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To explain Smurf’s investment measurement system

Just one of those things about the detailed knowledge of the three times Professor Murphy. He has told us many a time – in official reports from Finance for the Future and all – that investments in second hand shares simply do not provide a return for investors. Therefore everyone should be in bonds. He is, of course, wrong in this. But here’s a good example of how and why he is:

While the FTSE 100 flirts with a record high, the FTSE 250 remains firmly in the doldrums. It is down 18pc from an all-time high reached in September 2021 and trades no higher than it did five years ago.

OK, FTSE250 has provided no capital gain over 5 years. Tsk. At which point Murphy then says, see, SEE! Everyone should be in bonds because they pay interest.

He’s wrong, as I say, because:

Dividend Yield (%)

FTSE250 provides an income, dividends. Over 5 years – without bothering about compounding – that’s about 15% over those 5 years.

No, it really is true that Spud tries to present the capital and interest income of bonds as against the capital only, without dividends, returns of stocks. And that’s the little trick (“howling lie” also fits) that the entire shtick is based upon.

Isn’t that a grand method of analysis upon which to build a wholesale change in the pensions savings habits of the nation?

Here is just such an example. From “Making Pensions Work“:

As data published by the organisation promoting the City of London,
TheCityUK, showsxviii, the ten year rate of return on investment in UK stock markets was an average
loss of 2% per annum over the first decade of the twenty first century. This was also the global
average rate of return on shares in that decade. The US market did worse, averaging a loss of 3% per
annum over the decade

Sadly his link has succumbed to link rot but we can recreate his numbers.

FTSE All Share Index Jan 1 2000 to Jan 1 2010 (we’ll leave whether the turn of the century was Jan 1 2001 for another day). 3,242 to 2,750. That’s about, as he says, a 20% loss (rough maths, of course) and 2% per year for a decade.

The Wilshire 5000 index: 1 Jan 2000 at 13,700, 1 Jan 2010 at 11,700. OK, at least roughly right about capital values.

Dividend yield on FTSE AllShare about 3.5%. So, un-compounded, 35% over the decade. Wilshire 5000 some number or other.

He’s not including the dividends, is he? And he’s burying that fact in some reference to “As data published by the organisation promoting the City of London, TheCityUK, shows” in order to hide that he’s not using total return, but capital only without dividend income.

Now, note what he calls this: “the ten year rate of return on investment”.

So, is this shtick, ignorance or a howling lie?

4 thoughts on “To explain Smurf’s investment measurement system”

  1. If I didn’t make money from second hand shares, why has the tax man always demanded money from me? Or is this another MMT thing where tax and money don’t connect?

  2. It’s Murphy who, as the brilliant Van Patten repeatedly explains, is one of the most evil people around, and so we can confidently invert Hanlon’s razor and say:

    “never attribute to stupidity that which is adequately explained by malice”

  3. The man doesn’t give a toss about investors’ returns, he is planning to steal the money for the benefit of the ‘state’ anyway.

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