A Manager of Managers

This morning on Squawk Box was a guest named John Mauldin who it president of a firm called Millennium Wave Investments. Mr. Mauldin came on to give some opinions about what he thinks will work (by the way Mark Haines and Brian Westbury took Mr. Mauldin to the hole aggressively on what he was saying) and to give a pick or two.

He said he favors commodities and regional banks. His two picks were open end funds, one from John Hussman and one from CGM. This is no dig on either fund, I did some trading for Mr. Hussman when he was back in Michigan (unless there is another John Hussman who uses options) about ten years ago but I can't imagine he would remember me. I was struck back then by how smart he is.

I may be wrong but I think Mark and Brian were surprised when Mr. Mauldin came out with his two picks to which Mr. Mauldin replied that he is a "manager of managers." I have no doubt that Mr. Mauldin knows what he is doing, knows more than me, and does well by his clients but I do have trouble buying into the idea of hiring someone to pick investment managers. I am not talking about consultants hired by large pension funds or endowments which is a whole different ball game. What I glean from Mr. Mauldin's interview and his web site is that he picks hedge fund managers (I'm on board with that part of it) and mutual fund managers (losing me with that one).

I could not find his fee structure but I do know that there a lot of investment advisors that charge 1% or 1.5% to put clients into a portfolio of all open end funds. If you figure the typical mutual fund has an expense ratio of 0.75% to 1.25% (I think I'm being kind with those numbers) clients are paying about 2.5% in management fees, more if they do something like this through a brokerage house.

With all the magazines, newsletters and web sites out there I'm not sure why anyone needs to pay 1% of their assets to an advisor for a collection of funds. A fund here or there as a tool is one thing, but nothing but funds?

I do have a different take on consulting. I do some consulting for people on portfolio construction ( this is a growing more than I would have thought). I give input and then it is up to the person to do what I suggest or not. I believe this will become a popular way for individuals to get professional help for a fraction of the cost without giving their money to a stranger. Consulting could even apply to open end funds (but not for me;-). The point is taking some coaching but making the decisions yourself is appealing to a lot of people and ties in to my view that blogs, among other things, will let people empower themselves to become better investors.