Sunday, March 04, 2007
Mario Gabelli
Someone asked in a comment last week what I thought of investing with Mario Gabelli in a fund that pays a cash dividend of 10% per year in cash dividends, regardless of the performance of the underlying investment.
I don't like it. Let me count the ways.
1.) It's gimmicky. I don't like that right off the bat.
2.) If asset prices fall, but Gabelli hasn't sold them off, then they'd better be buying opportunities. If Gabelli still believes in his assets, then why would he promise a cash dividend of 10%? Wouldn't investors be better off taking that dividend and buying more? Of course, investors can do that themselves in this fund. But not before getting bitch-slapped with capital gains taxes on that portion of the check that represents return of capital. It's a tax efficiency nightmare. If you're gonna do it, you'd better do it in an IRA.
3.) Gabelli's expense ratios are too high.
4.) As a fund manager, Gabelli has a ton of conflicts. Mutual fund managers should not be allowed to run hedge funds. What will happen is that the more lucrative hedge fund accounts will front-run the mutual fund transactions, harming mutual fund investors while the hedge fund investors get a free ride -- and Mario gets 20% of that gain.
5.) Gabelli, last I checked, runs a public company, Lynch Interactive, for which he takes a salary of over a million bucks a year. I assume if he's taking in that kind of cash, he's got to show up for work once in a while. That's time NOT spent looking after his mutual funds. I don't care how good a stock picker he is - he's not so good he can compensate for moonlighting AND Mario-type expense ratios.
6.) He's been involved in some ethics flaps lately. I don't send money to people I don't trust. I trust Buffett. I trust Bogle and the firm he created, Vanguard. I trust TIAA-CREF. I trust American Funds (mostly) and Longleaf Partners. I trust DFA and Bob Rodriguez at First Pacific Advisors. I trust Peter Lynch, but he doesn't run money anymore, to my knowledge. I trust Bill Gross at PIMCO but not PIMCO. I trust Harbor Bond, though. For expensive active managers I trust Bill Miller at Legg Mason. I trust the gang at T. Rowe Price.
There are lots of good companies out there. There are too many other good options for me to look too closely at Gabelli.
7.) The only way to reliably ensure that this fund can continue to generate a 10% per annum div is to grow the fund. I don't expect 10% out of any asset classes out there today. Too pyramid-like.
That's my take.
If income is important, how about a nice bond ladder, juiced with a couple of income properties - starter homes in decent neighborhoods in low-priced areas (away from the coasts!) I'm not a big fan of preferred stocks, generally, but if you believe the Fed will ease interest rates later this year, they might make some sense.
Splash, out
Jason
I don't like it. Let me count the ways.
1.) It's gimmicky. I don't like that right off the bat.
2.) If asset prices fall, but Gabelli hasn't sold them off, then they'd better be buying opportunities. If Gabelli still believes in his assets, then why would he promise a cash dividend of 10%? Wouldn't investors be better off taking that dividend and buying more? Of course, investors can do that themselves in this fund. But not before getting bitch-slapped with capital gains taxes on that portion of the check that represents return of capital. It's a tax efficiency nightmare. If you're gonna do it, you'd better do it in an IRA.
3.) Gabelli's expense ratios are too high.
4.) As a fund manager, Gabelli has a ton of conflicts. Mutual fund managers should not be allowed to run hedge funds. What will happen is that the more lucrative hedge fund accounts will front-run the mutual fund transactions, harming mutual fund investors while the hedge fund investors get a free ride -- and Mario gets 20% of that gain.
5.) Gabelli, last I checked, runs a public company, Lynch Interactive, for which he takes a salary of over a million bucks a year. I assume if he's taking in that kind of cash, he's got to show up for work once in a while. That's time NOT spent looking after his mutual funds. I don't care how good a stock picker he is - he's not so good he can compensate for moonlighting AND Mario-type expense ratios.
6.) He's been involved in some ethics flaps lately. I don't send money to people I don't trust. I trust Buffett. I trust Bogle and the firm he created, Vanguard. I trust TIAA-CREF. I trust American Funds (mostly) and Longleaf Partners. I trust DFA and Bob Rodriguez at First Pacific Advisors. I trust Peter Lynch, but he doesn't run money anymore, to my knowledge. I trust Bill Gross at PIMCO but not PIMCO. I trust Harbor Bond, though. For expensive active managers I trust Bill Miller at Legg Mason. I trust the gang at T. Rowe Price.
There are lots of good companies out there. There are too many other good options for me to look too closely at Gabelli.
7.) The only way to reliably ensure that this fund can continue to generate a 10% per annum div is to grow the fund. I don't expect 10% out of any asset classes out there today. Too pyramid-like.
That's my take.
If income is important, how about a nice bond ladder, juiced with a couple of income properties - starter homes in decent neighborhoods in low-priced areas (away from the coasts!) I'm not a big fan of preferred stocks, generally, but if you believe the Fed will ease interest rates later this year, they might make some sense.
Splash, out
Jason
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