The Truth About Martha Stewart and Raj Rajaratnam
Here’s a slap for all the so-called multimillion-dollar-per-year hedge fund geniuses of the world and the investors who still believe they know something we don’t.
In the mid ’90s, when I was still working as a broker, there was an older guy in our office who was a legend in the business. He had done and seen it all. And he was willing to share his wisdom and experience with anyone who asked.
This was also when hedge funds were racking up unbelievable numbers. The returns were dwarfing anything we could produce – 25% and 30% per year were not unusual.
So on a slow day, I stopped by his office and asked what he thought we were doing wrong. How could we be so far behind these geniuses of the money world? Did the “smart money” – that’s what they were called – know that much more than we did?
His answer was typical of his no-nonsense approach to everything.
“The only people making that big money on Wall Street have illegal insider information, and you never want to be in that crowd.”
It took about 10 years for the SEC to catch up with those using illegally obtained information, but when the hammer fell, the biggest of the big dropped like flies. The names most people remember are Raj Rajaratnam and Martha Stewart, but a whole lot more went down with them.
And magically, when the illegal insider information flow stopped, so did the incredible returns for hedge funds.
Funny how that works…
The fall from grace for the geniuses of Wall Street with their magic “black boxes” and their secret strategies has been so complete that this past year they earned half of what a simple balanced fund returned.
In three of the last five years, balanced funds have doubled what hedge funds have been able to squeeze out of the market.
And here’s the real slap…
University endowment funds still allocate 51% of their money to these alternative “smart money” investments.
A million dollars invested in hedge funds five years ago, on average, produced $206,000, while a balanced fund produced $579,280.
Would someone please tell me what is smart about that?
The lesson here is this: There are no shortcuts in investing. It’s about fundamentals, averages and time in the market.
Oh, in case you were wondering, the next crop of “geniuses” on Wall Street is out there. And they’re looking for people who haven’t yet figured out that there is no magic… Don’t be one of them.
P.S. As I said, there aren’t shortcuts in investing, but there are ways to help ensure that you’re beating the pants off of hedge funds. On Wednesday, August 23, my colleague and The Oxford Club’s Chief Investment Strategist Alexander Green will reveal the secrets of a group that captured a 51,243% gain and went on to become “Blue-Collar Billionaires.” And don’t worry, these people didn’t do anything that would cause the SEC to be on their backs. To learn how to sign up for Alex’s free event and use their strategy to earn $103,599 on three trades by January 15, click here now.