
The Dead Man Fund - chollida1
https://longreads.com/2017/11/09/ameritor-dead-mans-fund-charles-steadman/
======
Mitchhhs
This is quite sad.

One thing i've been shocked by over the years is how often even well educated,
highly intelligent individuals have a very poor education in personal finance
and make terrible decisions. Theres just so much noise out there and its still
crazy how much of the investment management industry exists despite showing
negative value. If I had to sum up personal finance advice for the average
person in a few bullets it would be this.

1\. Invest in a well diversified portfolio that pays very low fees (vanguard
funds for instance) 2\. Do not try to time the market 3\. Save as much as you
can as early as you can - maximize your 401k/ROTH contributions 4\. Never
carry a balance on your credit card from month to month

And yet so much goes wrong...

~~~
3pt14159
Disclosure: I'm probably exposed to every stock in this comment.

Eh. If you're smart and in technology you can beat index funds pretty easily.
I'm not even counting Bitcoin. I time the market too.

Your advice works for the median person, but if you're in the intellectual 1%
or 0.1% beating the market is pretty easy.

1\. You should have a really good reason for buying a high P/E or negative EPS
stock. It should be grounded in unit economics and entrenchment, not
marketing. Tesla is a good example, I knew it was just a matter of unit
economics. The technology was solid. Made over 10x sans options. Apple is
another good example: They had a low P/E and I thought they were well situated
to make money from services if they could just figure out how to design better
software. They did it.

2\. When the cover of Time magazine is this:

[http://img.timeinc.net/time/images/covers/pacific/2005/20050...](http://img.timeinc.net/time/images/covers/pacific/2005/20050613_400.jpg)

And The Economist is this:

[https://i.ebayimg.com/images/g/qcYAAOxyGwNTFJSE/s-l300.jpg](https://i.ebayimg.com/images/g/qcYAAOxyGwNTFJSE/s-l300.jpg)

Put two and two together and put everything in cash. Sure I missed out on two
years of growth, but after the recession hit I bought back at half. Bought
back in when things had stabalized and recently sold 85% of the portfolio
because fundamentals look wacky. It might take a month it might take two
years, but another recession is coming.

3\. Research the damn thing. If you don't understand it well enough don't buy
it. You're not losing money by failing to buy the next hot thing. I read the
entire Bitcoin paper before buying to make sure it could handle different
stresses. My only regret was not leaning harder into it when I bought it at $4
CAD / BTC. I was too sheepish about "internet monopoly money" even though I
knew it could hit $10k or $50k a coin if it took off.

4\. Don't necessarily max out your 401k / RRSP. Tax rates are going way, way,
way up once the baby boomers hit the social safety net. If you aren't at the
top marginal rate you're using up tax deferment that will be better once you
are. Plus having money outside of these vehicles makes investing in your
friends startup easier. The only exception is if you're buying a house and you
can loan yourself money from it (since it's like buying the house tax free).

5\. Bubbles can go on for way longer than you think. Just be fucking patient.
Do I wish I mortgaged a house in Toronto in 2009? Sure. But the stock market
has gone up too and housing at these levels is unsustainable. At the very
least housing price _growth_ will subside.

~~~
mikestew
I'm sure you're being downvoted for going against orthodoxy by suggesting that
one can "beat the market". I agree with you in that it can be done, and should
not be attempted by most people (I personally would not put intelligence
constraints on it; I think it's a factor of one's tolerance for looking at
financial data, and an ability to keep emotion out of trading decisions). I
don't try to time the market, however. My prime directive is to preserve
capital, which I implement mostly through stops. I'm happy to leave money on
the table, but I don't want to lose money.

But let's look at the fund in question: how did they stay funded? The same way
a lot of bad funds stay funded: people put money in and never look at it
again. And those people are _not_ the ones updating stop limits, looking at
charts, and basically making a hobby of their finances. _Those_ people should
be buying index funds. And there is absolutely nothing wrong with that. With
the time I've spend reading books, tracking markets, etc., I could have
learned a language, started a business, build my own house, whatever. Because
after looking at returns over the last twenty years, yeah, I have demonstrated
I can consistently beat the market (or more likely, can leverage opportunities
of sheer luck), but not by enough to make the opportunity cost worth it if I
didn't actually like doing it as a hobby.

And folks should completely ignore your point #4, especially the part about
buying a house "tax-free". Eh, not quite.

~~~
3pt14159
I agree that it isn't really tax free since you got to pay it back eventually,
but because mortgages generally require some minimum amount down (at least
here in Canada) it's a real consideration for many people, though it does come
at a cost later if you're going up tax brackets.

I also agree that it isn't just intelligence, but I do think you can't do much
if you aren't at least in the top 5%, even with a whole hell of a lot of
training. Much of investing is a zero sum game, and it's extremely
competitive.

I also agree that most people should do broad basket, diversified ETFs and I
also think your stop-loss strategy is above average, but I think you could
probably do better if you were willing to take more risks on individual
companies / technologies.

As for returns, I agree that it doesn't look good on paper for the first 20
years, but the difference compounds and building experience matters. I'm now
at the point where I'm both better at it _and_ I have more at my disposal to
grow. Last time I checked, not counting crytpo-currencies, I'm averaging
around 18% per year pre-inflation across a mix of bonds, stocks, and funds.
Now, much of that has been a combination of timing / luck on currencies. So
let's call it 15% to be safe. Doubling every 5 years, I'm 32 and I started
this at around 15. I put maybe 200 hours into it a year and the family
portfolio not counting housing or shares in hard-to-sell startups is almost
$1m. Another 40 years of this is going to really make all this effort worth
it, provided we don't have something catastrophic like a world war / economic
collapse.

On getting downvoted:

I don't let it bother me. I try to remember that sometimes I see things I know
are factually wrong get upvoted and that sometimes I'm getting upvoted despite
being wrong. The votes aren't the truth, even if they do correlate.

Maybe we need more webs-of-trust on social networks that should influence how
votes are counted. Because if you just judge thing by the words on their own,
somethings can sound wrong or crazy at first blush even if they are right. For
example, Facebook's Instagram acquisition was seen as dumb, but it was genius.
Although maybe this idea is wrong. Maybe we already overweigh the opinions of
the connected and powerful.

------
JackFr
1\. Market the heck out of your fund to get it real big.

2\. Run it straight for a few years, but then really hammer the fund with
crazy bad expenses (and possible self dealing -- but keep it legal) Do so
poorly that any account with a pulse will withdraw all their funds.

3\. What's left over is free money for you draw down as 'expenses' for as long
as it lasts.

~~~
wnissen
That's a remarkably accurate description of events. It's the "Springtime for
Hitler" of funds. Because the fund is so bad there is no one left to hold you
to account. The incredible thing is that they could have kept it going
indefinitely if they hadn't been so greedy. Just stick all the money in a
basket of stocks to replicate an index fund, set annual "expenses" at right
around replacement rate (3-4%), and go live in St. Barts.

~~~
eru
Not only greedy, but also incompetent.

------
dmix
> The rate of loss only accelerated, and the recession of 2008 dealt this
> frail fund a killing blow.

Recessions aren't all bad. They have a cleaning effect, sweeping up the cruft
and inefficient operations, while exposing the outright frauds in the process.

It's amazing the fund lasted as long as they did...

Interesting read regardless, too bad it wasn't longer as the usual articles
typically are on this site.

~~~
brandnewlow
Also gives employers air cover to let go of the non-workers hiding on the
payroll.

~~~
snotrockets
idk, last recession, most financial management kept to their chairs: it was
the low ranking employees that got the boot.

------
madengr
I have been reading A Random Walk Down Wall Street.

The premise seems to be that these actively managed funds, on average, don’t
do any better than the market index. So just put your money in an index fund
and avoid all the fees from the so called experts.

~~~
arielweisberg
It's a good book and one of my favorites, but I prefer "The Four Pillars of
Investing" by William Bernstein. [1]

Even the recommendations there are more complicated than I prefer. Vanguard
has some wrapper funds (Life Strategy, Target Retirement) you can pick from
that mean even more simplicity and less room for error. Tax efficiency is the
only reason I would get more involved.

[1] [https://www.amazon.com/Four-Pillars-Investing-Building-
Portf...](https://www.amazon.com/Four-Pillars-Investing-Building-
Portfolio/dp/0071385290/ref=sr_1_2?ie=UTF8&qid=1510595025&sr=8-2&keywords=four+pillars+of+investing&dpID=5106QPDYQFL&preST=_SY291_BO1,204,203,200_QL40_&dpSrc=srch)

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bhhaskin
Thanks for this. It's a nice breath of fresh air from the usual marketing
pieces.

------
Simulacra
Very interesting article. One tangent note: The author appears to have
committed a felony by opening someone else's mail. Even if they're dead. A
random quirk of the law.

~~~
Overtonwindow
Technically. 18 U.S.C. § 1701 Says if you accidentally open it it's not a
crime, but then not notifying the post office and returning it to them is when
it becomes a crime. By a) opening the letter (apparently deliberately as he
doesn't say accidentally) and then b) NOT returning it to the postal service,
the author has committed a crime.

~~~
goialoq
It's a crime to not go out of way to do someone else's job for them?

I see nothing about that here:
[https://www.law.cornell.edu/uscode/text/18/1701](https://www.law.cornell.edu/uscode/text/18/1701)

"Whoever knowingly and willfully obstructs or retards the passage of the mail,
or any carrier or conveyance carrying the mail, shall be fined under this
title or imprisoned not more than six months, or both."

Reading/trashing mail in my box isn't obstructing or retarding anything in
passage or conveyance.

------
hayksaakian
What amazes me is how the fund continued to exist for so long despite a track
record of failure.

~~~
walshemj
Is there no oversight for mutual funds in the USA one of the reasons why I
prefer IT (Investment trusts) where the board acts in the interests of the
share holders and not the managers.

------
pnutjam
This should be required reading for high school economics.

------
bearbearbear
> An envelope had landed in our mailbox containing a check in the amount of
> $10.32 made out to one Anna Mae Heilman.

The whole debacle of solving this mystery could've been avoided by not
stealing mail from someone you don't know and instead marking it return to
sender.

