A caustic dismantling of mutual funds
Wall Street Versus America: The Rampant Greed and Dishonesty That Imperil Your Portfolio
by Gary Weiss, Portfolio, 320 pages, $24.95
Former Business Week writer Gary Weiss has nothing good to say about mutual funds in ''Wall Street Versus America," his latest scathing examination of the way the world of high finance works. And much of what Weiss has to say about hedge funds is unprintable in a family newspaper.
Indeed, a high percentage of Weiss's assessment of the many ways Wall Street takes advantage of gullible investors merits an R-rating for language. Here's one of the kinder, gentler things Weiss has to say about managed funds:
''Mutual funds dare to be average. In fact, they dare to be lousy. They have long since ceased striving for anything resembling perfection when it comes to managing your money. They must be happy about it, because they have been bastions of mediocrity since the backward-pricing, embezzlement, and customer-screwing days of the Roaring Twenties," Weiss writes.
The author doesn't just hurl caustic observations. He grounds them in data demonstrating, for example, how mutual funds have regularly underperformed the market since 1970 and have been consistently outperformed by dozens of indexed funds modeled on the S&P 500 and the Dow Jones industrial average.
Weiss disagrees vehemently with those who consider mutual funds to be prudent ways of diversifying a portfolio. He considers that to be a dumb exercise in paying people to ''do a lousy job" of managing your money. He suggests, instead, embracing the efficient market hypothesis and putting your money in indexed funds or ETFs. But he concedes:
''Hey, it's your money. There are a lot worse things you can do with all your bucks than giving them to even a mediocre mutual fund -- such as, for example, giving them to a mediocre hedge fund. If supporting the lifestyle of a mediocre fund manager is your favorite charity, who am I to stop you?"
What both mutual funds and hedge funds are real perfectionists at, maintains Weiss, is extracting fees.
The hedge funds, of course, demand bigger fees in accordance with the larger investments that must made to participate in them. Entry starts at $1 million. At the same time the investors' money more often than not is locked in for a long term and the fund managers have almost unlimited discretion in how they invest the funds in those so-called ''funds of funds."
Several examples of mutual fund and hedge fund scandals are exhumed by Weiss to illustrate how investors can get fleeced by unscrupulous fund managers, lose their investments when the funds go belly-up or simply realize far less in the long term than they would by putting their money in an unmanaged fund or even a money-market account.
Weiss, however, does not call for more regulation. His prescription is for investors to better inform themselves and find ways to use the Internet and other avenues of communication to share their grievances and to pressure legislators to enact policies to make Wall Street clean up its act.
This book is essential reading for anyone who has money to invest but doesn't have any to throw around foolishly. It could make you angry while you're reading it, if it were not spiced with acerbic wit and skillfully applied satirical understatement.
