Thread by @compound100x

1. Still think the mutual fund industry is ripe for disruption.

Issues in e industry
- Only 20% generate alpha, so this is one of the few industries where we sell a product and gets paid even when we don't deliver what we promise to the customer.
- hard to generate alpha every..

2. ..year, a lot of soft aspects in fund mgmt leads to difficulty in judging whether one fund performing well is really a good fund to invest in for the long haul. Thus, a lot of intermediaries to help "educate" the consumer on fund selection

3. Not enough asking what do customers really want and what are the potential solutions?
- Cust want active product for the alpha (We should charge only when there is alpha)
- Cust want the top alpha product (We create a product that is consistently top decile)

Many will say..

4. that's wishful thinking. No one does that because this business model doesn't work. We need to feed our analyst. I don't yet have an answer but i see how it could potentially work.

How to create a product that is consistently top decile?
- The average large cap mutual fund

5. ..has 1.45% expense ratio. if you strip out the intermediaries, you save at least 50bps. If you start with no management fee, you are another 100bps ahead. If you're an average fund manager, reducing fees alone can take you up a notch in the rankings
- In terms of strategy,

6. imagine if you are lindsell train or fund smith for a moment. find the best businesses, give them time to compound, low turnover, meaning low trading cost, meaning less analysts needed. The buy and hold style can reduce overheads further and likely create abv ave performance

7. now some will say you need to pay your intermediaries because they are the network. But i know many funds who have clients that go direct running billions. Of course reputation takes time to build. But its not difficult to see how this fund model can..

8. garner some nice flywheel effect as no fee helps performance relative to peers to start, overtime as you accumulate alpha, imagine how you can "refund" some of those alpha in no-alpha years by charging no performance fee to "keep" your fund in the top decile ranking. All of

end/ this financed by a patient, low turnover, low overhead investing strategy that markets itself over time via word of mouth, direct no intermediary, further supporting the low cost model.

No idea how realistic this is, but happy to hear some thoughts. Cheers