Update No. 35 – 27/11/11

For some reason, despite no particular announcements of note by our holdings, we widened the performance differential between EGP Fund No. 1 Pty Ltd and the benchmark by 5.07% this week (to 13.62% since inception 8 months ago).  I wish I could say this were because of our stellar price performance, unfortunately it has far more to do with the substantial decline in the market this week (the fund assets rose by a fraction under 1%, the rest is explained by the benchmarks fall through week).  In any case, as I have remarked often before, as long as we lead our benchmark we will be pleased, because in the long run, the benchmark will likely provide an adequate return on capital, so if we exceed that then our return should be better than adequate, if we exceed it by enough, our return might even be very good.

I have talked quite a bit over the past few weeks about OWS (Occupy Wall Street) and the operation of the Free Market and its benefits. A variety of topics probably not perfectly related to my key goal with EGP Fund No. 1 Pty Ltd, which is to identify and purchase undervalued equities and make market beating returns – believe me when I say, whatever intellectual diversions I might take, I always return to that ultimate goal!  I will divert once more into a subject which touches on one of my great passions, the Free Market.

My (most recent) excursion into this area started with an article declaring Australia, for the second year in a row the second happiest place in the world to live.  I beg to differ; I believe there is nowhere better.  This article led me to another from the ABC website, which postulates which must exist first, economic freedom and the market economy, or political freedom and human rights? After thinking on that, I found myself wondering about how I would achieve the level of economic prosperity I desired had I been born in a third world country? It appears economic freedom would seem to be the driver via the worlds ‘black market’ economy.  I had my eyes opened to this economy through this article on Foreign Policy magazines website, the industrious and hard-working operating within ‘System D’ certainly seem to be gaining impressive prosperity.

It seems intuitive to me that there must be a fairly substantial black market economy globally, but the article linked above indicates the global black market employs in the order of 1.8 billion workers and generates about $10 trillion, or around 1/6 of global economic output, or about twice the output of China (who have the second highest economic output globally).  This is extraordinary and one clear consequence of this global black market is rising global prosperity as discussed in Update No. 33.  Economics is not a zero-sum game, everyone gains in a world of free-trade; it is important we remember this in periods of global economic weakness such as that currently prevailing. – Tony Hansen 27/11/11.

EGP Fund No. 1 Pty Ltd. Down by 9.06%, leading the benchmark by 2.42% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Down by 1.42%, leading the benchmark by 13.62% all-time (April 1^st 2011).

EGP 20.  The EGP20 index is Down by 14.02%, lagging the benchmark by 2.54% since July 1^st.  Since inception the EGP20 is Down by 24.03%, lagging the benchmark by 8.99% all-time (since April 1^st 2011).

S&PASX200TR  The benchmark index is Down by 11.48% since July 1^st. The benchmark is Down 15.04% all-time (since April 1^st 2011).