The Dark Secret Of the Financial Services Industry

Phoenix Capital Research's picture

It’s almost never openly admitted in public, but the reality is that few if any investors actually beat the market in the long-term.


The reason for this is that most of the investment strategies employed by investors (professional or amateur) simply do not make money.


I know this runs counter to the claims of the entire financial services industry. But it is factually correct.


 In 2012, the S&P 500 roared up 16% including dividends. During that period, less than 40% of fund managers beat the market. Most investors could have simply invested in an index fund, paid less in fees, and done better.


If you spread out performance over the last two years (2011 and 2012) the results are even worsen with only 10% of funds beating the market.


If we stretch back even further, the results are even more dismal. For the ten years ended 1Q 2013, a mere 0.4% of mutual funds have beaten the market.


0.4%, as in less than half of one percent of funds.


These are investment “professionals,” folks whose jobs depend on producing gains, who cannot beat the market for any significant period.


The reason this fact is not better known is because the mutual fund industry usually closes its losing funds or merges them with other, better performing funds.


As a result, the mutual fund industry in general experiences a tremendous survivor bias. But the cold hard fact what I told you earlier: less than half of one percent of fund managers outperform the market over a ten-year period.


So how does one beat the market?


Cigar Butts and Moats.


“Cigar butts” was a term used by the father of value investing, Benjamin Graham, to describe investing in companies that trade at significant discounts to their underlying values. Graham likened these companies to old, used cigar butts that had been discarded, but which had just one more puff left in them.


Like discarded cigar butts, these investments were essentially “free”: investors had discarded them based on the perception that they had no value. 


However, many of these cigar butts do in fact have on last puff in them. And for a shrewd investor like Benjamin Graham, that last puff was the profit potential obtained by acquiring these companies at prices below their intrinsic value (below the value of the companies assets plus cash, minus its liabilities).


Graham used a lot of diversification, investing in hundreds of “cigar butts” to produce average annual gains of 20%, far outpacing the S&P 500’s 12.2% per year over the same time period.


So when I say that you can amass a fortune by investing in Cigar Butts, I’m not being facetious. For this reason, cigar butts, or deeply undervalued companies, will be a focus of this newsletter. And like Benjamin Graham, we’ll only be holding these companies in the short-term: until they reach their intrinsic value.


The other term, “moats” is in reference to the investments Warren Buffett, a student of Ben Graham and arguably the greatest living investor, seeks out…


Buffett amassed his enormous fortune through a systematic investment philosophy consisting of a few key ideas. However, the single most important one was buying companies with “moats” around them meaning that they have a competitive advantage that stops competitors from breaking into their market share.


Focus on these two approaches and you will fare well.


For a FREE Special Report on how to beat the market both during bull market and bear market runs, visit us at:


Best Regards


Phoenix Capital Research

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MeelionDollerBogus's picture

"The reason for this is that most of the investment strategies employed by investors (professional or amateur) simply do not make money."

the #1 way to make money is to NOT lose money.
This means risk identification & mitigation.
People flat out don't do this. They get greedy & put too much cash into a position, hold too little for needed emergencies.
People do not comprehend risk or measure it. They look at nonsense scribbles on charts, call it "technical" analysis though it isn't technical & either uses no math or uses DEFAULTS from free software for things like macd's, rsi, ma's, bollinger bands. If you can't comprehend the MATH of the tool or WHY you should change the parameters to match needs of a situation you have NO IDEA what it is or how it works so you are ONLY ever able to MIS-use it, not use it.

jonjon831983's picture

Just had to say this article was a disappointment... the title made it sound more juicy than it was.


Just watch this: "Passive Investing: The Evidence the Fund Management Industry Would Prefer You Not to See"

Jack Bogle talking about passive investment.


Though if you do index investment - basically you are pumping funds to allow a fund manager to... pump the entire index.

theprofromdover's picture

Why would they want to make more, they would have to share it with their clients.

They are perfectly happy making their fat fees, and then stealing off their clients in other ways.

They are too lazy and stupid to make an honest buck.

old naughty's picture

Boomer retirement ? Not a chance. 

War. Moar. Work till you drop. 

Failure of the welfare non-state.


kurt's picture

Aqua Velva bullshit artists: they'll flash their teeth and shake your hand after scratching their spunky balls stealing you blind, real slow-like.

Truthseeker2's picture

"Wall Street, alone, can be tagged with enormous criminal activity that touches on every aspect of the banking, investment and financial industries.  The degree of market manipulation (stock, bond, commodity, currency, derivative, etc.), insider trading, price fixing, price gouging, executive stock option abuse, securitization of bad debt, setting up rogue investment managers, publishing false prospectus claims, insufficient liquidity to meet investor cash-outs, robbing Peter to pay Paul (illegally mixing funds), etc. is so great as to be inconceivable. 

Calculated and premeditated naked short selling has also played its part in bringing down some of the biggest titans of the global financial sector.  And then there is the Street’s never-ending penchant for exaggerating (and illegally hyping) profits; revenue streams; income projections; dividend payouts; capital gains & appreciation estimates; business outlooks; product expectations, etc. which has become so commonplace that the most serious felonies associated with this behavior have to exceed grand larcenies in excess of a hundred million $$$’s in order to be prosecuted with the same vigor as jaywalking."


alphamentalist's picture

Mutual-masturbator-manufactured beta is worth more than ETF beta. It has been blessed by people who are sooooo smart.