Gonzo Investment Suggestion

Posted by Martin R on March 6, 2009
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Eight years ago I sold half an apartment to my former wife and found myself, for the first time, with a sum of money to invest. I did what conventional wisdom recommended at the time: stuck all the money into a mutual fund. I chose an “ethical” one, that doesn’t invest in the arms trade etc., but I don’t think that’s the reason that the whole move proved to be a financial mistake. (The fund in question has a good Morningstar rating.) My share in that fund has never to my knowledge even been worth what I originally paid for it, and the simple reason is that apparently I bought near the top of the curve.

Today I got an investment suggestion that seems exceedingly silly to me. When I bought that share in the mutual fund, I in effect paid a trained person to perform a task for me that I lack necessary skills for: to act as a middleman and invest my money wisely in stocks. Though this guy did an industry-standard job, I still lost money. Today, a Swedbank representative suggested that I move the money into his bank’s meta-fund. I don’t know the correct word for this in any language, but the idea was that I would pay trained middleman #1 to invest my money wisely in various mutual funds, meaning that he would select a trained middleman #2 and pay him to invest my money wisely in stocks. And somehow the combined skill of these two groups of people would give me a better result than if only one middleman separated me from my investment decisions.

Actually, Mr Swedbank didn’t say that it would give a better result, only that he hoped so. And when I explained that I couldn’t see how introducing an extra middleman would improve my chances, he had no reply to give. So my money, what little is left of it after the credit crunch, still languishes in that old mutual fund.

I should just have bought gold and buried it somewhere.

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Comments

  1. #1 Johan Lundstrom
    March 6, 2009

    If you want gold, don’t you just have to find an old ruined city and avoid all the deathtraps?

    If not, what’s the point of that PhD? :-)

  2. #2 Martin R
    March 6, 2009

    Well, how exactly do you think I could afford to buy that half apartment in the first place? (-;

  3. #3 Åsa
    March 6, 2009

    Why not try an ordinary bank account. I have heard that SBAB has very good terms. And you are guaranteed to get your money back. In case of a finacial crash you will get back up to 500 000 SEK.

  4. #4 humorix
    March 6, 2009

    A politician needs to buy. And sell retail it when he will be very fatty ! (They are the only ones always has fatty being).

  5. #5 Martin R
    March 6, 2009

    Yes! No. All your politician are belong to fatty us.

  6. #6 Lassi Hippeläinen
    March 6, 2009

    Actually the trained middleman #1 divides the investment to N slices and then selects trained middlemen #2, #3, … and #N+1 to manage each slice. Paying N+1 trained middlemen won’t improve possible profits, but it can avoid losses, because it spreads the risks wider. Assuming #1 knows his job.

    In current climate a bank account is a good choice. In the long run ethical funds will probably be better, because “green” companies (e.g. renewable energy) will come out of the recession as winners.

  7. #7 Martin R
    March 6, 2009

    spreads the risks wider. Assuming #1 knows his job.

    And assuming that the mutual funds he selects among are significantly different in their profitability. Which appears not to be the case.

  8. #8 Ted H.
    March 6, 2009

    Once upon a time I used to be a stockbroker, and my retired dad still makes most of his income through playing the market.

    I’m not really up on the Swedish stock market, so I don’t have much to say on specifics. Though staying out of the market and just keeping it in savings right now is probably not a bad idea. When the World economies start showing some recovery there might be better things to do.

    There are a few bits of advice I can give though: Banks are for savings, securities accounts are for investing. You shouldn’t invest with a bank, or save with securities.

    Any investment is gambling. There are very few with no risk, and the ones that have no risk do not have much of a return. Our (my wife and I) retirement accounts got absolutely hammered last year, but since we are still over 20 years from retiring it is no a big deal.

  9. #9 Lars L
    March 7, 2009

    “I should just have bought gold and buried it somewhere.”
    Inspired by good old Västergötland Migration Period behaviour, are we?

  10. #10 paddy
    March 7, 2009

    Indeed, if you had bought gold back then you would be laughing all the way to the bank – just don’t laugh too much IN the bank or they will call security.

  11. #11 Kevin
    March 7, 2009

    Folks who want to invest should find a “fee only” advisor who takes a fiduciary responsibility – putting the client first. This is much different than your usual commission broker/banker who has to make a sale to make money. There’s an organization of fee only planners/advisors in the U.S. called NAPFA (.org) – I’m not sure if there is a similar organization in Europe.
    You are quite wise to avoid layers of management of your investments. Such increased costs take returns away from you.

  12. #12 Suzanne, the Farmer's Wife
    March 7, 2009

    Acutally, you are correct. Buying gold would be the better option. All of our investments have taken a dive, except our investments in gold. Unfortunately, this is probably the top of the curve on gold also.

    How about doing some work in illegally traded antiquities? An archaeologist’s got to do what an archaeologists got to do.

    - Suzanne

  13. #13 RBH
    March 10, 2009

    spreads the risks wider. Assuming #1 knows his job.

    And assuming that the mutual funds he selects among are significantly different in their profitability. Which appears not to be the case.

    In a crunch like we’re in now worldwide, damn near all the correlations in the matrix go to 1.0. Liquidity and capital preservation are the best strategies now, in my view.

  14. #14 DDeden
    March 21, 2009

    Invest your money in this: reproduce an authentic Viking sword which contains special hidden internal components: metal detector, GPS, cell phone, videocam, drill & vacuum cleaner attachment. And get a tattoo, those are great investments…

  15. #15 Martin R
    March 22, 2009

    I’m thinking about buying some thralls and breeding them for sale while they work the fields of my estate.