Sunday Funnies: Barron's forgets fees and taxes

Posted Jun 22nd 2008 4:10PM by Sheldon Liber
Filed under: Other Issues, Consumer Experience, Rants and Raves, Getting Started, Sunday Funnies, S and P 500

Regular readers know that I enjoy Barron's Weekly (subscription required) one of the best business journals around and that it has provoked some of my better investment ideas. However, even Barron's can fall prey to bad or incomplete reporting, (as if there were a difference), as they benefit from market activity and can stretch an idea too far, becoming all too common.

Barron's incomplete and common story was in the June 9, 2008 issue titled "Timing is Everything". What I find common, and thus objectionable, is the fact that they choose to tout Appel Asset Management's like so many brokerage houses do numerous funds (for the fees), ignoring basic tidbits like said fees, and taxes. The Appels seem to do an admirable job for their investors but they do not beat the indices, so who cares?

Their simple strategy is to invest in the two broadly based hot ETF's, counting on momentum lasting more than one quarter, and switch them out each quarter. This they claim takes only an hour of work every three months, how lovely. In the story they state "From 1979 through 2007, Marvin Appel would have (emphasis mine) returned 16% a year, before fees, better than the 15% a year performance of the Russell 2000 Value Index". They also leave out how long the approach has actually been in place.

Well they do not state what the fees for having your assets managed are, and I could not find them on the companies web site, but my experience cautions me that they would be far in excess of the 1% difference and the taxes are short term gains -- so what bracket are you in? This means that in fact they do not beat the index, it is not necessarily a good investment and is not worthy of note. The Appels have produced a book touting their strategy in glib fashion and I will not promote it here.

During the many years that investors like Warren Buffett or Bill Miller have beaten the S&P 500 average there was a story. This is a non story, the Appels should have been charged for advertising and the editor should be demoted for letting this one pass.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.

Tags: Appel Asset Management, AppelAssetManagement, Barrons, Fees and Taxes, FeesAndTaxes, index investing, IndexInvesting, Marvin Appel, MarvinAppel, Sheldon Liber, SheldonLiber, Sunday Funnies, SundayFunnies