Mario Iacone: Comments on the STRS 'Best Days' chart (April Board News)

From Mario Iacone, May 11, 2009
Subject: April Chart

Please reference the STRS website, April Board News (posted April 27, 2009;

http://www.strsoh.org/boardnews/bn_current.html) and the “Best Days” chart shown in that report. The chart is also shown below.

That chart was provided by Russell Investments and was used to refute the argument against more “conservative” investments.

The information on the chart could be very misleading, although I do not believe such was intentional and have been informed by STRS that such was not the case.

If misinterpreted, the chart could give the appearance of providing "rigged data" to make its point by ending in 2007 before there was any serious downturn in the markets. While true that the relative positions of the bars would still be the same if the chart provided data ending in 2008, the first bar might show something like $7900 instead of $15,559.

Click image to enlarge.

Various Issues could arise from the data on this chart. They are:

Why does it show results ending in 2007? The most serious downturn in the stock market occurred during 2008, specifically from September on.

This chart with data only through the end of 2007 is very misleading on the issue of best days, because it leaves out the worst days of 2008 and 2009.

What would the results be if it ended in 2008?

What would the results be if it ended March, 2009?

If the money were invested in more “conservative” assets, what would the results be for the Missed Worst Days?

Also, the chart itself states that the results are based on INDEXES.

INDEXES CAN BE VERY MISLEADING! If an investor does not own an equal amount of every stock in the index, the results of an index are meaningless and the actual performance for a given investor could be very different than the performance of the index.

Practically speaking, Investment Managers have a very direct interest in STRS avoiding more “conservative” investments. They would LOSE TENS OF MILLIONS IN FEES.

I am not totally certain, but believe the best days approach originated with brokers trying to get clients to retain and commit funds in a down market by promoting that the market could run away from them. Promoting the message, more risky to be out of market than in it.

Such message to be totally accurate, should add, if a significant number of worst days are ahead, losses will increase. Also, such a broker is not doing due diligence if the same argument is not presented showing the results if the worst days were missed over that same period of time.

For example, if that message had been used with clients at the beginning of 2008 and if clients had followed the premise, they would have suffered significant losses due to the number of worst days that were ahead.