What did Anthony Scaramucci do before briefly entertaining us/appalling us as press secretary? He was the very successful founder of Skybridge Capital. By successful, I mean that he made a lot of money from mom and pop investors and provided them with below average returns. See Skybridge Capital’s own dismal report card.
In the very engaging Freakonomics broadcast of The Stupidest Thing You Can Do With Your Money, the host, Stephen Dubner, interviews Scaramucci about his hatred of the Fiduciary Rule and of index funds. Scaramucci’s answers are worth thinking about. It’s a shame he didn’t think about them.
Inane Statement 1:
“let’s say, my mom and dad, which I’m super concerned about ”
Grammar notwithstanding, he is very concerned for the wellbeing of his parents. I think if I had Scaramucci’s net worth I could scrape up something to put food on the table for those who raised me.
Inane Statement 2:
“I love my clients, as most financial advisers do. I’m not trying to rip off my clients. I’m not trying to do something that’s dishonest. I’m just trying to increase, continually, their options in terms of what they can invest in.”
The relevant issue is not so much love of clients as being effective for them. Honesty would require acknowledging the enormous weight of evidence against him. It’s also not about whether one is trying to rip customers off, but whether one is ripping them off. He performed in the bottom 20% of his hedge fund peers, and they only charged 80% of what he charged. On average hedge fund managers can’t keep up with other active managers. Active managers as a whole failed to keep up with index funds, but that’s a different story.
As for increasing options, why would that be good in and of itself? I’ve offered a very innovative investment, the Smart Penny for picking stocks, and pleaded that no one buy it, because…coins aren’t smart. Interestingly, a flipped coin is slightly better than the average mutual fund manager, plus it doesn’t charge a fee, so it would be a better deal.
Inane Statement 3:
“The economic value of a financial adviser is not just … the net return … but it’s also the psychological effect and the coaching that that financial adviser provides that family. ”
Is he offering entertainment value or bad advice as his justification for poor performance in his core obligation? Why wouldn’t providing economic value be the most important thing for a financial adviser, outweighing everything else?
Inane Statement 4:
“If you look at the last 5 or 10 years, those [index] funds have performed better and charge less fees than, let’s say, a hedge fund or a private equity firm.”
He’s right, sort of, in that the past 10 years have been astonishingly embarrassing to the active manager. Over earlier time periods the embarrassment has been slightly less. Is he hoping for hedge funds and active management to fail a little less in the next decade? There’s a rallying cry…
Better yet, listen to the rest of the podcast, especially David French and Jack Bogle. Investing well isn’t hard, if you can bring yourself to put up with lower fees and settle for market returns (which most people fall far short of, because they’re trying to beat the market).
