How the Stock Market, Wall Street and Institutional Investors work (CALSTRS example) - Chapter 3

Are you aware of the downsides when investing with institutional investors? This should be the subtitle of Chapter 3 in Seth Klarman's book, Margin of Safety. There are many limitations to being an institutional investor, let's talk about CalSTRS. What are the investing beliefs of the 2nd largest pension fund with $219 billion of assets? Their core belief is diversification. They're diversified over the whole market. (They even own $522k of Accuray Inc., a cancer treatment business that is not doing good.) And here comes the management fee... Considering the fund is very diversified, the management fee of 0.8% is huge. I'll go as far as saying that it'd be better to invest in a Vanguard fund for a much lower fee... The question here is, why all the diversification? Not to mitigate risk, but to mitigate relative performance risk. Remember... As long as the manager doesn't under perform the crowd, all will be fine. But will it be? Should you focus on beating the market or on the business? Let's compare two funds... Would you have invested in a fund that lost 20% between 1998 and 2000, while the S&P 500 increased by 20%? That's a 40% difference, I'm sure we all know which one we'd pick. In fact one would go as far as calling the fund manager of the fund in red, a loser. The name of the fund in red is Warren Buffett. Here is the performance of the two funds compared today. S&P 500, up 115%, Berkshire Hathaway, up 331%. With that in mind the answer is clear. Always focus on the business. The key takeaway of this post is... Before investing in a fund make sure you're 100% certain about this... Make sure that financial goals of you and ones of your fund's manager are well aligned. Want to know more about what I do? https://goo.gl/MQG2k5 Full-time independent stock market analyst and researcher! STOCK MARKET RESEARCH PLATFORM (analysis, stocks to buy, model portfolio) I am also a book author: Modern Value Investing book: https://amzn.to/2lvfH3t More at the Sven Carlin blog: https://svencarlin.com/ Check out Modern Value Investing YouTube: https://www.youtube.com/c/InvestwithSvenCarlinPhD Like Modern Value Investing Facebook page: https://www.facebook.com/CarlinSven Connect with me on LinkedIn: https://www.linkedin.com/in/svencarlin/