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How the 0.001% invest

economist.com

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Re: How the 0.001% invest

#91

Post by pbrb »

whitepoplar wrote: post #68
mruts wrote: post #62

Earlier quoted context omitted.

I've seen the portfolio's of dozens of family offices (I worked at a portfolio analytics company so I had free reign to snoop around), and none of the offices seemed competent. The returns were terrible and the portfolio construction laughable. Instead of striving for out performance, the funds just catered to the whims and idiosyncrasies of the family. Also, many of these funds were too small to make sense, AUMs fro…

My guess is that most UHNWIs would do better to simply park their money in Vanguard index funds and call it a day.

Was thinking the same thing, but I'm sure they still want to have a portion of their portfolio in high risk high reward investments. I also wonder if they can get better deals (Warren Buffet style) by taking large positions direct vs. buying indexes through a broker.

Re: How the 0.001% invest

#92

Post by WhompingWindows »

nly wrote: post #25

The article only considers new investment. Jeff Bezos may be worth $150bn, but approximately $125bn of that is in Amazon stock. He's 80% invested in Amazon. Does it really matter where the worlds richest man puts the other 20% when he could afford to lose it all on moonshots and not give a damn? The risk-reward trade-offs you and me make while investing just don't apply to Jeffs personal investment decisions, and the…

It's extremely interesting - you're not interested in the investments of someone who buys investigative journals and makes rocket/space exploration companies? While these may be little side-projects to you and Jeff, to the rest of us they are very very important.

Re: How the 0.001% invest

#93

Post by bigpicture »

CompelTechnic wrote: post #66
ThrustVectoring wrote: post #39

Back when I was fantasizing about what I'd do if I won the lottery, I looked into family offices a bit and concluded that there's basically no point as far as the investing advice goes. It's still likely a good idea for some of the ultra-wealthy for estate, tax, and philanthropic purposes, but on the investment side? The standard passive indexing approach used by middle class individuals scales in a cost-effective ma…

There is one point you haven't considered: Even though a pure indexing strategy is appropriate, it is not appropriate to use Vanguard for this. At the billion-dollar level, assuming that the index funds had an expense ratio of .05% (among the lowest out there) you would be paying annually: 1,000,000,000*.0005 = $500,000 For that level of expense, you could instead have a one-man office or other service provider that…

The S&P 500 publishes changes to the index in advance of the changes taking place, so all of the affected stocks have prices that reflect the change at the time of the change.

Most tracking indexes, especially the ones Vanguard uses, do not do that and thus do not allow the markets to front-run them. If you adopt the strategy of "do what Vanguard does" and you do it immediately after Vanguard says they did something, you are already too late to get the prices that Vanguard got and can kiss at least .05% goodbye just based on that. I would expect to under-perform by at least .25%, if not more.

Re: How the 0.001% invest

#94

Post by tanderson92 »

sokoloff wrote: post #71
CompelTechnic wrote: post #66

Earlier quoted context omitted.

There is one point you haven't considered: Even though a pure indexing strategy is appropriate, it is not appropriate to use Vanguard for this. At the billion-dollar level, assuming that the index funds had an expense ratio of .05% (among the lowest out there) you would be paying annually: 1,000,000,000*.0005 = $500,000 For that level of expense, you could instead have a one-man office or other service provider that…

VTSAX is 4 basis points of expense ratio. There are others with 3 bps and Fidelity has one with 0. Even at 5 bps on a billion, I think you'd be extremely hard pressed to do everything Vanguard does for you for $500K/yr. I'm at least a factor of 500 away from having to consider this question, but if you told me it would cost me $500K to have one fewer critically important person on my staff to deal with, that would be…

There is additional value that can be added by forgoing an index fund, though. Tax management can be enhanced by rolling your own Total Stock Market index fund, since individual names can be harvested for capital losses, increasing the after-tax returns of your portfolio relative to a vanilla index fund. I'm not sure quite how to quantify that, but I'm sure someone has been able to do so.

Re: How the 0.001% invest

#95

Post by mbesto »

adventured wrote: post #58
charlesdm wrote: post #46

Earlier quoted context omitted.

It doesn't matter as he can easily borrow tens of billions against his Amazon shares.

Debt always matters when it's that large of a sum. If he borrows $10b over six years against $65b in shares, he would have been dramatically better off liquidating $10b worth of stock over ~18 months when it was worth $125b-$145b and having zero debt. He's 54, has been at the helm for 24 years and isn't going to run Amazon forever, the market isn't going to freak out if he sells a few points more of stock. Is Amazon…

Frankly, you can napkin math all of this you want, but it's very likely he has very smart and very well paid financial consultants who do all of this specific math weight against the cost of debt/capital/etc for him.

In other words - let's stop speculating here and simply say "I hope he continues to focus a large portion of his wealth towards X initiative that I like"

Re: How the 0.001% invest

#96

Post by sokoloff »

tanderson92 wrote: post #94
sokoloff wrote: post #71

Earlier quoted context omitted.

VTSAX is 4 basis points of expense ratio. There are others with 3 bps and Fidelity has one with 0. Even at 5 bps on a billion, I think you'd be extremely hard pressed to do everything Vanguard does for you for $500K/yr. I'm at least a factor of 500 away from having to consider this question, but if you told me it would cost me $500K to have one fewer critically important person on my staff to deal with, that would be…

There is additional value that can be added by forgoing an index fund, though. Tax management can be enhanced by rolling your own Total Stock Market index fund, since individual names can be harvested for capital losses, increasing the after-tax returns of your portfolio relative to a vanilla index fund. I'm not sure quite how to quantify that, but I'm sure someone has been able to do so.

Absolutely. There are a lot of reasons to run your own family office investment office.

"Because Vanguard charges too much" isn't one of them, IMO.

Re: How the 0.001% invest

#97

Post by EADGBE »

potatofarmer45 wrote: post #42

I've worked for a family office in Hong Kong. What was really telling for me was how the rate of return KPI was measured. We were not benchmarked against the S&P 500, or any index. We were measured directly against the fund of another frenemy family. So long as the fund outperformed the other family, all was good. It's crazy because you could be underperforming treasury bonds, and still be good because the other offi…

> We were measured directly against the fund of another frenemy family.

So "keeping up with the Jones'" is something no one outgrows then... Interesting.

Re: How the 0.001% invest

#98

Post by EADGBE »

joncrane wrote: post #88
code_duck wrote: post #69

Earlier quoted context omitted.

In both of those instances, wasn’t there onebusiness that they split into two? That’s still one source of wealth. They just divided it earlier than death.

The point is that the vast majority of the wealth was generated after the split.

Do people write about failed divided businesses?

Re: How the 0.001% invest

#99

Post by java-man »

mruts wrote: post #62
potatofarmer45 wrote: post #42

I've worked for a family office in Hong Kong. What was really telling for me was how the rate of return KPI was measured. We were not benchmarked against the S&P 500, or any index. We were measured directly against the fund of another frenemy family. So long as the fund outperformed the other family, all was good. It's crazy because you could be underperforming treasury bonds, and still be good because the other offi…

I've seen the portfolio's of dozens of family offices (I worked at a portfolio analytics company so I had free reign to snoop around), and none of the offices seemed competent. The returns were terrible and the portfolio construction laughable. Instead of striving for out performance, the funds just catered to the whims and idiosyncrasies of the family. Also, many of these funds were too small to make sense, AUMs fro…

a pack of lawyers has been dispatched to your address...

Re: How the 0.001% invest

#100

Post by foolsgold »

CompelTechnic wrote: post #66
ThrustVectoring wrote: post #39

Back when I was fantasizing about what I'd do if I won the lottery, I looked into family offices a bit and concluded that there's basically no point as far as the investing advice goes. It's still likely a good idea for some of the ultra-wealthy for estate, tax, and philanthropic purposes, but on the investment side? The standard passive indexing approach used by middle class individuals scales in a cost-effective ma…

There is one point you haven't considered: Even though a pure indexing strategy is appropriate, it is not appropriate to use Vanguard for this. At the billion-dollar level, assuming that the index funds had an expense ratio of .05% (among the lowest out there) you would be paying annually: 1,000,000,000*.0005 = $500,000 For that level of expense, you could instead have a one-man office or other service provider that…

That's really funny. One man recreating Vanguard's business single highhandedly and doing triple duty with tax planning and philanthropic services and doing it for less money than Vanguard can do just the index funds. Thank goodness the knowledge to handle each and every one of those services, at an expert level, is interchangeable.
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