Monday Morning Ramblings

The Reform series will continue tomorrow. I need to pummel hedge funds today.

Are the Rich stupid? Or gullible? Or foolishly greedy? That's the logical conclusion one could make from the annual returns of their favorite club topic, viz. hedge funds. They love to put money into hedge funds; they've poured billions - trillions - into thousands of hedge funds. The economy of southeast Connecticut must depend on hedge funds, as must many exclusive districts in London or Switzerland. A hedge fund manager gets fat fees, often 2% of assets and 20% of profits. They risk nothing other than some pittance of their own money. They get to gamble with clients money and rake off those fees.

What do clients - investors - get? Oh, they can talk about their hedge fund investments with their pals over cocktails before those black tie galas or at the exclusive clubs, or vacationing at Palm Beach or exclusive resorts. What kind of person would invest for that mere psychological benefit? Any rational person would say no one. They would want superior returns at lower risk.

The numbers for 2010 are now out. The average hedge fund gained 10.4% in 2010 according to Hedge Fund Research, which returns agree with those of Hennessee Group LLC, an advisor to investors. [Source: WSJ over the weekend]. Krypto Fund had a 14.1% return with very low risk as almost 1/2 of its investments are in passive fixed income investments. The equity components of Krypto Fund are invested mostly in low fee index funds. Krypto Fund crushed the performance of all those hedge funds by 3.7%, a huge margin. What fees were paid ? Dog biscuits. Active trading ? Nope, almost no trading - mostly simple asset allocation trades when a sector became out of balance.

All that superior performance with a public, easily copied strategy and no fees. Thus, what else can we conclude but that the rich are either stupid or greedily gullible or foolish or have psychologically weak minds, or any or all of the foregoing?

What else could one expect - there are thousands of hedge funds, just like there are thousands of mutual funds and now thousands of ETFs and thousands of managed account gimmicks at the big Street firms. All that vig created by the Street to rake off all the cream. The money managers and the Street get the beef and the customers get the gristle and fat. Those layers of fees guarantee poor performance on average.

Don't do it. Manage your own money with a simple, low fee, conservative strategy as Krypto Fund does. Sleep easy. Don't worry. Be happy. :)

Word of the Day

"Apocopation" - noun [$10] from "apocopate" - verb [$10]
Apocopate means the omission of a letter or letters at the end of a word as a morphological development [e. g. in the derivation of curio ].
Sentence: The title of the humorous Mozart opera, "Così fan tutte" contains the apocopation 'fan' from 'fanno' meaning 'they do'. In that title, 'tutte' is feminine plural for 'all" hence the literal translation is So do all (women).