Hey friend—where’s your money?
Last night, my school had its parent/teacher evening where teachers met with groups of parents for 10 minutes to discuss their educational philosophies and the courses being taught.
At one point, during a break from the revolving door of parents into classrooms, I got a mild-mannered visitor. His son was in my English 9 class, and he saw that I wasn’t busy, so he came in to ask me some basic questions. His biggest one was, “How can I encourage my son to read?”
We chatted for a few moments, and he told me that he gave his son a book by Michael Lewis, the author of Liar’s Poker and The Big Short: Inside the Doomsday Machine.
They’re fabulous books, spelling out the corruption and ineptitude of the financial service industry at the highest levels.
“What do you do?” I asked.
“I’m in high net worth management,” he said, “For clients with hundreds of millions of dollars”
“Oh,” I responded with a smile,”for clients who make their fortune somewhere else and then hand it over to you to manage it?”
“That’s it,” he smiled.
Then I gave my 2 cents about money management.
Perhaps I shouldn’t have done it, but it was more out of fascination than anything.
“You know,” I said, “It’s such a funny industry—so laden with fees, and after fees, taxes and survivorship bias, hardly anyone has a chance of beating a diversified portfolio of stock and bond indexes. “
Did I blow it? Did I ruin a potential friendship–albeit, a professional one? It wouldn’t be the first time.
I once met a Singaporean guy named Sampson at the Berkshire Hathaway general meeting, and he came over to my place for lunch because we enjoyed the shared “geekdom” of finance talk.
He ran a Hedge Fund in Singapore, and when he went on marvelously about how brilliant the “2 and 20 system” was, I asked, “How can you sleep at night with an arrangement like that?”
In case you didn’t know, most Hedge Funds charge 2% on assets every year, and a further 20% on any investor profits. That’s why it’s called the “2 and 20”.
And according to a study done by Wharton professor, Jeremy Siegel, more than 70% of Hedge Funds disappear (due to lousy performance) within the first 10 years of their existence.
Well, after giving Sampson my views on his admiration for what I deemed to be an unfair system, he didn’t come over to play anymore.
This brings me back to the parent I met last night—the one working with high net worth individuals. Did I blow that relationship too, when my comments could be interpreted as an insinuation that he didn’t add value to the people he served?
Thankfully, with a smile, he said, “That’s what I tell my close friends. Keep costs low and diversify.”
We had a bit of a chuckle, and off he went.
If you were to guess where he had his money—where do you think it would be?
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