Since the market crash of ’08 we’ve seen a flurry of new ways to invest your money. I noticed an uptick in the number of articles promoting these “alternative investments”. Most recently it’s been hedge funds and equity crowd funding.
The companies pushing these “alternatives” have been out in full force promoting their cause. The promotion comes in all shapes and sizes. The obvious one is regular advertising. A sneakier one is paying for links or entire articles advertorials on sites.
Any responsible site would clearly label these articles for what they are – Ads – or not promote it at all. With an unlimited supply of shadier sites more than willing to sell their reader’s trust for a few bucks, these companies have a cheap way of spreading the word with a very biased, one sided opinion about their services.
So you get a bunch of sites promoting sketchy investments, on limited information, under the guise of the site’s approval. I’ve seen this playbook before – take advantage of unsuspecting folks who don’t know better. It’s shameful really.
First, hedge funds do a great job of creating wealth…for fund managers.
You see, they try not to discuss returns after fees. The high costs make a big difference. The same high costs are why CalPER’s dropped hedge funds from its portfolio, why Buffett bet the S&P 500 would beat a basket of hedge funds (he’s killing it), and why most hedge funds underperform every benchmark. But is it mentioned? Of course not. They won’t sell squat if they talk about the higher costs, lack of performance, and every other disadvantage.
I understand some hedge funds actually outperform the markets, that they offer diversification and downside protection. But what are the chances you pick the right one? What are the chances the right one is available to the Average Joe investor? The best hedge funds, the few that live up to the hype, are exclusive. So exclusive, you, me, and a few billionaires will never have access to them. The rest of us are left with high priced, average funds that have one good year, suck in a ton of money, then wallow in mediocrity.
The only other logical reason to buy in is to impress your friends and neighbors. In which case, you deserve what you get. Your friends and neighbors don’t care, but they will have a good laugh on your account.
Now, equity crowd funding is even worse. When was it ever a good idea to give anyone with a heartbeat and a few thousand dollars access to invest in new startups? Do we really need at home venture capitalists speculating on the next big thing?
I guess this is what we get for being 15 years removed from the Dot-com bust, increased news of rising startup valuations, a stock market that goes in one direction (that nobody wants to own), and a popular TV show that makes VC investing look easy.
What’s worse, one big player on Shark Tank thinks it should be easier to access – something about bubbles and no liquidity. Or is it just an excuse to further open a market so the early money can more easily unload their stakes on dumb money before valuations fall back to earth?
Before you fall prey to the next great investment, please make sure you fully understand all it – how it works, the costs, the risks, and your other options – because the ads are only selling half the story.
Last Call
- Thinking About Money – S. Godin
- With the Benefit of Hindsight… – M. Housel
- Questions to Ask a Prospective Financial Adviser – C. Richards
- 3 Costs Investors Must Control – R. Ferri
- The Media Effect – L. Swedroe
- The Economics of Retirement – MIT Tech Review
- Which Investments Could Benefit From Rising Interest Rates? – Morningstar
- A Dozen Things Taught by Warren Buffett in his Letter that will Benefit Ordinary Investors – 25iq
- Annotating the Oracle: Experts Weigh In on Berkshire’s Annual Letter – Moneybeat
- Warren Buffett Explains His Cozy Embrace – BloombergView
