“Performance comes, performance goes. Fees never falter.” (Warren Buffett. 2017 Berkshire Hathaway Investor Letter. Page 11)
Let’s assume you’re ready to invest. Perhaps, you even got some stocks in mind that you want to invest in. You read the analysts reports, went over the quarterly and annual reports, and feel confident about the market research you’ve done. Good. That’s exactly what you needed to do. Now, you wonder, which is the most cost-effective way to invest?
There are various types of brokers out there. Discount brokers, full-service traditional brokers, robo-advisors, etc.… The financial industry suffers no shortage of people willing to sell you stocks. Back in the old days. Investing in the stock market was widely a rich person’s privilege. Stocks were at very attractive prices, but fees were outrageous. Today, there are services that let you buy and sell stocks for free. It seems as if the financial industry is racing toward the $0 commission. Firms are making money in other ways, so don’t feel bad about it.
I, like almost every other stock junky out there, took last Saturday morning to read Warren Buffett’s share holder letter. Entertaining and informative as always, Buffett showed us the results of his multi-year bet he had going against a Portfolio Manager. This fund manager picked other hedge funds that could beat the S&P 500 over 10 years. While Buffett simply picked an index fund that tracked the S&P, mirroring its performance. Results showed that fees were largely the reason Mr. Buffett won the bet. While the hedge funds performed relatively well, after subtracting fees, almost half of their gains were eaten up. Leaving their investors largely under served.
The point of this story is to bring awareness to the difference fees make in your portfolio. Investors are assaulted by people who give financial advice. There are countless newsletters offering buy and sell signals. Options traders give advice to which options strategies investors should use. For some reason, nobody really talks about how much these trading techniques cost. I’m not saying their advice is bad. Sometimes it could be good advice these people offer. My point is that even by utilizing good trading techniques that work, your performance can be significantly impacted by the fees you accumulate.
Pay attention to fees. They can kill your performance. What’s the point of being a good trader and investor if half your gains are spent on fees?
