Peter Schiff talks about Mish

[itshappening]

Yes you can cut out the middle man if you signup with Interactive Brokers and do the research yourself but not everyone has the time of the expertise to do that. That's where Peter and his team come in. It's no different to buying a mutual fund who can charge up to 5% for the privilege of owning a basket of stocks.

[LibertyIn08]

I'm sure he has a research team that finds the opportunites and a sales team to handle sales and everything else in between but I dont know his company. I'm sure he also employs backend staff, web designers, compliance lawyers, they're not all sales people are they?

Here's my problem with that model: there's very tenuous evidence that over the long run fund managers can create alpha. There's even greater evidence that the large number of fund managers will at best match the market minus transaction costs. There's a great book on the topic called A Random Walk Down Wall Street.

That means that his research staff is likely at best, over the long run, match the long term results of the market minus transaction costs. The problem? His transaction costs are dramatically higher than what an average individual investor can get through a discount broker - and still larger than average for the wealth management industry as a whole.

Yet lets presuppose that Schiff has a higher than average team. He would still need to beat the market by 2-3% per annum to account for his higher transaction costs (check his mutual funds to see the weighted performance with and without fees). That kind of performance over the life of an investor is untypically difficult to deliver. I can think of three firms(funds)/investors who have done so off the top of my head: Berkshire Hathaway (Buffet), Renaissance Technologies (Simon et al) and Fidelity's Magellan Fund (Peter Lynch). Renaissance is now closed to outside investors and Magellan is no longer run by Lynch. BH's returns as of late have been middling as well.

My overall point is this: I think Schiff has quite a bit of value to add to the economic debate. He's undoubtedly a bright guy and a gifted communicator. My concern is that his firm's products will not likely generate sufficient alpha over the long run to justify their abnormally high transaction costs. I think most investors would be better following his general advice through a discount broker and using specialty firms only for the alternative asset classes that they cannot acquire at a much lower transaction cost.

Until the track record for his funds changes dramatically, I will likely continue to hold this view.

[jclay2]

He has said he has over 20,000 clients. Most of them, infact probably nearly all of them are brokerage clients who sign up and then are presented with different strategies by the broker. They're dividend paying foreign stocks. That's his focus and i'm sure they do ok over the long term otherwise why would they stick around? If the client Shedlock wrote about in his silly article stuck around, he would be up and outperforming the market despite one of the companies in the portfolio going bankrupt and despite Shedlock claiming it would take 25 years for that to happen.

Mutual funds charge 3-4%, some of the "high growth" ones can charge up to 5% management fee's. Why is this hard to understand? his fee's are standard. Have you looked at the fee's for the funds with some wall street firms?

You have been reading the industry propoganda. Go check out vanguard. Instant diversification and near 0 fees. You could litterally put a schiff portfolio using vanguard index funds in less than an hour. The only thing you would have to do is pick out the 5-6 index funds in your portfolio and your % allocation to each.

[itshappening]

Here's my problem with that model: there's very tenuous evidence that over the long run fund managers can create alpha. There's even greater evidence that the large number of fund managers will at best match the market minus transaction costs. There's a great book on the topic called A Random Walk Down Wall Street.

That means that his research staff is likely at best, over the long run, match the long term results of the market minus transaction costs. The problem? His transaction costs are dramatically higher than what an average individual investor can get through a discount broker - and still larger than average for the wealth management industry as a whole.

Yet lets presuppose that Schiff has a higher than average team. He would still need to beat the market by 2-3% per annum to account for his higher transaction costs (check his mutual funds to see the weighted performance with and without fees). That kind of performance over the life of an investor is untypically difficult to deliver. I can think of three firms(funds)/investors who have done so off the top of my head: Berkshire Hathaway (Buffet), Renaissance Technologies (Simon et al) and Fidelity's Magellan Fund (Peter Lynch). Renaissance is now closed to outside investors and Magellan is no longer run by Lynch. BH's returns as of late have been middling as well.

My overall point is this: I think Schiff has quite a bit of value to add to the economic debate. He's undoubtedly a bright guy and a gifted communicator. My concern is that his firm's products will not likely generate sufficient alpha over the long run to justify their abnormally high transaction costs. I think most investors would be better following his general advice through a discount broker and using specialty firms only for the alternative asset classes that they cannot acquire at a much lower transaction cost.

Until the track record for his funds changes dramatically, I will likely continue to hold this view.

I don't see how you can have lost buying dividend paying foreign stocks over the last five years. I dont see how you couldnt have done incredibly well and outperformed the market following that strategy even after fee's. If Peter was buying New Zealand dollars at 40 cents and investing them in dividend paying stocks do you not accept that he has done incredibly well from that considering the New Zealand dollar has doubled in value since then?

If I go to fidelity.com there are literally hundreds of funds to choose from and they all charge 3-5% management fee's. Granted, they have published data and track records but Peter's brokerage business is basically the same thing; a managed portfolio for the individual investor and the fee's he is charging are not uncommon

By the way, why do you refuse to look at the portfolio Shedlock posted in his Peter Schiff was Wrong article, how is it doing now relative to the market over the last 4 years? On the radio Peter said it was up substantially despite 18% of it being in one australian company that went to zero (bankrupt). So there's an example of Schiff outperforming the market I'd guess..

[LibertyIn08]

Mutual funds charge 3-4%, some of the "high growth" ones can charge up to 5% management fee's. Why is this hard to understand? his fee's are standard. Have you looked at the fee's for the funds with some wall street firms?

http://www.icifactbook.org/fb_ch5.html

I don't know where you're getting your numbers. You clearly don't work in the industry, as 3-4% has not been the standard for some time. The above link is an extensive look at the fees paid by mutual funds and the allocations therein. You'll find that the vast majority of funds have a basis point load fee much, much lower than Schiff's brokerage charges for commissions or the fees on his own mutual funds.

Here's the bottom line: the average inclusive fee rate for mutual funds these days is 1.3-1.5%. This rate has been dropping steadily for 2 decades and doesn't show much signs of stopping or reversing course and moving higher.

Why? Mainly because fund managers can't deliver long term alpha. They're really competing against broad basket ETFs who don't have to pick stocks - and thus are lower cost.

[LibertyIn08]

I don't see how you can have lost buying dividend paying foreign stocks over the last five years. I dont see how you couldnt have done incredibly well and outperformed the market following that strategy even after fee's. If Peter was buying New Zealand dollars at 40 cents and investing them in dividend paying stocks do you not accept that he has done incredibly well from that considering the New Zealand dollar has doubled in value since then?

If I go to fidelity.com there are literally hundreds of funds to choose from and they all charge 3-5% management fee's. Granted, they have published data and track records but Peter's brokerage business is basically the same thing; a managed portfolio for the individual investor and the fee's he is charging are not uncommon

If your entire performance comes from one trade your portfolio is perilously balanced.

Regarding your claim, lets check the highest rated Morningstar funds on Fidelity.

Of the top 13 funds, only 1 has an expense ratio above 2%.

Of the next 10 (using the bottom box to sort), again only one has an expense ratio above 2%. (And this is 3%, not 4-5)

Of the next 10, not a single has an expense ratio above 2%.

Of the next 10, only a single fund has an expense ratio above 2%.

Of the next 10, again only a single fund has an expense ratio above 2%.

I don't see how a hit rate of perhaps one in ten of "over 2%" funds posits the typical fund is 4-5% - especially when an even larger number were south of 1%.

[itshappening]

So Peter charges 3%, 1% more than most of the "common" fidelity funds that everyone buys and which offer very little value and where fund managers are paid millions of dollars.

I have seen mutual funds with high annualized returns that charge up to 5%, some more. The ones that are offshore for instance.

Can you report back on the portfolio Shedlock posted in his article?

[LibertyIn08]

So Peter charges 3%, 1% more than most of the "common" fidelity funds that everyone buys and which offer very little value and where fund managers are paid millions of dollars.

I have seen mutual funds with high annualized returns that charge up to 5%, some more. The ones that are offshore for instance.

Can you report back on the portfolio Shedlock posted in his article?

Mish outperforms the S&P index as well as the Hedge Fund tracker index in his absolute return fund.

Again, I'm not convinced of the value of his funds over a standard low-fee fund when the track records of his publicly available funds are quite poor.

I don't expect we're ever going to see eye-to-eye. I feel at this point we're diverging from a data based argument to a philosophical one - which I don't really want to engage in. At the end of the day, if you feel comfortable investing with Schiff and are happy with your progress, I am absolutely not going to question that. The most important part of investment is feeling assured that you are going to achieve your goals.

If you're on track to do that, no reason to change course.

[Danke]

My Dad invested with Schiff ~ 4 years ago. His portfolio initially went down, but last time I saw a statement (around 2 years ago?), it was already up over 50%. I'll have to check with him and report back where it is today.

Edit. OK, I just checked with him. Yes it is over 50% of his initial investment now, but at one time it was over 58%.

[LibertyIn08]

My Dad invested with Schiff ~ 4 years ago. His portfolio initially went down, but last time I saw a statement (around 2 years ago?), it was already up over 50%. I'll have to check with him and report back where it is today.

Please do. I've not seen too many positive anecdotal reports but the more data points, the better.