Anton Kreil and the Institute of Trading & Portfolio Management

Anton Kreil first came to my attention in 2008 when I watched a British documentary called Million Dollar Traders. If you haven’t seen it, it’s worth watching.

The documentary sought to test the premise that people can be taught to be successful traders (as opposed to the theory of good traders simply being born that way). In this sense the documentary was somewhat like that brilliant 1983 movie Trading Places. 

Several ordinary people were selected (after a thorough interviewing process) and were then taught trading techniques. Hedge fund manager, Lex Van Dam put up $1 million of his own money for the traders to utilise. Day-to-day supervision of the traders was conducted by Lex’s friend Anton Kreil.

  

Anton Kreil had a very brief career (2000-2007) in investment banking (Goldman Sachs, Lehman Brothers and JP Morgan). He then retired (at around the age of 28) before coming out of retirement in 2011 to establish the Institute of Trading & Portfolio Management (ITPM). The ITPM is run out of Singapore where Anton now lives.

The objectives of the ITPM are to teach retail investors the techniques that traders at investment banks utilise. The ITPM has a number of “mentors” (to teach students), and all of these mentors have had careers at various investment banks. The ITPM also manages a trading portfolio which is valued at approximately $10 million.

Anton Kreil has also lectured on the charlatanic practices of some stock market educators (who are basically frauds). All retail investors should listen to what Anton has said on this subject and also his views on CFD providers and other brokers.

The ITPM has three primary products:

• A video series for the stock market or currencies priced at $1,499-$2,999 each;
• A three month remote mentoring program priced at $14,000; and
• A nine day “vacation” style one-to-one training program (price not disclosed).

Ok, so what are the good things about the ITPM?

• Anton Kreil is an excellent and highly engaging speaker and I also have to say he does come across as a fun guy to be around;
• I have no doubt that the techniques taught are very sound; and
• The ITPM does invite some successful students who have undertaken its course to trade money on behalf of the ITPM (but only very small amounts of money).

What’s not so good?

• The cost of the mentoring (via Skype) is very high (as is the video series);
• Just because someone has worked at an investment bank, it does not make them some sort of genius, however, many aspiring traders who have never worked at investment banks themselves wrongly hold this view;
• If you are just willing to do your own research you can easily find books and free you tube videos that will show you very similar things to what the ITPM teaches and you can keep the $14,000 to trade with; and
• Anton Kreil is often shown in his videos being chauffeured around in limousines, eating at fancy restaurants, staying at top hotels and flying around the world in business class, one can’t help thinking that this is all for show, but you can call me a cynic.

To expand on dot point two above, all traders at investment banks have a number of distinct advantages over retail traders. These advantages include:

• They can see (and replicate) their clients trades (some of these clients will be extremely good investors e.g. top hedge funds);
•  Their trading costs are vastly less than for retail traders;
• They have the ability to actually influence the prices in certain markets because of the size of their trades;
•  A couple of good years at an investment bank can set someone up for life (i.e. you have a few very good years at an investment bank and take home large bonuses and you are set for life, but it doesn’t mean for one minute that you are actually any good (by the way, a couple of good years as a small retail trader will definitely not set you up for life);
• The bank’s systems for executing trades will be state of the art;
• Bank traders are not trading their own money and therefore will always have some of the emotion involved in trading removed; and
• They can draw on the vast resources of the firm (both people and research). 

These are the primary reasons why ex investment bank employees who start their own funds often cannot replicate the performance they had while they were in the bank.

There are many very good investors who have never worked for an investment bank. Ken Griffin of Citadel is one that immediately comes to mind.

It would be good if the ITPM made its performance records available, but it doesn’t. I think this is a major issue, because if you are charging people, they should have a right to see your record as an investor.

Retail investors tend to run long only portfolios, they do not consider using options and they do not generally know how to structure trades properly. This is the primary focus of the ITPM’s teachings.  

So, in summary, if you really like what you see with Anton Kreil and his mentors, then go for it, but I think you can get the essentials of what is taught for far less than what these products cost. Remember, no one is teaching you alchemy, there is very little that is new under the sun and in this day and age, just about any information is at your fingertips.

You see them here, you see them there, global funds are everywhere!

In Australia there has been no shortage of fee hungry fund managers rushing to launch global funds in recent times.

The word “global” is probably an over statement, the vast majority of these “global funds” are allocating most of their money to the fully priced US market.

During 2017 we saw the listings of the Magellan Global Trust, VGI Partners Global Investments and the Montgomery Global Equities Fund. In 2016 we saw the listing of the (so far) very poorly performing Watermark Global Leaders Fund and my spies tell me that Wilson Asset Management will join the fee party and launch a global fund sometime this year. 

So why all these listings?

They aim to capitalise on the disillusionment of retail investors with the poorly performing Australian market and offer the chance to invest in sectors which are absent from the Australian market. I have no problem with that.

The fundamental problem with these listings is that they are investing at a time when the US market is at all-time highs, but the fee hungry fund manager knows that this is precisely the time at which the public have the greatest appetite for investing. The time to invest is when there is blood in the streets, not when everything is rosy, and right now, as far as markets go, everything is rosy!

The fees, (of course), are high. As I wrote on this site, the VGI Partners Global Investments fee structure is absolutely outrageous, but it didn’t stop naïve retail investors from jumping in. The other funds have more reasonable fee structures, but they are still very high in comparison to what the investor is going to ultimately get (which is below benchmark performance). As I’ve said before, the high fee structures of these vehicles practically guarantee that over any reasonable period of time, the fund will under-perform its benchmark. 

As a side note, please do not take a fund manager’s own reported returns (on their web site) as being factual (especially where unlisted funds are concerned).  I have seen all sorts of chicanery being employed here, e.g. using simple interest returns rather than compound interest returns etc. Work it out yourself. If it doesn’t look right, don’t invest. Unfortunately, the vast majority of retail investors do not understand the mathematics, and this is where the fund manager can easily lead them astray.

The Magellan Global Trust and the Montgomery Global Equities Fund are offering potential distributions that simply will not be achievable out of actual profits and they are likely to resort to capital distributions (i.e. giving investors back their own money in the guise of a “dividend”). But you can always sucker the naïve investor into these vehicles with the right type of bait and high distributions are the bait that has lured many an Australian investor into a poorly performing listed entity – the Beta Shares Dividend Harvester Fund (HVST) immediately comes to mind.

The other aspect of these listings (with the exclusion of the Watermark Global Leaders Fund), is that they provide either no (or minimal) downside protection in the event of a market correction or crash. Given that these funds are allocating most of their money to the US market and that market is at a very high level, it would make good sense to put downside protection in place. As mentioned previously, our own fund uses put options to significantly hedge out a lot of risk, but we of course manage our own money and must be extremely cognisant of risk, the fund manager who offers his wares to the public is only interested in fees, risk is a secondary consideration, if considered at all. Put options also place a small drag on performance when the index is rising and this is an anathema to fund managers because they all have performance fees in place for “outperforming” a benchmark, so they have absolutely no incentive to use risk mitigation products such as put options.

It will be very interesting in a year or two, to show a chart of the relative performance of the above named funds against some benchmark indices. And with all of them being listed entities, there will be nowhere for these managers to hide. Of course, they don’t care, because the money is now all captive to their respective management companies in the closed-end funds.

Incidentally, Warren Buffett recently won his $US1m (2007) bet that US hedge funds as a group would not outperform the S&P 500 index over 10 years (the index absolutely clobbered the hedge funds). I’m sure he would happily take the same wager against the above mentioned global funds.

The Corporate Raspberry Awards

As I did last year, I would once again like to hand out some awards for some of the more outrageous goings on in the corporate world in 2017. Enjoy.

The “Naked and behaving inappropriately CEO” award

This award was taken out by the self-styled “naked CEO” and former CPA Australia boss Alex Malley. 

As Warren Buffett famously quipped, “You only see who was swimming naked once the tide goes out.” Well, the tide went out in 2017 for Alex Malley thanks to the hard work of CPA member Brett Stevenson and Australian Financial Review journalist Joe Ashton. 

I’ll let Joe Ashton provide a synopsis on why I have given this award to the preposterous Mr Malley:

In summary: the board appointed Malley as CEO in 2009 without advertising the position; the constitution was changed repeatedly to extend the term limits of Malley's key supporters on the board (Richard Petty, Graeme Wade and Kerry Ryan), to introduce generous board fees for previously unpaid positions and to remove the basic right of members to appoint and remove the board; having fundamentally devalued the CPA designation by making it far easier to attain, Malley then spent (and continued to spend) tens of millions of the organisation's dollars promoting himself (to the virtual exclusion of any corporate branding) through a book and eponymous television show, the paid publication and paid production both advertised to farcical extents; CPA set up a fully-owned subsidiary, loaned it $20 million ($12 million of which is already drawn), while the leadership paid itself second salaries (in apparent breach of constitutional remuneration caps) to run the thing at a multimillion dollar loss; and more recently, CPA dismissed calls for the disclosure of its remuneration, moved its AGM to Singapore, bullied and publicly denigrated members who questioned the organisation's expenditure and direction, fudged its performance data to claim dubious commercial growth, was forced under corporations law to release the remuneration, while Malley, on $1.8 million, claimed to be the subject of an extraordinary vendetta.

Breathtaking, isn’t it? How all of that was legal, I have no idea.

Malley was sacked on 23 June 2017 and given $4.9 million as a “golden parachute”. How anyone could justify these sorts of payments to an individual who trashed the CPA brand name and (let’s not forget) was running a non-profit organisation supposedly for the benefit of members, is just astonishing. However, it does speak volumes for the apathy of the vast majority of CPA members (who will all be replaced by algorithms at some point in the future anyway – don’t take up accounting kids).

The “Luck of the Irish” award

This award was won by Alan Joyce, CEO of Qantas, Jayne Hrdlicka, CEO of Jetstar and Gareth Evans, CEO of Qantas International.

Mr Joyce (with the compliance of his board and shareholders) managed to pull off something that Penn & Teller, David Copperfield or Dynamo would have been in awe of. Mr Joyce managed to be remunerated to the tune of $25 million despite incredibly poor financial results during his tenure at Qantas (the recent profits being a direct result of the massive fall in crude oil prices and nothing to do with any great management on the part of Joyce or anyone else).

On ABC’s The Business on 11 October 2017, they featured a piece on Qantas and its very poor financial performance under Alan Joyce. They showed that the aggregate net result after tax for Qantas during Alan Joyce’s tenure (2009 to date) was a loss of $155 million.

Vas Kolesnikoff, executive director of ISS proxy advisers was quoted by ABC online as saying:

Qantas has benefited quite substantially from the fuel price decline. In 2015, I think it made $500 million and pretty much that was solely attributable to the benefits of a lower fuel price.

Qantas is an example of what Vas Kolesnikoff called, the "limitless capacity to increase remuneration".

Jayne Hrdlicka received $8.13 million in remuneration and Gareth Evans $8.18 million – I’m not making this up!

Joyce and his cohorts have been the beneficiaries of plain dumb luck – nothing else. How three people could share $41 million between them for the incredibly poor financial results that Qantas has delivered over time is just staggering and hugely disappointing for shareholders and customers.

The “Are you old enough?” award

New Zealand band Dragon posed this question all those years ago and in this case we think the answer is a definite “No”.

This award was won by Kraft Heinz (we sold our shares after we read about this). 

Kraft Heinz (KHC) in its wisdom decided to appoint David Knopf, a 29 year old as CFO. Now, in a small company this may fly, but seriously, KHC is a $100 billion multi-national. Does anyone seriously think a 29 year old has the requisite experience to adequately discharge the duties of CFO for a company that size? 

Berkshire Hathaway must be thrilled, they have dropped about $US6 billion on their investment since the peak of 2017. 

Someone also pointed out that had they appointed a 29 year old woman to the position, everyone would have been asking who she had slept with to get the job, but we all know of course that when it’s a man appointed to such a position at a tender age, he must be brilliant. Call me cynical, but I just don’t buy it.

PS: My eight year old nephew is looking for a board position – any chance KHC?

The “Got anything for the laundry?” award

This award was one by Ian Narev, chief executive of the Commonwealth Bank of Australia and his board of directors. 

Last year they won the “Why do financial targets matter?” award for their disdain of shareholders, but this year they went one better.

The Australian Transactions Reports and Analysis Centre (AUSTRAC) alleged the Commonwealth Bank failed to comply with anti-money laundering and terrorism financing laws on more than 53,000 occasions. The maximum penalty for each of the contraventions is up to $18 million.

Ian Narev and his board allowed a potential $625 million to effectively be laundered through his bank through the use of intelligent deposit machines between November 2012 and September 2015. Much of this was the proceeds of drug deals laundered through accounts set up by foreign nationals on visas and then immediately transferred elsewhere.

Ian Narev was forced to announce his resignation in the light of this scandal, but it’s high time that ASIC and other regulatory bodies stopped fining corporations for breaches of the law and started jailing their executives instead. 

Executives do not fear fines, they see it as a cost of doing business and of course, the fine is paid by the innocent shareholders and customers of the corporation, not by the people who breached the law. However, executives do very much fear going to jail and the time has come to make an example of these recalcitrant individuals.

The Commonwealth Bank has also possibly breached US laws and the consequences for that could be interesting. 

The “Caribbean Renaissance” award (sponsored by a Cigarette Company near you)

This award was won by James Simons, founder of Renaissance Technologies (and I do admire you enormously Jim, but this is very worthy of an award).

The International Consortium of Investigative Journalists (ICIJ) made public through the “Paradise Papers” how Jim managed to completely hide billions from the US tax authorities in a Bermudan Trust. The Guardian takes up the story:

The Lord Jim Trust was established for Simons by a family friend. It originally held about $100,000 in cash and company shares.

Simons’ trust made major investments in Renaissance’s stable of successful hedge funds. According to a 2010 court filing, the trust “derived substantial profits every year from its investments and has made very few distributions” back to Simons. It could essentially be left to collect vast profits on these investments, growing exponentially for years without facing deductions for the benefit of the public purse.

Confidential accounting documents prepared by attorneys for Simons in 2009 projected how the trust would grow if it had continued to accumulate wealth in the same way. They said it would exceed $8bn by the end of 2010, and forecast that it would reach $15bn by the end of 2017 and that on 31 December 2030, the fund would stand at approximately $35bn.

Simons and his family faced a dilemma, however, because of rules intended to deter wealthy Americans from holding money offshore. Under a so-called throwback tax, the longer an offshore trust is left collecting gains and interest, the higher the US tax rate imposed when funds are brought onshore. Attorneys warned Simons there could come a time when the taxes owed exceeded 100% of the fund’s value.

So the Simons family developed a plan. Four new “sub-trusts” were created in Bermuda – one each for Simons and his children Elizabeth, 57, Nathaniel, 51, and Audrey, 31 – to split ownership of the money in the Lord Jim Trust. Simons took about half the total and each child received one-sixth.

You really have to wonder what they do at Renaissance Technologies to generate this sort of wealth.

The “Bitcon” award (for bubble payment systems masquerading as currencies)

This award was one by Bitcoin, the preferred payment system of cyber criminals the world over.

Paul Donovan at UBS Wealth Management wrote a very good article on why Bitcoin (or any crypto currency) will never actually become a legitimate currency. All those dabbling in this massive bubble should read the following carefully:

1.    Governments are not likely to accept crypto-currencies that they do not control to settle taxes;
2.    If you do not have the ability to use crypto-currencies for the largest single transaction in the economy (tax), then it will never be a majority medium of exchange;
3.    The fatal issue for crypto-currencies is that the supply of them can only ever go up. There is unlimited upside to the supply of crypto currencies;
4.    The introduction of a technically superior crypto currency will see a move out of the “older” crypto currencies. Just like Netscape Navigator was once a technically superior internet browser or Alta Vista was a technically superior search engine, once something better comes along, the inferior versions just collapse. And because you cannot reduce the supply of a crypto currency, that drop in demand would not be matched by a drop in supply, and, therefore, if demand goes down but supply doesn’t, we all know what happens to value. It’s basic economics;
5.    If the price of Bitcoin rises against your home currency and you cash in, you’re liable to capital-gains tax on the appreciation of the currency. If the value of your home currency rises 20% against the US dollar (or some other currency), then you’re not liable to capital-gains tax on that appreciation;
6.    The massive volatility in Bitcoin and every other crypto currency ensures that it cannot be viably used as a medium of exchange over the long-term; and
7.    It’s far harder to protect crypto currencies from theft than it is real currencies. Real currencies are backed by governments and banks, crypto currencies are backed by nothing. There is now a huge industry in the theft of crypto currencies.

Every time a new technology comes along, there is a mania that accompanies it. We are now witnessing a full-blown mania in Bitcoin with many people who understand nothing about currencies, the underlying technology or the nature of financial bubbles taking part.

There are lots of people out there who are going to lose large amounts of money in crypto currencies (many of which are just scams), but if you think you know better – go ahead.