The Game Is Rigged!

Online gaming company DraftKings DKNG CEO, Jason Robins, was recently quoted on CNBC regarding his company’s Q4 earnings, “We had the worst two-week run of NFL outcomes that we’ve had since we’ve been a public company, so that happens when you’re taking risk on sports outcomes, you may have customer friendly outcomes. It ALWAYS (my emphasis, his word) kind of swings back over time ……we think average revenue per user has a ton more upside. Really that’s the core piece of what we think will drive future growth but also the base will continue (to grow) too as more customers come into the market and more states launch and grow revenue per customer…..we see customers increase their revenues and part of that is more activity as we add more products”

I quoted Mr. Robins because it struck me, if we removed the company DraftKings and replaced it with BlackRock, T. Rowe Price, American Funds or any of the several hundred other mutual-fund families, would there be any difference between investors and customers and their outcomes?  Nothing from our perspective the outcome would be the same. The game is rigged; the house wins over time. I believe they will continue to “create products” not because it’s better for the user or investor, but because it means more revenue for the house and less gain for the customer.

I challenge someone to tell me differently. I personally bet on sports and I professionally manage money and have for over 36 years. I have learned however to only bet $5, $10 or maybe $20 on an outcome of a game because as Mr. Robins stated, “it swings back over time.” It’s entertainment and a lot of fun but I also know that the chances of making money betting on sports, is incredibly difficult. I am up against enormous odds. Anyone notice that Las Vegas keeps building larger and larger hotels and casinos and not downsizing? Do you think it’s because they are losing money? Vegas was not built on winners.

When it comes to investing, I learned a long time ago, along with my partner, that investing is not a game and buying mutual funds is a losing proposition. We wrote an article titled, The Great American Rip-off when we started our investment advisory firm, LCM Capital Management. The premise was simple and is still applicable today 23 years later, namely, actively managed mutual funds underperform over time and one of the main reasons are the fees associated with them, both visible and those that are buried. How many mutual funds have beaten the S&P 500 over the last decade? How about over the last two or three decades? I’ll save you the time, according to the 2023 S&P Dow Jones Indices report (SPIVA), less than 7% of all Large-Cap funds outperformed the S&P 500 over the last 20 years ending 2023 and if you added on your advisor’s fee, that number is probably much lower and yet the financial industry keeps cranking these products out with all different kinds of bells and whistles promising out-performance and investors keep buying them. You actually have better odds gambling on the winner of a sporting event, at least that’s 50/50 and you still can’t win over time.

This is one of the many reasons why we at LCM buy only individual stocks and bonds for our clients. If we have to venture “outside the box” for client-specific reasons, we do so by buying Exchange Traded Index Funds (ETF), rather than mutual funds. The reason: they are low cost and, as the recent SPIVA report showed, very few, if any, active managers beat their index over a 10, 15 or 20-year time horizon and as the saying goes, “if you can’t beat ’em, join ’em” and isn’t that what investors should be looking to do as well, investing for the long-term?  

There is a better way and investing is not a game, but it is your money and you should not only know what it costs you every year but you should also have control over it and in a mutual fund, you do not. I would tell you to ask any of the owners of the mutual fund companies but I’m not sure their private jets or yachts have great cell reception especially after what just happed with the telecommunication cell provider’s AT&T recent outage. There is a Better Way!

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.