Mike

I also agree with Rob’s comments on DD. It is stunning that wealthy investors who put millions of dollars into Madoff’s funds either directly or indirectly, didn’t hire an independent advisor or perform the most basic background checks. Investors would do well to adopt the maxim: “Trust but verify”.

A great point.

I know you weren’t talking directly about me – rather about LSIF investors in general.

The important thing is that I’ve learned a big lesson – don’t invest for taxes being #1!

It was pretty clear in 1996. I would have told you in 1996 like I told all my clients who wanted one. I said these are companies that are too crappy to get a bank loan, and too crappy to do an IPO. The government doesn’t want to fund them so they are trying to get you to. Maybe you might possibly hit the next Microsoft and make a fortune, but that’s like winning the lottery. Like the lottery, your chances are you will lose almost all of your money.

I think it was reasonable to figure out that these were crappy in 1996. If you bought it without really thinking about it or why these incentives were being offered, or you decided to work with someone who wasn’t honest, that’s the role you played in the matter. I am not trying to piss you off, but I think my comment is a fair one to all readers of CC. Sorry if it came across as directed at you alone, because that wasn’t my intention.

But yes, many of the people who invested with Madoff were stupid because they bought in to the fact that you could have high risk free returns. Not all of course. They didn’t ask questions, perform the odd audit (which can be hired and people that had $200Million with him that didn’t pay $10K to do an audit from time to time were stupid.), or really ask where the money was and double check things on their own.

I believe everyone with an advisor should do a little audit from time to time on their accounts and double check that what is on your statements, is really there. I believe people should never sign blank forms with their advisor but that happens all the time. People should ensure their advisor is in fact registered with regulators, and is associated with an actual dealer. It takes some effort, but given the stakes involved, it is worth the time and energy.

I agree with you and I’d be very embarrassed if I was running a LSIF as well. As I am proud I avoided this crap for my clients, I would be embarrassed had I sold them and had to answer questions about it now. I have always felt these were bad products. I think the same about seg funds (with very rare exeptions), principle protected notes, or index hugging funds that are charging high MERs, illiquid ETFs, etc. The list goes on and on.

People are right to worry about the illegal things causing them to lose their money, but far more money will be lost by things that are legal, but crappy.

It is pretty clear that these products are terrible

No shit Sherlock – why didn’t you tell me that back in 1996 before I bought my first units?

My complaint about the LSIF industry is that they keep going. They are a scam – they have bottled up Mona Vie into a mutual fund and are still selling it to this day.

Does the fact that people who invested with Madoff were stupid make him any less culpable? Admittedly LSIFs are perfectly legal but I personally would be very embarrassed to be running one.

It is pretty clear that these products are terrible, but instead of blaming “conspriacies” and “seething” about the fact you own them, I think you guys that own them should blame yourself for buying them in the first place. This may sound harsh, but you should own up to the role you play in your misforture.

To say a fool and his money are soon parted would be too harsh. But to say you were fooled by some evil conspiracy is lame.

However, I was among the rare lucky ones. The high MERs of pretty much every LSIF fund you can look at creates such a high hurdle that very few ever post positive returns even after including the tax refunds in *any* 8-year holding period! Though the recent past of the S&P 500 hasn’t been a happy one, in the majority of 8-year holding periods, the S&P 500 would have made positive returns.