Mad Money Machine

MMM-066: cOmPlExItY

Investing doesn’t have to be complex. Bill Gates has a 4-step solution to complexity. Hedge-funds. John Bogle speaks to graduates.

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Warren Buffet’s good friend, billionaire Bill Gates, gave the Harvard Commencement Address last week. (transcript)See the video. He talked about how COMPLEXITY hinders people from fully grasping a situation, hindering change. He recommended four steps to getting through complexity: 1) Determine a goal 2) find the “Highest Leverage Approach” 3) Find the best technology to solve the problem 4) get started right away with the technology that already exists.

I talk about how we can use these four steps to make investing less COMPLEX: 1) Goal? Financial Freedom 2) Highest leverage is to get the best return at the LOWEST RISK 3) Best technology is to own all stocks 4) available technology: DFA index funds or Vanguard index funds.

Bill Gates went on to say that we need to shape market forces to reduce inequity in the world. What a great idea.

How can we make something so simple more complex than it need to be? Let’s try to buy individual stocks instead of all stocks. Seeking Alpha: the difference above market return. Problem: the average of all alpha is less than zero due to fees and expenses of seeking alpha.

Hedge-funds charge 2% of amount invested and 20% of the profits. The Manhattan condo had several famous celebrities, but the most lavish condo at $45 Million went to the “brash and very successful hedge-fund manager” Dan Loeb. I want to run a Hedge-Fund!

Our Guru hosts a podcast (actually a radio show) that is 8.5 out of 10 on my Podcast-O-Meter.

We check in on the Portfolio Smackdown. Three people have moved ahead of the Indexfolio 100 as of last Friday.

After the end of June I will update you on the Lazy Portfolios performance year-to-date.

The book Index Funds: The 12-Step Program for Active Investors by Mark Hebner is currently unavailable from Amazon. So, go to your local bookstore and have them order a copy for you!

Our Tool takes you to school.

You can see my updated running statistics from my Nike + iPod gizmo that records my runs.

I lost my “Active Trader” status from my brokerage firm. That means they turned off Streaming Quotes from my Active Trader software. Instead I have to live like a commoner and get 2-minute delay now.

Bodotdot writes to compare playing Fantasy Football to the Portfolio Smackdown.

I changed one of three bulbs in my office with a compact fluorescent bulb. Guess which bulb attracts more bugs? I bought a bug zapper from Costco. The next morning: No Vacancy!

I talk about the discussion at Diehards.org/forums that I mentioned in the next post down, about whether anyone is able to retire in their 40’s.

John Bogle’s commencement speech is called “Enough.” He talks about the hedge-fund manager who made more money in one day than Joseph Heller made in the whole history of selling his book “Catch-22.” But Heller said he has something the hedge-fund manager doesn’t have: Enough!

What is happening to the American economy? It is turning into a purely financial-services economy. Twenty-five years ago, the financial sector comprised only 8% of the profits of the S&P500. It now likely exceeds 33% according to Bogle.

Where possible, steal yourself away from complexity. The more complexity in your investments, the more chance that the odds are in favor of the guy across the table.

Take the Risk Capacity Survey at IFA.com!

Buy Duff Meats! Use checkout code “MadMoney” to get 10% off your order of $100 or more… and free shipping!

Music from music.podshow.com:
Complex Tactics – Ben Base
The Pop Culture – DJ Top Shelf
Run Run Run – The Goldstars
Just A Fantasy – Stefani Stevens
Fantasy World – base-box
Money – Theory in Motion
Creepy Bugs – Munkey Juice
Alpha – Noam Weinstein
Runaway Train – Under Feather