is a tough crowd. Just what part of 20% don't you like?

My strategy is DEFINITELY NOT "chasing returns", but you probably
wouldn't understand the difference even if I explained it, so I will
skip it.

You realize, of course, that ALL mutual funds charge fees? What do you
think, that they work for free? Do you even know that the performance
figures already include the fees?

Your reply rings of sour grapes to me. Exactly what is your strategy
for investing your money for the next 12 months? Please don't say
you'll stick it in a mattress!

Tom

[Graeme Cant]

BB wrote:

> In the business, we call this "chasing past return", an investment
> fallacy sort of like setting the MacCready value on the last thermal.
> The catch of course is if that they don't stay in the top 20-30% of
> peers, you've already lost your money.

Mmmm. Perhaps an imperfect metaphor. McCready theory says to set the
ring to the expected thermal strength for the day and FLY THE WHOLE DAY
ON THAT SETTING! Luckily, most of us modify theory with experience as
we go along or I'd have done a lot more outlandings. :)

I know 'buying proven performers' is imperfect but, like Churchill said
about democracy, it's better than the alternatives. In a world where
you can actually pay good money for advice to buy the failures, Tom's
ideas are at least not obviously irrational.

Go Tom.
GC
>
> I looked up contrafund just for fun
>
> http://quicktake.morningstar.com/Fund/TotalReturns.asp?Country=USA&Symbol=FCNTX
>
> Looks like they made one good move in not losing as much as the average
> 2001-2003; other than that they track large cap growth pretty
> perfectly. And they charge a hefty 0.92% expense ratio!

>
> John Cochrane
> BB
>

[Graeme Cant]

M B wrote:

> misc.invest
> or
> misc.invest.funds
> or
> misc.invest.misc
>
> might be a good place to post these comments and get
> some more relevant feedback.

No. I'm enjoying it and learning. Like Tom, I have to buy my gliders
from investment income.

GC

>
> Happy Thanksgiving!
>
> At 08:30 26 November 2005, wrote:
>
>>I see you guys need to take in course in Investing
>>101.
>>
>>'Chasing returns' means buying a fund that is the top
>>category
>>performer in a given time period, be that a month,
>>quarter, or year.
>>Then, at the end of that period, you sell that fund
>>and buy whatever is
>>the new top performer.
>>
>>I, on the other hand, find fund managers (note that
>>I didn't say
>>'funds') that are consistently in the top 10-20% of
>>their peers over a
>>long period of time. In the case of the Contrafund
>>they have been in
>>the top 20% for a 10 year period. This does not happen
>>by luck. And I
>>don't think they were THE top performer in any of those
>>years, but that
>>is unimportant to me. Rarely do I have to dump a fund
>>that has been a
>>consistent performer in the past, but it does happen.
>>I am a long term
>>investor, a bad quarter or two can be overlooked.
>>
>>Your complaint about the expense ratio shows you haven't
>>done your
>>research: the Contrafund is one of the cheapest in
>>its category, which
>>is 1.26%. Believe it or not, but you have to pay these
>>guys to manage
>>your money. Perhaps you are independently wealthy and
>>work for free,
>>but I have no idea.
>>
>>Tom
>>
>>
>
> Mark J. Boyd
>
>

[Andy Blackburn]

At 08:30 26 November 2005, wrote:
>I see you guys need to take in course in Investing
>101.

Wow Tom!

Maybe you don't know that BB TEACHES Investing 101,
and 202, and 303, at arguably the finest graduate school
of finance in the country.

Maybe you'd like to rear back and call all those Nobel
Prize winners ign'rent too.

Now, back to the dart board.

9B

[[email protected]]

Whatever he's teaching, it AIN'T INVESTING!

Investing involves putting your money at risk for potential gain. Let
me repeat, YOUR MONEY, not someone else's money, YOUR MONEY! Everytime
you make a mistake, YOU feel the pain, not someone else. BB shows clear
ignorance of basic investing fundamentals. I'm sorry, but that is the
way it is.

Tom

[Graeme Cant]

Andy Blackburn wrote:

> Maybe you don't know that BB TEACHES Investing 101,
> and 202, and 303, at arguably the finest graduate school
> of finance in the country.

I suspect Tom picked up that little point because:
a) BB said "in the business..."
b) He read BB's email address (...gsb.uchicago.edu)
c) There was a definite note of authority (condescension?) about how he
came to grips with Tom's thoughts on investment.

I thought the difference was that Tom was risking his own money while BB
taught people who (largely) intended to earn a fairly secure living
investing other people's. Tom wants to get GOOD returns. I'd guess BB
teaches that anything above average is pretty much only luck.

> Maybe you'd like to rear back and call all those Nobel
> Prize winners ign'rent too.

No. But if you're aiming to make money instead of just not losing it,
maybe them Nobel folks aren't all that relevant. Making money is as
much art as science. If it were otherwise it'd be impossible to staff
graduate schools of finance. :)

Best regards,
GC

[Andy Blackburn]

At 09:48 27 November 2005, Graeme Cant wrote:

>I thought the difference was that Tom was risking his
>own money while BB
>taught people who (largely) intended to earn a fairly
>secure living
>investing other people's.

Aren't you giving your money to the latter? Are you
saying in addition one should only pick fund managers
who didn't study finance, or what exactly?

>But if you're aiming to make money instead of just
>not losing it,
>maybe them Nobel folks aren't all that relevant. Making
>money is as
>much art as science.

I'll stick with science. The Wall Street Journal regularly
puts the 'artists' up against a dart board (or more
recently a gorilla) over the course of a year - guess
who wins?

When I was a student, one of the school's Nobel-winning
finance guys was interviewed by an editor from a business
magazine. He was asked, 'If you guys are so smart,
how come you're not rich?' He answered, 'Many of us
are.'

But hey, it's your money so whatever makes you feel
good. ;-)

So... I think the practical advice we've gotten out
of this - as applies to glider pilots - is:

1) If you have a glider on order, put your money in
the ContraFund instead of any other stock or bond fund
or any individual stocks, because the ContraFind will
continue to outperform 75% of stock funds over the
next year (net of fees).

2) Don't buy Euros now, because Euros are definitely
getting cheaper over the next 12 months.

I think those were the basic points. Maybe it'll turn
out to be good advice.

9B

[[email protected]]

Your comments are exactly on point. If you could really teach investing
to all of those MBAs everybody investing in the market could only earn
an average return because market intelligence is evenly distributed. Of
course this is not the case; funds managed by business school graduates
have returns all over the map. My goal is to identify those managers
who CONSISTENTLY beat their peers. The Contafund has a 10 year
compounded rate of return of 12.4%, beating the S&P 500 by nearly 3%.
Perhaps BB ought to ask Will Danoff (the fund manager) to lecture his
class; I think they would learn a lot from him. Will, btw, has an MBA
from Wharton.

Tom

[Graeme Cant]

Andy Blackburn wrote:

> Aren't you giving your money to the latter? Are you
> saying in addition one should only pick fund managers
> who didn't study finance, or what exactly?

No. As a first cut, I don't think I care what they've studied. I think
I'm primarily interested in consistent results (and that, EXACTLY,
is what I'm saying). What's your priority?

>>But if you're aiming to make money instead of just
>>not losing it,
>>maybe them Nobel folks aren't all that relevant. Making
>>money is as
>>much art as science.

What happened to "...if it were otherwise it'd be impossible to staff
grad schools of finance"?

> ...When I was a student, one of the school's Nobel-winning
> finance guys was interviewed by an editor from a business
> magazine. He was asked, 'If you guys are so smart,
> how come you're not rich?' He answered, 'Many of us
> are.'

I've spent my own time around grad schools. Guess what - he lied to the
business magazine. Only a very few of them are rich (see above). :)

Lesson 1 in investing - a lot of really nice people won't tell you the
whole truth.

GC

[Andy Blackburn]

At 19:30 27 November 2005, wrote:
>Your comments are exactly on point. If you could really
>teach investing
>to all of those MBAs everybody investing in the market
>could only earn
>an average return because market intelligence is evenly
>distributed. Of
>course this is not the case; funds managed by business
>school graduates
>have returns all over the map. My goal is to identify
>those managers
>who CONSISTENTLY beat their peers. The Contafund has
>a 10 year
>compounded rate of return of 12.4%, beating the S&P
>500 by nearly 3%.
>Perhaps BB ought to ask Will Danoff (the fund manager)
>to lecture his
>class; I think they would learn a lot from him. Will,
>btw, has an MBA
>from Wharton.


That's certainly true but not my point. I don't believe
that markets are 100% efficient, particularly in the
emerging world. My point was that 'past performance
is not a guarantee of future returns'. ContraFind
had two good years in the dot-com bust that made them
most of their superior 10-year return versus a simple
index (with very low load). The question is, does their
investment philosophy or market / company information
allow them to kick back into superior performance in
2006?

This is true of investments in general. Hedge funds
in particular use various philosophies that try to
play anti-correlated market relationships to improve
the returns at any given risk level. Some of the relationships
hold for a few months, some for a few years and some
get arbitraged away just because the investment philosophy
gets popular and bids the returns away.

If you've gotten rich from your ability to sort out
which historically successful investment philosophies
have legs left and which are played out, more power
to you. At least you needn't worry about how much gliders
cost.

9B

[[email protected]]

I am not sure what you are recommending, if anything. I do know,
however, that you haven't done your research (this seems to be a
recurring theme in this thread). The facts are that the ContraFund has
outperformed the S&P 500 in 8 of the last 10 years. The average
difference is 3.29%. It underperformed one year by 7.35%, but still
managed a gain of 23% that year. More importantly, it significantly
outperformed the S&P 500 in the down years. This translates into lower
risk for the investor (note that I said "lower risk", not "no risk").

Tom