Can you name one billionaire money manager
Now can you name one billionaire whose billions came from having his money managed by others?
It is pretty easy to name a billionaire who ran a money management firm - Ned Johnson (Fidelity), Steve Schwartzman (Blackstone), Larry Fink (BlackRock), Dan Loeb (Third Point), George Soros, Ken Griffin, Ray Dalio, Jim Simons, Steve Cohen . . . That was easy.
Now name one billionaire who became a billionaire by having a money manager manage his money. Crickets?
It is plain and obvious that the parasitic money management industry - the one that pretends it can do a better job of managing your money than you can - makes a lot of money for the managers of those hedge funds, mutual funds and intermediaries and not so clear that their clients benefit. The reality is that very few money managers outperform market indices - after 15 years, 92% of large cap funds lagged the indicies.
At year end, we hear from a plethora of fund managers prognosticating about what the markets will look like in one year’s time, listing their “top picks”, and promoting themselves as sensible options for retail investors to entrust with their money. Business News Network (BNN), Bloomberg, CNBC and Fox Business have talking heads on every day touting their favorite stocks. They all claim to have insight into which stocks will rise in trading price during the coming year.
But if you are an investor who does not own any stocks today, you would prefer if stocks fell in trading price. If you are an investor who owns stocks and does not plan to sell any, their inputs are valueless. If you are a trader, you have joined a club in which the members in aggregate lose money and transfer wealth to the billionaire class who make their billions charging you a fee for choosing investments for you - with a minority making more money for you than a passive ETF like SPY; the majority doing worse that than passive ETF; and, all the managers making millions at your expense and with certainty at the expense of all retail investors as a class.
I interact with many investors on Twitter and observe they are universally “bullish” about one stock or another proceeding on the belief they “know better” but typically devoid of any foundation in finance or economics. Some do very well, some lose their shirts, but in total it would be specious to suggest they all “beat the market” either as individuals or as a group.
So what to do? A recession is likely. What not to do is more valuable.
Don’t buy stocks on margin - the risk of a margin call is too high with the volatility that accompanies market declines and economic turmoil. Elon Musk has this one right.
Keep some cash as cash and ignore the low returns for the short term - when markets collapse you can’t buy cheap stocks for gain by selling cheap stocks at a loss.
Don’t let Cathie Wood touch your money - her strategy is nonsense and her track record is terrible.
Patience is a virtue. Expectations for a short, shallow recession may be right but they may also be wrong. Back to back “down years” are rare but not unprecedented and they can be costly.
I see energy stocks as sources of long term growth in dividends and cheap at today’s prices. They will be even cheaper in a recession in all likelihood. Buying debt free dividend paying oil & gas stocks during a market sell off will yield long term passive income.
Avoid Bitcoin and its ilk. Cryptocurrencies are devoid of value and comprise an industry where anyone can create a “coin” (there are some 19,000 of them already) and sensible investors are waking up to the reality that they are not an “investment” but a zero-sum game where every gain is offset by someone else’s loss.
Think about the volatility of the professional economic and market forecasts (the main benefit of which according to one pundit - Ezra Solomon- is to make astrology look respectable). Here are some of those forecasts, published by Bloomberg
I expect to see Europe’s economic ills get worse owing to nonsensical policies that pretent CO2 is a threat and the absence of a recognition that fossil fuels are an essential element of today’s world economy. I expect to see the electric vehicle (EV) mandates get repealed as it becomes clear there is not enough grid power to support a wholly-electric fleet and not enough copper or nickel to build the needed batteries. I expect to see left-wing governments in Canada and United States kicked out of office in 2024 and a high level of voter discord over authoritarian policies to consume less oil, natural gas or electricity as the world experiences a cold winter with more to come.
In short, keep your head and your ass down, and if you must buy something, consider canned food and ammunition.
Good summary for retail investors. You might like this:
https://www.newyorker.com/humor/borowitz-report/world-shocked-that-man-running-business-based-on-imaginary-money-might-be-fraud
Peter Lynch ran the Fidelity Magellan fund for over 15 years and anyone who bought and held this fund for 5 years or longer did very well. I also like to use mutual funds in markets like the U.S. or global for diversification. For a good manager I recommend Mawer Investments out of Calgary. Mutual funds are like stocks in that the longer you hold hem the better the chance that you make money.
John in Ottawa