The Quest for Alpha Comes to Edmonton

Larry Swedroe is continuing his cross-country quest for alpha, making his next stop in Edmonton—and Canadian Couch Potato readers are invited to attend.

I was contacted last week by Marshall McAlister, a principal at Pavilion Investment House in Edmonton, who will be hosting the event this Friday morning, July 22, at 8 a.m. The firm would like to invite readers in Alberta’s capital to hear Swedroe discus the ideas in his latest book, The Quest for Alpha: The Holy Grail of Investing.

Swedroe delivered the same talk earlier this summer in Ottawa and Toronto. His presentation gives an overview of the main idea in his book: namely, that decades of evidence reveal that beating the market on a consistent, risk-adjusted basis is extraordinarily difficult for mutual funds, pension plans, hedge funds and individual investors.

The talk is free, although stock pickers will have to pass through a metal detector and submit to a thorough body cavity search. (Don’t worry, they’re just looking for alpha.) If you’re interested in attending, contact Lana Meyer at (780) 638-2491.

The Canadian connection

There is some interesting Canadian content in Chapter 9 of The Quest for Alpha, where Swedroe describes the financial industry’s unease with index investing.

I’ve always wondered why CIBC has the largest lineup of index funds among Canadian banks, but also charges the highest fees. This passage sheds some light on that question:

In the mid-1990s, [CIBC] made the decision to focus on growing its wealth management business. The problem was that the family of CIBC mutual funds had delivered poor results, leaving them with a marketing dilemma. The bank decided that the solution to their problem was to tout index funds as the winning strategy for investors. The bank created a family of index funds and placed Ted Cadsby in charge. His mission was to spread the gospel of the benefits of passive investing. He became a very public spokesman for the bank. Cadsby authored The Power of Index Funds, in which he railed against the evils of active management.

Cadsby was successful in his mission—assets under management doubled to $24 billion in just four years. CIBC had the second-fastest growing fund family among Canadian banks. Then Cadsby disappeared from public view. According to the Financial Post, Cadsby had been told to “quiet down.” Why? because the winning strategy for investors was the losing strategy for the bank.

Swedroe goes on to describe how CIBC Wood Gundy acquired Merrill Lynch Canada’s retail brokerage business in 2001, as well as TAL Global Asset Management, a firm that managed billions in active funds. Trying to convince investors to embrace low-cost index funds suddenly seemed like a bad business strategy. Early in 2002, a visibly nervous Cadsby was escorted from the CIBC offices by two burly men in black suits and sunglasses and has not been seen since.

OK, I made up that last detail.

The Power of Index Funds is now widely available in used bookshops alongside Dow 36,000 and The Beardstown Ladies.