Finance Is the New Celebrity Game

Hedge funds get their own Hollywood agents. This is according to the Wall Street Journal. Hedge fund stars are now being courted like pro athletes and movie celebrities, and one man is stepping in to make sure they're treated that way. Ryan Walsh, a former portfolio manager at Citadel and Millennium, launched Laurel Lake Advisors last year. The first talent agency dedicated solely to hedge fund professionals. Walsh told the Journal, I'm looking to be the Scott Boris of hedge fund world, referring to the baseball agent known for negotiating record breaking contracts. Demand for traders and stock pickers has surged as giant funds like Citadel and Millennium expand. Walsh says he's already helped a dozen clients land portfolio manager jobs worth a combined $180 million. In return, Laurel Lake charges a small percentage of each contract, sometimes more, if the deal tops certain thresholds and covers legal review of employment agreements. For hedge fund talent, the agent era may have just begun. Okay, so what's the real message here? We're in a culture that glorifies money, money, money, money doesn't seem to matter how you get it. We've got people in every aspects of our culture going for quick money grab. So I guess it makes sense. The top Wall street managers, headphones managers, have their own agents because a teeny slice of somebody making $100 million a year obviously adds up to more than a teeny slice of someone getting a TV commercial for $800. So it's the world we live in. Let's dig a little bit deeper here. This does intrigue me at many levels. And conflict of interest alert. I do work with a lot of fund managers, mutual fund managers, occasional hedge fund managers, a lot of Wall street wizards, and they're all totally nice and delightful and charming to me and, and interesting people. Let's get that out of the way. So if you want to say I'm biased, you can do so. But having said all that, this does strike me as crazy. Absolute crazy. Warren Buffett famously talks about how crowd psychology works and how individuals start thinking of themselves as such geniuses. Says, you know, you can take every single person in the world and say, flip a coin today and guess in advance whether it's heads or tails. Well, every day, roughly half the people would be wrong. You keep on doing this. And he points out, you know, after a month or so, there's still going to be some people who get it right. Just statistically speaking, some are going to get it right. And it's human nature to then say, well, I'm a genius. And he points out, some of these people would be writing books about how to, how to be a genius at predicting how coin will land. There'd be people holding seminars and workshops on, you know, the art of hauling, coin flipping and reality. It's all dumb luck. Now am I saying every single financial manager who makes a lot of money and starts a hedge fund that goes from 100 million to 23 billion is just lucky? I'm not saying it's all luck. They do put in long hours. But you know who else puts in long hours? Janitors, home health care workers. You don't see them making hundreds of millions of dollars. Make no mistake about it. I'm not trying to regulate their pay away or their compensation. I do believe in a free market capitalistic system. But the idea of treating these people like superstars, like creative geniuses, like people that have extraordinarily rare athletic talent is silly. Because when you actually look at the data, there's no there there. That's right. I'm going to share with you some data right now. I asked ChatGPT and I've double checked this from other sources. Well, here's the real test. If you look at an investment period of say a 30 year period, which if you are in your 20s, 30s, 40s, even 50s, I would argue if you're trying to amass wealth, especially if it's generational wealth, you're not looking to make a quick buck tomorrow, right? You're not looking to just have gains tomorrow or for the week or even for the year. You're looking to build long term wealth for your own retirement, for your family, for generational wealth. When you look at it through that way, it makes sense to look at things from the long term perspective and lo and behold, what do you know? If you actually look at these genius hedge fund managers and mutual fund managers, long term, they're lousy, they're horrible. How horrible, you may ask. Well, funny you should ask. Let's just go to ChatGPT now and it will tell us. So I asked the question, if you factor in fees, because all these guys charge fees a lot more than if you just invested directly in an S&P 500 index or some low cost Vanguard index fund, full disclosure, I get no fees and represent none of them officially. So when you look at that over a 30 year period, none of these guys, and they're mostly guys, beat the average or so few as to be statistically insignificant. They may have a good year, they may have a couple good years, and that is luck. Here's the one thing I have noticed about all the mutual Fund managers that I've worked with who are nice guys. When the market goes up and they beat the market a little, it's their genius. When the market goes down and they fail to beat the average, the world is crazy. People have become irrational. Well, it's your job, if you're a money manager, to factor in the irrationality of human beings. That's why some people invest in cigarette companies. They know it's irrational to smoke. But hey, people are going to and I want to make money. So you can't have it both ways. You can't say, I realize human beings are irrational and I'm investing in betting companies and gambling companies and cigarette companies. On the other hand, things go down, you fail to beat the average and all of a sudden say, well, it's not fair to judge me negatively because people have become irrational. It's really wanting to win no matter what. Heads I win, tails you lose is the mentality of a lot of people on Wall street. Hoarder managers. Okay, let's look at some of the numbers here. Among active US large cap mutual funds versus the S&P 500. Once you factor in fees, everything else. What the research shows is that people, fund managers who beat the S and P average, it's could be as low as 0%. At most you're looking at 2%, the absolute most over a 30 year period. Any given year. Yeah, somebody will be lucky. I could pick a winning lottery tomorrow. Are you then going to give me all of your money to invest forever to buy your lottery tickets because I'm somehow a genius? No, I got lucky once and by the way, I don't play the lottery. So when you look at the large cap mutual funds, they do horribly long term. So again, only at most 2% beat the S&P 500 index. So if you want to make money, unless you know in advance oh I got the lucky, I'm going to somehow be a genius. Ignore the 98% of people who are going to lose me money compared to an index fund. I'm going to pick the 2% at best. In some time periods it's actually 0% beat during a 30 year period. Now academics have looked at this as well. There is a something known as the fame of French luck versus skill that shows the aggregate net alpha of mutual funds is negative. That's a fancy way of saying these guys aren't worth their FEES. Especially the 2 and 20 guys where they get 2% of the money, you give them 20% of the upside. All you need is a Couple of good years. You know, if you go out and it's a good market time and you raise, let's say 500 million a billion dollars and you're charging 2 and 20, you only need a couple of good years. If you just do as well as the market in an up market, you're set for life. And then if you have bad years, you lose money, you close the shop. Why do you care? You probably have $40 million in the bank. So let's look at hedge funds. An industry study of hedge funds show that they also lag the S&P 500 over the long period once you factor in fees. And why do these guys stick it to you with their fees? Warren Buffett once famously said, hedge fund is not an investment strategy. It is a, it's a business income fee strategy is really what it is. It's not about helping people make more money. So again, if you look at the long term mutual funds, hedge fund managers, the best case scenario is that you're going to lose 98% of the time versus having put your money directly into an S&P 500 index fund or some other low cost index fund. You got a 2% chance. I mean, if you're that happy with 2% odds, go to Vegas and play blackjack because it's really not much difference. And no, I'm not really suggesting you spend your money playing blackjack. This is a fool's errand, giving your money to fund managers. And forgive me and you know, some of my clients may be watching and might not want to use me again. That's okay. I'm at the point in my life when I'm focused primarily on wanting to give you truth and to have you benefit from my own experiences to help you. So that's why there's a part of me that just sees this absurdity, absolute, utter absurdity of treating fund managers like they're, they're Hollywood movie. They're George Clooney, they're Tom Cruise. No, they're not. They're Michael Jordan. No, they're not. Michael Jordan has real talents that simply cannot be chalked up to luck. It's not like you can take anyone or even any 6 foot 6 person and say, let's put a thousand 6 foot 6 people on basketball teams and you know, a couple of them will just randomly score 30 points a game and win a lot of champions. No, it doesn't work that way. There's a real reason why sports stars and Hollywood stars need representation from agents and why these, these finance guys. And again, it's mostly guys. Not always, but mostly. It's just another thing that is frankly bizarre about our society. I do get it from a revenue model. If you can be an agent, you're far better off representing people who have big numbers behind them, not small number. It's that way in every industry. It's that way in the professional speaking industry. Speaker bureaus would much rather represent someone like a Scott Galloway who can charge 150, $200,000 a speed, because for the same amount of work to get 20% of 200,000, it's $40,000. That's a nice payday if you're getting 20% of a speaker who charges $5000 a speech. Hardly worth dealing with. So we're seeing this at every aspect of society. But to me, the glory that some of these hedge fund managers are getting, it's only going to make them more arrogant. And that's really the last thing we need.