Wall Street for Dummies Jan 10, 2025

Charles Dicken’s, A Tale of Two Cities, begins with the iconic line, “It was the best of times, it was the worst of times.” If Dickens were alive today, he might opine the same sentiment about the 2024 performance of the financial services industry.

During one of his recent mind-numbing rants, Jim Cramer pontificated that now more than ever, investors need the help of financial professionals to navigate the markets soaring hissy fit. And I quote, “The professionals have the experience, the high-speed computers, and algorithms necessary to survive in this overpriced market.”

Cramer doesn’t get out much. His reference to algorithms applies to the hedge fund gurus that are supposedly the crem de la crem of money managers. Their staffs include dozens of math PhD's minted at the elite ivy league schools. Because hedge funds are only open to those with million-dollar incomes and multi-million-dollar portfolios, they operate with less supervision than the funds available to the hoy paly. The algorithms Cramer referenced are computer programs design to respond instantaneously to breaking news and grab the brass ring nano seconds before it becomes available to the investing public.

In spite of their massive resources and glowing reputations, hedge funds have track records that fall under Dickens, worst of times category. In 2024, 21.3% of all hedge funds went out of business. I don’t mean poor returns. Their performance was so bad that their creditors came a knockin, and then they had to liquidate and close the doors. ?

Also in 2024, another gilt-edged financial group got their mug shots added to Dickens wall of shame were the endowment funds of the big Ivy League schools. All have $50 plus billion endowments and can afford to hire the best money can buy, or so they thought. Starting in 2022, they got too big of their britches and loaded up on high risk, low liquidity assets such as private equity, commodities, and real estate. At the end of 2024 only 14.7% of their combined assets were in stocks. And as we closeout 2024, as a group they have underperformed the market by a stunning 14.7%. So much for crem de la crème.

Drum roll, please introduce. May I introduce to you the 2024 winners of Dicken’s best of times award. The lowly, inexperienced, 70 million individual investors who bought and held an S&P 500 index fund with zero commissions and an infinitesimal 0.1% management fee. Their totally return for 2024 was 24.7%. Eat that crow, Jim Cramer!!

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