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2016 Election Projection: Republican Nomination

I like to bet money on elections so I can’t afford to be emotional about who I want to win.  I only care about who will win.  In 2012, I won over $5,400 on political bets.

For the Republican nomination in 2016, I predict Trump will win.

There are a number of unique R-nomination factors when compared to the D nomination process, and ALL of them favor Trump.  and give him a disproportionate lead compared to what polls show alone (which is a substantial lead).  Because the R nomination is much more complicated than the D process, in 2012, I built a spreadsheet to model the process.  You can see the spreadsheet here.

Observations / Conclusions:

  • Having more candidates stay in the race longer, especially until March 15th or later, strongly favors Trump.
  • There are a number of winner-takes-all states.  These all favor Trump.
  • There are a number of states with minimum floor requirements, meaning candidates often have to earn 15-20% of the vote to receive any delegates.  A number of states have candidates hovering around 10-17%.  They may get 0% of the delegates instead.  This system strongly favors Trump.
  • By March 15th, Trump will likely have more delegates than all of the other candidates combined plus an additional 25-50%.
  • By March 15th, 60% of the delegates will be decided.  It will be very difficult to candidates who are behind to catch up.  This strongly favors Trump.

Karl Rove wrote a WSJ piece outlining that unless some candidates drop out and their supporters rally around a single non-Trump alternative by March 8th, it’s highly unlikely anyone catch Trump.  I see no indications that Rubio or Cruz will drop out in time.

On March 15th, Trump will likely be substantially ahead in the delegate count and it will be so late in the process that anyone catching him will be a remote chance at best.

The betting markets reflect that Trump is a favorite to win the R nomination by 75% odds.  Interestingly, while Cruz in the #2 candidate in polls with 20%, the markets are putting him at last place with abysmal odds of less than 2%.  Rubio has odds of ~17%.

In the presidential contest, I also predict that Trump will lose to Clinton.

Sidenote:  While the polling data for the R process isn’t nearly as good as the D side, the delegate projections will have a wider margin of error but conclusion that Trump will be the nominee doesn’t change.

(I wrote this about 5 months ago at the same time as the Clinton prediction – I forgot to hit post)

Election Predictions of Political Pros: Clinton vs Trump

I predicted back in 2013 Clinton would run. And if she ran she’d be the nominee and subsequently she’d be the next president.

With 6 months to go, I wanted to offer a look at the odds of that prediction being accurate.

The media paints a picture of a close race. BS.  They are motivated to do that because it sells advertising and it’s what people want to believe/feel.

When you look at people who’ve built their reputation on predicting elections (not selling ads), you get a different picture.  Back in 2012, I used this discrepancy between media/public feeling/perception and pro perception to make 54% on a 10k bet in 3 days.

Prediction Pros.  These aren’t talking heads on TV.  They’re political data junkies.  They don’t just look at some polls, they look at ALL polls.  They have formulas to adjust polls which polls are skewed to favor R’s or D’s.  They look at the state polls, county polls, economic data, likely turn out models, key demographics inside key counties inside key swing states.  They don’t compete to call who will win an election – boring, too easy, and they’d nearly all being agreeing with each other – they compete on the exact margin on election day campaigns will win by.

Here are the people I’ve found to be the most credible/reliable calling who will win and by how much:

538: 353 Clinton vs 184 Trump.  Inside the political prediction world, Nate Silvers has achieved celebrity-like status in 2008.  He just released his prediction on 7/1/16.

Sabato: 347 Clinton vs 191 Trump. A professor of PoliSci at University of Virginia, he puts out a free newsletter (I recommend) and calls everything from Presidential races to Governorships to individual Senate and (much more difficult) House races.  His prediction as of 6/23/16 (link is live updated). 349 Clinton vs 189 Trump. This is a normal guy who blogs but is obsessed with guessing political outcomes accurately.  I began following him back in 2004 when he started and he’s a damn good guesser.  His prediction as of 7/1/16 (link is live updated):

Princeton Consortium:  330 Clinton vs 208 Trump.  This is a highly mathematically based model that the closer you get to election day, the more certainty their model has.  PC’s prediction as of 7/1/16:

Outcome based analysis.  Every pro is calling a Clinton electorate vote blow out and they differ (not by much) in calling that margin of victory.

Probabilities.  It’s good to think of a prediction as the most likely outcome.  That said, a more nuanced perspective looks at probabilities to get a sense of likelihood of an outcome.  When it comes to betting, upsets happen.  The predicts outcomes above are black and white.  Here is the grey:

Probabilities of Clinton Winning (taken on 7/1/16):

73% Vegas market makers.

81% FiveThirtyEight’s probability model.

85% Princeton Consortium

Summary.  6 months before the election, all pros are seeing a likely Clinton blow out (measured by Electorate Votes).  While Vegas-like betting markets are putting odds, around 70-ish%, most political pros are 80-ish%.

Betting.  When I made my last bet, there was a significant market inefficiency.  Currently, the market inefficiency is (=83/73) ~14%.  Meh, margin but not enough to make the risk/reward worth it.  Last betting cycle the inefficiency was (=53/14) nearly 4x greater.


4 Stages of Financial Independence

At it’s most basic, retirement means one thing:  passive income.  It doesn’t matter if you’re a millionaire or even more, if you don’t have money rolling in each month, passively, you still gotta go to work.  Getting clear about exactly what it takes to retire means you’re much more likely to make financial decisions that get you there.  There are 4 stages I think make sense to use a framework when thinking about passive income.

Stage 0.5 – PARTIAL RETIREMENT:  Imagine your monthly expenses are 5k a month.  For many people starting at 0 that might seem like an unattainable number – so they imagine retirement to be binary – either retired or not retired – and as something in the far off future they hope to achieve “someday.”  But could you get to 2.5k a month?  Because then you could work half as many hours each week and still be covering expenses!  How would it feel to work 20 hours a week instead of 40?  Pretty damn awesome.  Is it irresponsible to not work 40 hours?  Hell no.  If you’re making the same amount of money you were before and your investments are getting you half way there – now you have choices.  Play with all that extra time.  Work and use the savings for other things – like Stage 1.

Stage 1:  SURVIVAL:  Survival means you are at 5k a month in passive income and 5k a month in expenses.  You can survive fully on your passive income.  This stage is really liberating.  You can wake up every day for a month or a year, and do effectively nothing.  You can work 40 hours a week, 70 hours a week, or zero.  Want a vacation?  for 3 months overseas?  Done.  It’s a game changer.  However, you’ll realize you have no margin for error – which in real life, always happens.

STAGE 2:  SAFETY:  I like to define safety as 2x your monthly expenses.  This would mean that half of you income could disappear and you are still good.  That’s a large buffer and truth is anything above 1x expenses is safety money.  At 2x you have reached a distinct safety level.  Lots can go wrong and your life is still good.  Market changes, rents go down, unexpected medical expenses, want to help a friend in need, whatever – you can absorb a very, very high degree of unexpectedness.  You can even afford to splurge here and there and still feel very safe.  This stage sounds amazing because it is.  It’s not just retirement, it’s a whole next level of peace and safety.  You’re not on the edge of retirement – you have such a buffer that when people worry about changing economic conditions you already planned for it.  Hard to imagine financially anything better.

STAGE 3:  LUXURY:  Passive income is 3x your monthly expenses.  At this stage monthly expenses (survival) are covered, a substantial buffer of safety exists  Chances are quite high if you’ve achieved this level you’re frugal with your spending and a good investor with your money.  When you keep continuing those traits they eventually get you to “luxury.”  Where each month even if you went crazy playing / traveling / spending, you’d still end the month with more than you started.  This is a stage where you can start asking, what’s something I really want that is a luxury?  Not for others, but for you.  Love to cook?  Nicest kitchen you can think of.  Love cars?  Which car?  Want to pay for family trips?  Really this stage is where money starts to border on irrelevant for most expenses.  You really start to feel the diminishing utility of extra money at this stage.  1k more when you’re in partial retirement is HUGE.  At luxury, it’s nice.  It buys nicer plane tickets, an extra trip.  Mostly what it buys is that it substantially removes the cost of something from the analysis.  It’s more a question of do you really want it.  In fact, when you can have anything, then the question is what do you really want (much less what does it cost).  What I’ve found with people who reach this level is the opposite of what poor people expect.  Instead of buying everything in sight, they actually start to thin a lot of the stuff they already have.  A realization that you can have nearly anything gets rid of the “scarcity” of not being able to have something.  Quickly stuff just feels like clutter.  Instead you want minimal things – but what you have is high quality.  Instead of stuff, you buy time.  You buy experiences – travel, time with loved ones, freedom from doing things you don’t enjoy, convenience (skipping airport lines, pre-cooked healthy food, etc).  At this stage, life at this stage is the least about money.

Most people think of retirement in a binary way – retired or not retired.  I think it’s much more helpful to see and experience it as a continuum from partial retirement to survival to safety to luxury.

I would add that while I think these stages are pretty applicable for everyone, the multiplier you use could vary greatly from what I used.  If you’re a school teacher in retirement, your income is VERY predictable so 2x income may be greatly excessive for safety.  Maybe 25% would qualfy.  Luxury might be 50%.  The greater your income could vary, the wider the margin of safety you might want is.

My Experience Buying a Tesla

20160426_154635After making the decision to buy a Tesla, the analysis then shifted to how to get the best deal for my money.

Fortunately for me, what I wanted (a Model S 85) was only available used.  That ruled out new.  I looked at Telsa’s Certified Pre-Owned program but found I could find other deals online cheaper – usually by ~10k.  So that sent me focused outside of Tesla for used.

What I found was that since Tesla’s are a rather unique vehicle with a variety of configurations, used ask prices were all over the place.  Before I could get a “good” deal I had to manually figure out the “market” for used Teslas.

I built a spreadsheet that tracked the year, model, battery, and options for all Tesla’s for sale that matched what I wanted across the nation – and had my assistant keep continuously updating it.  We then tracked Actives (for sale), and solds/pendings.  The important information was really getting a solid feel for Solds so when an extra good deal came up, I felt confident so I could move quickly (and negotiate, as it turned out).

What we found were market inefficiencies and pricing all over the place.  The gap between ask and sale prices often exceeded 20k.  And even sold prices for very similar cars could vary substantially – understandably.  People were buying substantially blind.

In the end, I almost bought a car for 68k (plus 2k in shipping/fees = ~70k) that was almost exactly what I wanted.  It was a great deal and I pounced.  They were emailing me the paperwork.  Locally, I had found what I wanted – exactly what I wanted – but they were asking 85k, firm.  15k higher.  I wanted to try one more time to talk him down.

I ended up convincing the guy to meet with me, asap, and used my spreadsheet to my advantage.  He agreed he could ask anything he wanted, but what mattered is what he would sell for.  He had no idea what “reasonable” was.  I had the data.  Emotionally, he had just paid a fortune new and didn’t want to lose a fortune.  I showed him the data.  To have an equivalent car (to the 70k deal above) with this local car’s upgrades, a good deal would be to pay 72.5k-ish.  We settled on 73.5k.  It got me exactly what I wanted (Model S 85, tech, autopilot, 19’s, upgraded stereo and upgraded interior package) and I could see/touch it and know exactly the condition it was in.

Having the data helped me save $11.5k and gave me confidence it was a solid deal.

If interested is seeing the layout/data, I’ve put a link to the spreadsheet I built here.


My Tesla Analysis – A/B testing

My initial Tesla test drive experience was decidedly mixed.  I *loved* the autopilot but the ride was rough and loud.  It was enough to make me stop plans of buying the car. 

But the initial auto-pilot experience emotionally engaged me and made me want to learn more.

It made me curious to see what the quietest Model S I could find was like.  I did a lot of research and A/B tested different options:

  1. Motors:  Single vs Dual:  The single motor in the rear was noticeably quieter than having the second motor right by the driver.
  2. Tires:  19’s vs 21’s.  19″ tires really changed the ride quality and noise levels.
  3. Suspension:  The “upgrade smart suspension” vs the cheaper coiled suspension – the original coiled suspension was a much softer, more Lexus-like ride.
  4. Sunroof:  Unfortunately, I couldn’t test any Tesla’s to test drive that didn’t have sunroofs.  Research indicated no sunroof reduced wind noise a lot.

Overall, a single motor Model S with coiled suspension and 19’s was the quietest Tesla available – a pretty quiet, decent ride – vastly improved over the P85D with 21’s and smart suspension I originally test drove.

Was it tolerable enough when you add autopilot in to make it worth buying?  I couldn’t decide.

I did pro/cons on a variety of areas:

Sound deadening – just wait.  Eventually Tesla would get sound deadening figured out – people were already risking taking apart their Teslas and doing it themselves.  My best guess was a year, maybe year and a half.  At that stage owning a quiet, performance beast would be possible.  On the other, it would necessitate buying a brand new car to get this new sound deadening – which would be very expensive – and be a long time in the waiting.  The “quietest” version was already reasonably comfortable enough, much cheaper, and available now.

Other upcoming auto options.  Auto-makers from Toyota to GM to Mercedes to Audi to BMW are in a race to create self driving cars – maybe in a year or two or three something would come out that’s gas-powered – which avoided unknowns around owning an all-electric car.  But how good would they be?  I couldn’t shake the feeling that when it came to auto-driving technology, Tesla was a tech company first and foremost, who’d designed their cars to download improved operating system updates like a cell phone.  Other car makers just seemed so far behind the curve and even if they came out with something it felt like Tesla would keep updating, quickly, automatically, and for free, with something better.  For now, and for the foreseeable future, Tesla seemed like the clear auto-pilot leader.

Apple car.  Apple is clearly working on an anything-but-secret car named Project Titan, but all reports indicate it’s 4-ish years away from something a consumer can buy.  But worth knowing/analyzing and considering when making a big purchase.

Battery degradation.  Reports indicated that over 50,000 miles the car only depleted on average 6% of it’s capacity and the degradation slows down the more miles that are driven (see link)… that was a surprisingly good compared to my initial concerns.

Battery range: 85 vs 90D.  The P85D I test drove performed far below expected range.  User reviews of those who bought/tested a new car with dual motors compared to their old car with a single mtoor seemed suggest that somehow Tesla has figured out how the game the EPA ratings since the same battery with dual motors seemed to noticeably underperform a single motor when it came to range.  I believe a lower capacity 85 with a single motor would likely have a similar range to highest available 90 battery with dual motors (which is a require the dual motor option) and be much cheaper in real world performance (which is what I care about).

Autopilot 2.0:  This was probably my biggest variable (above battery degradation).  Tesla is working on an upgraded autopilot that will drive on city streets.  When released, this upgrade will be hardware related and require substantially more sensors around the car to facilitate the transition from a relatively simple highway autopilot to a much more complex, inner-city auto-pilot.  The hardware will not be retro-fitable.  If you’ve seen pictures of Google’s self-driving cars covered in sensors, that will give you an idea of the scope of difference.  Realizing this bought me an awareness: anything I bought would soon be outdated like an outdated early model iPhone cell phone.  To someone who is used to driving cars into the ground, buying a new Tesla and then a year or so later doing it again bothered me.  A lot.

3-Year Leasing:  Autopilot 2.0 analysis, combined with how many miles I drive (25-30k/year), basically killed any desire to do a 3 year, 12k miles/year lease.  3 years from now the technology will likely be much different – and I’ll want to upgrade before then.

Upgrading:  The more analysis / research I did, the more it felt like when the first few versions of the iPhone came out.  The hardware changes were so significant in the beginning that upgrading each cycle really did make a huge difference.  I knew I wouldn’t own the initial iPhone 1, or 2, or 3 or 3G for for 3+ years.  Even though all these iPhones did software upgrades (like the Tesla), the hardware improvements were enough to really make me want the newest version (I also have a passion for tech).

Model 3:  It’s supposed to ship at the end of 2017.  Tesla has never hit a deadline.  My best guess was 2 years from when they started taking pre-orders and even then, after doing detailed analysis on quality issues coming out of Telsa, I wouldn’t want a car in the first batch of 50,000.  Meh.

New perspective:  So it looked like my first Tesla wasn’t going to be my end-all car after all – which is initially what I thought when I started shopping for a Tesla – because of the ride/sound issues but really because of Auto-Pilot 2.0.  The self-driving technology is changing so rapidly I would probably own the car for 1-2 years and then flip it out when AP 2.0 came out.  Given that it would be an “in-between” car, the less money I wasted, the better.

Conclusion.  I decided that IF I were to get a Tesla, what made the most sense for me was a used Tesla Model S 85 with a single motor, 19″ tires, coiled suspension, no sunroof – and auto-pilot.  My ideal car at the moment was (fortunately) a used Tesla with very few upgrades!

* * *

I was still decidedly undecided, until recently, on another 4 hour drive over the pass, I hit an emotional wall.  I was done.  I wanted to buy my time back.  Autopilot could buy back 8 hours a week.  The thoughts then shifted from researching / analysis of the car, to researching how to buy it.  My next post is about the spreadsheet I built to determine the market value of the specific niche Tesla I wanted and then how to go about getting the best deal on it.

** UPDATE **  Elon Musk says AP 2.0 announcement coming at end of 2016.


My 500 mile Tesla test drive


I’ve wanted a Tesla for years.  I finally had the chance to test drive a P85D with all the upgrades and I drove it from Seattle to Tri-Cities and back, most of all to test the new autopilot feature.  This is my reaction to the $130,000 car.

Autopilot:  Can the car drive itself?  Yup!  And reliably.  If the car can see highway lines, it’s very good.  It’s a little less smooth, a little bit jerky – it reminded me of a responsible, attentive 1st year driver.  Overall, experiencing this level of automation exceeded even my high expectations.

Comfort:  There were ridiculously high levels of wind noise, which I would rank as stupid high for a luxury car.  21″ tires were really rough on all but the smoothest roads.  On the rougher roads (like the pass), the interior rattled like my old 1988 Camry (I’m not kidding).  It was hard to hear my travel companion – things had to be repeated multiple times.

Battery Range:  We drove in winter time (30 degree temps), which I learned later significantly impacts range.  Because I can be nerdy, I tracked miles Tesla reported the battery would go vs miles actually driven.  For every mile we drove the car ate up 1.72 miles of estimated range, on average.  Said differently, the car overestimated how far it would go by 72%.  That was a massive difference.  You definitely can’t drive Seattle to Tri-Cities without stopping to charge and you can’t trust the “estimated range” in cold temperatures.

Supercharger:  We stopped at  the Ellensburg super charger.  I was impressed how the car charges from 0-50% in 20-30 minutes.  Very fast.  Charging slows down exponentially as the battery gets closer to 80%.

Large Screen:  Initially, the large screen touch screen is fun and kind of sexy.  However, at night, it’s like having a TV screen in your face.  I wished it would turn off.

Seats:  Comfortable.  Rear seats were definitely not comfortable.  Because the car seats are very low to the floor, it puts your knees high in the air.  My averaged height male friend complained of the low head clearance in the back.

Acceleration:  The P85D is wicked awesome.  It’s ridiculously fun taking off like a rollercoaster in Disney World whenever you slam the “gas” (electric?) pedal.  Electric motors give you instant torque and, wow, does it make you grin.

More on road noise:  there is a low, rumbling level that’s quite loud.  Hard to hear, found myself constantly looking at the person in an unconscious attempt to read their lips.  The Tesla salesperson said, “Turn up the radio.”  That’s a silly requirement on this expensive of a car.  That’s what I’d tell someone buying a $5,000 used car.

More on autopilot:  Would I want the car to drive in icy conditions over the pass by itself when the lines have been scraped off?  No.  Would I trust it on normal highway conditions?  Absolutely.  When it loses highway lines I was impressed how well it still “saw” the road and did exactly what a normal driver would do.  On the highway from Ellensburg to Kennewick, the Tesla drove itself the whole time – I didn’t steer at all.

Summary:  It is awesome to see the future of self driving cars in the here and now.  Not reading about it in a magazine where they plan to release it in “20xx.”  Right now.  I had high expectations and it exceeded even those expectations.  On the con side, I’m sensitive to road noise since I drive so much and the car was ridiculously loud, rattling and shaking like a much less expensive car.  While I love the acceleration, the reality is, 99% of the time I want a smooth, quiet peaceful ride.  The gap in estimated battery range VS reality was also kind of mind blowing.  If we hadn’t way over charged the battery, we wouldn’t have made it.

Final feel:  It’s a car I want to love.  The autopilot and acceleration really are amazing, but the ride is horribly rough and can’t-hear-others-talk road noise and interior rattling kill the buzz, and quickly.  The best description I heard of Tesla is, an amazing software company that is still learning how to make quality cars.  That’s exactly how it feels – like being in a 40-60k car with amazing software.

Update:  My experience apparently matches the Consumer Reports article on other user complaints.  Here’s more detailed breakdown of reliability data, which ranks Tesla in the worst category for reliability but high for customer satisfaction.

Why I hate most mutual fund investing



“I have bad news and good news.  The bad news is we lost a ton of money.  The good news is that none of it was ours.” – Investment banker addressing colleagues after collapse in mortgage-back bond market

I’ll start with the basics of why I hate the financial / mutual fund industry so the next time you’re meeting with your “financial adviser” or 401k “adviser” you’ll be aware of some things they may not be sharing with you:

The industry is incentivized all wrong
Managers – particularly hedge managers – are paid to take huge risks.  If they take huge gambles and it pays off, they get a huge bonus.  But if they don’t pay off, they don’t eat the losses.  Sure, the investors may lose some or even all their money, but it isn’t the manager’s money.  All upside, no downside.

Example:  Year one, a manager places a crazy bet and wins, he gets paid a huge bonus.  Next year he does it again, and wins, again, another huge bonus.  And the next year, his luck runs out and the fund runs massive losses for investors.  But the manager gets to keep his past bonuses.  It made sense from his perspective to do exactly what he did (not from the view of the investor).

I have a retired 32-year old friend who used to manage a hedge fund and he talked about this phenomenon.  I asked what he does when the gambles blow up and they lose all the investor’s money:  “Go get other investors.”

Understand this and you’ll understand most of what drives the behavior of the financial fund managers.

With all that speculation, 95% of mutual funds eventually under perform or blow up
Most people think mutual funds are around for 20-30 years.  Over a 10 year period over HALF of the funds will disappear.  They do so poorly that the fund companies just get rid of them.  Of the remaining funds that survive, 95% of them will underperform the market average over 20 years.  

People have been suckered into thinking mutual funds can beat the market when 95% will underperform.

In fact, funds are often such bad investments that between half and eighty percent of funds managers own no shares (zip, zero, zilch)  in the funds they manage.

How does the public have any chance when half the funds can’t even make it 7-10 years and half the “professional” fund managers don’t invest their own money in the funds they manage?

Mutual fund real returns are much lower than they report themselves
I don’t know how this is legal.

Mutual funds report their returns based on what they call “time weighted” instead of dollar-weighted returns.  What’s the difference?

Imagine a fund goes down -50% and then up +50%, a fund then reports “it has an average return of 0%.”  But what actually happens to the money of their investors – which by the way is the ONLY thing that counts?

$1,000 went down -50% to $500 and then back up +50% to $750.  $750 still has to go up another +33% to reach $1000 or the 0% that the mutual funds report.  That’s a long ways from what they report they earned.

Studies show most funds reporting 10.0% rates of average return actually are earning investors less than 7.5%.

For example, over a 25 year period ending 2005, the S&P500 index returned 12.3%.  Funds reported they earned 10% – keep in mind those are the funds still around.  On a dollar-weighted average, investors actually earned 7.3%.

Not only do mutual funds under-perform what they report, they underperform the market to the tune of nearly 5% per year.

How much of a difference does 5% make?
Nearly 4x.  Over that 25 year period, mutual fund investors on average experienced a 482% increase in their capital.  Yet those who just bought and held the market through a basic S&P index fund earned 1718% – nearly 4x as large!!  That’s $250,000 vs $1,000,000.  A life changing difference.

Guess where that $750,000 of investor money goes?
Fund manager’s bonuses.  Lawyers.  Advising fees. Fund expenses.  Trading costs.  Lots of advertising to attract more money.  And just under-performance from bad bets and bad management.  All of that loss is like compounded interest – but against you.

What about all these funds I read about that out-perform the market?
Mutual fund companies are smart.  They start multiple funds at one time.  Some funds under-perform or blow up.  The fund companies get rid of them.  The funds that survived/”succeed”?  They showcase them in brochures.

Who do you think funds are targeting with glossy brochures and pictures of beaches and smiley couples?  The rich who are already retired?  They’re targeting the naive, return-chasing middle class.  

The cruel reality is, those funds who gambled and now have higher returns for a short term (3-5 years) will subsequently have their long-term average (10+ years) returns revert to the mean (10%).  In order for that average to drop, the following years’ performances will be much, much worse.  Ironically right as the middle class is jumping in.

So the investor gets hammered.  But for a while, the manager has more money to work with and subtract fees from (before you hop your money into another hot fund they have).

Screwing summary:
Managers are incentivized to gamble money for huge returns because they have huge upside if they win and almost no downside if they lose.  Most fund managers don’t invest in their own funds.  Over half of funds can’t survive 7-10 years.  The returns funds report are on average 2.7% lower than the returns you’ll earn.  Those that happen to perform well likely subsequently perform horribly.  On average, over a 25 year period, mutual funds reduce 75% of stock market growth.

If I’m going to invest in the stock market, where should I invest without getting screwed?
A well constructed study showed over a 20 year period a Vanguard S&P 500 index fund would help you beat 95% of everyone who is getting suckered by mutual funds.

The math is so compelling that Warren Buffet made a famous million dollar bet with any fund manager that Buffet could put his money in a Vanguard S&P 500 index fund and do nothing but hold it and he would out-perform any fund “professionals” willing to take the bet over a 10 year period.

Protege Partners took him up on it.  Eight years later, Protege’s picks are up 22% and Buffet is up 66%.

When Buffet dies, his will directs that the majority of the money his wife will inherit is to be invested in a Vanguard S&P 500 index fund.

Pause.  Really think about that.  The richest person on the planet gives the person he cares for most the following financial advice:  Vanguard S&P 500.

If he has access to nearly unlimited funds and the best money managers in the world, why would he recommend this unless mathematically it was the best play.

Why are Vanguard Index funds so much better?
Not all index funds are created equally.  Vanguard funds have 83% lower expenses than similar funds.  Who gets that savings?  Investors.  They don’t gamble to beat the market, they just match it.  They’re structured as a non-profit – so extra savings is returned to investors.

Do your own research.  Google it.  Depending on the time frames used, quality of the research, and other factors, the numbers can be a bit higher or lower.  I’ve endeavoured to use averages reflecting somewhere nearer the middle.

The most important thing is you do your own research.  It’s your retirement that you’ll work 30+ years to build.  The advantage of being an informed investor:  A retirement 4x as large.  $750,000 more is a life-changing difference.

Update 5/3/16:  Warren Buffet goes on rant against Wall Street, hedge funds, and investment consultants.