In Search of the Perfect Investment

I just fired my last money manager. He had performed miserably in the past year. He is down. His “benchmark,” the S&P500, is up.

I hate paying someone to lose my money. And of late, he insists on being paid — whether he loses money, or not.

The “profession” of being a money manager stems from arrogance. It starts with the belief that you can do what most others can’t — beat the market (i.e. the S&P500). It translates into a belief that your stock picks are “perfect” and you should hold onto them irrespective (i.e. you don’t believe in stop loss rules). And it translates into the realization that vast amounts of money (your clients’) are in your bank account, ready for your taking whatever fees your creativity can muster.

And finally it translates into the poor treatment you dole out to your clients.

The arrogant treatment doled out to me — not his lousy performance — caused me to fire him. Especially the greed and the fees.

This raises the question: Should you ever employ someone to manage your money?

And the answer is, roll the drums, a simple NEVER.

It’s 17 years since I sold the business and faced the decision, “What do I do with the proceeds?”

One recommended “solution” was a money manager. Over the 17 years, I tried many. Only one ever worked out. He had a magic touch — then. A few years ago, he retired and gave me all my money back. After several years of boredom in Arizona, he came back. He was managing money again. Was I interested? I was. I gave him some money. And a year later, I’m taking it away from him. The Western sun got to him. He lost his touch with stocks and, sadly, with clients. More arrogance, less performance.

After all these years, farewell to my last money manager.

OK, Harry, what should I do?

Simply, put most of your money into a index fund like VFIAX. Manage that index fund intelligently: When the economy is falling apart (e.g. 2008), sell it, go to cash and wait it out. Get back in when it’s dropped by say 50% and the world may be ready for an upturn.

If you’re ready for your own arrogance, take a little money and gamble it. Pick some small stocks with neat products and make yourself a little portfolio.

Try real estate and contemporary art. Do your homework. Study. Learn. Be wary. Parts of real estate and contemporary art have done much much better than the stockmarket.

The stockmarket is more enticing than real estate and art. It has its own TV channels, and gets lots of ink in daily newspaper and on the nightly news. It looks so easy. Deceptively so.

You got to keep poking around. One advisor, who’s tolerated me for 20+ years, Todd Kingsley of Deutsche Bank, put me into muni bonds years ago. They proved phenomenal, painless investments. (I should put everything I owned into them.) He’s one of the very Wall Street relationships I’ve felt comfortable with over all these years.

Whatever happened to McDonalds? It’s the story of all ultra-large companies, e.g. Microsoft, Cisco, IBM. They’re very hard to change. Maybe impossible.

Susan Berfield wrote this great piece on McDonald’s for BloombergBusiness:

Why It’s So Hard for McDonald’s to Change
“The system” McDonald’s holds dear is what’s holding it back

McDonald’s is an industrial wonder. It’s the biggest restaurant chain in the world, measured by sales, with some 14,000 locations in the U.S. and 36,000 globally. That’s the problem. Executives proudly refer to “the system,” which guarantees that its French fries will be the same size everywhere and cooked for exactly the same amount of time; its burgers will be the same thickness and have the same taste; and its liquid eggs will be precooked, folded, and flash-frozen by its suppliers before they become part of a bacon, egg, and cheese biscuit.

As I wrote in 2013:

McDonald’s doesn’t operate on gut feelings, or instincts, or even experience. It uses focus groups. It finds test markets. It runs the numbers.

Too much change can break the system. And if there’s ever a conflict, the system always wins.

Don Thompson, who will leave the company in March, had two and a half years as chief executive to try to make McDonald’s more relevant to U.S. eaters. It took McDonald’s two years to develop a simple chicken McWrap. And that’s only when it was clear that Chipotle-once part of McDonald’s-and Five Guys and Shake Shack and Subway were stealing younger customers with fresher, seemingly healthy foods that could be made to order.

As sales dropped, Thompson tried to make some adjustments to the system. This past fall, he said he wanted to let customers add their own toppings to burgers. If, that is, they lived in the few towns in California where the test was under way-or in Australia. He talked about offering more local food. Not locally produced food, but what he called locally relevant food. His plan included selling mozzarella sticks in New Jersey and chorizo burritos in Texas.

There was one thing that customers really wanted from McDonald’s: all-day breakfast. Thompson said he was considering it. That was April 2013. Two months later, a few McDonald’s restaurants in undisclosed locations began serving breakfast items after midnight. A year later, when Taco Bell started serving breakfast, McDonald’s still wasn’t offering an Egg McMuffin at all hours of the day. The system couldn’t handle it.

Thompson had worked at McDonald’s for a quarter of a century. He, too, was a product of the system. As was every chief executive before him. Thompson’s successor, Steve Easterbrook, has at least one thing going for him: He left McDonald’s for two years before returning in 2013.

That might not be long enough to be able to crack the system.

Favorite recent New Yorker cartoons:

Harry Newton, who just dumped SLB and HAL. He’d bought them when they were very low, looking for a bounce. The bounce came. They rose. But then oil fell even further. And they turned down. I made a few shekels — not enough for the effort. The major positive part of this present dreadful market (with the exception of Apple) are long-term treasuries. Falling interest rates have buoyed their prices.

To clarify: Many people have helped along the way. One broker, Todd Kingsley of Deutsche Bank, put me into muni bonds years ago and they proved phenomenal.