Here at The Daily Reckoning, money is our beat. We are not interested in politics, yet we can't help but wonder: what next? The nation-state was the best innovation of the last 500 years. Initially, it was well marketed, but is it now becoming irrelevant? More below...

*** Last week, an item in our own MoneyWeek caught our eye. The fund management group, New Star, did a study to see how well professional fund managers actually performed. "After looking at the number of fund managers who outperformed the median over the last three and five successive years, it found that only one in eight had done so over three year. The number was even smaller over the last five year, when only one in 34 did so."

Why pay the fees, New Star wondered? Investors would have been a lot better off in an index tracking ETF, for example.
And along comes a manuscript from dear Daily Reckoning reader Barry J. Dyke, who has written a new book on the subject. He provides us with a helpful quotation:

"While the shareholder wealth consumed by the managers of corporate America has been far from trivial, the shareholder wealth consumed by the managers of mutual fund America has been enormous. More then one-fifth of the robust annual gross returns generated for investors in the financial markets - stock, bond, and money market alike - during the pas two decades has been siphoned off by fund managers. The awesome magic of compounding returns has been overwhelmed by the tyranny of compounding costs. Without a major reduction in the share of market returns arrogated to themselves by our mutual fund intermediaries, more than three-quarters of the future cumulative financial wealth produced by stocks over an investment lifetime will be consumed by fund managers, leaving less than 25% for the investors. Yet is the investors themselves who put up 100% of the capital and assume 100% of the risk."

We are in an age of decadent capitalism. The capitalists are now at the mercy of the proletariat. Corporate managers take hundreds of millions in salaries and options, while the shareholders earn a pittance. Shares have gone nowhere for the last eight years, while paying out dividends less than the inflation rate. Apparatchiks in government, and foundation wonks, too, do well instead of good. Their salaries and benefits rise, while middle- and lower-class Americans lose ground. And here are the money managers managing to make a fortune for themselves, while the real owners of the money they manage make nothing. It is an economy for the managers, by the managers...and of the managers.

Ned Johnson and his daughter Abigail, of Fidelity, have accumulated a fortune estimated at $18-$20 billion. Mario Gabelli took home about $55 million in 2004. In the five years, '99 to '04, his total compensation was around $325 million. "During that time," writes Dyke, "the compensation Mario took home almost surpassed the entire amount that was made for his companies. "The average mutual fund manager makes $436,000 for managing other people's money. The top 10% of fund managers make around $1.7 million per year."

Copied from www.dailyreckoning.com July 21st issue.

Now when you take this kind of analysis and combine that with what I believe to be the brilliant advice offered in "The Prophecy" by David Kyosaki it should have you running to the fax, phone or computer to sell out of these mass marketed abusive money pits. The readers of my newsletters and articles already know my high regard for Kyosaki's teachings whereby he seriously questions the future security of such paper backed up by compelling simple mathematical logic now when you combine that with stats like these that show the results in relatively
good times have hardly been what you could call stellar it does indeed create a compelling argument for 'run for cover" during more trying times in the future.

This brings me around to a critical point, why does Jardines de Ensuenos exist in the first place??? There has always been two principle objectives behind our mission here. The first as our name clearly implies is to create a beautiful garden and living environment for all owners and guests to enjoy being a part of. Secondly, or more aptly put, equal to that is to add to this environment the most significant side benefit for the owners is to build a solid, tangible serious investment return to their portfolio backed up by value enhanced real estate. I have long been seriously jaded about the retail investment market and what little benefit it leaves the typical investor such evidence as provided above further adds fuel to that fire and further cements my beliefs. So if one like me does not like what the typical do then the answer is quite simple, do something different and do it yourself. This reminds me of one wise saying, "Continuing to do the same thing but expecting different results defines insanity." I personally prefer not to be accused of being insane hence I take the approach of preferring to do it differently.

I have had a number of perspective investors ask me how I got to the projected R.O.I. of 13%-15%. What I actually did was use what I call reverse math. I first picked the return I wanted our properties to generate and then set about building the other side of the formula to make the result come out to what I deem as a most likely result. Everything we have done from the property selection, to design, to environmental concerns, to size of units, to finishings, to marketing concepts has been put into this very long and involved formula to come
up with a highly probable result. I believe with all my being that what ever our final end result is it will be fair for all concerned and at the end of the day the most important formula is quite simple whereby the philosophy applied here will bring about a true WIN! WIN!
WIN! WIN! situation for all involved, the owner/investors, management, guests and employees. This final part of the puzzle is not mathematical but it is everything that will make the math work out just fine in the end quite contrary to how we see the relationship between the investors in mutual funds versus their managers' philosophies. That relationship as demonstrated above clearly embodies everything I detest that of a bandito disguised in a suite. Amazing how much more money you can steal with a briefcase than with a
gun!!!

I hope that this note finds you well and that you have found the information helpful.

Have yourself a great day!!

Regards,

Trevor