Our content this month are as follows:-

• Portfolio Construction
• In the News
• Books we have read
• Quotes of the month

At Index, we employ a worldwide approach to investing. In other words the portfolios we construct are designed to reflect where capital goes country by country; for example, 10% approximately of the world's companies choose to list in London and therefore approximately 10% of portfolio equity exposure will be in the UK. Obviously, this is not the same as distributing capital according to the size of a country's economy, as the UK economy is nowhere near 10% of the world economy. Our approach will therefore capture returns from all over the world, whereas the approach in most cases is for "home bias", the vast majority of an individual's capital invested in his or her own country. Even in very small capital markets such bias exists with investors in places like Australia, Ireland and Hong Kong devoting the majority of their portfolio to the place they live.

The drawbacks of such an approach are obvious -- as well as earning money and living in your home economy, the fortunes of your investment portfolio are also tied to it. There is a huge risk of all of your eggs being in one basket to your detriment.

We were persuaded to move to this approach in 2008 and, as with everything we do, we tested it against what we were doing previously. Inevitably, because this follows the principles of Modern Portfolio Theory we found that expected return increased and risk reduced, two very good reasons to adopt a worldwide view.

Goodbye (and good riddance) to all that

The good news over the past couple of months, that may have gone unnoticed among all the bad, is that the Financial Services Authority has at last grasped the nettle of commission and will finally ban it with effect from December 2012. In addition it will require meaningful qualifications for independent advisers. As many commentators have pointed out, products carrying large commissions tend to be recommended more, usually to the detriment of the client; the abolition of commission and the arrival of "customer agreed remuneration" should improve things for everyone.

Naturally the news has not been welcomed by everyone and you can expect the banks in particular to fight some kind of rearguard action to ensure they can continue to sell their overpriced and underperforming products to the unsuspecting public. The insurer, Aviva, (better known as Norwich Union) is already bleating that up to half of all current IFAs will have to leave the business. If they cannot countenance the new world of fees and qualifications then good riddance to them.

Parrots and monkeys

Many of you will recall the story of the Wall Street monkey, who beat many investment experts, year after year, over a number of years. The feat has now being repeated by a parrot in Korea who goes by the name of Ddalgi (Korean for strawberry). Pitted against human traders over a six-week period, the parrot, who chose stocks by pecking them with her beak, made a return of 13.7%, whilst the humans made an average loss of -4.6%. More amusing proof that the value of stockpicking experts may not be great!

This month we are recommending "The Drunkard’s Walk" by Leonard Mlodinow

The subtitle of this book is "How randomness rules our lives" and is an entertainingly written account of how chance affects human affairs and how ill-equipped human intuition is to deal with it. Using real-life cases (the OJ Simpson trial for example) and simple examples Dr Mlodinow takes us through the development of probability theory and the use of statistics and shows us how we can use some basic techniques to improve our understanding of the role of chance in our lives.

It is available from good bookstores and Amazon, but if you have any difficulty finding it please contact vickie@indexwm.co.uk.

"Start by doing what's necessary, then what's possible, and suddenly you are doing the impossible."
Francis of Assisi

"Don't worry about the world coming to an end today. It's already tomorrow in Australia."
Charles M. Schulz