Barefoot shares $82bn fund manager Steve Edmunson’s top investing advice

Scott Pape talks to one of the world’s top fund managers whose investment performance shows that the less you pay in fees, the more you get — and the less you do, the better your returns.

Scott Pape is The Barefoot Investor.

Today I want to talk to you about a hero of mine.

His name is Steve Edmunson and he’s a famous American fund manager.

He manages the $82 billion Nevada Public Employees Retirement System Fund, which has been in the top 10% of large US super funds over one, three, five, seven and 10 years.

Steve has a unique investing strategy that has allowed him to single-handedly outperform most of the biggest fund managers in the world, who employ an army of analysts.

And today I’m going to share with you his secret.

That’s because last week, on a whim, I googled his funds’ generic help email address and lamely asked if there was a chance I could interview him.

A few hours later I received the following reply:

“Hi Scott,

My calendar is pretty open this week and next. Let me know if you have some times that work

Steve”

No gatekeepers. No personal assistants. Just a dude managing $82 billion with an open calendar.

So I sat down to interview him. My first question was, “What’s your edge?”

“Well, I don’t do a lot”, he deadpans.

He’s not joking.

There are days, months and even years where Steve basically sits on his hands and does nothing.

No frantic buying or selling. Just sitting and holding.

“I think in the world of investing the spotlight goes to the latest hot new strategy, but there isn’t much emphasis on what you don’t do. And if you’ve got a long-term horizon, like we do, the best thing to do … is usually nothing.”

Yet Steve’s real edge comes in the way he thinks about fees:

Every dollar the fund spends is a dollar that can’t go into his retirees’ pockets.

So, when Steve joined the fund 17 years ago, he sacked all the highly paid stock-picking hedge fund managers and replaced them with ultra-low-cost index funds. He has 88% of his portfolio invested in index funds and 12% invested in private equity investments.

“I worked out we couldn’t control the investment returns … but we could control our costs … so we keep ours extremely low. And being a lot cheaper than other funds gives us a big head-start.”

Steve Edmunson feels he is lucky to help working-class people like firefighters.

This is important: finance is the only industry in the world where the less you pay, the more you get — and the less you do, the better your returns. (I know it sounds like a Dr Seuss riddle, but Steve’s track record proves it’s true.)

Yet here in Oz that message hasn’t cut through. Australians pay more than $30 billion a year in super fund fees, which, according to CPA Australia, are among the highest in the world.

In contrast, for the past 17 years Steve has worked diligently by himself in a small suburban office, bringing leftovers to work and eating at his desk. He drives a second-hand 2006 Honda and, by his own admission, he and his wife live in a tiny home.

“Enough!” I said. “When you manage $82 billion and you shoot the lights out you’re supposed to be a big swinging d …ude! Has it ever bothered you that you’re stuck with the responsibility for managing billions of dollars, for thousands of people … yet you earn less than a fresh-faced kid straight out of college working at a pension fund?”

“Not at all”, he shot back. “Yes, it’s an enormous responsibility, but it’s that part of the job that makes it so fulfilling. I get to work at a job that helps firefighters, and teachers, and police men and women … good working-class people.

“I’d say I’m the luckiest guy around.”

Tread Your Own Path!

What’s Wrong with My Index Fund?

Hi Barefoot,

I followed all the advice in your book – cleared everything, saved up, paid off my mortgage and invested a lump in a low-cost index fund. And since August 2021 it has gone backwards and I’ve lost $4,000. They are down 2.96%. Is it just my fund or are they all doing badly?

Gutted of Oakleigh

Hello Gutted of Oakleigh,

Buying an index fund isn’t as simple as grabbing a box of Rice Bubbles.

Let’s think about what’s happened in the last six months since you made your investment:

We’ve had runaway inflation in the US, and in most parts of the world.

We’ve had the threat of rising interest rates in a world awash with debt.

We’ve had the Chinese property market imploding.

We’re still dealing with the pandemic (China is still locking down millions of people).

We’ve had commodity prices surging, and food prices at record highs.

We’ve had ‘once-in-a-century’ floods in NSW and Queensland.

Oh, and then we had the war in Ukraine.

All things considered, I think you’re doing pretty well! I’d suggest you learn to take a longer-term view.

It’s not all snap, crackle and pop, my friend!

Barefoot says you should take a long-term view with low-cost index funds.

The Hyperfund

Scott,

Some colleagues at my work are retiring quickly in their thirties and forties after investing money into Hyperverse. They are trying to sign everyone up to it and they are earning anywhere from $150 to $1,500 a day just in the Hyperverse that was originally called the HyperFund. Any help would be muchly appreciated.

Belinda

Hi Belinda,

It’s all pretty exciting.

While you’re eating the cake from your co-worker Darren’s retirement send-off, here’s what I’d like you to do:

First, head back to your cubicle.

Then, google “Hyperverse + Hyperfund + Scam”.

Click on the first reputable link, from the Australian Financial Review, entitled: “Collapse of crypto platform a cautionary tale”.

Scan the first paragraph: “Around 200 investors are understood to have lost as much as $10 million in this little corner of the investment world’s Wild West.”

Hmmm, the article talks about the previous business of the Hyperfund founders.

Have another click, this time to an article in the West Australian which talks about their new venture: “The promoters of Hyperfund have created a multi-level marketing scheme that promises big returns … the pitch to investors includes incentives to sign up more people so they can prepare their network for a $300 billion stock market float.”

Holy crypto, Belinda!

On those numbers the Hyperfund could be worth more than BHP and Telstra combined!

My view?

Avoid the hype. If you’re going to get into multi-level marketing, why not just try flogging Amway? That way at least your friends will have bought some laxatives off you, which could help them when the bottom falls out of this investment.

Mojo, Baby

Hi Scott

Last Friday night I was driving home with a niggling feeling in my stomach about how I was going to pay our kids’ latest medical bills. You see, they have both been diagnosed with extremely rare cancers and their outpatient scans are not covered by a Medicare subsidy – we pay full price. Then, like a bolt out of the blue, it hit me – we have Mojo!

Many years ago, when I first read your book, I set up an ING Mojo account – and then clean forgot about it! I’ve even been adding $50 a fortnight to it without noticing. Life was easy back then. Fast forward several years and both of our teenagers received dastardly diagnoses, and our business has been slammed first by Covid and now the floods. So my message to readers is that life can turn on a dime. Set yourself up in the good times because the challenges will inevitably arrive. Thanks for your down-to-earth, sensible advice.

Lisa

Hi Lisa,

That is every parent’s worst nightmare.

Every so often I have a financial expert suggest that it doesn’t make sense to save money with interest rates being so low. Technically, they’re correct. However, I’ve always viewed savings as a psychological backstop, a safety blanket for times when life comes at you way too fast.

I’m so sorry for your situation, and I hope your kids are okay. Remember, if you need help from a caring financial counsellor you can call the Small Business Debt Helpline on 1800 413 828 or sbdh.org.au.

 

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions

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Originally published as Barefoot shares $82bn fund manager Steve Edmunson’s top investing advice