Know Your Competition…

Do you recognize a theme going on here…?

Wall Street and the burgeoning “robo-advisor revolution” is slowing forcing money management into a commodity business with very little value-add to their clients.

Because of the lack of independent, contrarian thought to investments, the big players are chasing each other’s tails and concentrating in the same areas as their competitors. This provides no real value to YOU, the investor.

Very few firms on Wall Street have the incentive to make you money or generate a significant amount of Alpha (outperformance) for your portfolio. Listening to them may feel like the right thing to do because you’re told they’re the “experts,” but it’s really just lining their pockets, not yours.

If money managers followed the Warren Buffett Partnership fee model, we probably wouldn’t have near the amount of aggressive activity or risky behavior that we see on Wall Street day-in and day out.

In his early partnerships, Warren Buffett charged a 0/25 fee.

Which means there were no management fees, and he kept 25% of the profits.

Wait there’s more…

He only took 25% of the profits if he made you at least 6% on an annualized basis (or “hurdle rate”).

So if you earned 5% or if you lost 20%, Buffett earned nothing.

How’s that for incentive?

If he didn’t make money for his investors, he had to foot the bill out of his own savings to pay for staff salaries, his own bills or pay bonuses.

How many Wall Street firms would be able to do this…?

That’s an easy answer…NONE!

Obviously there are many other market participants’ brokers, institutional funds, etc., and to write about them and detail all their strengths and weaknesses would take at least 500 pages.

The reason I point this out is to show how Wall Street and the Stock Market are incredibly short-term oriented and put very little emphasis on the fundamentals of the underlying business.

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