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Weekend reading: Fees never falter

What caught my eye this week.

The cheque has been in the mail for several years now. But in his latest annual letter, Warren Buffett officially declared victory in his $1 million bet that an S&P 500 tracker fund would beat a bevvy of hedge funds over 10 years.

Not that the fund managers will mind – they’ve mostly gotten rich over the decade, too.

As Buffett notes [1]:

Both the fund-of-funds managers and the hedge-fund managers they selected significantly shared in gains, even those achieved simply because the market generally moves upwards. (In 100% of the 43 ten-year periods since we took control of Berkshire, years with gains by the S&P 500 exceeded loss years.)

Those performance incentives, it should be emphasized, were frosting on a huge and tasty cake: Even if the funds lost money for their investors during the decade, their managers could grow very rich.

That would occur because fixed fees averaging a staggering 2.5% of assets or so were paid every year by the fund-of-funds’ investors, with part of these fees going to the managers at the five funds-of-funds and the balance going to the 200-plus managers of the underlying hedge funds.

Buffett concludes with a pithy new saying we could hang on the wall:

Performance comes, performance goes. Fees never falter.


p.s. For an alternative take that I don’t quite agree with but that makes some interesting points, see this note by Albert Bridge Capital [2].

p.p.s. Unrelated, my thoughts on Theresa May’s vacuous ‘big Brexit speech’ – Twitter [3].

From Monevator

From the archive-ator: Another good reason to open an ISA – Monevator [4]


Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1 [5]

Low volatility ETFs failed to protect investors during recent falls [Search result]FT [6]

A would-be £100,000 pension squandered down to £3,000 on fees – ThisIsMoney [7]

Beat an interest rate rise by locking into a new mortgage now – Guardian [8]

Experts warn of buy-to-let crunch – ThisIsMoney [9]

Harvard fund blew $1 billion in bet on tomatoes, sugar, and eucalyptus – Bloomberg [10]

Cumulative house price growth from 2009 to 2017 [Paywall]FT [11]

Products and services

Nationwide launches market-leading ISA savings rate – ThisIsMoney [12]

Target Accuracy calculator to backtest model portfolios – Portfolio Charts [13]

Innovative finance ISAs hit stumbling blocks [Search result]FT [14]

Sky and Netflix to join forces in single subscription package – ThisIsMoney [15]

Comment and opinion

Modern finance must kick its addiction to indices [Search result]FT [16]

The importance of buying with a margin of safety – Of Dollars and Data [17]

Will active stock funds save your bacon in a downturn? – Morningstar [18]

Forget market timing. Think ‘expectations driven investing’ – Elm Funds [19]

The morality of suing financial advisors – The Evidence-based Investor [20]

Millennials can chill about not having massive savings – Simple Living in Somerset [21]

Property is a ‘good investment’ mostly because you live in it – ThisIsMoney [22]

A history of the Trump Slump [Speculative!]The Economist [23]

The case for a diverse portfolio – DIY Investor (UK) [24]

Target date funds are underrated [Note: Tax tidbit is US]The Finance Buff [25]

Community care – SexHealthMoneyDeath [26]

Crypto corner

Can Bitcoin threaten the stability of financial markets? – Institutional Investor [27]

Bitcoin is falling out of favour on the Dark Web – The Atlantic [28]

BOE governor Mark Carney says it’s time to hold cryptos to account – ThisIsMoney [29]

‘It Just Felt Like a Miracle’: A bitcoin donor’s $56 million giving spree – TCOP [30]

Nearly half of 2017’s Initial Coin Offerings have already failed – Fortune [31]

Off our beat

A week inside WeLive, a utopian apartment complex – GQ [32]

Six charts that show how the world is improving – Visual Capitalist [33]

How a small town reclaimed its energy grid and sparked a community revolution – Guardian [34]

David Lynch teaches typing [Free downloadable game]Rhino Stew [35]

And finally…

“No breath of wind,
No gleam of sun
Still the white snow
Whirls softly down”
– Walter de La Mare, Snow [36]

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  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [ [39]]