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How the 0.001% invest

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Re: How the 0.001% invest

#161

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…

Tracking error against the index, auditing, security, and financial controls are more important than a couple basis points.

Honestly a much stronger argument is tax efficiency. If you're buying the individual stocks, then even when the index is flat you'll have some capital gains and losses. You can use both these to improve your tax efficiency - the losses can be harvested to offset realized gains elsewhere, while any appreciated shares can be donated to charity and repurchased with new money, effectively increasing your tax basis.

Still, you're likely better off just hiring people to do the tax planning, estate planning, and philanthropic services. It's essentially setting up a single family office with no control over your investments.

Re: How the 0.001% invest

#162

The family offices I've worked with do pretty much everything. Part of the reason to do everything is that you have the freedom to do so. I literally called a friend on behalf of another friend to get him a bridge loan for a house once. A free mandate makes for more interesting work, plus as the manager you can stick things in illiquids that have no mark-to-market. That's the uncharitable view, of course. The charita…

How do these guys find deals to invest into? How do the deals find them?

Re: How the 0.001% invest

#163
post #152
post #117

Earlier quoted context omitted.

Assuming a 10% return, which is about the max I could find for a single fund over 20 years, it'd take 84 years to turn $1M in to $3B. Conversely, plenty of funds do 15-20% in the short term. 15% only takes 57 years, and 20% brings it down to 44. So, doable, but you'd be considered a pretty amazing investor. And this all assumes the money was invested from the day he was born.

Except the premise is in accurate. He wasn't left with $1m. He was left with hundreds of millions in cash and cashflowing assets. Had he invested $250mm in the markets back then, he would be much ticket today.

Except it was likely property, and he couldn't liquidate those properties without incurring capital gains taxes (set at 49% in 1970)?

I don't know, perhaps you couldn't very easily leverage properties back then for cash (i.e. once they had been paid off), or interest rates were very high (a quick google teaches us that in 1970, the interest rate was 8.5%)?

Re: How the 0.001% invest

#164
post #62

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…

>One of the exceptions was [Person]'s family office, which managed a shit-ton of money and had some good people who actually knew something about portfolio construction.

I'm not sure what type of professional you are, but you may be in breach of your responsibilities by disclosing the specifics listed above.

I know this message might seem silly, but I'd hate if you got in trouble for complimenting the guy's affairs.

Edit: I've editted out the person in question's name in case you do the same.

Re: How the 0.001% invest

#165
post #160

Earlier quoted context omitted.

A close friend of mine works for the Rothschild family office. He described to me how Lord R and his son don't see eye-to-eye on the family money. A lot of time has apparently been spent on reports making Lord R look better than his son at investing.

I am profoundly unable to take seriously anyone who calls themself a “lord”. What time period are these people from?

Right up until 1999 this was a meaningful position with actual political power. Even now, non-hereditary lords comprise the upper chamber of parliament.

Being a Lord in the UK is more or less equivalent to being a US senator.

Re: How the 0.001% invest

#166
post #50

Earlier quoted context omitted.

His wealth concentration is actually quite higher, around ~94.7% in AMZN stock. Bloomberg has him currently at a $132b net worth, with $125b in Amazon. The rest is Blue Origin and The Washington Post, with his cash position at 'only' an estimated $2.45b. Given the absurdly high valuation of Amazon - and as a fan of humanity pushing into space - I'd like to see him sell some larger blocks of Amazon while the stock mar…

Alternatively he can just take loans against AMZN stock. It's how Elon Musk finances his business. Musk has leverage ratio around 40% of his TSLA holdings.

Whether you should mortgage or sell your Amazon stock obviously depends on whether you think the price of Amazon stock will go up or down. The comment you're responding to explicitly assumes it will go down:

> Given the absurdly high valuation of Amazon

In this case, taking out a loan against the stock is a terrible idea.

Re: How the 0.001% invest

#167

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…

Agreed with what everyone else has responded to counter the claim that a one-man family office can reproduce Vanguard's VTSAX. Such a family office also has to contend with other giants trying to claim the G.O.A.T. title for asset management companies [1] with incredible scale efficiencies. The stakes are "for all the marbles of the game" high [2], and they're using all the benefits of capital scale they can scrounge.

The likelihood of a single person delivering index tracking performance better than these giants is pretty slim. Better to drop the tranche designated for broad market passive indexing into one of these giants' funds as an institutional holder, then have the one-man office project-manage leading education of younger generations, help the family leader clarify the ongoing family mission the office supports, the accountants' filing tax compliance at the individual and trust/foundation levels (likely in many different jurisdictions), grooming a successor, updating processes and procedures to improve auditability/accountability/anti-fraud detection, assisting with legal compliance, helping out with financing approved moonshots, etc.

[1] https://riabiz.com/a/2018/12/13/vanguards-asset-machine-wobb...

[2] https://www.bloomberg.com/markets/fixed-income

Re: How the 0.001% invest

#168
post #152

Earlier quoted context omitted.

Except the premise is in accurate. He wasn't left with $1m. He was left with hundreds of millions in cash and cashflowing assets. Had he invested $250mm in the markets back then, he would be much ticket today.

Except it was likely property, and he couldn't liquidate those properties without incurring capital gains taxes (set at 49% in 1970)? I don't know, perhaps you couldn't very easily leverage properties back then for cash (i.e. once they had been paid off), or interest rates were very high (a quick google teaches us that in 1970, the interest rate was 8.5%)?

It actually wasn't property, a large portion was cash in terms of salary collected as an infant or various gifts. There was a report by NYT not too long ago.

https://www.nytimes.com/interactive/2018/10/02/us/politics/d...

Re: How the 0.001% invest

#169
post #45

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…

Not refuting your assertion, but the concentration of power in tracking funds is a looming problem. The FT did a bit on it last week. Here's something similar from the motley fool: https://www.fool.com/investing/2018/12/01/vanguards-founder-...

Only a looming governance problem, but not in any way a financial performance problem. Only the latter will trigger any real reaction from the markets, and Bogle thinks that won't likely happen until 70% of market under passive indexing at a minimum.

Governance concerns are not structural and addressable when it reaches a critical mass. I wouldn't be overly concerned, just put in a word when someone starts to lobby for regulation requiring delegating voting power back to index investors, and fund managers having to vote the preponderance of pro-rata voted shares.

Re: How the 0.001% invest

#170

Earlier quoted context omitted.

He doesn't mean it's particular to Bezos, but that wealthy people throwing massive (to anyone but them) amounts of money into extremely speculative bets on large issues for the long run of society is a big deal. The government and major corporations are slow and inertial, invested in iterative improvements on existing paradigms, as low risk small improvements are baked into the foundation of the incentive structure f…

That's not at all what he said, and nothing you've said answers my question -- why is Jeff Bezos in particular "very very important"?

Jeff Bezos isn't necessarily more important than other people that also invest in impactful things, but he is the wealthiest person in the world and invests in speculative things that impact how the world works, which is kind of a big deal.

Also, the parent comment did say that the projects are important, not Jeff Bezos. I was just talking about the interaction of wealthy investors and their side projects, which is what this thread is about.

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