Was Madoff a Better Investment Than Your Mutual Fund ?

Lets go back in time 10 years and look at 2 typical  investors, Jack and Jill. Both are in the same tax bracket, have worked hard and saved a lot of money, $250,000 . Its their life savings. Everyone says they should put their money in the market, where it will grow and fund their retirement. So they did.

One thought they got the break of a lifetime and through a friend was able to invest with the one and only Bernie Madoff. The other put half their money, $125k, in a mutual fund that matched the performance of the Dow Jones, and half in a mutual fund that matched the performance of the Nasdaq.

Neither touched the money other than to cover the fees and any taxes, which for the sake of this example we will say were the same for both.

Who has more money today ? The person who invested “wisely” or the person who invested with a crooked Ponzi Scheme ?

The mutual fund investor bought their Dow Jones Fund when the market was 9550 in Feb of 1999. That  $125k investment has shrunk to about $95k. They bought the Nasdaq Fund when the index  was at 2342.  Today that $125k  would be worth about $ 77k.  Their $250k nest egg of February 1999 is now worth $172,000 . Thats bad , but not as bad as Madoff’s sucker, right ?

Maybe not. Because the Madoff investor had less than $500k invested, there is a good chance that they could be protected by the SIPC, who is already sending out claim forms. So when its all said and done, the Madoff investor could not only get all their $250k back, but they are also elgible for a share of any funds recovered. While that number may be miniscule, it could mean that SIPC elgible and paid Madoff investors actually made money over the 10 year period, while those that put their money in the market got hit very hard.

The sad thing is, that the same comparison could be made for many blue chip stocks that are down 50, 60, even 90pct or more.

Which begs the question, who suffered more stress along the way ? The market investor who has had to endure 10 years of ups and downs and ups and way down in the market, or the Madoff Ponzi investor who lived happily and stress free for 9 plus years and must now face the uncertainty of their SIPC and other claims to get their money back ?

60 thoughts on “Was Madoff a Better Investment Than Your Mutual Fund ?

  1. I am very much appreciate to read your blog.

    Comment by Genny George -

  2. You know what the software is irrelevent. Anyone could do it. If they give there clients false statements. He didn’t even have to make one trade.

    I have spent 10 years studying the Markets and It is driving me Fugging nuts. I start winning consistently for awhile then it doesn’t work. 2 straight years I have been truly successful when I was trading full time.Part time stock trading I SUCK.
    Am i addicted to the markets? YES. I know every symbol every book.Is it killing me? Yes. Not being able to beat it is killing me slowly.
    I wanted so much to impress my dad by being a successful trader I have lost my way.

    In regards to Madoff, would you spend 5 yrs in jail for 100 million, How about 5 million. I SURE AS HELL WOULD.

    Comment by TRADER -

  3. I like the comments but I think that the Madoff investment may have worked out even better than you describe! From what I understand Madoff was posting a 12’ish percent return each year. So our fictional investor was doing one of two things a) taking a distribution of 12% per year in income or b) re-investing the income.
    So lets look at each case.

    a) 125k * 12% = 15k per year. Lets assume 1/3 is paid in taxes. This would leave about 10k per year in income. Assuming no compounding this adds up to 100k. For a total return of principal and income of approximately 225k (100k plus the 125k from the guarantee).

    b) In this case lets assume after tax profits of 12% less a 1/3 tax hit was re-invested each year. Compounded over the 10 year period would have given a final value in the account of approximately 270k. Still under the SPIC limit and fully guaranteed!

    So in each of these scenarios the Madoff investor may end up coming out SIGNIFICANTLY better than the stock market investor.

    This analysis also raises some interesting questions. Since we now know that all the returns were fictional should the SPIC insurance insure the accumulated value of the investors account or just the original investment? Should investors who took the annual returns in cash be required to return cash? It is all very sticky and it will be interesting to see what happens.

    One final point. We hear numbers about 20-50bln in losses (even 65bln in one article I read). In fact, we know now that Bernie was not investing the money he brought in at all. He was either putting it into his or his employees pockets or returning it as “income” to existing investors. Lets say Bernie paid himself and his staff 5bln over the years (a huge number and probably way over the actual number) then the remaining money was actually returned to investors. It was not “lost” it was just returned to the wrong people. There are likely many early investors who have handily outperformed the market simply based on the “returns” they received over the years, regardless of weather they get any of their principal back.

    This raises some interesting questions about if or how money should be redistributed between early and late investors in the Madoff scam.

    Comment by Mark -

  4. It might actually be worse than what Cuban says. He doesn’t factor in capital gains taxes paid by the average investor. I wonder how the tax comparison between the Madoff and avg investor affects the analysis. Did Madoff’s investors pay long term cap “gains” on their 10-15% annual gains? Were the annual “gains” distributed as dividend income? More after the jump:


    Comment by Matt Rafat -

  5. Mark – it’s an interesting comparison. There’s only a couple of problems:

    1) Unless something has changed, the SIPC – which is funded by brokerage companies, not the government – only backstops a maximum of $100,000 in deposited cash and $500,000 in securities. So far, I have yet to see any evidence from the forensic investigation to suggest that Madoff’s firm invested in securities (not that I necessarily believe it) so I would assume anybody applying will only be eligible for the up to $100,000 portion at this time (and I’m going to presume it might only be available to U.S. residents.)

    2) I know for a fact that, at least in the 1997-99 period, you couldn’t invest in Madoff without at least an entry of $2 million. If you had less, you had to sit on a “waiting list” whereby you’d be contacted if the fund changed the minimum requirement. I have no idea if that changed in more recent years since I never had clients ask about it after around that time.

    Comment by Jeff -

  6. The SPIC is not some FDIC for investments that guarantees your principal. Read more at their site

    Comment by Jon -

  7. Your analysis doesn’t factor into account the fact that the Madoff investors have been recognizing and paying state and federal income tax during that whole time (income of 20% of the investment compounded annually for seven years is a lot of money). They can only go back and amend for the most recent three years. The investor in DIA/QQQ/SPY will recognize income upon disposition of the shares.

    Comment by Grips -

  8. Mark…..a little news from our childhood….Mr. Benvenuti (Dino’s dad) passed away….remember Benvenuti’s bread??

    Comment by christian Dalesandro -

  9. I actually disagree with him completely.

    1) Madoff was a crook. And any refund to investors from SIPC is coming from honest people’s taxes, not the market.

    2) He chose very specific time frames to make his point. Someone in the comments above demonstrated different time-frames with much different results.

    3) Two words: American Funds. Three funds in particular. ICA, which as been around since 1934 have averaged 11.9% INCLUDING 2008.

    GFA has been around 35 years averaged 14%

    NPF has been around 35 years averaged 12%

    None has lost money in ANY 10-year period, including 2008.

    Dirt cheap. Annual expenses less than 0.8%

    Extremely low turn over.

    Invest and forger. Remember, the market never loses money (it just moves around), but PEOPLE lose money, such as selling low (due to panic) or investing in suspect investments.

    Comment by michael -

  10. Pingback: Expert’s Desk – The 1940 Act is old, but is a shareholder friendly approach

  11. This article has made me even more cynical about fund managers.
    Which is a very good thing in these economic times.

    I trade the markets. It is my passion.

    This past week I have done very well. As I mentioned last week I shorted gold stocks and a gold ETF.
    I then cashed in on the 2 day collapse. Made some good money there.

    Gold did take a bounce up off its moving average. I still think gold will go down. I am just looking to short at a better price.

    This week I started trading the S&P. I like it but it is tricky. My first 4 days trading it I was up 700,500,600,1300. Not bad on 1 contract.
    My dad was impressed because he has only made more than 500 in a day on the SPX. My father is better at longer term positions.

    While trading the SPX I also was trading Gold, Apple(stock) and Oil. Intraday. I did well on these. I bought FCX as well

    I will not get complacent at all with these gains on the SPX.
    I still have lots to learn. I do know I have something to offer.

    I have a few stocks in mind that look very good. I need to get confirmation first.

    I know you are much to busy to talk with this Canadian. However you might have a representative that would have the time.

    Unlike the experts I can show all my trades in real time.
    I just want to be part of a team that wants to make you money.

    Dirk had a good game the other night 41 points. He is very impressive player.


    Comment by Trip Aces -

  12. Interesting and fun read. A couple thoughts on the analysis:

    1) Taking stock index prices and comparing those figures from one year to another IS NOT an effective way of determining the investor’s return. Many of those stocks in the S&P 500, or DJIA provide dividends. When including those dividends into your analysis, I think you’ll get a very different answer –> one that shows that there was a positive real return over the period you outline: http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm

    2) On the other side of the argument… Many of the investors in the Madoff scheme came out much better than you describe here. The ones that pulled their money out prior to the scheme’s collapse made a predictable 10%/year return for every year they were in the fund… not bad. In fact, since Madoff didn’t actually trade any of the money going into the fund (i think that’s what I read somewhere), all of the people who lost money were offset by all of the people who got their money back with a return. So the net return of the Madoff scheme is actually only slightly negative (Madoff’s mgmt. fees).

    Bottom line: *Maybe*, on average, we didn’t do as bad as everybody in the media wants us to believe…

    Comment by Travis Kalanick -

  13. Pingback: Straight Up » Blog Archive » Linx of the Week——-U Know You Don’t Want To Work Today.

  14. Mark,

    An interesting read here. I do think your analysis would be a little more accurate taking into account dividend and capital gain reinvestments over those 10 years. I stay away from mutual funds personally.

    Comment by Rychen Jones -

  15. Pingback: Was Madoff a Better Investment Than Your Mutual Fund? « Jeff Nabers’ Self Directed IRA & Solo 401(k) Blog

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  17. If you are actually somebody who invested less than $500K with Madoff (which is unlikely) you better hope you get your SIPC money before SIPC goes bankrupt.

    Comment by Shiphouse -

  18. We get it Mark, you made your money as a business owner and not a stock picker; enough with the market bashing. Your whole notion of “invest in yourself” or buy cd’s and hold, is not only bad advice, it also hurts the average Joe that reads this site. It is good advice to give to your average billionaire, but its not realistic to assume every person with a 401 k and 2.5 kids can do the same. If you want to look at historical averages look at the last thirty, not the last 10 years, 2 of which resulted in catastrophic losses. It’s easy to make the market look bad in the last 10 years. But saying that Madoff investors are somehow lucky shows how cynical and out of touch you are towards the reality of the market.

    Comment by William -

  19. These types of “analysis” make great conversation. But any time period can be picked to make the outcome of players Jack and Jill just the reverse. This is a 20/20 hindsight analysis.

    There is no way to predict the future 100%. Sure, some people will do extremely well with “great investment” but those people are few. The only thing you can do is make a decision, know why you made that decision, don’t put all your money in one place, and adjust to new information over time. It is hard work, there is no magic bullet.

    Comment by john blue -

  20. Now, I feel even worse.

    Comment by Thomason -

  21. Very contrarian analysis. Never thought of that.
    Totally agree. 500k is what most will get back because of the SIPC. That is still a substantial amount of money.

    Yes the markets up and downs are stressful if you go through these fund managers. Because your just going on there word of past performance. I personally enjoy the markets and find it an exciting challenge.

    Here is what I wrote on this blog on the weekend, hope you were able to do it.

    “I WILL TELL U WHAT I AM DOING right now SHORTING THE GOLD iNDEX(GLD), AND A NUMBER OF GOLD STOCKS. Sell your bullion and silver stocks on Monday Mr. Cuban. There will be a pullback.”

    Made a nice 10% in a few stocks I shorted and I believe the gld went down 3%. Not a bad day in wall street. More than these fund managers make in a year.

    The s$p bounced up as well. It was obvious because it is doing the opposite of gold.

    Enjoyed your post

    Trip aces

    Comment by TRIPLE ACES -

  22. I am amazed that there has not been more of an uproar over SIPC stepping in. There should be zero coverage for these people. They were greedy and everyone knows it. The investments should be treated as an unregistered investment and treated like a hedge fund. I wonder if the Madoff firm even paid into SIPC. Its all BS. The revolution is coming.

    Comment by Rick Weaver -

  23. Yes investing in Madoff was better than investing in Mutual Funds over the same time period for all investors if (a) you pulled your money before he was arrested, or (b) who had assets under $500k.

    Same thing with Allen Stanford in Houston (and Antigua). His company was actually paying those 13% returns every year and they were not a “true” ponzi because there are operations to back up some of the returns. The $64k question is where is the rest of the money? Mark, did Brian get his money out before the bust?

    Comment by econ365 -

  24. Pingback: Decade at Bernie’s «

  25. The 1st Annual Rupsy Awards hosted by Capital Markets Live!

    Best Directing

    Congressman Gary Ackerman – for “What Went On Here?”

    Congressman Gary Ackerman – for “Worthless”

    Congressman Gary Ackerman – for “I’m The Good Guy Here”

    And the Rupsy goes to…

    Comment by Mary -

  26. The problem is most people had millions with Madoff… SIPC only covers a fixed amount. So the comparison is only valid when the investment amount is very small.

    Losing money in the market is much different than getting completely scammed.

    PS: I really liked your other post about the technology that Madoff used. I never saw anyone else approach it from that angle and it is very relevant

    Comment by Greg -

  27. Mark; The SEC should be abolished!!!!!!


    Comment by Mary -

  28. nobody seems to be aware that when the stock market falls, the value of cash goes up, making the bills-in-a-can plan simply a solid contrarian position. Of course bills-in-a-can is usually spelled “treasury bond fund” but anyway.

    Comment by Bongo Manongo -

  29. Mark,

    I can’t get any traction with this idea when I mention it to people, but it makes sense and it’s fun to consider….

    Here’s a solution to Madoff that would make most losers close to whole again and probably end all future financial Ponzi schemes: Make all investors from the beginning put their cumulative gains and losses back in the pool and redistribute proportionally.

    After all, most of the money wasn’t actually burned… people walked away with it. These are the same people that brought in the people that eventually lost money, and much of that money still exists (presumably).

    I remember that if you buy a car that turns out to be stolen, you end up losing out… “buyer beware”. Couldn’t the same principle be applied to the guy that got out just in time… with the money of twenty people that he brought in “just in time”….?

    Lots of assumptions, of course… that there are records of payments, etc., that you can tell investors that they’ll be prosecuted as accomplices if they don’t give the money back…

    Anyway… fun to consider…

    Comment by Nick -

  30. Or maybe the credit bubble made the DJIA a Madoff scheme of its own…

    Comment by staypuftman -

  31. A lot to think about, crooked ponzi scheme or stock market that is crashing? Mine as well throw in banks crooked politicians and ones that are amazing at advertising yet you have no clue who or what they stand for.

    Comment by Position Clicks -

  32. Good post…people need to realize that the stock market is not always a “sure thing” and you can’t base future returns off of historical data. Just because the stock market has always outperformed other investments over any 20 year period in the last 100 years doesnt mean that this will hold forever. It is amazing how many people trust strangers with their hard-earned dollars.

    Comment by Paul D -

  33. “When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor—your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money. Is this what you consider evil?
    Money is made—before it can be looted or mooched—made by the effort of every honest man, each to the extent of his ability”

    In other words, the FEDs are crapping in their own bed right now.

    Comment by Clayton -

  34. “The Madoff Conundrum: Run a ponzi schemes that lets my family live an unbelievable lifestyle with the risk of embarassment and jailtime as a senior citizen.

    The Wall Street Conundrum: Use other people’s money, leveraged up to take as much risk as I possibly can. The upside is that I become insanely wealthy and live the life of Sir Allen Stanford, the downside is that I lose everyone else’s money and I have to get another job.”

    And if you work at a company as a “paper-pusher”, who is going to prosecute you? Hell, just look at Madoff’s company/family – they entirely evaded attention – claiming no knowledge whatsoever that they were participating in a fraud. It’s a joke.

    As Hunter S. Thompson said, “In a closed society where everyone is guilty, the only crime is getting caught.” This is the prevailing philosophy amongst the Bernies of America. Top that off with the selective compromisers aka flag sucking half whits for journalists we have on TV.

    If you won the powerball for $300 Million tomorrow would you lend it out to Joe Schmoe for a 6.5% annual return on an unsecured basis? That’s the predicament banks are in now. Interest rates in parts of the 80s were 20%. How can the free market correct itself with interest rates so artificially low still -causing banks to have no way to justify the risk of lending when they have secured alternative investments – not to mention the paper they are lending is not even stable. Mass altruism turned into a socialist dictatorship.

    A tightening of the lending markets only decreases American production even further – because qualified corporations can’t get loans. So in essence not only are we massively inflating our economy, but we are allowing that act to destroy what little production we have left in this country.

    I’m 19 and feel I have more sense in my right hand than the editor of the NY times.

    The only logic here is that there is no logic…and that America ceases to exist without a code of ethics that is reinforced through capitalism.

    God forbid there actually be chemicals in the drinking water… that would just add insult to injury.

    Comment by Clayton -

  35. Mark,

    Are you putting money into the market now or have you in the last year? If the answer is yes, then IMO, this post is a “do what I say, not what I do”

    Unless of course you have a board seat or title for those companies you invest in…in which case would still satisfy your idea of investing in yourself.

    There is the point also, that you can sustain much greater losses than most….so perhaps this is one of those “the more you know” public service announcements.

    Either way, gets people thinking more about it. The bad part is, you leave a void for the avg worker who may not have the drive, desire or capable creativity to do their own thing. The world needs lawn mowers and ditch diggers too, so where do they invest their money…..more shovels and lawnmowers?

    Comment by Michael -

  36. I agree, massive altruism – and in this case we (tax payers) are literally funding bad morality. It is beyond morality now – it is socialism. And it is ironic that the same system we are funding is the system that is producing more characters like Bernie, one of which whom ripped me off for $30k – and I’m only 19.

    I pause and wonder, do I wait until I have more zeros in my bank account to start writing books in the name of the principles our country is built on – that only Ron Paul, you, and Ayn Rand seem to share?

    Comment by Clayton -

  37. Our trading club made 700% in 2007,800% in 2008 and 900% so far this year,longing and shorting stocks in South Africa.
    Lots of traders i know made up to a 1000% gain last year and we have the soundest banking system in the world with no subprime exposure,derivatives and still profitable due to conservative lending practices.
    Money markets pay 10-12% and some prefs over 20% tax free.
    Why would one then buy and hold stocks-like fashion they can go obsolete

    Comment by Muhammad Moosa -

  38. Kinda weird how that works. Serendipitous almost. “Serendipity Baby”. Not that I endorse throwing money away or stealing.

    Comment by Josh -

  39. Pingback: Madoff vs. Your Mutual Fund: Madoff Wins « Vestopia’s Blog

  40. The problem is that some people, especially some large charities, had way more invested than what was insured by SIPC. So, the small time investor may be made whole, but many very affluent families and charities got smoked.


    Comment by Rob Eisenberg -

  41. Sorry Mark, but there is one flaw in the analysis. SIPC is not an insurance policy, it is not the FDIC.

    A more complete explanation is available at my blog, at


    but start with the concept that anyone who invested through a feeder fund is not covered by SIPC. SIPC only applies to the brokerage firm customer accounts.

    Even for those who invested directly with Madoff, it appears that those investors did not have a brokerage firm account, and did not make their investments with the broker-dealer. This point is still a bit unclear as the story evolves, but it appears to be correct. There were no accounts at the brokerage firm (which is part of FINRA’s excuse for why they didn’t uncover the fraud).

    Assuming they did have an account at the firm, the $500,000 coverage that you are alluding to is to guarantee the return of SECURITIES that were in the account. Only $100,000 of that amount is available for missing cash.

    The classic SIPC case is where the brokerage firm literally steals the securities out of a customer’s account, and NOT where the firm commits a fraud on its customer.

    From the SIPC site – “SIPC does not cover individuals who are sold worthless stocks and other securities. SIPC helps individuals whose money, stocks and other securities are stolen by a broker or put at risk when a brokerage fails for other reasons.”

    Next, Madoff’s investors, assuming they had a brokerage account, did not have any securities, since Madoff did not invest in any securities. This will certainly make for an interesting series of arguments over the application of SIPC, but it is far from clear that Madoff’s investors are covered by SIPC.

    Finally, SIPC’s total fund is approximately 1.6 billion dollars, not nearly enough to cover the claims in any significant way, assuming that the claims are covered at all.

    OTOH, the SIPC trustee is attempting to obtain Madoff’s assets, and according to the press reports, has recovered approximately $850 million from Madoff. Add to that the monies that he will recover from the Madoff investors who were profitable, and there might actually be some money available, albeit not from SIPC directly.

    (Yes, Madoff’s investors who had profits will be sued by the Trustee to return those profits. Another interesting twist – see

    That process of course, will take years, if not a decade, and with all of these assumptions, if they all come true, the Madoff investor will receive a fraction of his investment, 10 years from how.

    Where will the DOW investor be in 10 years?

    From MC> Actually you might want to really read the post. The SIPC has already sent out more than 8000 claim forms and is saying that those who get their information back quickly may be paid quickly

    Comment by Mark Astarita -

  42. Perhaps those conventional mutual fund investments will recover some of their paper losses in a couple of years–just like those who invested in blue chip companies in the 1920s and kept the stock came out ok after the depression. Of course they had to hold onto the right stocks.

    Comment by deb -

  43. It is only the second time in 200 years where the 10 year rolling average of the unmanaged S and P 500 index is less than zero. I’ll gladly take my chances with a portfolio of managed funds, hundreds and hundreds of which have positive returns over the same period. Also, it is no way clear that SIPC offers protection here since it the protection is for cash and securities of failed brokerage accounts. Madoff’s brokerage operation was seperate from his fund management and it appears clear most funds were never invested so account owners never owned securities. He just took the money. I bet most Madoff clients would be doing back back flips of joy if today they were offered $95,000 for every $125,000 invested!s

    From MC> But it could be the 2nd of many 10 year rolling averages going forward. Worse, those years, 1966 to 1982 and 1997 to now suggest that of the last 40 years, investors were in deep kaka 28 of them. You play those odds all you want

    Comment by Bill -

  44. Im not very knowlegable about these matters but I agree with TPC, where you can cherry pick the numbers for argument sake.

    anyway, mark you need anybody for a think tank or maybe a guy to pitch ideas? Im a dreamer that see innovation in everything I look at.

    Maybe we could chat and discuss idea’s.

    Comment by Raphael Terrigino -

  45. ok, your numbers work, but lets use the past as an indication of the future. An ‘investor’ who gives their money to a con artist will lose and keep on losing. End of story. Historically, an investor who puts their money in the stock market will suffer losses – some of them painful and dramatic, but over long periods of time, more likely then not, will see exponential gains. Is it guaranteed? No. Will it work for most disciplined investors? Yes.

    Comment by Toby H -

  46. Mr. Cuban I read your comment. I do not agree.

    Isn’t Sir Sanford just as guilty as Bernie Madoff? He Lied and cheated as well as Bernie Madoff to your American public.

    I do agree the market is a bad investment. When I was a boy I read a book called the Wealthy Barber. I believed overall the market and mutual funds always go up because of this book. This is A LIE and a Con as well. Stocks on both the dow and the Nasdaq lose there luster get kicked off of the exchange and they get replaced by new ones. So to say that the Market always goes up which the banks and Bernie were claiming is false.

    The Markets are a minus sum game. 10% win 90% lose. When I first started trading in penny stocks I lost. But now I am trading the blue chips, shorting and buying.

    If a Ponzi trap has done better for average investors than honest one’s. The Market is A bad investment. This is true if your buying the market, but if your selling it then that is a different story.

    You know the Markets Mr. Cuban you know how bad the U.S economy is
    and how these bailouts are effecting the economy. Why can’t you help a student of the game, who will give whatever you want?

    Mark W Farwell.

    Comment by Sir William Farwell -

  47. WOW You are right on the money here. Stocks are stress. UP and down. When your not focused in the market you could go broke. Yes some people did better with Ponzi Bernie. However more People invested millions and utterly lost it all except for possible 500k cushion..

    As i stated before I don’t trust any so called expert or fund managers. I have doubled my account twice when I was watching account daily. I WILL TELL U WHAT I AM DOING right now SHORTING THE GOLD iNDEX(GLD), AND A NUMBER OF GOLD STOCKS. Sell your bullion and silver stocks on Monday Mr. Cuban. There will be a pullback.

    Let me give you some real stocks and not BS Lies by brokers who want your MONEY. I just want serenity and to learn from you.

    Let me give you this S ring and cohiba’s. I visualized it and would like to fulfill my obligations,

    Trip Aces

    Comment by Trip Aces -

  48. Is there a better strategy than having a balanced, diversified portfolio and contributing 15% of your gross income to it every 2 weeks? I’d like to see one.

    From MC> Invest in yourself.

    Comment by hungryneck -

  49. Mark, You are hilarious! I read the book you mentioned on your blog some years ago… The NUMBER. I put most of my money in GOLD and high dividend stocks from that day forward. DSX, NAT and a few others. I have done well. Thanks for yr constant insight!!!

    Comment by Mike -

  50. I know it’s not very exciting and maybe can be considered extremely boring in terms of the big financial gains made on Wall Street in IPO speculations (Google, Yahoo! ten years and five years back respectivly. Broadcast.com 15 to 20 years back. MSFT even longer ago, but well worth the speculation IF you held). Most people don’t hold like a Warren Buffet. It’s constant play, play , play the market all day, day, day,. They ought to write a song about it. Oh yeh,,, nice little video on “Bernie” from Blog Maverick. Just a little suggestion for the future investing crowd. think “United States Annuity contract. You know it, but maybe forgot about it. you give a life insurance company your money (I’n my case they are a Canadian outfit), which will grow on a tax deferred basis that can then be distributed BACK to you in several ways. this is a guaranteed distribution of income until your deathor if you decide to pull out or the annuity expires. Which if it does, you then strt over again.You have never lost any money, ever. If you want to play with say 10% or 15% of yur wealth, well then alright. Gamble a little. Have fun, read up on things. But to throw the whole enchalada into the frey, man… I wish you luck if you ever do that again.

    I know annuities are a boring way to strategically work your money, but it is one of the safest. You are not Gordon Gecko in the Oscar winning film, “Wall Street.” So stop speculating like him. Speculation is just that. Gambling. Conservative is or should be the new buzz word. Embrace it. Good luck investors.

    – patrick

    Comment by -patrick -

  51. Agree 100% Mark.
    Mutual funds are a racket which exploit small investors. They encourage people to think of the stock market as a bank account, which it isn’t. Jeremy Siegel has a lot to answer for.

    Comment by 8020 Financial -

  52. Buy and hold = hold and hope. Trading is the way to go. Cut your losses and let your winners ride. 10 years is a long long time in this world. No one knows what will happen in 10 years. Just 1 year ago the CEOs of Wamu, Bear Sterns and Lehman said(and probably believed) that they are sound. Look where they are now. As each one of them dropped to the single digits I was tempted to buy a 1000 shares as a “long term” investment but my instinct for preservation saved me.
    One thing that stood out when the Madoff story broke was that he said he was paying people with money he didn’t have. And I thought “isn’t this what the government does all the time?”. It’s an entity that spends more than it earns, and counts on new money to pay off existing liabilities.

    Comment by Praveen -

  53. That’s a great insight. Unfortunately, Madoff didn’t have too many $125K accounts. I think the latest figures were $1B of the supposed $50B was recovered so far. That’s a 98% loss for most of his “investors”.

    Also, it’s a little unfair to cherry pick the timeframe. Had you invested with Madoff when the firm was founded in 1960 you’d have $125K today. If you’d invested $125K in the S&P 500 when the Madoff firm was founded in 1960 you’d have NINE million dollars today (a 9.1% compound annual return with dividend reinvestment). The same scenario, started in 1980 would have resulted in a final portfolio value of $2.5MM in the S&P vs $125K with Madoff. Same scenario in 1990 and you’d have $500K today. Not bad really.

    Just a little perspective. Great post though.

    Comment by TPC -


    Comment by David -

  55. Mark,

    This is a great post, as a young investor, I was always told I needed to get in the market. 7 years of busting my butt, making as much as I could and saving as much as possible, I have realized a -25% portfolio growth over those 7 years.

    I thought did my due diligence, researched successful investors, the famous market icons, stayed up on market news, follow my holdings daily, and so far all I have to show for it is alot of losses from a lot of “blue chips”.

    You make a great point.

    Comment by Shawn -

  56. I think i’m missing the point of this entry… yes, if you buy in on the market when it’s at it’s highest (99) and sell off at its lowest (2009) you will not have done well. However if you invested in any time before 99 you’d be much better off or just about as well off as you were before.

    From MC> 2 points. First, the market in 1999 was no where near its highest, it hit 14000 last year. The nasdaq has it 5000. i could have easily made the point that someone who bought then got pretty much wiped out with no chance of getting their money back, while SIPC elgible Madoff victims have a shot. 2nd, There is no investment adviser anywhere that would have told you that 10 years is not a long enough time horizon to not only protect your money, but also make money. Its a lie. The point is that when a ponzi scheme leaves investors in better shape than the market, something is very wrong with the market. Something I have blogged about many times.

    Comment by isaacbearg -

  57. Most Madoff investors were in for far more than 500k, right? Madoff picked and chose his clients — and I doubt 500k would have been enough to grab his attention. He wanted to keep the allure of exclusivity.

    Comment by Rohit -

  58. oops…typo…”more than” a fine distinction.

    Comment by Prof. Christopher Chambers -

  59. OK…but the latter’s still a crime, and a lot of jerk regulators/”free market” disciples were asleep at the wheel. Perhaps the key is choice? The informed choice to take your chances with your mutual fund under clean circumstances vs. not knowing the dude to whom you’re turning over your cash is a crook. I get your point, but this difference–crime, information and choice–makes it than a fine distiction.

    best to my Princeton brother TUssery


    From MC> Actually there isnt that much difference. Both people were promised inflation beating, minimal risk returns over the long haul. Both returns were dependent on new money coming in to push up prices in the case of the markets, or to feed returns in case of the Ponzi. Then the money stopped coming in. Both were deleveraged. Both investors took a hit. The illegal side had some protections for loss, the traditional investors did not.

    The Madoff Conundrum: Run a ponzi schemes that lets my family live an unbelievable lifestyle with the risk of embarassment and jailtime as a senior citizen.

    The Wall Street Conundrum: Use other people’s money, leveraged up to take as much risk as I possibly can. The upside is that I become insanely wealthy and live the life of Sir Allen Stanford, the downside is that I lose everyone else’s money and I have to get another job.

    Comment by Prof. Christopher Chambers -

  60. holy moly! and those of us who just put our money in a coffee can and bury it in the back yard are wondering if madoff and stanford (and market) investors should have followed the same “strategy”. but, as they say in the lottery, you can’t win, if you don’t play.

    Comment by John Earnhardt -

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