How is Charlie Aitkin doing at Aitkin Investment Management?

Back in 2016 I wrote an article on this site regarding Aitkin Investment Management (which you can read here).

I mentioned a few things in that article which (for me) I thought were red flags. I won’t repeat all of that again - you can read the original article for yourself. 

So, how is Aitkin Investment Management (AIM) doing? Well, not that great. The chart below from AIM shows the performance of the Global High Conviction Fund.

However, what is more worrying is the following table from AIM showing recent performance:

The calendar year performance of -12.6% is rather shocking against a backdrop of the ASX S&P200 return of +9.44% (as I write this) and the US S&P500 return of +10.56%. It means AIM has underperformed this year by 22-23%, which is a terrible result on any measure.  

Please don’t get me wrong, it’s quite ok to underperform an index, but to underperform by a large double digit amount can only indicate that stock selection has been very poor.

Charlie Aitkin made the following statement in the Switzer Super Report on 13 April 2017:

As you know I am broadly cautious on all things USA, but particularly the US Dollar and US equities. This year I am far more bullish on China, feeling Chinese economic growth is running ahead of bearish expectations.

Aitkin also stated (in the same article) that:

I warned that the “Trump trade” was in trouble and it clearly is.

But it wasn’t! Both of these statements were totally incorrect.

US equities have vastly outperformed Chinese equities since Aitkin made these comments. What’s even worse is that the Australian dollar has also dramatically depreciated against the US dollar. Those of us holding US dollar investments (or even just US dollars) are making sound returns on the depreciating Australian dollar (alone). The decision by Aitkin to be cautious on “all things USA” and instead buy Hong Kong listed stocks has cost his investors dearly.

On 21 April 2016 in the Switzer Super Report, Aitkin had the following to say about Telstra:

All in all I believe the worst is behind TLS on all fronts and, for the first time, my fund now owns TLS shares. I think they are now cheap and have dividend certainty. I also think they will outperform the ASX200 on a total return basis from this point.

Put it this way, if over the next 18 months the TLS share price did recover to $6.00, the capital gain would be +10% and 18 month dividend yield 8.8%ff. Add on the value of franking credits and there is the potential for a +20% total return in TLS over the next 18 months, if I am right and the recovery continues.

Of course, it all needs monitoring as we progress but I think this is a major turning point for TLS and I’ve put my fund’s money where my mouth is.

Once again, Aitkin was completely wrong. Telstra was trading at around $5.42 when the above statement was made and what did you get if you took his advice? You got around 42% of your capital incinerated. To be fair, I own Telstra as well, but I bought them at a much lower price than was being advocated by Aitkin back in 2016 (I still made a mistake though).

To try and be a bit balanced here, Aitkin has made some good calls. His advice to buy Washington H. Soul Pattinson (the Berkshire Hathaway of Australia) was great advice. He wrote a very good article about the company in the Switzer Super Report and we are now seeing the share price of Soul Pattinson (SOL.AX) starting to reflect its true value as one of the most outstanding companies on the ASX.

But in many ways, this is my point, so many “professional” fund managers in Australia are totally hit and miss with their stock picks. Because of this, there is no way I would pay their 1.5% fee for assets under management, plus the performance fees of 15% or so. You can see (above) from AIM’s own data that anyone holding a MSCI World Index ETF will have easily outperformed AIM’s Global High Conviction Fund. 

In Australia, when a new high fee fund manager sets up business, you can almost put money on the fact that they will have a few good years early on and then regress to below benchmark (index) performance. As I’ve said on this site previously, the fee structure of these funds basically guarantees below benchmark performance over the long-term because the stock picking skills of the individuals running them are not good enough to overcome the drag of the fees involved. Someone as eminent as Warren Buffett has commented on this at length and people don’t listen to him, it’s just staggering that investors don’t get this.

So, we will continue to watch the performance of AIM and hope for the sake of his investors that Charlie can reverse his form slump and not drop too many more catches (he loves his cricket metaphors).

How much is enough?

There has been a movement going in the US for some years now known as FIRE – Financial Independence, Retire Early. 

The basic idea is to live well below your means for years in order to accumulate anywhere from 25 to 60 times your annual living expenses and then retire.

For those who genuinely love the job they do, FIRE is not for you, but for everyone that doesn’t love their job (or even like it), FIRE could be for you.

Most of the people in the FIRE movement are in reasonably well-paying jobs who value their time and how they spend it far more than living a lavish lifestyle or having a fancy job title (so many people these days seem to have the words “manager”, “partner”, “director” etc. in their job title, but if you are showing up to work and taking orders from anyone but yourself, it isn’t worth a damn). 

I can really relate to the FIRE movement because I was doing it long before it ever had a name (and it works). 

There are only five ways that a person can become wealthy:

1. Inherit a large amount of money;
2. Start a highly successful business;
3. Obtain a very high paying job;
4. Win the lottery; or
5. Live well below your means and carefully invest the money that you chose not to spend.

Options one to four are impractical for the vast majority of people. Option five is very possible for many people (although not all), but it requires lifestyle choices that most people will be unable to make.

Think about people who are overweight, almost all of them can lose the excess weight, but many will not because they don’t have the discipline (or ultimately the desire) to do so.

FIRE is not popular with many people because it involves many of the following behaviours:

•         Minimising on eating out, going to movies, concerts or sporting events;

•          Driving a fuel efficient second hand car (no luxury cars please);

•          Not taking out loans for items like cars;

•          Using public transport to get to work (where possible);

•          Never paying interest on credit cards;

•          Avoiding tying up very large amounts of money in a home which produces no income;

•          Minimising spending on clothes and shoes;

•          Minimising overseas holidays (or holidays in general where you “go away”);

•          Avoiding purchases of expensive jewellery or watches;

•          Not having costly pets (or any pets);

•          Not indulging in expensive hobbies;

•          Taking the time to find the best deals on things like home, car and health insurance;

•          Availing yourself of legal tax minimisation strategies;

•          Taking an interest in your own finances and investments;

•          Not hiring help (e.g. gardeners and cleaners);

•          For those that can, continuing to live with parents (for quite a while!); and

•          Forgetting about having the latest iPhone or other expensive (and time wasting) gadget.

Now, how many people are prepared to do all that? Answer: Very few.

Most people would rather take the overseas holidays, spend a pile of money on entertainment and pay for it all by giving an employer an additional 20 or more years of their lives. This is a very high price to pay because time is very finite  and money is not, we print more of it every day, try “printing” more time. 

Many people in the FIRE movement who have retired are in their 30s or 40s, still young and able to really enjoy life. Having years of retirement in your 40s or 50s is more valuable than the equivalent time in your 70s or 80s because there will be plenty of things you simply will not be able to do in your 70s and 80s due to health issues.

The workplace itself can be very unhealthy. For example, working in an office and staring at a computer all day is not ideal for your posture, your eye sight, your fitness (sitting all day) or (often) your stress levels. The sooner all of this can be confined to your personal history, the better.

Personally, I think that (right now), a net worth of 25 times your living expenses (excluding your home) is too little to contemplate retiring in your 30s or 40s, 60 times seems much more sensible and will provide a good margin of safety. And yes, that’s a difficult goal to attain, but you will find that almost everything in life worth achieving is difficult.

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.