When it comes to investment, one thing you are not lacking is options. To make matters worse, sometimes people get pushed by the financial industry to choose an option that is not even in their best interest. We firmly believe that you should make a decision only after educating yourself about the different options available.
Here’s how we compare against some other options:
Us versus many mutual funds
Some non-obvious fees leading to conflict of interest: Some mutual funds can charge additional fees on top of their management fees which you might not notice.
The mutual fund might charge you a commission fee to pay your financial advisor or broker for recommending the fund to you. It can either be in the form of a front-end load (sales load) or a back-end load (contingent deferred sales load)
Some mutual funds may charge you purchase, redemption or exchange fees.
Some mutual funds may charge you “12b-1 fee”, which represents expenses used for advertising and promotion of the fund. Yes you may be paying for that.
In contrast, the ChainStreet Capital charges simple management fee only. We don’t have any hidden fee which you might not notice. You will pay the applicable custodian and brokerage charges directly to the custodian. We never charge or receive anything on top of our disclosed fee.
Sometime overpaying for stocks : Some mutual funds will have a strict charter to invest only in the large cap stocks, or the small cap stocks, or something else which is very specific. We don’t think it’s a smart idea to have such a rigid charter.
How would you feel paying 2 million dollars for a one bedroom condo, if a two bedroom condo in the same complex is available at same price? In a given situation, it will be a bad idea to buy a one bedroom condo but an investment company only allowed to buy one bedroom condos can not go for the best deal. Now, consider a market scenario where all large cap stocks are selling at a discount and all small cap stocks are very costly. Clearly it is not a good idea to buy costly small cap stocks when you have the option to buy cheap large cap stocks. But mutual funds with a strict charter to invest only in small cap stocks will keep buying costly stocks even though it’s not a good investment.
Some people might think that by allocating 50% in small cap and 50% in large cap, they mitigated this problem; but it’s even worse. If you combine two inefficient strategies, then taken together they won’t become better, rather it magnifies the problem.
In contrast, ours are “go-anywhere” portfolios, meaning, we invest in the best, most undervalued companies regardless of where we might find them. We are only interested in buying stocks(businesses) below their true worth.
You may pay taxes even after a losing money: Assume a scenario where you bought a mutual fund having net asset value (NAV) of $10 in November. In December, the fund manager decides to sell one stock and distributes the capital gain of $2 for each unit. As result, the NAV of mutual funds drops to $8 and as a shareholder you receive taxable income of $2. You started with $10 in November and in December you still have $10. In this example the fund manager bought the golden stock cheaply many years ago when you were not even a share holder in this mutual fund. You didn’t participate in any gains related with this golden stock but capital gains due to selling this stock is passed to you. Clearly you did not make any money but you will pay tax on $2 capital gain distribution.
Now comes an even bigger surprise. You might actually pay some taxes even after losing your money. Same scenario as above but market went down in one month. NAV is at $9 and mutual fund distributes $2 as capital gain. Due to this distribution, the NAV drops to $7. So you have $9 ( NAV + distribution) in December after investing $10 in November. You lost money but you will be paying the tax on capital gain distribution of $2.
What’s worse than seeing your fund drop in price ? Having to pay taxes on that, too. You might have lost money but you are paying capital gain tax.
In contrast, ChainStreet Capital manages your portfolio by keeping your money in your own account. Your money is not pooled with anyone else’s money. All tax consequences will only be due to our buying and selling decisions in your individual portfolio. We also try to minimize short term capital gain so that you don’t have to pay higher taxes. Our focus is on higher total return..
Not eating their own cooking: You might hear plenty of reasons why a specific mutual fund is the best option for you. But sometimes all the reasons which are good for you are not good enough for your fund manager. Some mutual fund managers don’t put their family money alongside yours in the mutual fund which they manage. In absence of their own money at stake, the fund managers have no incentive other than to protect their jobs. To do that they might buy what other managers are buying (herd mentality), if it doesn’t work they can say others also did poorly and if it works they can claim to be up there with all other managers. This herd mentality is one of the main reasons why the majority of actively managed mutual funds underperform the market in the long term.
In contrast, the ChainStreet Capital strongly believes that if a specific investment is good for you it’s good enough for your portfolio manager as well. Our portfolio manager, Rohit Ranjan, also invests his family money with you in same securities which he selects for you. Securities in your accounts and your portfolio manager account are bought and sold at same time with similar price to avoid any conflict of interest. We trust our own cooking and eat it with you.
Other investors might hurt your returns : Mutual funds are giant pools of money. Upon investing, your money is effectively poured into the same pool with other investors. Let’s consider an example,
Mr. Cool Head and Mr. Panic both invest 100 dollars each in the same mutual fund at the same time. The two of them are the only investors in this mutual fund. The Mutual fund manager buys stocks worth 160 dollars by using 80% of this pooled money and keeps 40 dollars, 20 %, as cash for future opportunities. Come bear market crash of March 2009, and the mutual fund price has dropped by 50% and stocks can be bought cheap. Mr. Panic tells the mutual fund that he wants his remaining money back, which is 50 dollars after the 50% drop, because he thinks he will lose everything if he leaves it with the mutual fund. Mr. Cool Head thinks opposite and he leaves the money with the mutual fund. Now to pay back Mr. Panic, the mutual fund is forced to return all the cash(40 dollars) which mutual fund manager was keeping for future opportunities and even sell cheap stocks to raise the extra cash (10 dollars) to return.
Mr. Panic’s decision will have an effect on Mr. Cool Head’s long term performance due to their money being pooled together. If the money was not pooled, then the fund manager would have taken 100 dollars from Mr. Cool, invested 80 dollars and kept 20 dollars for future opportunities. During the market crash , the fund manager would have had 20 dollars of cash to buy cheap stocks in Mr. Cool’s account.
The net effect is that the returns of long-term investors might get hurt by the decisions of other investors in the mutual fund. Mutual fund manager may have to sell the stocks cheaply instead of buying. So you keeping your cool may not help and there is no way you can force others to keep their cool. Your actions might not control the outcome and your results might get impacted by other people’s actions. Do you like this situation?
In contrast, , ChainStreet Capital manages your individual portfolio keeping your money in your own account, which is not pooled with any other investor’s money. Someone else’s decision of closing the account doesn’t affect your account in any way. Anyone can liquidate their individual accounts without impacting other investors.
Buying some bad businesses: Most mutual funds have numerous problems, but we believe that the biggest obstacle they must overcome is a legal one. By law, many mutual funds can’t invest heavily in their “best” ideas because they can only have as much as 5% of their assets in any single investment. To protect their legal status, they typically hold fifty to five hundred investments.
At any given time, we do not believe that there are fifty (let alone five hundred) great investments worth holding, which means that mutual funds may be investing your money in mediocre (and downright bad) investments in addition to good ones.
Often mutual funds invest in 100’s of companies and they tell you that they are doing it for diversification. Well, limited diversification is good if you invest in only a few top ideas. But too much diversification by having 100’s of stocks in the mutual fund portfolio is likely to lead to holding some horrible , some mediocre and a few good businesses. This strategy is very good for a know-nothing investor and if the fund manager is a know-nothing manager, then why pay him or her for managing your money? You would be better off by simply buying the lowest cost index fund directly.
In contrast, ChainStreet Capital typically invests in their 15 to 25 top ideas when fully invested. We believe that over the long term, our top 15-25 ideas taken together will produce better results than our 473 best ideas. We don’t believe in holding 500 stocks in our portfolio because it would mean we will be investing your money in horrible, mediocre and only a few good ideas. Diversification to some extent is a good idea but over diversification is the same as holding an index fund.
Us versus many traditional advisors
Many traditional investment advisors (investment representatives, stockbrokers, financial planners, etc.) tend to invest their clients in traditional mutual funds. It simply means that those advisors rely on mutual fund manager to make investment decisions for you and you pay fee for mutual funds as well as the fee for your advisor. If two thirds of mutual funds fail to beat the markets, how poorly will your portfolio perform over the long term when you hold those mutual funds, and pay additional fees and commissions on top of the mutual fund fees to an advisor?
In contrast, ChainStreet Capital does its own research which includes, but is not limited to, SEC filings, annual reports, media, and sometimes calling up investor relations or CFO of the company for clarifications if needed. Nobody can promise performance, but we’re pretty certain that paying extra fees and commissions on top of hidden fees, with poor-performing investments is not an intelligent way to invest for your future.
Us versus “do it myself”
Our clients hire us because they like our investment strategy and they are not entirely comfortable and confident investing on their own. Sometimes they have skills but don’t have the time to research hundreds of companies and opportunities each year. We also have the iron determination often required to invest in stocks, particularly when things look bleak (often the best time to buy).
There is no contrast here — If you can invest on your own, comfortably and confidently, then you don’t need us. If you are a do-it-yourselfer with enough time, confidence, and competence to manage your own portfolio, this is clearly your best option. If not, contact us to start a friendly conversation.
Need more information ? Here are some additional resources will might help you to understand us better:
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