BUZ LIVINGSTON: Money, music and JJ Cale

Published: Thursday, August 1, 2013 at 05:10 PM.

My Dread Clampitt shirt works well for travel; don’t leave home without one. The front pocket helps me track essentials and I advertise South Walton’s music scene.

I shared a Chicago-bound flight with Dread; they were Chi-Town bound for a show and I switched planes at Midway for a financial gig in Kansas City . Music and money intersects often — sometimes subtly, sometimes not, and sometimes it gives me an idea.

In 2008 the National Academy of Recording Arts and Sciences corrected a long running travesty when they awarded a belated but well-deserved Grammy to J.J. Cale.  You know Cale’s songs even if you don’t recognize his name — “After Midnight,” “Call Me the Breeze,” and the stoner classic, “Cocaine.” When quizzed about his relative obscurity, Cale pointed out the royalty checks sufficed nicely. Last weekend we lost Cale to a heart attack. 

Cale’s second album opens with “Lies.” Like the girl in the song the financial industry passes off lies, lies, lies about index funds. One oft-cited falsehood astonishingly pushes the line that index funds underperform the average but the opposite is true. Sure, some actively-managed mutual fund beat the average but scant few do it consistently.

Study after study finds the funds that outperform one or two years tend to subsequently underperform. Investors flock to “hot” funds and the influx of money makes it difficult for the fund to match previous performance.

Another falsehood passed off about index funds references Warren Buffett’s investment acumen. Sure Buffett’s a great investor but even Buffett believes most investors would be better off using broad-based index funds. As note, your investment advisor probably is not Warren Buffett. For all their prattle about dividends, Berkshire Hathaway pays no dividends.

Supposedly active managers can take advantage of inefficient markets like small U.S. and international companies, but it is difficult to efficiently build a diversified portfolio with individual small company and international stocks. The most popular international index (Europe, Asia and Far East, code-named EAFE) omits Canada and emerging markets. Well duh, an active manager might do better if they invested in Canadian Royalty Trusts and China . Compare apples with apples, not oranges. 

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