by Scott Pape - June 30th 2009
My Sunday morning ritual starts by being woken up (by the panting of my labrador retriever, Buffett), pulling on a tracksuit, grabbing The Economist magazine from my front lawn, and heading to the beach for a read.
The prestigious weekly, which has been around since 1843, is required reading for key decision-makers (and everyone else) throughout the world.
Stealing Billions
A recent edition carried an article called ‘Competitive Failure’ which discusses consolidation in the global funds management industry, which as you’d expect is quite a dry subject, making quite a boring article. That was until I got to the following paragraph, which states, quite matter-of-factly, exactly how fund managers rob billions of dollars a year in management fees from people like YOU:
“Retail fund managers compete on past performance rather than price (fees).
Alas, a good performance one year tends not to be repeated the next; but the fees carry on. [And] because of their inertia, retail investors tend not to buy funds; funds are sold to them.
Fund managers must pay banks and brokers to distribute their products, and they claim back that money from investors. As a result the bestselling funds often have the highest charges; other things being equal, they represent the worst deal for investors.”
Better Understanding
I’ve long understood that the ’wealth management’ industry is fundamentally about transferring wealth to the manager through fees, and complicated performance rewards.
That’s why I’ve long advised investing in traditional Listed Investment Companies (LICs) and index funds (a whole universe is now available – the best trade on the New York Stock Exchange).
Yet since travelling through the US and meeting Buffett (the investment legend, not the dog swimming in the beach on a 9 degree day), I’ve changed my approach — slightly. Like me, Buffett is a critic of fund managers and a fan of index funds, but he also advocates directly investing in good-quality
companies that are selling at a reasonable price, and holding on to them forever.
This is, after all, what allowed him to start with nothing and amass a multi-billion-dollar fortune in his lifetime.
I’ll email you soon with more on the evolution of a Barefoot Investor.
Tread Your Own Path!
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