Monday 24 November 2008

iShares Canada's New Portfolio ETFs - How Do They Stack Up?

Wealthy Boomer's Jonathan Chevreau recently reported that iShares Canada has launched four new ETFs made up of a collection of iShares ETFs in different sectors and asset classes. The intent is apparently to provide one- or two-stop shopping in building a diversified portfolio with ETFs.

The four new funds are:
  • XCR iShares Conservative Core Portfolio Builder Fund which is quite conservative with a high proportion of fixed income at around 70% and investments on the safe end throughout
  • XGR iShares Growth Core Portfolio Builder Fund which looks like a balanced fund with a split of about half and half between fixed income and equities
  • XGC iShares Global Completion Portfolio Builder Fund which has a curious mixture of non-Canadian equities and some ultra-conservative fixed income along with some volatile fixed income
  • XAL iShares Alternatives Completion Portfolio Builder Fund which has some ultra-conservative assets along with a majority of highly volatile assets
Bottom Line:
  • The only one that I would contemplate buying as a complete stand-alone portfolio is XGR. With a few tweaks in its composition and a reduction in MER to 0.4% or less, it would go from being merely ok to being a great product.
  • XCR is too heavy on the fixed income and is too concentrated in Canada which makes up about two-thirds of the fund.
  • XGC and XAL don't combine well with either XCR or XGR; a combination would be no better than XGC by itself as this chart of the composition of the basic new funds and possible combinations shows

The Details:
Here is what I think are the good and the bad points and some that could go either way, depending on your circumstances:

Diversification & Asset Classes
- this is the outstanding feature of the new funds due to the wide sub-division among many asset classes, especially in the case of XGR, which has no less than 21 different ETFs. There is large cap equity, small cap, foreign equity, some foreign exchange exposure, government and corporate fixed income, real return bonds, real estate, and even commodities. Such diversity will bring about a high degree of stability to the portfolio. Some may view allocations as small as 1% to an asset class (like SCZ Global Small Cap Equity) as a disadvantage because even big changes to that 1% won't have much impact on the portfolio's value. But that is precisely the point, spreading the total investment portfolio around to minimize risk. An investor with a small portfolio, say $20,000, could not practically envisage building their own portfolio from ETFs where a 1% holding = $200 when the brokerage cost might be $25 or $30.

XGR's Asset Allocation

XCR's Asset Allocation

Some quibbles -
- there is no Equity Value fund at all in the portfolio, despite the research-proven performance boost from this type of holding.
- instead of the IVV S&P500 fund, which is just a large cap fund, it would likely have been better to use something approximating the whole of the US market like IYY or IWV
- I see little benefit from the complication of four different Canadian fixed income funds (XSB, XCG, XGB, XLB) which just replicate the whole of market when iShares has one whole of market fund XBB; I've seen nothing that indicates a lack of correlation amongst the different fixed income sectors represented by the four funds that would provide a diversification benefit to justify the extra funds. In addition, three of the four funds have higher MERs (see chart below) that could have helped BGI lower the overall MER of the portfolio fund.
- similarly, I fail to see why the US fixed income fund is LQD, the corporate sub-sector fund, instead of iShares excellent total bond market fund AGG
- the last fixed income element that I find unsatisfactory is the use of the US real return fund TIP instead of simply using a lot more XRB, the Canadian real return fund. Though I don't have charts to prove it, I would be very surprised if the correlation of XRB and TIP were not close to 1 - i.e. perfectly correlated - and therefore there would no diversification benefit from holding the two different real return funds. On top of that, to limit foreign exchange exposure on TIP, the XCR and XGR managers do foreign exchange hedging on TIP, which adds cost.

Portfolio Policy - Active or Passive?
The iShares fund fact sheets leave the definite impression that these funds might be actively managed when it says on page 1 of the prospectus:
"Barclays Canada will use an asset allocation strategy, as further described below, and may change the iShares ETFs, other issuers and/or derivatives in which an iShares Fund invests, and the percentage of an iShares Fund’s investment in such iShares ETFs, other issuers and/or derivatives at any time and from time to time." It's the waffle words "may change" that concern any investor looking for a constant asset allocation policy for a portfolio of passive index tracking funds, which is what is inside the new funds. For such a portfolio construction and such a relatively low MER, I could not believe that Barclays would actually try to outperform by active management and changing funds or allocation percentages to any appreciable degree. How could they make exorbitant profits that way? They'd have to employ a bunch of highly paid people pretending to know better than the market when to overload on XIU, TIP or whatever.

So I phoned up and the customer service personnel for the hoi polloi like me and you (i.e. those lowly folks who might not really know what is going on at Barclays in the fund management end of things, so their answer may be wrong) did assure me that the asset allocation was meant to stay relatively constant and that quarterly rebalancing would bring the percentages back into line. As to why the prospectus doesn't say that, their explanation was that such wording is required for flexibility. It just sounds like the lawyers did their usual thing and made the prospectus impervious to future lawsuits ... and clarity suffers. That's just stupid marketing and communication by Barclays IMHO.

The challenge for an individual investor,even someone with a portfolio as large as $1 million, is that rebalancing a whole bunch of funds in a multi-asset class portfolio, can be expensive and complicated. As amounts increase, it is likely multiple accounts - RRSP, LIRA, RRIF, regular and soon TFSA - will add to the complexity. With smaller total portfolio amounts, the cost of rebalancing would be horrendous for someone who tried to replicate all these asset classes. If a 1% holding of $200 increased by 50% to $300, would it be worth a double (one sell, one buy) $10/25/30 brokerage commission to rebalance that $100? Barclays is offering something worthwhile.

Quibble: The advertized quarterly rebalancing is un-necessarily frequent. The research I've seen and previously posted about says once a year at most provides better returns.

Foreign Exchange Hedging
The use of many foreign holdings, which provides useful diversification, also introduces the risk of shifts in foreign currencies. XGR has about half its portfolio in non-Canadian fund investments and XCR about a third. Foreign currency exposure is itself a form of diversification benefit but without hedging, the portfolio effect can be overwhelming so most portfolio design includes hedging part of that amount. Both XGR and XCR hedge about half their foreign content, partly through using funds that are themselves already hedged, like XSP and XIN, but also through separate hedging operations. This proportion is in line with what I've read about how much hedging Canadians investors should do. The extra hedging is another value-add for the purchaser of the new funds since it would be complicated and more expensive to do on one's own.

Those investors who build their own portfolio and want some hedging have to limit the number of funds and asset classes they use, e.g. when using TD e-Series funds or iShares' ETFs.

Management Expense Ratio (MER)
Is the 0.6% MER for XCR and XGR too high? To find out, I first reconstituted the MER of XCR using the proportional sum of the individual component ETFs - it comes out to about 0.303%. Then I calculated what an investor could pay using best/cheapest in class funds for each asset class in XCR and XGR, which mainly means using Vanguard funds. You or I can make our own versions of XCR for 0.245% and XGR for 0.253%. In contrast, the 0.6% doesn't look great ... except we have to include the value/cost of rebalancing and hedging both in direct dollars and time/hassle/effort. Rebalancing costs vary by number of trades and size of portfolio. For $100,000 portfolio with 10 buy/sell trades a year at $10 each totalling $100, the MER equivalent is 0.1%. For a smaller portfolio the MER burden would be higher. Hedging cost is harder to figure directly but as a guide iShares' unhedged EFA has 0.35% MER while the hedged XIN has a 0.49% MER, a 0.14% difference. Using that, the MER value of hedging plus rebalancing could be 0.1+0.14=0.24%. I figure the MER of XCR and XGR are a bit too high - somewhere in the area of 0.4% would be more attractive because I have a bigger portfolio and I do less rebalancing.

XGR's MER Analysis

XCR's MER Analysis

Account Types and Taxes
One problem for which I cannot see a solution is that come the issuance of tax slips after year-end, these new iShares funds will distribute all types of income - interest, dividends and capital gains - for registered or non-registered accounts willy-nilly. If all you have is registered accounts then this doesn't matter. But if your portfolio spans both registered and unregistered accounts it is an important issue. It will not be possible to optimize for taxes by keeping all the interest income from bonds in registered accounts while directing less-taxed dividends and capital gains to the non-reg taxable account. This is perhaps the biggest drawback for me personally. By buying individual funds, I can put XRB with its interest income in my RRSP and cap gains-producing XIC in the taxable account.

Having only one fund to buy that is denominated in Canadian dollars, though it contains holdings from US exchanges in US dollars means that it is possible to avoid having to pay the currency exchange fees in registered accounts for those brokers who do not allow cash to be kept in US dollars. That is a benefit on initial purchase and when rebalancing.

Others who have reviewed and commented on the new funds:

Friday 21 November 2008

A New Survey on the Future of the Stock Market

Every passing day seems to bring another gigantic drop in the Toronto Stock Exchange (along with every other stock market around the globe). A few weeks ago I thought things had reached bottom with the end of the panic selling in the terror phase. Now it seems we are in the despair phase.

Will the decline ever end? Was yesterday's 766 point 9% drop in the TSX the bottom? How much lower will it go? If you have an opinion click on the survey in the right column.

My own best guess is a bottom around 7500 or 50% off the peak, based on what other credit crises have done in the past. What's yours?

Thursday 20 November 2008

Hooray! Throne Speech Proposes National Securities Regulator

The news that the Government of Canada has proposed in the Throne Speech, as reported by the Financial Post, to establish a national securities regulator is indeed welcome. It should simplify the ordinary investor's life through a single set of rules across Canada and improve the capability to police companies. ... Oops it seems that Québec won't want to be part of it, to which I say, "chers compatriotes, soyez réaliste, la crise financière démontrent on ne plus clairement que les investissements ne reconnaissent pas les frontières. Participez à la construction d'une agence qui peut améliorer notre sort commun. Le temps d'être clochard est révolu depuis longtemps."

The financial crisis shows that what we actually need is some regulation on a world scale and a single Canadian regulator is a step in that direction as a voice for Canada.

Tuesday 18 November 2008

How to Improve Chances of Picking Mutual Fund Winners

Mutual funds are a prime vehicle for many people to save and invest in pursuit of financial goals. However, not just any mutual fund will do as some mutual funds are winners and some are losers. In fact, most mutual funds generate lower returns than market benchmarks, as has been extensively documented for many countries (e.g. for Canada, see the readable book What Kind of Investor Are You? by Richard Deaves, a professor of Finance at McMaster University).

The problem is that doing what sounds sensible and what most investors do - picking past winners, the funds that have performed best up to now - does not work! The disclaimer warning that "past performance may not be repeated" can be restated as "past performance is not likely to be repeated". Performance persistence is weak at best, with a slight majority of funds that outperformed continuing to do so and for only one year (Deaves, p.107). Interestingly, poor performance lasts a bit longer and the effect is a bit stronger, so one lesson is to be more impatient with losers.

The main objective however, is to find the winners. The method is not foolproof but the best selection criteria is to pick the funds with the lowest costs. Costs in the form of management fees, sales charges, administrative charges, trading expenses, legal fees and auditing expenses reduce returns and that affects what you as an investor receive net. The costs are not large as an annual percentage, which is probably why many people don't notice them much, but they do add up over years.

How to Find the Low Cost Funds:
  • Step 1 Go to a mutual fund resource website like GlobeFund, Morningstar Canada or FundLibrary, or use the tool in your broker website. Find the fund filter tool, select the asset class and search and sort by the Management Expense Ratio (MER) from low to high
  • Step 2 Pick out a handful with the lowest MERs. Be wary of any funds where the search result shows 0% MER; that's just not possible and is a data collection error - e.g. in the sample search result below, the BonaVista Global Balanced A Fund actually charges a 1.25% annual management fee. Cross-checking data reduces chances of deciding based on such errors. Focus on those with no Sales charges aka Loads; Front end charges reduce your initial investment while Deferred sales charges penalize you if you withdraw funds within a few years of initial purchase.
  • Step 3 Go to the Mutual Fund company's website and find the latest Management Report on Fund Performance for the fund. Alternatively go to, the website of the Canadian Securities Administrators where all the companies must file such reports. Within the report do a search for the word "turnover"; nearby should be the Trading Expense Ratio, which tells you how much the fund is spending on buying and selling commissions. (see example of Templeton Canadian Small-Cap Equity Fund below) Trading costs often approach or exceed the MER of a fund and can be a significant drag on performance.
  • Step 4 Add up Trading and Management Expenses. The lower the total expenses the better the future performance of the fund is likely to be.
More Reading:
US Securities and Exchange Commission Look at More Than a Fund's Past Performance
Fundscope's The True Cost of Funds
Common Sense on Mutual Funds by John C. Bogle at Chapters
Mutual Fund Fee Impact Calculator at Ontario Securities Commission website

Thursday 13 November 2008

Book Review: Economic Transformations by Richard Lipsey, Kenneth Carlaw & Clifford Bekar

In this time of economic hardship and financial market woes, it is heartening to read a book from which one can take a positive message. Though it was not written to be so, the content of this academic brick of 595 pages gives me much confidence that the long term bodes well for our material success.

Why so? In short, because our prosperity rests on factors with considerable strength, resilience and flexibility. Their durability is born of decades, even centuries of development and though they can never be assured to continue forever, they have power of momentum. It will take a lot of screwing up for the machine to fail entirely.

This book examines the sources of the West's economic prosperity through historical and model (both textual and mathematical) analysis of General Purpose Technologies, those developments whose strength and pervasiveness transform and energize the economy and society. Examples include writing, iron and steel, the waterwheel, the three-masted sailing ship, electricity, railways, the airplane, mass production and the factory system, the computer, the Internet, lean production and biotechnology. They identify (p.132) twenty-four such technologies in the course of history and one - nanotechnology - which they expect will prove to be so this century. An accelerating flow of such GPTs promises future growth. This does not mean it all will go steadily and easily upward with no hickups along the way. However, in the very long historical perspective of this book, our current recessionary climate is not even a blip.

One of the interesting and possibly controversial conclusions of this book (see pages 426-431) is that indefinitely sustained economic growth is entirely possible due to the effects of GPTs.
"... if there are limits to future growth, they are far less likely come from limits to innovative activity than from other sources, such as failures of human will, human institutions, or human inaction." (p.428)
The authors are academic economists, with no evident ax to grind and indeed, they take pains to review contrary views and explain why they think they are wrong, or partly right. The book contains a lot of academic economic-speak and some sections are mathematical. Evidently targeted at fellow academics most of it is still highly readable for the layman.

Among the major issues examined in the book and the authors' answers :
  • is growth sustainable? - as above, yes, unless we screw it up
  • why did prosperity historically happen in the West, specifically in Britain, and not elsewhere like in Islam or China? - because they failed to develop mechanistic science, which in turn was due to impediments or reversals in those societies from religion, institutions, laws, education systems, habits of thought and attitudes of free enquiry
  • can technology and growth winners be predicted? - no, the situation is too complex because of the effects of inter-relationships amongst differing political, social, economic and institutional factors and of human decisions on outcomes; each situation is unique, what they call the "arrow of time"; much of technological innovation is truly uncertain "... in which it is impossible to either to delineate all the possible outcomes or to match the probabilities to the outcomes..." and not merely risky, in which the possible outcomes and a probability distribution can be attached to each. The implication for individual investors are that we truly cannot ever predict which companies or countries will succeed and by how much. Moreover, there are only a few big winners who take a vastly disproportionate share of the spoils ( I think of Microsoft) and a lot of losers. This process of having winners and losers is necessary to sort out the good from the bad.
The discussion of population and its relation to economic growth in the appendix to chapter nine is delightful and shocking. From Roman times to the present, family size, birth and marriage rates have been intimately inter-connected with economic growth as people decided how many children to have to optimize their well-being. People knew how to control family size, both to increase and and decrease it, they acted upon that knowledge and attitudes and laws accommodated themselves to the reality of what people did. Today we use such gentle solutions as the birth control pill but in the past some practices to accomplish the same thing were routinely done and were seen to be perfectly ok:
  • one birth control method in the Ancient world was a "pessary made from crocodile dung" (p.335)
  • "Sexual practices that did not result in conception, such as as oral, anal, and homosexual intercourse, were also common throughout the ancient world." (p.336)
  • in Medieval times, "Although the Christian Church opposed infanticide as a method of controlling family size, 'if the the excuse of poverty was given, the penance was not very heavy'. Russell argues that the choice of infanticide was conditioned on economics: ... unlike today, the 'right to life' was not as important as the right to a good life."
  • infanticide was routinely practised in ancient Rome, in Japan, in Medieval times
  • when having more children was desired, "Couples seeking to enter marriage sought to get pregnant as a precondition of the marriage." (p.339)
The tell-it-like-it-is analysis continues throughout and there are many thought-provoking details to ponder. For example, on pages 422-423 they discuss one effect of the new technologies of the ICT (information and communications technology) revolution as being a widening of income disparity, the difference between the haves and the have-nots. If you doubt the reality, check out this great You Tube video at Economist's View The Coming Collapse of the Middle Class by Elizabeth Warren, a Harvard University professor. In addition to creating a big social problem, the phenomenon is believed by some to be constraining the recovery of US stock markets - see this Nov.14th article in the Globe and Mail by Fabrice Taylor.

The general value of this book is that one understands the world a bit better and the specific value for investing and personal finances is to know better the trends and forces at work which can potentially be turned into profitable investing.

The first and most powerful lesson is that one should stay the course and not abandon the stock market. There is so much powerful momentum from GPTs that recovery, though it may take several years, will almost surely occur. The ICT and Internet have a long way to go before their wealth creating effects peter out.

Second, owning a position in broad-based market funds is a smart way of avoiding the truly uncertain and thus near-impossibly difficult task of picking the rare winners. Even if nanotechnology takes off as the next GPT, trying to pick the one or two or three winners amongst all the inevitably numerous losers will be more a matter of luck than skill, even if one buys a diversified ETF such as PowerShares Lux Nanotech ETF (symbol PXN). Motley Fool writer Jack Uldrich pegged it correctly in this 2006 review of PXN when he says "Nanotechnology, however, isn't your typical field. It is a common mistake to think of it as an industry. It isn't. Nanotechnology is more of a general-purpose technology, like electricity or the Internet. Because of this, I have always encouraged investors to think of nanotech's potential less from the perspective of what it is and more from the perspective of what it will allow existing businesses to do."

Perhaps superfluous to mention for an academic book, there is a lengthy (14 page) bibliography with many further books and articles to entice follow-up reading.

Economic Transformations is worth every penny of its price of £24.99 in paperback from Oxford University Press (the Chapters hardcover version is $169.95!). Five out of five stars.

For an economist's review of the book, see this one by Joel Mokyr.

In this ITIF video, Lipsey discusses the implications of the book's ideas for the US economy and US public policy. The download slides summarize key ideas from the book using ICT as a case study.

The main author, Richard Lipsey has his own web page here. It has a number of downloadable working papers; there are several on ICT.

Mutual Fund Underperformance - A Sadly Consistent Story

Standard and Poor's has just released the latest quarterly SPIVA report that tracks the performance (see the list of all reports here), or I should say, the under-performance of Canada's mutual funds.

The results are perhaps not surprising to those familiar with mutual funds but they are shocking nevertheless. Consider the chart below, constructed from SPIVA reports from 2005 to the most recent. Note the following:
  1. A tiny proportion, hovering around 10%, of actively managed Canadian equity mutual funds manage to outperform the relevant index the TSX composite over a rolling three-year period (I picked three years since that is around the average holding period for mutual fund investors - if I had picked five years, the results would be even worse)
  2. The amount of under-performance is enormous, about 4% per year - see the red line on the graph.
  3. These poor results are consistent through all of 2005 to 2008 including times of strong upward movement and more recent big declines (though we have yet to see October's results)

Tuesday 11 November 2008

ETFs vs Mutual Funds: the Big Switch or Different Investment Philosophies?

Wealthy Boomer Jonathan Chevreau told us that in September and October mutual fund investors in Canada withdrew huge amounts from their mutual funds while ETFs were simultaneously experiencing large net purchases, notably of iShares broad-based S&P TSX60 Canadian Market Index (symbol XIU).

The iShares Canada press release touting these results also mentions the same thing happening in the USA: "As of July, the United States saw ETF inflows at US$41 billion as compared to US mutual fund outflows of US$47
billion.", citing its source as Investment Company Institute, August 2008.

It is interesting to speculate whether this is actual switching from mutual funds to ETFs in a kind of deathbed conversion or if it is simply symptomatic of two groups of investors with different mindsets and reactions to the market woes, i.e. the mutual fund sellers think the market decline is the end of the world while the ETF buyers see it as a buying opportunity for the long term. I vote for the latter interpretation.

Friday 7 November 2008

Credit Crunch? Depends How You Look At It

An interesting direct mail advertising offer popped into our mailbox a few days ago. Provident Personal Credit is actively offering cash loans from £500 to £500. Huh? Everything one reads these days about credit is that no one can get a loan, even the most creditworthy. But Provident is gung ho seeking clients, even if "you have been turned down before, you have a poor credit history, you're not working at the moment"!

How can they do this successfully? As their flyer says, "We'll base your loan on your circumstances and how much you can afford to repay." The parent company Provident Financial's Interim Management Statement of October 22nd gives further clues to a tightly run operation:
"... all loans are underwritten face-to-face in the home, which provides a sharp assessment of each customer's character and current circumstances. Home credit loans are for small sums repayable over a short period of typically a year and agents visit each customer on a weekly basis to collect the repayments, thereby continually updating their view of customers' circumstances. Not only are customers and their circumstances well understood, but since agents are paid commissions based upon collections rather than on the credit issued, there is no incentive to extend credit that the customer is unable to afford."

There is none of the sub-prime mortgage loan nonsense of agents paid for originating loans that were then sold off in parcels to other banks far away who had no clue of loan quality or contact with the debtors.

And the results bear out the accuracy of management's words. The July 30th, 2008 Interim Results showed a 34% increase in Profits before tax and a 28% rise in earnings per share, with loans and customers also growing. The company is hiring too as these ads on show, another sign of continued growth. No credit crunch here it seems.

Management's forecast is quite positive: "... Our conservative approach to lending, combined with the group's strong balance sheet and funding profile, means the group is well placed to continue to generate high quality customer and profits growth."

The share price (PFG on London Stock Exchange) is down only 3.8% over 1 year, a darn sight better than the minus 33.5% for the FTSE All-Share. Thanks to Google Finance for the graph below.

What's the catch? Depends on your viewpoint perhaps but the 183.2% typical APR interest rate exceeds the bounds of reasonableness. The rate is plainly and prominently visible on the ad and on the website home page, so no one can complain they don't know what they are signing up for. And considering that clients are often those who cannot qualify for, and do not have, loans elsewhere, maybe there is some value to those who borrow from Provident. Still, 183.2%!!!

The downside for borrowers is the familiar debt trap, where people get in and cannot get out, as this one tale from a Provident customer demonstrates with an interesting response from a Provident agent. Crunched by credit indeed.

TD Visa Makes No Promise to Refund Zoom Tickets

When discount air carrier Zoom Airlines went out of business August 28th, some credit card companies like MasterCard and American Express were quick to issue public statements that they would refund amounts for tickets bought with their credit card. The Canadian Transportation Agency post of Oct.24th also lists some travel operators who made promises to refund.

Visa issued no such statement but I assumed that Visa would merely follow suit. It appears now that Visa's policy is different. Having applied in writing to TD Visa with all the necessary documentation within days of Zoom's demise, I have received a partial refund in mid-October. In a phone call with TD Visa's disputes department the other day to ask about the remainder, I was told by a certain "Andrea" (why does no one at these customer service lines ever have a last name?) that Visa does not promise to refund me, it only undertakes to request a refund from Zoom's bank on my behalf as a secured creditor. That has two consequences: if the collateral assets are insufficient, there won't be a full refund and; it will take a lot longer to get the money back since Visa waits till it receives funds from the bankruptcy, which can take a long time. For a card that presents itself as a premium travel card, that pretty pathetic on TD Visa's part. Beware folks, as is too often the case, the fine print and the company's behaviour don't live up to the marketing hype. It's time to look for another credit card.

In the UK, there is a useful discussion on MoneySavingExpert of experiences with various credit and debit card providers in making Zoom refunds.

Tuesday 4 November 2008

Signs that the Market Panic is Over

In the month of October 2008 financial markets struck real terror into just about everyone. The panic phase now appears to be over, replaced by mere worry about the severity and length of the recession. Here are some signs of the change in mindset:
  • stock markets seem to have stopped huge 10+% day to day to day swings upwards and downwards
  • perfect correlation of markets has stopped, where everything is either green/up or red/down, in other words investors are beginning to look at the differential prospects of stocks ... the holdings in my portfolio with various asset classes has a comforting mix of ups and downs - diversification is beginning to work again
All is not sweetness and light, however. Rich investors like George Soros, Jim Rogers, Peter Schiff and Marc Faber who predicted the crash are busy cashing in as the credit deleveraging process they predicted continues painfully to unfold.

Monday 3 November 2008

Financial Education in Kind at LTS Scotland

Learning and Teaching Scotland is the organization whose aim is to prepare young people for life in the modern world through the creation of programs and teaching material for schools, including those that develop financial capability.

Here is lesson 1. Dangers of online impersonation and scams. Instead of, the correct URL for LTS Scotland, type in Note the extra "s". You are brought to an ad page which offers online degree programs. I especially love the one at the bottom of the screenshot below for Ashwood University where you can obtain a PhD in only 7 days with "no studying required", a delicously ironic case in point of the need for programs in financial education.

Sunday 2 November 2008

Dial 311 for Liquidity (In)Security

Investors worry about insufficient liquidity of their investments. Airports worry about too much liquidity. Anyone who travels by air has encountered and probably been frustrated by the liquid carry-on restrictions introduced in 2006. 3-1-1 is the catchy name that sounds like a phone number but is actually the carry-on limit for air passengers as devised in the USA and implemented worldwide. The 3 stands for the maximum of 3 ounces of liquid (or anything that is remotely like liquid). That is 3 ounces except in countries using the metric system where it is 100 ml or 3.4 ounces. Do metric bombs need more explosive to work?

The 1-1 part of the formula refers to 1 zip lock bag and 1 carry-on case/handbag etc.

For those who like to understand and delve a bit deeper into the liquids issue and airport security in general, check out the official US government website of the agency in charge the Transportation Security Administration. The TSA also runs its official blog called Evolution of Security, which is rather more interesting since it allows people to take potshots at their policies. It seems that is just a ploy to find the weak points in their systems, which is actually a smart thing to do. The TSA calls this facilitating an on-going dialogue.

Renowned security specialist Bruce Schneier publishes his comments on his excellent blog (see the Oct.29, 2008 post titled TSA news with links to a hilarious Atlantic Monthly article describing his all-too-easy circumvention of airport security rules). Scheier's blog is also good for issues of identity theft.

A bit of good news is that the TSA plans to start relaxing liquid restrictions in the fall of 2009 when it begins deploying technology that can distinguish water from explosives.

BTW, is there some secret agreement or pact of honour between western governments and terrorists that only airports and airlines should be targets of attacks? Any crowded shopping district street or mall contains far more people than does any airplane.

Saturday 1 November 2008

Junk Mail, Telephone Advertising Calls and Privacy in the UK

Worthy of note:
IT Security Expert published an excellent article Why UK Privacy is Dead on the dangers of identity theft and the lack of privacy in the UK, whose risks are unintentionally heightened by such lists as the online electoral register. He includes links and telephone numbers for getting oneself removed from the lists of direct mail advertisers aka unsolicited junk mail and similar phone calls. Both take requests for removal online or by phone.
To get removed from the visible online electoral register at, one must apparently download a form and mail it in. The page where the form download link is located reveals that credit checking firms conducting credit checks can access the register and check your details even if you have opted out.

While unwanted mail and phone calls are annoying and time wasting, the criminal use of personal details to effect fraud through social engineering is far more damaging when it happens. The Electoral list, BT Phone Book and online job search websites can all be leveraged by fraudsters. One must consider the benefits and the risks of providing one's data or allowing it to remain public. Unfortunately, as IT security Expert notes, the default is that an individual's data is published and available unless it suits the commercial or organizational interest of the body that has collected the data.

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