Two outstanding international investment professionals have been exchanging opinions in recent issues of Pensions & Investments (in the Nov. 13, 1995, issue, a commentary by Ullrich S. Moser, president, Moser Advisors Inc., Stamford, Conn., and in the Jan. 8, 1996, issue, Point/Counterpoint letters to the editor by Robert Rawe, president and chief executive officer, TCW London International Ltd., London, and by Mr. Moser).
The debate is on whether the outlook for developed, non-U.S. markets is good or bad.
Their opinions are based on casual observation of developments in Europe and Japan plus some average return data for the Standard & Poor's 500 stock index and the MSCI EAFE, the Morgan Stanley Capital International Europe Australia Far East index.
They can't agree whether MSCI EAFE or S&P 500 did better in the last decade.
The purpose of this letter is not to provide a verdict on who has the best numbers, but to shed some light on how numbers, especially historical average returns, may deceive you. Hence data mining is everywhere!
As an illustration, I calculated the annual, geometric average returns in U.S. dollars for two 10-year periods (replicating what Mr. Moser and Mr. Rawe did). The first 10-year period starts in January 1985, the other in January 1986.
Depending on which period you happen to use, you may have very different opinions about international investing.
For the 10-year period, from Jan. 1, 1985, to Dec. 31, 1994, the MSCI EAFE returned 17.72% and the S&P 500, 14.24%.
For the 10-year period from Jan. 1, 1986, to Dec. 31, 1995, the MSCI EAFE returned 13.77% and the S&P 500, 14.77%.
The main conclusion we may derive from this is that 1985 was an outstanding year for the MSCI EAFE. In fact, it was better than even the S&P 500 in 1995!
Some more numbers:
For the calendar year 1985, the MSCI EAFE returned 56.97% and the S&P 500 returned 31.44%.
For the calendar year 1995, the MSCI EAFE returned 11.55% and the S&P 500 returned 37.59%.
Now as to the return for the next 10 years - only time will tell.
Lars Nielsen
Equity sales manager
BARRA Inc.
New York
Your hostility toward Social Security is showing again.
It leads you to insult the intelligence of Americans who disagree with you on the matter.
In your Dec. 25 editorial, "Time to break silence," you clearly display a Scroogelike tendency and superiority complex.
All the issues you raise as never having been explained to retirees, have been explained.
All Americans have been educated to the fact that Social Security faces a financial problem in the 2030s.
They know there is no crisis and no reason to panic. A meaningless instant solution is not the answer. Only moderate adjustments are needed to preserve the program.
In your news story on the recommendation of the Advisory Council on Social Security, there are a number of thoughtful suggestions that would go a long way to ensure the viability of the system.
By picking and choosing from among the suggestions, there would not have to be any drastic change in the current basic form of the system.
We do not, as you suggest, have to alter the fundamental principles on which Social Security is based.
We do not have to go to a voluntary system, which would leave millions uncovered.
We do not have to go to a private system, which as recent headlines show lead to abuses by greedy profiteers.
There are many reasons to have a guaranteed, secure base like Social Security, which can be relied on for a lifetime income. Some are:
The dramatic reduction in the number of people covered by defined benefit plans shows the private sector wants no part of providing their employees with a secure retirement.
The growth of defined contribution plans. Your paper frequently reports on how ill-informed investors are making retirement investment choices that will not generate enough income to provide for a 20- to 25-year retirement. This will leave most Americans without sufficient retirement security.
The suggestion to privatize Social Security would leave future retirees to depend on a single source of retirement income dependent on the whims of the capital markets' returns. With no secure, guaranteed base.
This is a scary thought for most Americans, who have not and will not amass fortunes.
You only talk about Social Security as a retirement plan, completely ignoring that it also provides disability and survivor benefits. You never mention 7.4 million Americans are receiving survivor benefits; 3 million children under age 18 receive Social Security benefits.
Americans are not as dumb as you think they are. They are not going to allow changes in the fundamentals of Social Security.
They know Social Security is a complete protection program that provides guaranteed protection.
They know the administrative costs of the program of about 1% are much less than any private firm can charge.
Americans know the Social Security System is something no Third World country like Chile, the darling of the anti-Social Security set, can match.
Changes to preserve the fundamental principles of the Social Security System, "Yes!"
But changes to revise and overturn the principles of the system, "Never!"
Americans are too smart for that and they know more than you give them credit for.
Mel Aaronson
Chairman
United Federation of Teachers
New York
Your Jan. 8 Editorial Page column describing the Cato Institute's call for privatization of Social Security raises questions regarding the tax-exempt status of think tanks such as the Cato Institute, the Brookings Institution, the American Enterprise Institute, the Progressive Policy Institute and the Pacific Research Institute, which have such status because of their serving the so-called public interest.
Think tanks no more serve the public interest than McDonald's or Church's.
Think tanks appear to provide a means of employment for the Ph.D.s churned out by the academy.
Perhaps our think tanks, which supposedly serve the public interest, would like to form a political party having a platform and sponsoring candidates.
Members of Congress need to talk honestly about the problems facing our federal agencies such as Social Security and the Health Care Finance Administration, or HCFA.
Congress took out money for our federal national pension plan.
Their agencies should be made to perform the way private corporations do.
How about having a national, federal pension plan and a national, federal accident and sickness insurance company having common stock and subject to regulation by state insurance departments?
Why is a university education so expensive?
Is it due to the way universities are structured? All universities are not-for-profits none of which has common stock traded on an organized stock exchange.
The movement of the common stock's price objectively measures a corporation's financial success.
Having common stock traded on an organized exchange provides an incentive for a corporate raider to purchase enough stock such that he can rearrange the resources of the corporation thereby satisfying the corporation's consumers and also its stockholders.
Perhaps our public interest think tanks would like to talk about restructuring our universities thereby making a higher education cheaper, better and more available to American citizens.
The de facto stockholders of the University of Chicago are its management who are the tenured faculty.
Charles R. Courtney
Corporate risk manager
CSA Fraternal Life
Oak Brook, Ill.
