Boring Works. Promotion Pays.
To my partners,
Most of what I write comes from topics where I think a deeper look might actually add something. Recently I came across a Wall Street Journal piece, “The Exotic Makeover of the Once-Boring ETF Market.” If you haven’t read it, do. It’s worth your time.
I’ve raised concerns before about the blurry line between passive and active investing. I’m coming back to it because the risks for everyday investors are getting sharper as the landscape evolves. In recent years, Wall Street sales teams and many advisors have aggressively oversold so-called “actively managed ETFs.”
First, why would anyone buy an ETF in the first place? My estimate: 99%+ of Americans don’t have the knowledge, interest, time, or skill to pick stocks successfully. There’s nothing wrong with that. Those same people earn their economic return, in the form of income, by doing work that makes a functioning society possible: lawyers, doctors, engineers, nurses, teachers, scientists, military members, construction workers, and so on. Most people make their money by being excellent at their primary job, then invest a portion of what they earn. They aren’t spending nights parsing 10-Ks, scrolling market news for hours, or building mental models of specific companies – while also raising kids, maintaining friendships, staying healthy, and living a life. That’s exactly why a broad, diversified basket of businesses makes sense: you don’t know enough about one or two companies, so you buy them all and accept the average. It’s rational. It’s sensible.
Here’s the concern: indexing is supposed to feel boring and routine. We’ve talked before about why “boring and routine” doesn’t pay on Wall Street. If a manager’s job is simply to buy the index each year, the fee is small. That fee compression is why actively managed ETFs, options strategies, shorting stocks, activist campaigns, leveraged funds, crypto products, private credit, and more are pushed on unsuspecting investors. I’m not saying these tools are inherently bad (crypto and the introduction into “predictions markets” actually are), nor do I think everyone on Wall Street is bad. There are outstanding stewards of capital: Buffett, Munger, Bogle, Lynch, to name a few, with long records and real character. My point is narrower – these products are easier to weaponize by the bad actors. We’re in a classic oversupply story. The index fund market is saturated, prices (fees) fall – see your Econ 101 supply-demand graph to visualize the relationship between supply/demand on prices – and managers look for another way to grow profits.
The solution they landed on: promote, promote, promote. Promote leverage to magnify returns. Promote the idea that you can reliably pick the perfect sector, theme, or industry ETF for the next 30 years. Promote a crypto fund as the cornerstone of a retirement plan. Promote precious metals as the must-own asset in a downturn. What they don’t volunteer, amid all these “great ideas,” is the quiet part: they’ll help you chase the hottest ETF for a “little higher” fee. Sound familiar? After seven full years of watching, reading, and studying markets up close, I’ve learned a simple truth: Wall Street preys on investors at their weakest moments. When uncertainty shows up – war in Iran, sticky inflation, a cooling labor market, the national debt, nosebleed AI valuations – someone will offer you peace of mind. Sometimes they’re right; more often they’re wrong. And when an investor is down 20%, 30%, 40%, rational thinking is rare. That’s when the “safety” trap works. Wall Street has decades of practice perfecting this game. It will keep taking advantage of the unprepared – because that’s how markets work. My counter has always been the same, and it borrows from John Bogle: “Don’t do something, just stand there.”
I won’t tolerate that misalignment – not in a money manager, not in a partner at my firm. I’ve built our culture around a simple test: think like an owner, and invest alongside the people who trust me with their capital. Charlie Munger discussed incentives over his career. Every prospective investor should ask the same question: if I commit X, what is this person’s incentive to do Y? Too often you find CEOs – and even board members – with little to no skin in the game. It’s easy to say “we care about shareholders” on an earnings call. It’s harder to put your own money where your mouth is. That gap tells you everything about how management really values its owners. If you don’t already know: most asset managers, bankers, advisors, and “professionals” aren’t running a single fund or operation. They’re spread across multiple portfolios, mandates, and obligations. That won’t be the case here. You should know exactly what you’re getting:
I have no interest in selling unrealistic expectations. We invest for the long term, and if I believe something is achievable I’ll say so – plainly and directly.
My incentives are fully aligned with the partnership’s success. A substantial share of my net worth is invested alongside you, and my compensation comes only from performance. No AUM fee. I don’t get paid for simply showing up; I get paid when we’re right.
Time horizon is my sole professional focus. Managing our capital isn’t a side gig or a hobby. You’ll get my full effort, day in, day out, identifying wonderful businesses and owning them with patience.
As Wall Street’s menu of products, services, and insights keeps expanding, apply a simple filter: is the extra fee buying real value, or is it monetizing your inattention? Salesmen thrive when the upside is theirs and the downside is yours. Don’t let your ignorance become their recurring revenue. Demand clarity, demand alignment, and be ruthless about whose interests are actually being served. Thanks for reading.
Kyle Delmendo
Founder, Managing Partner, CIO