Fees

In coming to terms with some of the practical aspects of portfolio management, it is important to be prepared to consider some of the important realities of the investment business and ask some of the tough questions related to investing.

Many investors expect that an active manager should aim to deliver returns that justify their fees, ideally exceeding what could be achieved through a low‑cost passive index. If as a client you can buy a low fee passive index fund and perform better than 80% or more of the investment managers out there. It would indeed not make much sense to seek investment management services in the first place; since you have the option to do better than most professionals out-there over the long-term by yourself through an index. Therefore, the presence of evidence and a clearly defined strategy of how an investment manager seeks to add value beyond a passive index is important. Unfortunately, the money management industry has long faced the challenge that many portfolio managers have historically struggled to keep pace with broad market indexes, particularly after accounting for fees and costs. 

Many investment managers charge quarterly or annual fees based on a percentage of your total assets under management (AUM), which typically includes both your initial investment and any gains. While this fee structure is common and straightforward, it can add up over time and may impact your net returns. Historically, consistent outperformance of passive index funds has proven challenging for many managers, especially after fees are accounted for. 

Koko generally does not invest in ETFs, or a diversified portfolio of numerous stocks, or options. Instead, the focus is placed on selecting and analyzing a concentrated group of equities that, in the manager’s view, offer the potential for meaningful returns—based on characteristics not commonly found in broader or more conventional investment approaches. In this field, such opportunities are relatively uncommon. 

Relying on a portfolio of dozens or even hundreds of stocks may not always reflect the practical considerations involved in pursuing long‑term investment outcomes. The fact is, to an investment manager the number of stocks that may align with long‑term financial goals is relatively limited. Simply put, relatively few businesses may present the characteristics that may represent promising long‑term opportunities.

There are also certain realities of the stock market, that must be considered; and these patterns that have been observed repeatedly over the past century. Accordingly, there are certain patterns of behavior presented by “Mr. Market” that have repeated themselves almost cyclically in the markets. Knowing what such facts are and have them be communicated in a clear and common-sense way; is what may be expected of a thoughtful money manager. Such knowledge will be important for informed stock selection and may influence the long‑term investment experience with your money manager.