Manuel Moreno Capa | Making an attributable net profit of 3.542 billion euros is having a bad year? The answer is yes, although only of you are called Warren Buffet and these 3.542 billion euros earnt on 2018 represent a collapse of 91% over what you made in the previous year. Buffet cannot be very satisfied with these mediocre results of his investment flagship, Berkshire Hathaway.
There’s nothing to do about it. The last year was like that: Even the so-called Oracle of Omaha had a bad year or, at least, a weak one. But even the Oracle of Delphi itself would have found it difficult, despite counting on all the Olympian gods of investment. It is another thing to perform much worse than the market, with or without oracle.
What to say to the ordinary investor, the same who has seen practically all the funds in his portfolio close the year in negative or, in the best of cases, with mediocre results, unable to beat the indices of reference, or even inflation? Many will cry out “at least don’t let them charge me management commission, especially if I am paying for them to manage professionally a portfolio!” And they are right.
Among my life ambitions there is one I will certainly never achieve: to pay one or two billion euros a year in taxes (and to do so, of course, from the heavenly beaches of the Cies Isles and undaunted). But I also aspire to pay well earnt commissions, or 10% or more, on the results from my collective investment products, only when these results justify it: if the manager makes 1% in the markets, how does he have the nerve to afterwards charge me 10% on this 1%? Even then it would be acceptable if, in additions, the management fees were very low and if the product’s historical results were consistent and will more than compensate a mediocre or bad year like 2018.
The ideal would be, of course, to count with what some fund manager call the water mark: the manager would charge this well earnt success commission only of the profitability of the fund excess this water mark, normally set at the annual average. But if the result does not exceed the water mark, or is directly negative, the manager must make do with the minimum commission, which is already considerable given the flood of losses which have washed over the investor … or even splashed the Oracle of Omaha himself.