Disruptive Investing

We're going to build upon our ideas that the financial industry is a supply chain and information and value flow in both directions, inbound and outbound. See our Mutual Fund Industry Supply Chain Model post. The greatest point of value creation is at the portfolio construction stage (creating and maintaining that list). Preservation of that value (capital) must be supported across the supply chain. Propagation of that value can be diluted when repackaging occurs, that is, when mutual fund wholesalers and distributors (middle men) and financial advisors create bundles of mutual funds with other assets that change the expected returns, diversification, volatility and relative performance, while also adding on expenses and fees, directly charged against the capital. Pervasive technology, proven processes, and experienced people, at all stages assures value, preservation and risk control, or at least, it should. Because of time periods and variability, regeneration (maintenance) must...

• Mutual Fund (List of Assets) – Does not have physical size, weight, color – Does have a ‘particular collection’ of virtual assets – The construct of the collection defines the potential for value – It can be sold as-is, repackaged with other funds, grouped with dissimilar asset classes for added diversification and preservation of capital – Hence, the concept of a supply chain can be applied to the distribution of funds (via wholesalers and distributors) and in the reverse to the collection of capital (AUM) and management and distribution fees (loads, premiums, expenses, …) •Fund of Funds (List of Lists) – This is layering cost upon cost, idea upon idea – Value created, perhaps also undermined?

No one wants a transparent money manager, in the sense of not adding value. ETFs and Indexes are available to match performance with market averages. No, we want returns above and beyond those. Funds should have incremental (relative) returns that exceed fund incremental costs, significantly. Otherwise, why would we pay so much for funds? We could compile a list of all funds and their true diversification scores. We could also measure the true Return on Investment (ROI) of each fund's incremental returns. This is not unlike calculating the ratios for publicly traded companies, to assess the performance of one versus another, in making investment decisions. One might say "my fund's ROI was 20%, because I put in $10K and it grew to $12K". Let's assume the market returned 10%. Your $12K is in comparison to $11K, so your relative return is $1K or 10%. If you cash out you'll be paying a redemption fee. You probably paid a sales commission up front and there were pr...