1. Investing The Anti Free Lunch Bob Black Life401.com Three parts
Bad and Ugly
Tools
Portfolio

2. Sad but true

3. The Bad and The Ugly Broker Conflict Inflation Free lunch Manipulation
Annuities
Churning
Pushing under writings
Pump and dump
Not fiduciaries
Inflation
Free lunch
Manipulation
Black Pools
Ponzi

4. Mutual fund Analysis by Forbes
This is one of the reasons Mutual funds do less well than the overall stock market
Non-Taxable Account Taxable Account
Expense Ratio % Expense Ratio %
Transaction Costs 1.44% Transaction Costs 1.44%
Cash Drag % Cash Drag %
Tax Cost %
Total Costs % Total Costs %

5. Sample tax effect on ETF vs Mutual Fund
Both of these funds are run by the same organization.
Both have nearly identical objectives
and have very similar holdings.
The mutual fSample tax effect on ETF vs Mutual Fund
The mutual fund was hit by their buy high sell low clientele
and by higher transactions and higher fees.
Davis select U.S. ETF symbol DUSA
Declined 11.6% in 2018
Distribution of Capital Gains 2% of fund value
Davis New York Venture fund Mutual Fund symbol NYVTX
Declined 13.0% in 2018
Capital Gains distribution 10.1% of fund value
und was hit by their buy high sell low clientele

6. The Bad and the Ugly 2 Mutual fund success 30%
How clients drive bad outcomes
How funds come and go
Mutual fund survivorship ( Review of Finance )
20% Lower when dropped funds are included
Mutual fund broker commission
As bad as 2.3 % – 5.75%
Style (The herd)
Stock picking letters ( Like a tout at the track )

7. This is an article in Barron’s magazine that describes how the analysis's get it wrong. The stocks they recommend do less well than the average.

9. Reversion to the mean
Horace Secrist 1933
Harold Hotelling

11. Interest and inflation (1970 to 1980 105.8%)

12. Inflation in Weimar Republic

13. Fixed Income Securities
Banks - Checking, CDs, Safety Box
TIPS – Insurance not a good investment
Everbank Foreign Currency CD everbank.com
Foreign Bonds
Bond Funds
Tax Free Municipal Bonds or Funds
Closed End Funds

14. Bond Fundamentals Maturity date Yield to maturity Discount / Premium
Callable
Taxable
Revenue source

15. Treasury Bonds Treasury prints money but it is not a source of funds.
When the Treasury is in a deficit position it uses bonds or Treasury Bills to obtain funds.
Sold auction rate
The Federal Reserve buys bonds and bills thus adding liquidity to the system.
The Federal Reserve can also buy industrial bonds.
Bond buying keeps interest rates low.

16. Discount rate Set by Federal reserve
Interest paid to the Federal Reserve by banks
Linked to loan agreements banks have with companies.
An alternate for contract basis is LIBOR London Inter-bank Offered Rate

19. GDP and Jobs
2,600,000 new jobs in 2018
• 2,600,000 X $54,110 X 15.3% = $21,524,958,000 in new payroll taxes
• 2,600,000 X $54,110 X 10.0% = $14,068,600,000 in new income taxes
• $140,686,000,000 in new wages
• Which industries are hiring these employees?
• 346,000 Education and Healthcare
• 235,000 Hospitality
• 280,000 Construction
• 284,000 Manufacturing
• 92,000 Retail
• Layoffs are the lowest level in 50 years
• Initial Jobless claims are the lowest in the 21st Century

20. REITs It represents ownership of property Depreciation Tax advantage
Use all of the stock tools to pick
Look at their properties

21. Royalty Trusts 99% Oil and Gas CRT,SBR,SJT,BPT,CHKR,PER,ROYT
Not actively managed
Earnings distributed
Depletion tax advantage
Will run out
Think of it as an energy cost insurance policy

22. LPs Nearly all oil related Use deprecation to show little income
Pay a good dividend
Basis is reduced by: dividend-income
Usually mid stream pipeline
Tax deferred
Must be inherited to avoid big tax hit

23. Gold Does not keep up with inflation Costs to own Not productive
Is insurance against rapid inflation

24. Why buy stocks?

25. 46 year S&P 500 return 10.3%

26. Indirect ways to own stocks
Mutual funds
Good Managed
Bad Lower outcomes, tax
Closed end funds (Also works for bonds)
Buy at a discount
Not driven by their owners
Tax Efficient
Bad Sell at a discount

27. Closed end funds Find them in cefa.com Most continue indefinitely
Purchased by the wealthiest millions at a time
Later sold on the market in with no minimum
Sample of end date as of February 2019:
Current Payout Price Discount Termination date
EGIF 6.29% $ % /14/2027
HYI 7.70% $ % /30/2025
BGB 11.18% $ % /15/2027

28. Indirect ways to own stocks 2
ETFs Good Tax Efficient
Low cost
Do as well as the market
Bad Not managed
Smart Beta ETFs
Good Tax Efficient
May do better than the market
Bad Added risk of the model

29. Diverse portfolio 53% Broad US stock market: 8 REITs 3% Royalty Trusts
20% International
12% Fixed income 
3% limited Partnerships
1% Gold and Silver

30. Retirement Assent Allocation
No debt: House, car etc.
Emergency Fund – Three months
20-40% Fixed when rates are market rates
50-70% Equities
5-15% Specialties
REITs, Closed end Funds, Royalty Trusts
0-2% Gambles
Do not have blinders

33. Risk Civilization Collapses -Guns, ammunition and food
Inflation – Commodities, foreign stocks and bonds, manufacture of things that will appreciate and short term securities
Deflation - Longer term bonds, money and not Commodities
Expropriation – Investments outside of the US Formerly only a risk in third world countries

34. Rules Understand it or don’t do it Know the source of the money
Be bold when others are fearful and be fearful when others are bold
Never give a Broker control
Use only FINRA Brokers and SEC Advisors
Do not buy Annuities