Update No. 80 – 05/10/12

Our opponent (the S&P ASX200TR index) soundly beat us this week, up nearly 2.5%.  Our holdings also advanced soundly, up 1.34% on the week, dividends have started rolling in, meaning we are growing our cash holding, as always with an eye to any opportunities that should arise.

The benchmark is now within a hairs breadth of being breakeven over the 18 months (and 1 week) the fund has operated.  Founding holders are fortunate to have enjoyed a 17.25% net return in this same period, we have had fortune good and bad in this time, and will be inordinately pleased if the ensuing 18 months presents a performance (relative to the benchmark) anything like the last.

What an excellent example Chuck Feeney sets.  The linked article outlines his efforts to give away his fortune before his death.  For someone of extremely substantial wealth, it must be remembered this is not necessarily an easy task (at least if any discernment is used), though it appears one Feeney has nearly accomplished.  Andrew Carnegie famously stated “A man who dies rich dies disgraced”, and yet had the equivalent in today’s dollars of about $400m of net worth at his death at 84 years of age, which was an unusually long life for his era (meaning he had a longer opportunity than most to dispose of his wealth).  The reason for Carnegie’s difficulties lay in two places – the constant stream of income from the 5% bonds he received for the sale of his companies & his demanding expectations of what should be achieved through his eleemosynary efforts.  5% is not a big return, but in today’s dollars, something like $160m in interest would have been piling up annually (at the beginning at least), requiring that greater than this amount be given away to ensure the pile diminished.

Interestingly, when it comes to charitable giving, some people feel they can criticise Mitt Romney for ‘only’ giving away 30% of his annual income, thereby seeing his net worth continue to grow (will his evil never cease!!!).  The linked article implies this situation could lead to Romney still growing his net worth while giving away over $50m in the next 10 years.  The author asserts “As Romney ages, his net worth should go down, not up.”, I’m not sure why they feel this is the case.  I think it is an admirable trait for the very wealthy to remember the system is a big part of the reason why they became wealthy in the first place and to seek to give back in some way, but there should never be an expectation of such behaviour.  For me, I have to take the opinion that someone with above average capital allocation skills probably does the greatest charitable service by leaving their charitable efforts to the latter part of their life, as the incremental growth in net worth is likely to exceed the real rate of growth in the cost of conducting charity.  Warren Buffett intends to give away substantially all of his net worth, had he done this say 30 years ago, he would have cost his charities over $40 BILLION.  Now I’ll grant you the $1.7b or so he’d have given away in 1982 would have had a great deal more impact than $1.7b given today, but not nearly as much as $40b + now being gifted.  I would hazard that Mitt Romney will be able to compound his assets at greater than the average charities cost of service delivery, that being the case, in order to do the greatest good for charity, the best thing he could do is STOP giving away so much money now! Unless you are talking about an abnormally large fortune (without disparaging Mitt, $250m, while impressive is not an amount that would be difficult to give away fairly quickly), given Mitt’s life-expectancy is probably north of 80, at 65, if he so desires I think he could wait a few years before giving it away hand over fist without drawing undue criticism.

Returning to Chuck Feeney, it appears that he, despite what is apparently a very demanding & entrepreneurial philanthropic style will achieve his target (near complete wealth diminishment) by 2016, with something over $10 billion given to advance a variety of useful efforts.  All this money made by fleecing well-to-do travellers for ridiculous margins at duty-free stores for a bunch of crap they probably didn’t need, a true modern day Robin Hood…

Despite the still generally negative economic reporting, it is hard not to acknowledge the steady improvement of the world most important economy, the US.  September car sales continued the growth trend with 13% year on year growth. The ‘Case-Shiller’ index also appears to have put its nadir well behind it. Australian investors are probably more closely attuned to how China is trending.  The Non-Manufacturing PMI is probably the most important Chinese economic indicator – it contracted in September from 56.3 to 53.7.  A number above 50 indicates growth, but as we have known for the longest time, growth is slowing, but after a quadrupling of GDP in about 20 years, I don’t think we should be too surprised.  Some are forecasting GDP growth as low as 6.5% for China in 2013; Premier Wen says it will be 7.5% (so that will probably be the reported figure!).  The ‘real’ figure will probably be closer to 6.5%, and I reckon that’s a good manageable rate for the (now) much bigger Chinese economy – Tony Hansen 05/10/12

EGP Fund No. 1 Pty Ltd. Up by 13.84%, leading the benchmark by 2.34% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 17.25%, leading the benchmark by 17.41% all-time (April 1^st 2011).