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The other day a friend of mine asked me to do a favour for her. She had just sold a house and had some money to put to work. She asked me to sit with her while the financial adviser at the bank gave her his suggestions.
I didn’t really want to do it. First off, I’m too busy writing important columns for the Financial Times. Second, I like to be liked and I knew the instant I walked in that office with her that the financial adviser would hate me. Not fun, but I did it anyway.
We got to the guy’s office and “Hank” (not his real name) suggested she put all her money in the AllianceBernstein Large Cap Growth Fund. He said that AllianceBernstein was the best, and that Large Cap Growth was where it was going to be at over the next year.
Here is my opinion of these things: you have to ask three questions:
●What is it going to cost me in fees, and do they have a similar option with lower fees?
●What is the overall concept on the market (in this case, “Large Cap Growth”) or on asset allocation and diversification?
●What is the best vehicle for getting me there (does anyone have “alpha” or can I just use a low-cost ETF?).
So I asked, “is there a load to this fund?” Meaning, do you have to give money out of your pocket for just walking in the door? The answer was: “Yes, 4.25 per cent.”
My question then was: “Is there a no-load version?” And he replied with lie number one: “No.” But then, a minute or so later, on further drilling, he said, “Yes, but there’s a lot of other fees.” So we looked at it and there were some fees but not so bad.
So I asked: “Can we get a no-fee version by doing a wrap account?” In other words, paying 1 per cent on assets and getting no loads or fees on any of the professional managers recommended by the bank. Then came lie number two: Again, it was at first a big “no” (you had to be “qualified”) but then it turned out my friend was qualified.
I have no opinions on large-cap growth. Whatever. But I wanted to see statistics on how AllianceBernstein did relative to a large cap growth benchmark. Such as an exchange-traded fund (DIA, for instance). That led to lie number three: “ETFs are a lot more volatile. You’re better off with professional managers such as AllianceBernstein.”
It turns out, on further research, that this particular fund had underperformed fairly consistently over the past eight years. My friend ended up doing a wrap account and being spread out in a diversified manner among various quality funds. I would have suggested one step further, and not waste time or money on the wrap account but, altogether, my friend saved a few percentage points on the load fees and got into a nice set of diversified funds at little or no fees.
Now let us move on to more important topics such as solving global warming, bringing clean water to cities and protecting the planet against pandemics. I can help with those things also. There are three problems: the world is getting warmer every day. Heck, I’m sweating as I write this. The supply of clean water on the planet is staying constant but the number of people who need it (by virtue of the increasing populations in the cities of emerging economies) is growing. And every day the risk of a global pandemic increases.
Global warming: the best thing we can do is buy the stocks of companies that make clean car technologies. Borg Warner, with technology straight out of Star Trek, makes more than 80 per cent of its revenues from technologies that increase the fuel efficiency and reduce emissions of cars. Magna International, uses its hydroforming technology to make lighter cars. We can also clean up some pollution by investing in Foster-Wheeler, which helps power plants cut sulphur dioxide and nitrogen oxide emissions.
Clean water: let’s start off with Calgon Carbon Corporation. Their products are used to get organic compounds (bacteria) from water and any other liquids. They are making the shift to profitability this year. Next, I like Jacobs Engineering and even General Electric – both companies have subsidiaries that help countries and cities with clean water treatment of polluted or potentially polluted areas. Tetra Tech also derives more than 80 per cent of its revenues from clean water treatment and environmental clean-ups.
Global pandemics: both Vical and Endo Pharma are developing vaccines for bird flu and other virulent strains of the flu. Let us also throw in Valeant Pharma for working on cures for Parkinson’s Disease (not strictly a pandemic but it affects more people as we all live longer), and also trading at a multiple to earnings of 16.
When my friend and I had worked out all the details with her adviser, he politely showed us to the door, shook our hands, and then turned to me and said: “Sir, exactly what is it that you do for a living?”
I save lives.