In more than one occasion Buffett mentioned how there’s often no-proportion and no reason to pay 1 or 2 percent of fees or commissions over very poor results from most money-managers and funds today. On this month issue of FT Wealth magazine you’ll find an interesting article by Matthew Vincent that finally replicates most of the fair comments by WB. In some “letters to shareholders” and in some “Shareholders meetings” of Berkshire you’ll find how Buffett is not against commissions in theirselves. We all love to pay outrageous fees to brokers if we make in exchange a wonderful deal. But it must be a buy of a wonderful business at a wonderful price, or “something of a sort”. Conversely what we see around in the investment world is a mediocre gain on the capital invested, plus an additional erosion provoked by fees that never sleep. They are justified by the so-called (often by themselves”) professionals for a superior management of your sums compared to what they call the “amateurs” (the ones like me that don’t have a Bachelor Degree or a MBA from some famous and expensive business schools but thrived in Grahams and Doddsville). What a shame that at the end of the day my portfolio has a +11 or more percent of gains net of no-commissions to share among we partners in a reasonable percentage (that every investor would happily share) if compared to the output of some of the big funds that “professionally” gain a 1 or 2 percent net of bundled-fees, the ones that never sleep. Without mentioning those portfolio managers who sell and buy for you very often just to add costs over fees and giving the impression to the know-nothing client that something must be done every once in a while to avoid losses and eliminate risks ..(sic..!).. (no comment..)
But what’s interesting (and staggering) is that also over the long term, a 1 or 2 percent per year commission will ruin a decent result on your investment: a 100.000 dollars growing at an average of 4.5 percent a year for 30 years will be 210.000 with fees of 2 percent.
1 per cent? You add roughly 70.000 dollars net in your pocket and your principal will be 324.000 if you had the chance to pay 0,5 percent a year of commission instead of 2 per cent. With the 0,5 per cent scenario you’ve been left with roughly the 90percent of your gross 374.000 outcome. It’s a difference of 50 per cent on your result relative to the 2 percent scenario. Amazing uh? No surprise that for the “non-professional” more than one super-investor gives the advice of buying low cost index funds. Better than paying a “formula-pundit-guy” to get 2 percent after costs. You don’t pay Jim Hall a guitar lesson just to know what a major scale is, right? And If a pay you an extra-fee I want some extra-mayo on my burger!
You guys have a wonderful jazzy week! And don’t hesitate to call me for the extra-mayo on your money…Sincerely, MT