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1. We help our investors see behind
the curtain. We believe that the vast majority of traditional
investment products and services do not work in the interest of
investors. Hidden agendas, conflicts of interest and obscured fees
run rampant in the financial services industry. We educate our
investors about the companies in our portfolios and help make them
smarter consumers of financial products, too.
2. We eat our own cooking. Our founder has
invested almost all of his family’s life savings in the portfolios
he manages. He also educates our investors on how he’s cooking,
too, via monthly letters to investors, Twitter, a blog, and around the
clock access.
3. We’re happy to talk about how we are
compensated. We
are a fee-only firm. We get paid solely for managing the two portfolios we created. As a member of NAPFA,
we are prohibited from receiving any compensation in the form of
commissions, rebates, awards, finder’s fees, or bonuses.
The total annual fee to invest in our portfolios is 1.25% of the
amount you invest with us. Of that total fee, 0.95% comes to us,
and 0.30% goes to an independent custodian which among other things
secures and insures your account. Our compensation in dollar terms
goes up or down each quarter depending on the performance of your
account. Our fees are significantly less than the 1.73% fee the average actively
managed domestic mutual fund charges.
4. Even your Mom would be proud
of the way we built our portfolios. Mutual funds and hedge
funds take a “pooled” approach to managing money, lumping
all investors’ money together in a giant pool. Among other
problems, investors in those categories of funds have zero real-time
visibility into what’s going on with their money.
We built our portfolios on a “spoke fund” model - short
for hub-and-spoke. Here's a simple illustration. Or just imagine a first grader drawing a picture of the
solar system. The sun is the hub – nearly all of the life savings
of our portfolio manager’s family, in this case - and the spokes
lead to all the planets, which are our investors’ accounts.
Any trades in the core portfolio are executed simultaneously across
everyone’s account. Those accounts are secure, fully
insured, and held by an independent company led by a former commissioner
of the SEC.
Spoke funds are similar to SMAs, or separately managed accounts, although there are some key differences - most notably the amount of net worth each manager has at stake. Other differences can be found here, too.
What’s all that mean? Accountability. Your portfolio manager here is
accountable for his actions or lack thereof - if for no other reason than nearly
all of his own money is being invested exactly the same way as yours. We’re
all in it together. Plus, as an investor in our portfolios you get complete
24/7 transparency, total account security, three levels of insurance, lower
fees, lower taxes, and the ability to customize your portfolio in several key
ways. What’s not to like?
5. Our investors must come first. Our firm
is a fiduciary and
an independent Registered Investment Adviser regulated by the State
of Florida. Both federal and state law require that as a fiduciary,
we must act solely in the best interest of our clients - even if
that interest is in conflict with our own financial interests.
More from the Focus on
Fiduciary website:
Unfortunately, only a small proportion of “financial advisers” are
Registered Investment Advisers. Most so-called financial advisers
are considered “broker-dealers” by the United States
Securities and Exchange Commission (SEC). Broker-dealers are held
to a lower standard of diligence on behalf of their clients. In
fact, they are required by federal law to act in the best interest
of their employer, not in the best interest of their clients.
6. We are obsessed with saving money. Portfolio
manager Cale Smith is so cheap he once drilled a hole in a nickel
so he wouldn’t have to pay six cents for a washer. His car
is so old he keeps losing his wife on left turns.
Pinching pennies matters, especially when investing for the long-term.
Our portfolios minimize costs. The few trades we do make are done
paying little to no commissions to the custodian. We have very specific
control of tax lots for each of our investors’ accounts, which
can reduce taxes by 50% in some cases. All investors’ documents
are delivered online, too, to save us all a few more bucks. Every
dollar we save you stays in your account and continues to compound
for as long as you invest with us.
Inside our company, we are focused on maximizing a metric we call
return-per-fee-dollar. It’s a gauge of a portfolio’s
returns (in dollars) relative to the money spent to achieve them.
Any fund with a ratio lower than 1 means you’re destroying
your own wealth by investing in it. We want that ratio to be as high
as possible for our investors, and not just because we’re idealistic
do-gooders, but because we’re investors in our portfolios,
too. See how that accountability thing works?
7. We’re like free-range chicken. We’re
not boxed in. When it comes to how we invest, we follow a value
investing philosophy and are not restricted by silly restraints
like most mutual funds. For instance, many of those funds can only
invest in companies of a certain size, industry or location, or that
trade only on a certain exchange, in order to be more easily sold
by brokers. The number of shares a mutual fund can own in a certain
company is also subject to restriction.
In contrast, ours are “go-anywhere” portfolios, meaning
we invest in the best, most undervalued companies regardless of where
we might find them. As a result, our portfolios hold significantly
fewer positions than the average mutual fund. The Tarpon Folio currently
holds stock in 16 companies, while the average mutual fund owns shares
in 140 companies. To paraphrase Warren Buffett, how much sense does
it really make to put money into your 73rd best idea?
8. Nobody pulls our strings. We are an independent
firm. We have no ties to Wall Street or any other companies, for
that matter. Our firm’s partners own the entire company. As
much as we like our current custodian, we consider them a vendor,
and we won’t hesitate to go elsewhere if we can ever find a
better deal for our investors. We’re also located on an island
in the Florida Keys, which unofficially seceded from the mainland
U.S. in 1982. How much more independent can you get? Welcome to the
Conch Republic.
9. We don’t want all of your money. We’re
not brokers or financial planners. You don’t need to transfer
all of your worldly assets to our firm in order to invest with us.
It’s a simple as signing
up.
Unlike mutual funds, we like to know all of our investors. But you
don’t need to spend hours organizing your personal financial
files prior to joining us. We only provide one of all the possible
financial services you might need – long-term investing. Any
decisions about asset allocation or diversification are typically
made before you invest with us.
From our perspective, one of the best things about our focus is
that our business model is scalable. We can easily manage relatively
small amounts of money for many people who are invested the same
way. We don’t need to rely on big accounts from just a few
people. (Don’t let that stop you from calling us, though, Shaq.)
The minimum amount required to invest in our portfolios is $20,000. Please contact
us for any questions on eligibility.
Some of our clients have invested every dime they’ve ever
saved with us. Others view their account with us as a piece of a
larger diversified portfolio. We leave the ultimate decision of how
much to invest with us entirely up to you. We’re also happy
to talk to your planner or adviser with you to help you decide what’s
best.
We know we’ve got to earn your trust. Perhaps you’re
interested in investing with us but have a long-term relationship
with a planner who’s served you well. Maybe you’re hesitant
to move your money because you’d rather avoid the confrontation
and stress of firing your broker. (It happens more often than you
might think.)
In either case, we’d encourage you to take us for a test drive.
If you’re wondering what to do about those lousy mutual funds
you own, consider investing the proceeds in a new account with us
for a year. Compare your performance here to the mutual funds you
hold on to, and then go from there as you see fit.
10. Every winter we have a big party in Islamorada. As
if we needed another excuse to have a party in the Keys. Our next
investor meeting will be Saturday, January 30, 2010, in Islamorada.
Portfolio manager Cale Smith will report to our investors on ’09
performance, take all questions and in general be accountable for
the decisions he’s made with their money. For details or to
learn more, please subscribe to our newsletter by clicking here.
To get our free report "Ten Things You Must Know Before Investing In Mutual Funds", sign up here.
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