“Sixty Percent Of The Time, It Works Every Time”

You may recognize the quote in the title from the movie Anchorman.  If not, here is the clip to refresh your memory:

This can be a lot like stock pickers, pundits and TV personalities.  Except the percentage of the time they are right are usually way under 60%.  A man like Marc Faber fits it to this camp.  For some reason he continues to get TV time with headlines like this one:  Marc Faber: S&P is set to crash 50%, giving back 5 years of gains.  At first blush, this sounds pretty scary.  That's the main reason CNBC is publishing it.  They know that fear sells and you are much more likely to watch a clip about a major market crash than something much more useful like diversification, cost management or tax minimization.  Unfortunately, no one seems to fact check their contributors actual results (who really cares about the data anyways?).  Here is a great chart showing Marc Faber's record over the last 7 years:

faber-timeline

He seems to predict a market crash as often as a meteorologist predicts rain.  Of course, at some point he'll be right.  The only problem is that if you continue to follow his advice, you'll most likely be broke before this happens.  This post is not meant to insult Marc Faber, but to illustrate the folly of predictions.  This is just another example to run (not walk) away from anyone who is using prediction for the basis of advice.  It may seem like making changes to your portfolio based on the prediction of what stock is going to do well, or whether the market is high or low makes sense, but nothing could be further from the truth.  Base your investment strategy on evidence and logic and all of this stuff just becomes noise.

Research On Getting Rich

For those intent on building their wealth, the focus is often on saving and investing.  There are countless articles on how to save money by cutting out that daily Starbucks latte, and then how much that will compound if invested wisely.  While there is no problem in focusing on frugality and investing, a new study finds that we may be focusing on the wrong factors.  The author of the study researched 233 self-made millionaires and found they fall into one of two categories:

  1. They were fanatical savers or
  2. They sold something

The article went deeper on this topic:

The average net worth of these 135 millionaires was $5.7 million. Seventy-one percent accumulated their wealth before the age of 56, or on average, in less than 22 years.

The millionaires who were fanatical savers had an average net worth of just over $3.2 million, accumulated over an average of thirty-six years.

In other words, those millionaires in my study who sold something had a net worth that was $2.5 million higher than the savers in my study and it took the sellers 14 fewer years to accumulate that wealth. Clearly, if you want to accumulate a lot of wealth in the shortest period of time, you need to sell something.

Those that sold something had higher net worths and incomes compared to millionaires that were more focused on saving.  Now, I am not saying you should forget about saving and investing to build your wealth.  What I am saying is that most of us miss one of the most important aspects of wealth building:  their income.  Those that sell something presumably have the ability to save more because they make more.  If you want to build wealth, keep this in mind.  Selling is not easy (which is why successful sales professionals get paid more), but for those who are looking to grow their net worth, this may be a great place to start.  The author ended the article with a list of well known wealthy individuals who focus on selling (or at least that consists of a part of their job):

  •     Warren Buffet sells his financial expertise.
  •     Elon Musk sells his Tesla cars or the use of his Space X rockets.
  •     Mark Zuckerberg sells Facebook advertising and marketing services.
  •     Dr. Ben Carson sold his expertise as a neurosurgeon.
  •     LeBron James sells his basketball skills.
  •     Tony Robbins sells his motivational and training seminars.
  •     J.K. Rowling sells her Harry Potter books.
  •     Taylor Swift sells her love songs.

 

 

For Our Cringe Worthy Post Of The Day

I literally cringed when I read this article on Bloomberg.  I am not sure why our DNA hasn't adapted to fight against the greed that seems to totally blind us to the fact that when something is too good to be true, it is.  The article tells the story of a hedge fund in Atlanta that has generated returns of 13, 24 and 91% since 2013.  That's not all, as you read further you find this:

Meyer is so confident in his approach that he offers an extraordinary guarantee: With Arjun, you will never lose money. His price of admission is steep, however. Investors must hand over their cash for a decade. If they exit early, Meyer keeps half the principal.

If that isn't enough to make investors run, here are some more pieces of data:

  • He has no employees
  • A computer comes us with the trades, since he can't "manually do something like that"
  • He's been through 3 auditing firms
  • There are irregularities surrounding how much money they manage (anywhere from $39 million to $338 million)
  • No one seems to be able to explain how he earns these returns
  • He doesn't send audited financial statements to his investors
  • He invests in treasury bonds, which are yielding almost nothing today
  • Oh, last one…he's under investigation

But still, you have some of his investors making comments like this:

David Recknagel, a sales executive in Detroit, met Meyer when the money manager was doing consulting work. Recknagel says he invested in Arjun after losing confidence in big banks and money-management companies. He concedes he’s not sure how Meyer does what he does.  “I understand it in general, but I probably don’t understand it completely,” Recknagel says.

One more quote from another investor:

Jeff Roberts, who runs a real-estate appraisal company in Asheville, North Carolina, says he met Meyer in 1989, while the two were at First Union. They became friends after Meyer, wearing jeans and a T-shirt, turned up one day in a Ford pickup to give Roberts a lift. A 12-pack of Budweiser rested on the front seat. Roberts says he’s invested several hundred thousand dollars and Meyer has been great.

“How many hedge-fund managers can you get to call you back? The guy that’s actually the investment officer or, you know, chairing the fund? It just doesn’t happen," Roberts says.

Roberts and Recknagel say they’ve also enjoyed a Statim perk: Meyer extends inexpensive short-term loans against their investments. Recknagel says he’s used the money to invest even more with Meyer. He says he also has a Statim corporate American Express card.

I truly hope that my instincts aren't validated, but I would venture to guess that this article could be the beginning of the end for this hedge fund.  While it seems like common sense, here are some tips to make sure your investment advisor isn't running a scam:

  1. Make sure you fully understand the investment strategy your advisor is using with your money
  2. Check out your advisor on the SEC and FINRA websites- you can check to see if they have any disciplinary history
  3. If it sounds to good to be true, it is.  There is no free lunch when it comes to investing.
  4. Make sure a third party custodian holds your money if you are working with an independent advisor.  Using a Fidelity, Schwab or TD Ameritrade can prevent the outright fraud that can happen when an advisor commingles his client's assets

If it walks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.  For the investors in this hedge fund, I think they are going to find out the hard way.

 

 

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.