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?