The luckiest guy around

Today I want to talk to you about a hero of mine.

His name is Steve Edmunson and he’s a famous American fund manager.

He manages the $82 billion Nevada Public Employees Retirement System Fund, which has been in the top 10% of large US super funds over one, three, five, seven and 10 years.

Steve has a unique investing strategy that has allowed him to single-handedly outperform most of the biggest fund managers in the world, who employ an army of analysts.

And today I’m going to share with you his secret.

That’s because last week, on a whim, I googled his funds’ generic help email address and lamely asked if there was a chance I could interview him.

A few hours later I received the following reply:

“Hi Scott,

My calendar is pretty open this week and next. Let me know if you have some times that work

Steve”

No gatekeepers. No personal assistants. Just a dude managing $82 billion with an open calendar.

So I sat down to interview him. My first question was, “What’s your edge?”

“Well, I don’t do a lot”, he deadpans.

He’s not joking.

There are days, months and even years where Steve basically sits on his hands and does nothing.

No frantic buying or selling. Just sitting and holding.

“I think in the world of investing the spotlight goes to the latest hot new strategy, but there isn’t much emphasis on what you don’t do. And if you’ve got a long-term horizon, like we do, the best thing to do … is usually nothing.”

Yet Steve’s real edge comes in the way he thinks about fees:

Every dollar the fund spends is a dollar that can’t go into his retirees’ pockets.

So, when Steve joined the fund 17 years ago, he sacked all the highly paid stock-picking hedge fund managers and replaced them with ultra-low-cost index funds. He has 88% of his portfolio invested in index funds and 12% invested in private equity investments.

“I worked out we couldn’t control the investment returns … but we could control our costs … so we keep ours extremely low. And being a lot cheaper than other funds gives us a big head-start.”

This is important: finance is the only industry in the world where the less you pay, the more you get — and the less you do, the better your returns. (I know it sounds like a Dr Seuss riddle, but Steve’s track record proves it’s true.)

Yet here in Oz that message hasn’t cut through. Australians pay more than $30 billion a year in super fund fees, which, according to CPA Australia, are among the highest in the world.

In contrast, for the past 17 years Steve has worked diligently by himself in a small suburban office, bringing leftovers to work and eating at his desk. He drives a second-hand 2006 Honda and, by his own admission, he and his wife live in a tiny home.

“Enough!” I said. “When you manage $82 billion and you shoot the lights out you’re supposed to be a big swinging d …ude! Has it ever bothered you that you’re stuck with the responsibility for managing billions of dollars, for thousands of people … yet you earn less than a fresh-faced kid straight out of college working at a pension fund?”

“Not at all”, he shot back. “Yes, it’s an enormous responsibility, but it’s that part of the job that makes it so fulfilling. I get to work at a job that helps firefighters, and teachers, and police men and women … good working-class people.

“I’d say I’m the luckiest guy around.”

Tread Your Own Path!