What would you do with $15M? - Page 7
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Thread: What would you do with $15M?

  1. #61
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    james, mordko, houska (and others) for the record I am still listening and I appreciate the ideas. However, since I kind of regret this thread and hope it will die, this will be my last response [BTW, I don't exist, and 9/11 was an INSIDE JOB.] Thx.

    [Edit: I'm going to stay as a CMF member though and hope to contribute and initiate new threads, I'm not gone for good, just gone from this thread]

    Last edited by StayThirstyMyFriends; 2016-08-08 at 12:49 AM. Reason: clarifying a point

  2. #62
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    Quote Originally Posted by StayThirstyMyFriends View Post
    james, mordko, houska (and others) for the record I am still listening and I appreciate the ideas. However, since I kind of regret this thread and hope it will die, this will be my last response [BTW, I don't exist, and 9/11 was an INSIDE JOB.] Thx.
    Ok, one more response. HP, didn't see your post - thanks for the summary, that is pretty much on the target of what I plan. I plan to take things very slow and build my plan and team over considerable time (1-2 yrs). I'm reading a lot (4 Pillars, Random Walk Down Wallstreet and more on the shelf), I need to have those conversations with advisors (which have not happened yet). So really, at this point I'm just making a plan to make a plan.

    I am sure I will have more topics to discuss with CMF-ers in different threads, but will avoid the details of my situation in those discussions so we can avoid the awkwardness of this one. I definitely have some theoretical questions about what I've read in 4 Pillars of Investment that I can start a new thread on...

  3. #63
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    Quote Originally Posted by mordko View Post
    ETF fees for XIC or VTI are not 1% or 0.5% but 0.05%. Indexing is definitely an option for someone with 15 mil.

    no, simple indexing would never be a startup option for a party with 15 million dollars.

    the reasons have nothing to do with low or high MERs. The reasons have to do with complex needs - US estate taxation, foreign taxation, foreign real estate holdings, estate planning, income splitting, supporting offspring at foreign universities - such a party will benefit from specialized ultra-high-net-worth advisors.

    these advisors do exist. We don't hear about them in this forum because, as mukhang pera says, no one on here has 15M.

    .
    ''bonté gracieuse et toute cette sorte de chose" - Astérix chez les bretons]

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  5. #64
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    Quote Originally Posted by StayThirstyMyFriends View Post
    Ok, one more response. HP, didn't see your post - thanks for the summary, that is pretty much on the target of what I plan. I plan to take things very slow and build my plan and team over considerable time (1-2 yrs). I'm reading a lot (4 Pillars, Random Walk Down Wallstreet and more on the shelf), I need to have those conversations with advisors (which have not happened yet). So really, at this point I'm just making a plan to make a plan.

    great! the rhythmn of the plan to build the plan is perfect. It takes time but i had the feeling you will find it challenging & stimulating & fun.

    in the meantime you could stash the funds somewhere safe

    .
    ''bonté gracieuse et toute cette sorte de chose" - Astérix chez les bretons]

  6. #65
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    Quote Originally Posted by james4beach View Post
    But are the ETFs really such a bad idea as a first cut?

    ETFs are a terrible idea for the super-rich. Among the reasons is the heretical-but-correct fact that the funds do not hold the securities which - in canada - they are allowed to claim they are holding.

    james4, at one point in the past you were on board with haroldCrump & myself on this issue. That funds & ETFs are lending out their holdings - in some cases up to a third of their holdings - to brokers in return for fees reported to be in the neighbourhood of 2%, marked to market value. Which is how the ETFs are able to lower their MERs to such unrealistic levels.

    in other cases ETFs are holding proxies & derivatives in lieu of actual real stocks via representational sampling techniques. All this is spelled out in their prospectuses.

    in the US, the SEC requires minimal disclosure of loaned funds. However the required information is buried so deep & so obscurely, hundreds of pages back in footnotes to audited financial statements, that no investors can ever find it.

    in canada, there are not yet any regulations at all which require this information to be made available to the investing public.

    in canada, only advisors are told. As one Black Rock canadian manager explained to me a year ago, "Individual investors cannot be given this [securities lending] information because they won't be able to understand it."

    as i say, this is a story whose time has not yet come. You might remember haroldCrump's posts a year ago on this very issue. Harold posted that it will take the failure of a major global money center bank to expose the tiers of derivatives held by such bank's many divisions, including its wealth management fund product divisions & its wholly-owned brokers who are holding the funds' borrowed stocks.


    ... block your eyes & ears james4. You don't want to hear any of this.



    And the investor herself ... if she is the kind of person who can amass $15 million in wealth, surely their time is better spent on other pursuits.
    on the contrary, this is an investor who will likely be able to turn $15M into $50M & more ... donating to charities along the way ... what's not to like


    .
    ''bonté gracieuse et toute cette sorte de chose" - Astérix chez les bretons]

  7. #66
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    OK... I see what you're getting at. Just those US estate taxes are a menace (StayThirstyMyFriends may want to minimize or even entirely avoid US investment actually, and definitely avoid becoming a US person).

    StayThirstyMyFriends - you may want to read this guidance from Switzerland's Wegelin bank, some years ago. It rambles a bit, but has some very important messages.
    http://www.greatponzi.com/shared/Weg...and-Assets.pdf

    And yes I agree that securities lending is a huge problem. The ETF providers disclose it in their documents; you can see how much of the assets are out on loan. This has at least been telling me to what degree securities lending is happening. I have seen these tables in both the BMO and iShares annual financial statements -- there is disclosure. (Nobody reads it, but it's there).

    What are you going to do, anyway? Hold the stocks individually at your brokerages? The broker lends those shares out too. Use any margin at all, and the shares start zipping around. It's true that ETFs and mutual funds do this horrible securities lending thing, but so do the brokerages.

    I share all of these same concerns about derivatives and securities lending in ETFs. But as MF Global and the rehypothecation scandal(s) showed us, it's tough to escape this kind of trickery. These middlemen are all crooked -- whether they're brokers, ETF providers, or whatever. They use the same sleight of hand with pension fund assets and institutional clients, as with retail clients.
    Last edited by james4beach; 2016-08-08 at 01:50 AM.

  8. #67
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    And unless there's some seriously deceptive financial statements (for which Pricewaterhouse Coopers will be sued & dissolved), I don't see anything too wrong with XIC.

    To show you something tangible, you can look at XIC's financial statement here
    https://www.blackrock.com/ca/individ...uity-en-ca.pdf

    On page 271, you'll find a table of asset exposures by Level 1/2/3 which gives you a summary of derivative exposures. XIC is entirely level 1, common stocks. There are also no derivatives shown in the detailed listing of fund assets on page 12

    On page 283, you'll find securities lending details. XIC has loaned out $121 million of securities vs $1,997 million net assets, or just 6% of securities out on loan. Yeah I don't like it either, but there's the amount -- 6%. This is on the low end of securities lending in US & Canada.

  9. #68
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    Quote Originally Posted by james4beach View Post
    OK... I see what you're getting at. Just those US estate taxes are a menace (StayThirstyMyFriends may want to minimize or even entirely avoid US investment actually, and definitely avoid becoming a US person)

    this is an example of why stayThirsty needs a specialized ultra-high-net-worth advisor, not just any bloke from cmf forum. US assets can be held inside corporate or trust structures & they will be protected from most or all of these ill effects.

    suggesting he avoid US investments is not quite appropriate ...



    And yes I agree that securities lending is a huge problem. The ETF providers disclose it in their documents; you can see how much of the assets are out on loan ... I have seen these tables in both the BMO and iShares annual financial statements -- there is disclosure.

    i believe at the time of the original discussion it was determined that only iShares USA reports securities lending but canada does not so report. It is the iShares USA reportage that is so obscure & so heaviy asterisked onto succeeding pages that no investor can understand it.

    in canada, a year ago, iShares was reporting nothing. In canada, a year ago, the iShares manager was emphatic that lending information can never be disclosed to rank-&-file investors because they would be incapable of processing the information correctly.

    i'm left wondering where you are finding these tables for canadian ETFs? i for one haven't seen any ...



    What are you going to do, anyway? Hold the stocks individually at your brokerages? The broker lends those shares out too. Use any margin at all, and the shares start zipping around. It's true that ETFs and mutual funds do this horrible securities lending thing, but so do the brokerages

    a safer broker procedure would be to hold securities at a broker in cash account, with no margin impairment.

    please bear in mind also that, in a margin account with options, the broker cannot borrow any stock against which a short option position has already been pledged to an exchange.

    (1) please also bear in mind that most ETF families are run out of the US. The regulatory authority is the SEC, which will not recognize canadians or the rights of canadian investors in any difficult situation. But at the same time, keep in mind that the IIROC and/or the applicable provincial securities authorities will not be able to help the same canadian investors when it comes to a failed foreign investment.

    i for one feel more secure with individual stocks held at a broker i've known most of my life, reporting to a securities authority in my own province, under the regulation of a canadian IIROC in a next-door province, than i do with an anonyous ETF fund which has loaned out unknown selections from among its alleged holdings but refuses to tell me about it. Which, moreover, is also *holding* clusters of certain stocks only as derivative proxies via representational trading techniques, while being allowed to claim that it is holding the actual stocks themselves.

    it's a question of degree of distance. Control & transparency of an ETF are, respectively, far too remote & far too clouded for my comfort.

    (2) there is also the question of the CIPF. In a fund failure - perhaps related to its principal broker failure or its bank failure - would any CIPF coverage apply? i don't believe there are any precedents. I don't believe anybody has any reliable answer, although the fund industry's salesmen could be expected to have a soothing don't-worry-be-happy theme.

    (3) returning to the notion of a $15M portfolio, this in itself is the size of a small startup ETF. There is no reason, imho, for such a portfolio to become a dependent of the ETF/mutual fund industry.

    for a large portfolio, yet another disastrous result of becoming such an ETF dependent is the loss of the ability to self-govern most taxation consequences.

    .
    ''bonté gracieuse et toute cette sorte de chose" - Astérix chez les bretons]

  10. #69
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    humble_pie, I started a new thread with some securities lending amounts that I uncovered from iShares ETFs. See
    http://canadianmoneyforum.com/showth...mounts-in-ETFs

    I also link to the annual reports. See Note 10, that's where the data is. Page 283 in the equities PDF files.

  11. #70
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    ETFs are a terrible idea for the super-rich.
    This is a red herring.

    Firstly, if ETFs are engaged in irresponsible lending then they would be a terrible idea for anyone, unless we are saying that poor can afford the losses more than the rich.

    Secondly, there is a huge number of ETF and index fund products out there. Trabant sucks but it does not mean that all cars do. Everyone has to do his homework. As an example, funds run by Vanguard lend very little and take cash as collateral. In general ETFs used in Couch Potato scenarios fit this mold.

    Thirdly, I personally have a generic issue with investing in bonds right now (be that via ETFs or not). That has nothing to do with the ETF examples discussed above (XIC or VTI).

    There are basically 3 options out there:

    1. Index funds/couch potato/permanent portfolio, etc.... ETFs are a great tool but not the only tool for executing this strategy. ETFs are known to be extensively used by superrich, people with >>$100M. This strategy will be more tax efficient than active trading. There are certain things one can do to reduce/postpone the tax burden further, e.g. by constantly harvesting capital losses and using similar ETFs.

    2. Active investing into stocks and bonds. This will be less tax efficient than 1. Can be done and you can beat the index if you are a new Buffet or find a new Buffett to do it for you. $15M is too small a fund to get someone else who is worth the cost of doing this.

    3. Investment in private companies/new ventures. This is an interesting option which can certainly beat the index, give one satisfaction and $15M would allow for this to be done but it's not a "hands off" approach. This is basically another job.

    All of these options should involve consulting with an accountant who is experienced in cross-border investments.


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