How much is enough?

There has been a movement going in the US for some years now known as FIRE – Financial Independence, Retire Early. 

The basic idea is to live well below your means for years in order to accumulate anywhere from 25 to 60 times your annual living expenses and then retire.

For those who genuinely love the job they do, FIRE is not for you, but for everyone that doesn’t love their job (or even like it), FIRE could be for you.

Most of the people in the FIRE movement are in reasonably well-paying jobs who value their time and how they spend it far more than living a lavish lifestyle or having a fancy job title (so many people these days seem to have the words “manager”, “partner”, “director” etc. in their job title, but if you are showing up to work and taking orders from anyone but yourself, it isn’t worth a damn). 

I can really relate to the FIRE movement because I was doing it long before it ever had a name (and it works). 

There are only five ways that a person can become wealthy:

1. Inherit a large amount of money;
2. Start a highly successful business;
3. Obtain a very high paying job;
4. Win the lottery; or
5. Live well below your means and carefully invest the money that you chose not to spend.

Options one to four are impractical for the vast majority of people. Option five is very possible for many people (although not all), but it requires lifestyle choices that most people will be unable to make.

Think about people who are overweight, almost all of them can lose the excess weight, but many will not because they don’t have the discipline (or ultimately the desire) to do so.

FIRE is not popular with many people because it involves many of the following behaviours:

•         Minimising on eating out, going to movies, concerts or sporting events;

•          Driving a fuel efficient second hand car (no luxury cars please);

•          Not taking out loans for items like cars;

•          Using public transport to get to work (where possible);

•          Never paying interest on credit cards;

•          Avoiding tying up very large amounts of money in a home which produces no income;

•          Minimising spending on clothes and shoes;

•          Minimising overseas holidays (or holidays in general where you “go away”);

•          Avoiding purchases of expensive jewellery or watches;

•          Not having costly pets (or any pets);

•          Not indulging in expensive hobbies;

•          Taking the time to find the best deals on things like home, car and health insurance;

•          Availing yourself of legal tax minimisation strategies;

•          Taking an interest in your own finances and investments;

•          Not hiring help (e.g. gardeners and cleaners);

•          For those that can, continuing to live with parents (for quite a while!); and

•          Forgetting about having the latest iPhone or other expensive (and time wasting) gadget.

Now, how many people are prepared to do all that? Answer: Very few.

Most people would rather take the overseas holidays, spend a pile of money on entertainment and pay for it all by giving an employer an additional 20 or more years of their lives. This is a very high price to pay because time is very finite  and money is not, we print more of it every day, try “printing” more time. 

Many people in the FIRE movement who have retired are in their 30s or 40s, still young and able to really enjoy life. Having years of retirement in your 40s or 50s is more valuable than the equivalent time in your 70s or 80s because there will be plenty of things you simply will not be able to do in your 70s and 80s due to health issues.

The workplace itself can be very unhealthy. For example, working in an office and staring at a computer all day is not ideal for your posture, your eye sight, your fitness (sitting all day) or (often) your stress levels. The sooner all of this can be confined to your personal history, the better.

Personally, I think that (right now), a net worth of 25 times your living expenses (excluding your home) is too little to contemplate retiring in your 30s or 40s, 60 times seems much more sensible and will provide a good margin of safety. And yes, that’s a difficult goal to attain, but you will find that almost everything in life worth achieving is difficult.

Anton Kreil and the Institute of Trading & Portfolio Management

Anton Kreil first came to my attention in 2008 when I watched a British documentary called Million Dollar Traders. If you haven’t seen it, it’s worth watching.

The documentary sought to test the premise that people can be taught to be successful traders (as opposed to the theory of good traders simply being born that way). In this sense the documentary was somewhat like that brilliant 1983 movie Trading Places. 

Several ordinary people were selected (after a thorough interviewing process) and were then taught trading techniques. Hedge fund manager, Lex Van Dam put up $1 million of his own money for the traders to utilise. Day-to-day supervision of the traders was conducted by Lex’s friend Anton Kreil.

  

Anton Kreil had a very brief career (2000-2007) in investment banking (Goldman Sachs, Lehman Brothers and JP Morgan). He then retired (at around the age of 28) before coming out of retirement in 2011 to establish the Institute of Trading & Portfolio Management (ITPM). The ITPM is run out of Singapore where Anton now lives.

The objectives of the ITPM are to teach retail investors the techniques that traders at investment banks utilise. The ITPM has a number of “mentors” (to teach students), and all of these mentors have had careers at various investment banks. The ITPM also manages a trading portfolio which is valued at approximately $10 million.

Anton Kreil has also lectured on the charlatanic practices of some stock market educators (who are basically frauds). All retail investors should listen to what Anton has said on this subject and also his views on CFD providers and other brokers.

The ITPM has three primary products:

• A video series for the stock market or currencies priced at $1,499-$2,999 each;
• A three month remote mentoring program priced at $14,000; and
• A nine day “vacation” style one-to-one training program (price not disclosed).

Ok, so what are the good things about the ITPM?

• Anton Kreil is an excellent and highly engaging speaker and I also have to say he does come across as a fun guy to be around;
• I have no doubt that the techniques taught are very sound; and
• The ITPM does invite some successful students who have undertaken its course to trade money on behalf of the ITPM (but only very small amounts of money).

What’s not so good?

• The cost of the mentoring (via Skype) is very high (as is the video series);
• Just because someone has worked at an investment bank, it does not make them some sort of genius, however, many aspiring traders who have never worked at investment banks themselves wrongly hold this view;
• If you are just willing to do your own research you can easily find books and free you tube videos that will show you very similar things to what the ITPM teaches and you can keep the $14,000 to trade with; and
• Anton Kreil is often shown in his videos being chauffeured around in limousines, eating at fancy restaurants, staying at top hotels and flying around the world in business class, one can’t help thinking that this is all for show, but you can call me a cynic.

To expand on dot point two above, all traders at investment banks have a number of distinct advantages over retail traders. These advantages include:

• They can see (and replicate) their clients trades (some of these clients will be extremely good investors e.g. top hedge funds);
•  Their trading costs are vastly less than for retail traders;
• They have the ability to actually influence the prices in certain markets because of the size of their trades;
•  A couple of good years at an investment bank can set someone up for life (i.e. you have a few very good years at an investment bank and take home large bonuses and you are set for life, but it doesn’t mean for one minute that you are actually any good (by the way, a couple of good years as a small retail trader will definitely not set you up for life);
• The bank’s systems for executing trades will be state of the art;
• Bank traders are not trading their own money and therefore will always have some of the emotion involved in trading removed; and
• They can draw on the vast resources of the firm (both people and research). 

These are the primary reasons why ex investment bank employees who start their own funds often cannot replicate the performance they had while they were in the bank.

There are many very good investors who have never worked for an investment bank. Ken Griffin of Citadel is one that immediately comes to mind.

It would be good if the ITPM made its performance records available, but it doesn’t. I think this is a major issue, because if you are charging people, they should have a right to see your record as an investor.

Retail investors tend to run long only portfolios, they do not consider using options and they do not generally know how to structure trades properly. This is the primary focus of the ITPM’s teachings.  

So, in summary, if you really like what you see with Anton Kreil and his mentors, then go for it, but I think you can get the essentials of what is taught for far less than what these products cost. Remember, no one is teaching you alchemy, there is very little that is new under the sun and in this day and age, just about any information is at your fingertips.

You see them here, you see them there, global funds are everywhere!

In Australia there has been no shortage of fee hungry fund managers rushing to launch global funds in recent times.

The word “global” is probably an over statement, the vast majority of these “global funds” are allocating most of their money to the fully priced US market.

During 2017 we saw the listings of the Magellan Global Trust, VGI Partners Global Investments and the Montgomery Global Equities Fund. In 2016 we saw the listing of the (so far) very poorly performing Watermark Global Leaders Fund and my spies tell me that Wilson Asset Management will join the fee party and launch a global fund sometime this year. 

So why all these listings?

They aim to capitalise on the disillusionment of retail investors with the poorly performing Australian market and offer the chance to invest in sectors which are absent from the Australian market. I have no problem with that.

The fundamental problem with these listings is that they are investing at a time when the US market is at all-time highs, but the fee hungry fund manager knows that this is precisely the time at which the public have the greatest appetite for investing. The time to invest is when there is blood in the streets, not when everything is rosy, and right now, as far as markets go, everything is rosy!

The fees, (of course), are high. As I wrote on this site, the VGI Partners Global Investments fee structure is absolutely outrageous, but it didn’t stop naïve retail investors from jumping in. The other funds have more reasonable fee structures, but they are still very high in comparison to what the investor is going to ultimately get (which is below benchmark performance). As I’ve said before, the high fee structures of these vehicles practically guarantee that over any reasonable period of time, the fund will under-perform its benchmark. 

As a side note, please do not take a fund manager’s own reported returns (on their web site) as being factual (especially where unlisted funds are concerned).  I have seen all sorts of chicanery being employed here, e.g. using simple interest returns rather than compound interest returns etc. Work it out yourself. If it doesn’t look right, don’t invest. Unfortunately, the vast majority of retail investors do not understand the mathematics, and this is where the fund manager can easily lead them astray.

The Magellan Global Trust and the Montgomery Global Equities Fund are offering potential distributions that simply will not be achievable out of actual profits and they are likely to resort to capital distributions (i.e. giving investors back their own money in the guise of a “dividend”). But you can always sucker the naïve investor into these vehicles with the right type of bait and high distributions are the bait that has lured many an Australian investor into a poorly performing listed entity – the Beta Shares Dividend Harvester Fund (HVST) immediately comes to mind.

The other aspect of these listings (with the exclusion of the Watermark Global Leaders Fund), is that they provide either no (or minimal) downside protection in the event of a market correction or crash. Given that these funds are allocating most of their money to the US market and that market is at a very high level, it would make good sense to put downside protection in place. As mentioned previously, our own fund uses put options to significantly hedge out a lot of risk, but we of course manage our own money and must be extremely cognisant of risk, the fund manager who offers his wares to the public is only interested in fees, risk is a secondary consideration, if considered at all. Put options also place a small drag on performance when the index is rising and this is an anathema to fund managers because they all have performance fees in place for “outperforming” a benchmark, so they have absolutely no incentive to use risk mitigation products such as put options.

It will be very interesting in a year or two, to show a chart of the relative performance of the above named funds against some benchmark indices. And with all of them being listed entities, there will be nowhere for these managers to hide. Of course, they don’t care, because the money is now all captive to their respective management companies in the closed-end funds.

Incidentally, Warren Buffett recently won his $US1m (2007) bet that US hedge funds as a group would not outperform the S&P 500 index over 10 years (the index absolutely clobbered the hedge funds). I’m sure he would happily take the same wager against the above mentioned global funds.