Category: Asset management

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An short example is worth more than a long lecture. Here is a real life example of what an investor can really expect from private equity, and why it does matter.

This, is a hot topic. Indeed was I recently contacted multiple times by clients who were “proposed” private equity investments by their private bankers.

They were all promised highly attractive returns ( “Internal Rate of Return” ) and were drawn to it. It was fun, sexy investing. They just wanted confirmation, validation, they were going to do it.

But still… they all noticed the same diffuse smoke in the air, forming a hazy screen of complex figures and arguments, and they could not find its source. Something was not right and they did not know what.

They all received the same advice from me :

Don’t. Just don’t.

I want to explain why. But I will try do it the less boring way I can, which is still far from being fun, I will use a real world example.

So here a real world case of a private equity fund. And here is why it is “not as good as it looks like”, and why anyone interested in finance should be aware of this.

Continue reading Private Equity for dummies – A case study

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In investment, as with all economic decisions, we must often pick between hopes and probabilities. The asset management industry uses this to trick us, here is how.

Recently, my older son told me a joke. It was simple and naive. It seemed innocent. It was not.

Toto the boy is playing cards with his grand-mother. After a few turns when he keeps winning, he is busted cheating by his grandmother.

– You are cheating Toto !

– Indeed I am !

– This is unacceptable ! Do you know what happens to cheaters in real life Toto ! ?

– Ummm yes… they win !

This simple joke, albeit deeply cynical, is actually pretty representative of what sadly happens in the grown-up world, on a regular basis. Cheaters often win. Misrepresentation often win.  And even liars, often win.

In my very specific field, investment, this behavior is actually widespread, consciously or not. Part of the industry is, with very different degrees of awareness and gravity, “cheating” to win the money game…

How ?

Continue reading Hopes & Probabilities

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Seeking to live solely on investment returns is both a big fantasy and a big mistake. Avoid it at all cost.

 

“This guy retired at 35 with this amazing and safe investment strategy. Want to know how? Click here”

Biggest financial clickbait. I see it regularly, and you probably do too. It usually features a very handsome young man/woman on a yacht, clearly not working for his/her living, and having a load of money anyway.

Beside the obvious scams that those ads are not hiding very well, the underlying message, the biggest investment myth ever, stay strong. This myth can be expressed by this sentence :

“By investing correctly, you can easily earn enough money to stop working, and your life will be wonderful”.

A lot of websites, including some that are not scammers but true believers, advise how to make it, how to get a life where you will never ever have to fake liking your boss or your client again. What a relief !

As you can read this promise is twofold : it promises you that “you can easily earn enough money to stop working” AND it promise you that “your life will be wonderful” if you do.

Both promises are untrue. Do not believe them.

Let’s get into those one by one…

Continue reading I won’t need to work ! The story of an investment trap

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Financial analysis education became too analytical and de-humanized. It needs  to get back to more balanced, human, basics.

3 years ago, as every year for 8 years now, I volunteered as a “mentor” in a student financial analysis contest known as the “CFA Research Challenge”. During the French final, one of the student team was confronted with a very harsh and deep-meaning question about investment, a question they did not expect, a question they should have been taught about.

It was memorable because, while anecdotic at the time, it reached to something bigger, a problem that undermine the way young investment professionals (and some older) relate to their job. A question about the meaning of it.

Continue reading What about your mother ?

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Active mutual funds can be mysterious black boxes. Here is a method to sneak a peek inside.

Mutual funds are very opaque structures. There is so much we don’t know about them, so much we are refused to access, even when we invest in them.

It is indeed very hard to access the actual composition of their assets (the individual stocks or bonds they own). This information is barely disclosed by managers for various reasons. They might fear to see their ideas and work “stolen”. They might fear being criticized for every decision they make. They might even fear that everyone realize they charging active fund fee level for passive management (which is called “closet indexing”, and is very bad, look out for it).

The main information they often give us about what we really own, is the “benchmark”. This benchmark is supposed to be a good proxy of the fund asset composition and potential risks. But most of the time the benchmark they choose seems a bit off or even misleading. It is always an index, and is therefore very theoretical, but it is not its biggest flaw.

Continue reading The great ETF dissection of active funds

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Financial brokers and private bankers use specific investment selling traps and tricks to get you into buying their products. Here is a list. Read it carefully.

I am always amazed by the success met by dishonest financial “advisors” ( brokers would be more appropriate), private bankers and insurers representatives in selling what could be considered very low quality, even toxic investments. Those products are obviously and ultimately designed in the sole purpose of earning the largest margin for their sellers with very little or even negative interest for their buyer. How is this even possible ? Clients are not stupid, their are prudent and educated people, with professional and investment experience, and well-aware of the inner motivation of those salespeople. So why ?

Continue reading The 8 deadly investment selling traps