I recently read a fairly disturbing article in American Way Magazine entitled "The Kid."

It's about a 21 year old college student running an investment club called the "Shark Fund."

"an eye-popping 341 percent return since its inception." 

One of the highlights of Suleiman’s life: meeting (Jim) Cramer at a taping of the show at the CNBC studios in Englewood Cliffs, N.J. 

“Here’s a legend with a $100 million contract with CNBC, who doesn’t need to give me the time of day, and he’s taking the time to talk to me about stocks,”  

Suleiman says, still amazed. “He told me, ‘Keep going, kid, and don’t give up, because you’ve got something special.’ That moment really stuck with me.”

He has passed the milestone of a 300 percent fund gain, a tripling of cash that would have even market legends like Legg Mason’s Bill Miller — famous for beating the stock- market average for 15 straight years — green with envy.

"A year ago, his Value Trust fund had $16.5 billion under management. Now, after losses and redemptions, it has assets of $4.3 billion,  

according to Morningstar Inc. Value Trust's investors have lost 58% of their money over the past year, 20 percentage points worse than the decline 

on the Standard & Poor's 500 stock index.  These losses have wiped away Value Trust's years of market-beating performance.  

The fund is now among the worst-performing in its class for the last one-, three-, five- and 10-year periods, according to Morningstar."

There is also no record of him or his company having registered as an investment adviser with either the SEC or any state.

 That means that if he loses all of his classmate's money through dangerous, reckless, and inappropriate investments, they have no recourse.  

As if investors need anything else to worry about these days, news recently surfaced that one of the ten recently deported Russian spies was a financial adviser.

"Indeed, for the past 13 years, Ms. Murphy, whose real name is Lydia Guryev, worked as an adviser at Morea Financial Services Inc. in New York, where she reportedly earned an annual salary of $135,000. She was also a certified financial planner and a member of the New York chapter of the Financial Planning Association."

I guess it shouldn't be too surprising that the financial industry attracts more than its share of greed and corruption.

Read the whole story

"People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction."

-- 1 Timothy 6:9

Schwab, Fidelity, and Vanguard have all recently rolled out free ETF trades of one variety or another.

Schwab & Vanguard let their account holders buy and sell their respective ETFs free of charge while Fidelity offers a number of ishares at zero transaction cost to their customers.

Is this a good deal?  Well, free is certainly a good price.  However, you can trade ETFs at many other firms for as low as $4 and typically not higher than $10.  So unless you are using ETFs to dollar cost average into funds frequently in small transaction amounts, the difference might not be that material.

More importantly, there are many reasons to consider or reject a particular ETF that rank much higher on the list than free trades.  Such reasons include the index the particular fund tracks, the liquidity of the fund itself as well as the underlying securities it holds, the typical bid/ask spread of the fund, and the fund's propensity to trade near or away from its net asset value, among others.

Lastly, there is much to be said about the brokerage firm trading platform you use.  Fidelity, Schwab, and Vanguard (and almost all other brokerage firms) still use a cumbersome, "old school" share-based, individual security trading system which requires great effort and is prone to human error when executing an investment strategy.

My advice is not to choose your ETFs based on zero transaction fees, but instead select your funds based on the more important criteria mentioned above.

And do yourself a favor and check out Folio Investing.  Under their basic pricing plan, most investors pay between $50 and $150 a year to effect a sound, long-term buy and hold investment strategy. A small price given their superior investing platform.

Note:  I receive no compensation from and am in no way affiliated with Folio Investing.  I'm just a big fan of their technology platform and brokerage services.

Related posts

Investing in stocks is risky.  But does equity risk decrease as your timeframe increases?

Yes.  or No.  Depending on how you define risk.

"In the end, the time diversification debate can be restated as a debate over opposing views of risk. Supporters of the time diversification perspective perceive risk as the chance that an equity portfolio will underperform a low-risk portfoli

The historic record suggests that such risk declines with time. Critics of time diversification perceive risk as variations in the final wealth value of a portfolio and uncertainty about the returns investors will experience during specific time periods.

The historic record suggests that the range of such outcomes, from best to worse, widens with time."

Read the entire Vanguard article, Equity risk and time:  A survey of U.S. investors.

The bottom line is that investors need to view equity risk in light of both of the above definitions.  An appropriately balanced portfolio that includes stocks, bonds, and cash is the most sensible way to protect against both market volatility (or "sequence risk"), and inflation.

1966 was an infamous year in investment history.

In his most recent installment of doom and gloom financial pornography, Paul Farrell writes:

Warning:  Crash dead ahead.  Sell.  Get Liquid.  Now.

Fascinating.

Particularly when you consider these excerpts from his book, The Lazy Person's Guide to Investing:

"The only solution is to be in the market all the time and stop jumping in and out." 

"Never try to time the market; it's too much of a gamble." 

"The market is totally random, irrational, and unpredictable." 

"Greed triggers a buying frenzy at the top of a cycle. Fear creates a selling panic at the bottom. Investors lose both ways."

and the kicker.... wait for it....

"The more I know, the more I know I just don't know, and neither does anyone else."

Another book by Paul Farrell:

The New Money A$trology Success Formulas

Recently, a number of financial pundits have been predicting that stock market returns will be "substantially below average" in the coming decades.

Sometimes the statement is made that way, other times it is cloaked in financial speak making reference to a decrease in "the equity risk premium."

They could be right.  Stock returns and everything associated with them (corporate earnings, P/E ratios, etc) are incredibly unpredictable.

But what is prompting this feeling among the fortune-tellers?  It could be a heaping helping of recency bias (believing the future will be similar to the very recent past).

According to Jeremy Siegel's research, dating back to 1871, there have been 14 ten-year periods of negative real (after-inflation) returns for stocks (including the one just ended).

In the decade following every previous "lost decade," inflation-adjusted stock returns exceeded 10%.

"Beating the market" is called a loser's game for good reason. 

It's worse than casino gambling because: 

1) Upward bias. Casinos mercifully kill off losers because they run out of money. The upward bias of the markets allows most losers to continue playing the game, blissfully unaware of their underperformance. 

2) High costs. The trading, management, and tax costs of active management make the casino's juice downright cheap in comparison. 

3) The rules change. Financial markets exhibit dynamic, not deterministic behavior. Casino games, while the odds are against the player, at least the rules don't change.  Players can confidently make their moves in the context of pre-determined probability and odds. Financial markets are "self-correcting;" what worked yesterday won't work tomorrow. 

The truly "professional" investor chooses not to play the game at all.