Here's part 3 of my interview with Stuart Lucas, author of Wealth. I liked the book -- giving it 6 stars -- and I think you'll like this interview. Here goes:
Free Money Finance (FMF): Where are most people missing it in managing their money? What are the problems you see the most?
Stuart Lucas (SL): Most individual investors think that the money managers they have access to will generate above average returns – whether long only funds, hedge funds or private equity. Achieving this goal is extremely difficult in what has got to be the most competitive business in the world.
So what happens? Money managers who try to outperform are much better paid than those that run index funds, regardless of their performance, and that compensation comes straight out of the investor’s pocket. Managers that try to outperform almost always create more taxable transactions, which benefits our nation’s tax rolls. Again, the money comes straight out of the investor’s pocket. All the smart, well educated managers who underperform create the opportunity for a few exceptional people to generate impressive results. These proven managers can attract anyone’s money in vastly greater quantities today than they can prudently invest. What makes you think they want yours?
FMF: This isn't covered in the book, but I'm interested to know -- why do you work? It appears from the book that you're independently wealthy yet you have a distinguished educational and employment background. Why do you choose to work?
SL: Some of the people I admire most are those that work the hardest, but don’t have to. We live in a society that spends billions each year trying to convince us to consume – and to do it now rather than when we can afford it. This kind of consumption provides immediate gratification for the buyer and profits for the seller, but the behavior adds little to long term satisfaction and feelings of self esteem. I see lots of people that get caught up in this merry-go-round and it isn’t pretty.
It is my belief that true satisfaction comes from being useful to others in an honest and ethical way. Doing so requires hard work. I also want to be a role model for my children. They are way too smart to fall for “Do as I say, not as I do.”
FMF: Can you share your thoughts on giving and, in particular, how the average person should look at giving as part of his overall financial planning?
SL: I prefer to think of it as community service – giving of our money and/or our skills. Both are in short supply; either can contribute powerfully. Of course, the effects of your community service can be even more powerful if you give both at the same time. Over the years I have found that community service has also been richly rewarding for me. I have learned a great deal, made wonderful friends and service to others gives my life additional meaning. This is true regardless of one’s means.
FMF: Is there anything else you’d like to tell readers of Free Money Finance about managing their money?
SL: Take charge of your wealth. You will benefit enormously by doing so. Thank you.
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My thoughts on this:
1. "Money managers who try to outperform are much better paid than those that run index funds, regardless of their performance, and that compensation comes straight out of the investor’s pocket. Managers that try to outperform almost always create more taxable transactions, which benefits our nation’s tax rolls. Again, the money comes straight out of the investor’s pocket."
Sounds like a good argument for index funds to me.
2. I admire Stuart for both his work ethic and commitment to community service.
3. "Take charge of your wealth." There's not much more to say. This is what I encourage and it's one of the guiding principles at Free Money Finance -- you need to know and apply good, solid financial principles and not count on others to manage your money for you.
4. Thank you, Stuart, for sharing your wisdom and knowledge with us.
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