The Sensible Investor

Terry Smith's Gets Praise in The Guardian

2011-12-05T12:03:00.000Z

I'm not a huge fan of active fund managers, mainly because of their high costs and because most of them don't actually deliver much value for money. In general I think most investors are much better off just relying on an index fund rather than trying to find a manger (mainly because retail investors have a terrible tendency to invest in last-year's best performing fund, which will often be a poor performer in future).

That said I do have soft spot for a few contrarian value-focused investors. True value investors are willing to suffer long periods of poor performance in return for outperformance over the very long run.

Two of the British value investors I like most are Terry Smith and Neil Woodford.

Terry Smith just got a great writeup in The Guardian newspaper on the first anniversary of his new fund, Fundsmith. It is a relatively low cost fund (cheaper than most other active funds, but still more expensive than the cheapest index trackers) has a decided value focus.

Some of his favourite picks are consumer goods and other branded companies such as Unilever, Procter & Gamble and Imperial Tobacco.

None of this firms is especially exciting, but they deliver good cash flows, good dividends and trade at attractive yields. Think Warren Buffet when you think of Terry Smith as the fundamentals of his share selection his very much like the Buffet's.

Some of his method is revealed in the Guardian article:

Smith's other mantra is that investors should read, read and read rather than trade, trade and trade.
"Between the three of us who run Fundsmith Equity, we read around 1,000 publications regularly.
"I read PotatoPro magazine, Elevator World, even Tissue World. PotatoPro, for example, helps you keep on top of what's happening in the snack food industry."

Terry Smith's investments have other fund managers on the ropes | Money | The Guardian:

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Does 3i Offer Value?

2011-11-23T22:49:00.001Z

One of the companies i have looked at over the years is 3i, a listed British private equity firm. Its shares have performed appallingly over the past years but I've occasionally looked at it with a view to seeing whether it's shares have been so hammered that it has become a classic value stock; one that sells at a discount to its intrinsic value with a nice margin of safety.
Each time I've looked at it I have held back mainly because it is difficult to assess the value of its underlying investments. The problem is as follows: You may think that the market value of the stock is at a decent discount to it its net asset value (NAV) but in fact the market valuation of the share may simply be an accurate forecast of the likely fall in asset values.
It was mainly for this reason that I have held off from buying 3i.
So I was interested to see this post looking at the firm by Neil Collins on FT Alphaville.

Morningstar shows the shares underperforming their benchmark over one month, three months, one year, three years and five years, and awards 3i its bottom rating. The current management is fobbing off the shareholders by raising the (unearned) dividend, but as Winterflood notes: “the fund’s strategy appears to be shifting on an anual basis”. The shares sell on a discount of 32 per cent to net asset value – assuming the NAV of a private equity house can be measured that accurately.
The raiders from Laxey Partners have noticed, and want shares in 3i infrastructure, a big part of 3i’s assets (and which, perversely, stands at a premium to NAV) to be distributed to the shareholders. Citiwire has an analysis here. The admirable Jim Grant has also noticed that the converse of a 32 per cent discount is the possibility of a 50 per cent gain if the £800m gap between price and NAV could be closed, by the management deciding that the shareholders could use the money better than it can. As he points out: “It would not be a characteristic move on the front office’s part, but it would be a profitable one for the stockholders.” Laxey’s idea would probably signal the end of 3i, but it beats anything that the management has come up with for more than a decade. Oddly, though, I don’t feel any urge to buy back the shares I sold two years ago.

Although Mr Collins feels no particular urge to buy the shares, I think the logic of his full post suggests that they may be worth looking at. There could well be value waiting to be unlocked.

Niel Woodford on Recession and Japan

2011-11-20T00:08:00.001Z

If you saw my previous post I looked at the views expressed by Merryn Sommerset Web saying that we are not facing a Japan-like situation in Europe.

Here is a big of a counter-argument from one of Britain's best value investors. He reckons that we are facing a deep recession and that bank deleveraging will lead to a Japan like situation. It makes for depressing reading.

U.K.’s No. 1 Fund Manager Says Europe, Britain Facing Recession - Businessweek:

"“The outlook for the European economy has deteriorated quite significantly,” said Woodford, manager of the Invesco Perpetual High Income Fund, which has 11.1 billion pounds ($17.7 billion) in assets. “I do expect the euro zone to be in recession next year and the U.K. economy could well be following suit.”

As for Japan, he thinks that:

“Bank deleveraging means a credit contraction, the sort of thing we saw in Japan.”

It is a frightening thought. Mr Woodford has positioned himself very conservatively with investments (according to Bloomberg) in AstraZeneca Plc, GlaxoSmithKline, Reynolds American Inc. and BAT

Europe’s bleak, but it’s not the new Japan - FT.com

2011-11-19T23:46:00.000Z

I've been thinking quite a lot lately about whether the western economies are facing a Japan-style decade of grinding deleveraging, deflation and slow economic growth.

If we are it has huge implications for what you invest in. If you expect a Japan-type situation then you want to be holding bonds. Even at pathetically poor yields, Japanese bonds have provided pretty good real returns (i.e. interest and the impact of deflation) because a given sum of money will buy more each year than it did the previous year.

But Japanese equities have done rather poorly over the past two decades. This is partly because companies have had a hard time. But it is also because in a period of deflation then you would expect the prices of most things, including assets, to fall. This includes property prices as well as the prices of shares.

So the question of whether we face a Japanese situation is basically trying to decide whether investors in Europe and America should be buying bonds or shares.

So I was interested in a recent piece in the FT by Merryn Somerset Webb, a personal finance writer who used to be a stockbroker and knows Japan particularly well.

Her thinking is that we face inflation and not deflation.

Europe’s bleak, but it’s not the new Japan - FT.com:

"Europe is going to have to. If the ECB and Germany want to keep the euro together under the current circumstances (no growth, high debt and an angry market), they are – as Société Générale’s Albert Edwards puts it – going to have choose between their “two most cherished ideals: the euro or hard money principles”.
Either they print oodles of money and use it to buy up every European sovereign bond in sight, or they wave goodbye to their dreams.
Might this eventually lead to very high inflation and even hyperinflation?
It could do: the history of huge fiscal deficits being dealt with by huge money printing programmes is not a happy one – which of course is why the German authorities aren’t that into the idea, and why they will want to demand a promise of fiscal union before they agree to it.
However, in the meantime, it should probably make you feel reasonably bullish for the prospects for the European market a year or a two out – and much more bullish than you might have felt about Japan in, say, 1993."

I have to say, I tend to agree with her that the bigger risk in Europe in time will be inflation. But we may still face a deflationary few years, especially in property and stock markets.
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The Case for More Quantative Easing

2010-09-29T08:58:00.000+01:00

Like most people who follow markets, I've spent the past two years vacillating between concerns that inflation will take off again as a result of the easy money being pumped into the economy and between the opposite anxiety that we may in fact slip into deflation because of the depth of the economic slowdown.
Markets themselves have yet to reach consensus on this subject. Bond markets seem to be pricing in a prolonged period of deflation with yields on 10 year government bonds at wafer-thin levels, yet when one looks at the prices of inflation-linked bonds, it also becomes clear that a fair number of investors are buying protection against inflation.

The strongest case I've read so far that we face a prolonged period of deflation comes from a speech by Adam Posen in his capacity as a member of the Bank of England's Monetary Policy Committee (MPC). His talk lays out a compelling argument as to why we are not at risk of inflation at the moment and why more aggressive action is needed from central banks.
In short his main points are:
1) there is little risk of inflation because so much productive capacity (labour and machinery) has been idled but it has not been destroyed. In Britain, for instance, he cites research showing that without the crisis total output (ie the size of the economy) would now be 10% bigger than it currently is. The ability to produce goods and services to that extent is not completely gone. Workers are still able to work and many factories have simply closed a single production line or gone to shorter hours. But they have not scrapped many factories. So the economy could grow at a cracking pace without putting pressure on wages and prices.
2) Central Banks need to do more, but can't do much more with interest rates alone, so they need to start buying assets and keep doing so until they start seeing the economy moving in the right direction (ie focus on the outcome, not the amount spent).

For more detail you really need to read Posen's talk in full. It runs to 38 pages so will take a little while, but makes for compelling reading.

As for the investment conclusion - if you believe as he does that we face prolonged deflation then the assets you want to be holding are government bonds, perhaps even really long term ones. If Central Banks push interest rates down (ie yields) by even a quarter of a percentage point then there is big money to be made. Bonds may be in a bubble, especially if you are thinking of holding them for a very long period of time, but for now with economies slowing, deflation a threat and central banks moving more aggressively it seems that there may still be some legs left in yields.

The BP Share Rally Ride

2010-08-05T10:26:00.001+01:00

I've neglected this blog for a while due to other commitments but came back to talk for a moment about market sentiment, behavioural psychology and value investing in the context of BP shares (BP.LON) in the wake of the oil spill.
Now this is not meant to be a crowing session (okay it is) but it struck me during all the panic about BP that the market had over-reacted completely to the extent of the spill. BP is a firm that throws off cash and unless you are expecting a huge double dip recession you have to believe that Chinese oil demand is going to keep driving up the price of oil - not forever mind you as substitutes such as tar sands in Canada become increasingly competitive about $70-$80 a barrel so there is some supply response as well as demand elasticity.
Either way you have to believe that under most scenarios BP will generate about $10 billion in profit each year (after the costs of finding new oil to replace each barrel it sells). This is obviously very geared to oil prices so could be significantly higher.
Now that may look scary in relation to the companies potential liabilites related to the spill, which may hit up to $30 billion - but I find it hard to believe its total liability will get that high. The big bulk of is expected to come from government fines of up to $21 billion. But that depends on whether gross negligence can be proved and my reading of the situation (as a non-lawyer) is that this could be difficult and could take many years. I would expect that a settlement is reached for a far smaller sum to satisfy the government rather than have 10 years of hearings and appeals. BP at this stage has every incentive to hire the best lawyers and get the best scientists to contest the government's estimates and claims. Even if over the longer run the claims were to reach that level were are not talking of 2-3 year's profit swallowed up in one gulp, but more likely an amount that gets paid over many years in nominal terms (ie today's dollars).
The long and short of this is that when the market was selling the shares right down to £3 a share, the lowest in 16 years, I took a small punt in my personal account and moved a few thousand (all I have to play with) out of corporate bonds and into BP, getting the stock at £3.05. I was lucky. A lot of people tried to catch this falling knife on the way down. I guess the fact that I called the bottom exactly was really due to the fact that I came to the party late and only ran the numbers when it seemed everyone else had given up on the stock, which as of this time is now back up to above £4. The final tally on the liabilities could still go higher than I think and this bet could have gone quite wrong. It may yet if BP finds it is unable to drill in American waters again. But it is a useful reminder of the old philosophy that the time to buy is when blood (or in this case oil) is flowing in the streets.

Inside the mind of a short-seller: Bronte Capital and First Solar

2010-05-09T06:55:00.000+01:00

Short sellers have been getting pretty bad press lately. The most recent involves politicians in Europe trying to blame them for many of the problems affecting debt markets as the contagion of worry about whether Greece can afford to pay its bills (it probably can’t) spreads to other countries such as Spain (which should be able to) and Portugal (which almost certainly will run into troubled in a prolonged slowdown too). There is sometimes something to be said for the argument that short seller lead to increased market volatility rather than just better liquidity but in general shorts are just the messengers delivering bad news. They do not create it.

And lost in the politics of how terrible they all are is the fact that they often help serve other investors well by helping prevent bubbles. If more people had the opportunity to bet easily against house prices (not just the structured credits that financed them) then there may have been less severe housing bubbles and busts in many developed economies over the past decade. And I have just one example right now of a short seller who is doing me a great service. Not only that, but he is unusually open and transparent on his thinking about why he is selling a stock short. As such his posts make excellent reading and are a great lesson in investing for short sellers and long-only investors alike.

The posts all explain in great detail why Bronte Capital is shorting First Solar.
In a very small nutshell of a nuanced argument (so forgive me if I simply too much) John Hempton lays out why he thinks that First Solar, which is currently the darling of the renewable solar industry, is toast. First Solar has an innovative and low cost method of producing thin film solar modules. These are less efficient than the more conventional silicone ones, but are also much cheaper as they are mostly made of glass. In a long and well reasoned argument, John explains why he thinks that despite their great technology and innovative product, they will still in time be done in by cheap Chinese production of the older sorts of PV modules No matter how great the First Solar product, over time it just won’t be able to compete with cheap Chinese production.
Now the company itself and many analysts argue that First Solar will keep improving and will stay ahead by becoming cheaper itself as well as by making its modules better (more efficient).
Now disagreement is great. There is no right answer here because the future is inherently uncertain so different views of it can coexist. The idea of a market is to set a price on the stock by taking all of those different opinions. Now if John were not allowed to short sell, the most he could do is sell his holding if he had one, or just not buy if he didn’t. In essence you would then have a self-selecting group of optimists setting the price. That might not matter, you could say, since if they are wrong they are the only ones hurt. But in fact First Solar makes up a part of an index that I have bought (the iShares S&P Global Clean Energy index fund) in which First Solar is the biggest holding (5.7%). Now many people, myself included, might own the index because we want a hedge against oil and believe there is something to the longer-term growth story for renewable energy. So it is important for us that the index is priced correctly lest we become innocent victims of other people’s exuberant optimism for the stock. As it happens I agree with John and think that First Solar is pricing in too much growth and optimism, though am not in a position to short the stock Thanks to him my tiny passive stake in the company was bought for just a little less than it might have been without smart and brave people like him who are willing to bet against the crowd.

Is Gold a Bubble set to Burst

2010-01-15T11:59:00.000Z

For those who worry that gold investments are the latest bubble to burst comes some disturbing news from GFMS, a company that gathers data on the gold mining industry as well as on gold investment and consumption.
On the face of it, the outlook for those who are investing in gold this year is good.

Gold Price Forecast
The consultancy reckons that gold will again hit new record highs in 2019. It forecast in a report on January 13 that the price of gold would be $1,175 on average this year. That is quite a lot higher than it was last year at $972 an ounce on average. Its main reason for optimism is that investment demand for gold will probably be strong because of fears of a double dip recession, higher inflation and a weaker dollar. These reasons are often the traditional ones for owning bullion and played a big part in it rising to a record price last year.
Investment purchases of gold (much of it going into dedicated ETFs) doubled last year, according to GFMS, with demand rising to 1,820 tons. It was apparently the first time in three decades that investment demand for the precious metal was greater than the amount of bullion bought for jewellery.
This gives me some worries about the sustainability of the current gold price and think that there are worrying signs that it is becoming a bubble.

Weak demand
My worry, which I've written about in previous posts, is that the high price of gold is driving down demand for jewellery, which is traditionally its biggest use. The great thing about jewellery purchases is that they are sticky. You'd have to be really desperate to melt down your wedding ring, for instance. And if you can afford to keep grandma's rings for their sentimental value then you'll do that to. Although some gold jewellery gets recycled, a lot of it stays on fingers and wrists and dangled from pretty ears. That changes the higher the gold price gets. Not only is less of the metal bought, but more may find its way back onto the market.
Investment demand, on the other hand, is notoriously fickle. Especially when it goes into liquid instruments such as Gold Exchange Traded Funds (ETFs). All of those tons that went into investment flows last year can come back within in twinkling of an eye. So long-term investors in gold should really be looking closely at jewellery demand.

Even GFMS seems a little worried. In an article in the Financial Times, the FT quoted Philip Klapwijk, the executive chairman of GFMS, as saying that he thought the market would become "increasingly vulnerable" to a big correction. According to the news report he said that:

"As the macroeconomic environment gradually normalises, the gold market's dependence on investment will become all too apparent with a substantial price retreat at that point on the cards."

If that doesn't sound like a bubble warning, I'm not sure what does.

Privacy policy

2010-01-08T22:39:00.001Z

I have recently installed Google analytics to track traffic on this page. Although I don't get any personal information about you I do get information that is useful to running the site such as the search words used to find it and how people navigate through the site. None of this is tied to a particular person or IP address in the reports I receive from Google.
The following is what Google has to say about the information that they collect.
“This website uses Google Analytics, a web analytics service provided by Google, Inc. (“Google”). Google Analytics uses “cookies”, which are text files placed on your computer, to help the website analyze how users use the site. The information generated by the cookie about your use of the website (including your IP address) will be transmitted to and stored by Google on servers in the United States. Google will use this information for the purpose of evaluating your use of the website, compiling reports on website activity for website operators and providing other services relating to website activity and internet usage. Google may also transfer this information to third parties where required to do so by law, or where such third parties process the information on Google's behalf. Google will not associate your IP address with any other data held by Google. You may refuse the use of cookies by selecting the appropriate settings on your browser, however please note that if you do this you may not be able to use the full functionality of this website. By using this website, you consent to the processing of data about you by Google in the manner and for the purposes set out above.”

How to invest in gold ETFs - if indeed you should at all

2009-12-14T21:54:00.001Z

Investor interest in bullion has soared over the past few years with many savers who are worried about inflation looking into how they can invest in gold and whether ETFs (Exchange Traded Funds) are the best way of getting exposure to the precious metal.

Gold as an inflation hedge
Before even considering an investment in gold you need to look closely at the rest of your portfolio of assets. Bullion's traditional role has been to protect against inflation based on the idea that because it is scarce and you can't print more of it at will, that it will hold its value even if paper money doesn't. Yet it hasn't really done a great job at that. People owning bullion would have done fine through the 1970s to gold's peak in 1980 but would then have taken a bath. for almost two decades. It is only really since 2007 that gold has spiked up in nominal terms (not adjusted for inflation).People holding it will have incurred huge cost over the years with very little to show for it over most of that period.
The first is that although gold can hold its value against paper money, it is also an asset that doesn't produce returns. If you have gold just sitting in a vault you have to also figure out the opportunity cost of holding it. At the very least you could be getting a couple of percentage points a year return from investing in government bonds or treasury bills. Over most periods cash, bonds or shares will have done better than gold, even if they are a bit riskier.

Gold as catastrophe insurance

Another role that bullion plays is as a safeguard against turmoil in the financial system. Many bugs call it the ultimate assets because unlike, say, a government bond, no-one owes you anything so nobody can default. That may well be true, but it is worthless having the only assets left worth anything if everything else has devalued completely. If you really anticipate a complete breakdown of all society then you're probably better off investing in shotgun shells, as there will be a ready market for those as well as ready need if you have to defend your hoard.

Even so, worries about turmoil in the financial system and about inflation rising again have clearly played their part in gold's big run in late 2009. Now plenty of people have argued that this is just the start and we are seeing predictions of gold hitting $2000 in not too long. But most pundits have short memories. I was covering the gold markets in the late 1990s and early 2000s when central banks were tripping over one another to sell and the price had to be artificially supported by an agreement not to sell too much at once.
I'm not going to completely stick my neck out with forecasts, but I'd be inclined to think that over time the price of bullion will be lower rather than higher. The Economist magazine's Buttonwood columnist recently ran a post quoting a really interesting figure suggesting just how overvalued gold has become. The figures from Tim Lee of pi Economics show that:

*On average, it has taken 400 ounces of gold to buy the median new home. Now it takes 185.

Houses and mortgages as inflation hedges
That figure is really interesting. What it suggests to me is that gold should be thought of as just another currency which has appreciated against the dollar and which in turn has been outpaced by the growth of bubbles in other assets such as houses. It is not to say that gold won't be the next bubble and won't rise further. But it is to say that buying gold is far more like speculating on a currency than it is about hedging against inflation.
The more important point is that many people are naturally hedged against inflation if they have bought a house (which over time should rise in line with other prices) and have a mortgage. If you have then the loan you used to buy your house is falling in value during times of inflation while your house is rising. There is then little need for extra protection.
If you have paid off your house and retired then the case for buying protection is greater, but I would think it could be achieved far better through buying inflation-linked bonds (I'll have more on these in a later post).

Investing in gold ETFs
If you're still with me after all these reasons not to buy gold you must be pretty persistent. Have you thought hard about whether it is right for you?

Okay then.

There are three main ways of investing in gold. The first is to buy coins and hide them under your bed or, if you're rich enough, bullion bars and paying your bank to look after them. I guess that if it is catastrophe insurance you want (and you already have your cans of beans and shotgun shells) then this is the way to go.
The second way is to hand your money over to one of several bullion vaults that have jumped up in recent years. Think of these as the bank deposits of gold. You buy an amount, usually paying by the gram and they mark up "your gold" in their vault. You can trade it at any time and they charge you a spread between the selling and buying price as well as a fee for looking after your gold. You can't touch or feel it and have to trust it is there.
The third way is to buy a gold exchange traded fund such as the SPDR Gold Trust ETF or iShares COMEX Gold Trust. These are, as the name says, funds that trade like shares. The advantages of this approach is that you are buying a security that is transparently traded on an exchange in an open market so the spreads (between the price for buying and selling) will be competitive.If you use on online stockbroker for your share trading you shouldn't pay too much in commission. The rules that govern ETFs are also pretty strict. so you need not worry about whether your gold will still be there in the morning (what it will be worth is a different question entirely). This is because the gold is held in a trust structures that keep assets separate from the companies that manage them. Even if iShares or State Street Global Advisors, which manages the SPDR funds, were to go bust, their clients need not worry. The gold in the trusts is allocated to them and kept safe.
The management costs are also reasonably competitive and are usually about 0.4% of the value of the assets in the fund.
I'll look at some of the funds in more detail in a later post including how much each one charges and also whether they use derivatives to get exposure (and thus incur a risk that their counter-party may go bust).
For now I'm afraid to say that at current prices I won't be joining you if you do, but if you insist on buying bullion I hope this guide on how to invest in gold ETFs has been helpful.

Sweeteners for leaving company pesions: The debate gets heated

2009-12-11T15:53:00.000Z

The debate about whether transfer incentives being offered to encourage members to leave defined benefit pension plans are a scam has become even more heated in recent days. This has long been an issue that has worried the regulator. It again sounded a warning on the subject saying there was evidence that high pressure tactics being used to encourage members to quit the relative-security of defined benefit plans and to move over to defined contribution plans, where most of the risk is transferred from the company to the employee.
A good article by the Telegraph newspaper after the regulator's warning over pension sweetners points out that in many cases employees are offered a cash payment instead of an "enhanced" payment into a new retirement plan. The danger of handing over cash is that:

this could be spent now, at the expense of the client's future pension," said Lee Smythe, adviser at Killik & Co.

The article also quotes Paul McGlone, Principal and Actuary, Aon Consulting saying that the regulator is 'scaremongering':

“While we agree that such exercises must be properly conducted, the fact that some bad examples exist doesn't mean that they should all be tarred with the same brush.
"There are many examples of well run exercises, and it's not for the Regulator to determine what is or isn't in a member's interest - that is for them and their IFA. By making comments such as this the Regulator is just adding to the fear that ordinary people have about pensions."

As a board-certified scaremonger myself, I'm afraid I can't quite bring myself to agree with Mr McGlone. Would it, in fact, be too cynical to wonder whether he has done some consulting for some of the companies offering incentives to get employees to leave their defined benefit funds?. That may be too uncharitable of me. But either way I have to agree with the regulator's starting point, which is that it presumes these are not in the interests of members of the pension funds and that it is for the company to prove otherwise. That seems to make far more sense than for the regulator to stand back completely, as Mr Glone suggests, and expect every single member to get good independent advice from a financial advisor.
I don't have the luxury of being in a defined benefit plan - my current employer closed it to new members a few years before I joined - but if I was in one the offer to get me to even think about leaving it would have to be more than generous. As I mentioned in a previous post on why leaving defined benefit plans is generally a bad idea, buying the sorts of guarantees that go into a pension for life are expensive, and likely to become even more expensive with time. I'm not sure that I would consider the sweeteners of the order of 25% such as those apparently offered by Intercontinental Hotels to be enough compensation for taking on much more risk.

The importance of starting to save sooner rather than later

2009-12-10T17:36:00.000Z

Probably the most important decision towards trying to take control of your retirement is to start saving sooner rather than later. Here's a link to a piece I wrote on a different forum about how compounding returns mean that the sooner you start saving, the less you will have to put aside. You can read it at: Retirement made easy: How soon should I start saving?

The transfer incentive scam: Why leaving a defined benefit pension is a bad idea

2009-12-10T12:44:00.002Z

In the last couple of years the experience of those saving for pensions and retirements have been polarized into two distinct worlds: those with Defined Benefit plans (DB) and those in Defined Contribution plans (DC).
Investment risk
Both have their advantages and drawbacks but the main difference between the two is that people in DC plans have no guarantees of anything. In a DC plan you and your employer contribute set amounts to your pension pot every month and what happens to that pot is your problem and yours alone. You may invest it all in cash and earn a return so paltry that you struggle to have enough money to retire. Or you may invest it all in shares taking a gamble that you will either hit the jackpot and be made for life or perhaps end up trying to retire on less than you saved in the first place. There are a million variations in between, but in short, what happens with your pot of money is in your hands and you have to live with the consequences.

In a Defined Benefit plan, the company takes that investment risk. It promises to pay you a retirement, and how it gets there is its problem. This is not entirely risk free for a saver as you have to worry about the company going bust, but in general the certainty that a DB plan gives is worth a lot. One measure of this is the price that companies have to pay insurers to take over their DB plans. Before life insurance companies will agree to promise to pay retirees the same pension that they are already getting from companies, they will typically ask for a premium of up to 30% to the assets in the existing fund. In other words the certainty that is offered by having your payments guaranteed (and not subject to the fluctuations of the market) is worth at least 30% of your assets. And that assumes you are already retired.
Trying to buy a similar annuity from a life insurer while you are still working is almost impossible because few insurers will want to take on the risk of what might happen to stock and bond markets 30-40 years from now.

Longevity risk
Another risk that has to be taken into account is the question of how long you will live. A long, healthy life should be a blessing. But if you are in a defined contribution fund there is nothing to protect your savings from the fact that the longer you live in retirement, the more money you will need to avoid running out of catnip. This doesn't just affect retirees. Although I'm in my late 30s, the average life expectancy of people retiring now is increasing by as much as a few months every year. By the time I hit retirement age I can, with luck (and on average) look forward to many years of walking the dog. The downside is that by the time I get to that age, the price of buying an annuity with my savings will have increased to reflect that.
Employees in DB funds don't have to worry about such things. Rising longevity is a problem for the fund and their employer, which has to top up the retirement fund if it starts running short of money.. So it is not surprising that most big companies have now closed their DB plans to new members and are also trying to get existing members of these plans to switch out. The way they are doing it is by offering incentives.

The transfer incentive scam
All of which brings me to a talk by David Norgrove, the chairman of Britain's official Pensions Regulator on transfer incentives being offered by companies and some of the "worrying tactics" they are using to encourage people to leave Defined Benefit plans. These include putting excessive pressure on people (calling and coming to their houses), misinforming them by suggesting the DB fund is not safe and using high pressure sales tactics such as telling them they only have a limited time to act. But that trustees of pension funds should:

...start from the presumption that such exercises and transfers are not in member interests.

Many members are likely to be strongly influenced in their decision to transfer by the immediate prospect of receiving an attractive amount of cash - or by an offer which contrasts an 'enhanced' transfer value with a pension from an under-funded scheme.

...If a company is willing to encourage the transfer, the company's gain is likely to be the member's loss.

In other words "if they want me to have it, then I probably don't" - which would seem to be a fair starting point for skeptically assessing all offers in the snake oil world of savings, investment and retirement.