A Canadian's random thoughts on personal finance

Nov 28, 2008

Magnitude of Credit Default Swaps

Imagine being able to turn a single dollar into $7 million. If you handle it wisely, you could retire and live very comfortably indefinitely. $7 million represents more than a lifetime of earnings for most people.

Now, imagine turning each of those 7 million dollars into $7 million. That's a mindboggling amount of money, but it would still be less than the amount of money involved in credit default swaps.

Nov 14, 2008

Mutual funds: "manager risk"

A recent Motley Fool article on picking mutual funds highlighted the importance of researching the fund manager. My reaction is simply this: it is a systemic flaw of mutual funds that their performance depends so much on the skill and temperament of the individuals running them.

"Manager risk" can outweigh all other risks when picking mutual funds. If you're lucky, you get Peter Lynch; if you're not lucky, you get his successors, your funds go sideways for two decades, and you lose 10% of your assets in fees for the privilege.