The Mosaic Portfolio

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A presentation about advantages of Spoke Fund(R) over other traditional investment products and our approach to investing at The Free Investors, an Independent registered investment adviser.

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The Mosaic Portfolio

  1. 1. Real Partners in Your Investing JourneySpoke Fund®: A Better Alternative for Your Investment Dollars
  2. 2. DISCLAIMERThis presentation is for educational and informational purpose only. Nothingcontained here should be construed by anyone as an invitation or solicitation tobuy or sell any security. This presentation does not contain personalizedlegal, tax, investment, or financial advice. Viewers should consult with a qualifiedadviser to obtain advice suited to their personal circumstances. 2
  3. 3. CHALLENGES THAT INVESTORS FACE TODAY 3
  4. 4. Investingis one of the very few service businesses where the service provider (portfolio manager) is not directly accessible to the buyers (investors) of the service ! Every other service provider, e.g., doctor, lawyer, accountant etc., do closely interact with the buyer of the service. Remember that lack of accessibility can lead to lack of accountability. INVESTOR CHALLENGES 4
  5. 5. [INVESTOR [ To invest in equity/stocks, typical options available to investors are – Mutual Funds, ETFs and Hedge Funds etc. Each of theseCHALLENGES options have serious limitations. 5
  6. 6. INVESTOR CHALLENGESMost of these investment products available in themarket today do not meet all the key criteria. 1 2 3 4 Alignment of interest Transparency of what Accessibility of Liquidity of the between the are the securities in portfolio manager to accounts allowing portfolio manager the investors portfolio, his/her investors the investors to get and the investors the timing of the their money back in transactions, and short notice exact fees/commissions charged 6
  7. 7. INVESTOR CHALLENGES Let’s take a look at some of these options. 7
  8. 8. MUTUAL FUNDS A BROKEN AND ANTIQUATED MODELOPTION 1 • The vast majority of actively managed mutual funds underperform the comparable index, charge fees that are too high (~ 1.5% - 2.3%), own too many stocks, and trade too much (average mutual fund holds a stock for barely an year) • The majority of fund managers do not own a single share in the funds that they manage • Mutual funds force taxes onto their investors, make their fund managers inaccessible and have fee structure that makes it difficult for investors to find out the exact total cost/fee that they are paying • Mutual funds, emerged during the pre-technology era that required a significant size to be economically viable. Therefore, it was not practical for portfolio managers to be directly accessible to the huge number of investors in their mutual funds. 8
  9. 9. HEDGE FUNDS NOT FOR THE AVERAGE INVESTOROPTION 2 • Investors are saddled with high fees. A typical hedge fund charges a performance fee of ~20% of profits on top of the management fee of around 1%-2% of assets under management per year. • Many hedge funds have opaque investment strategies. So, you may not know what you own, how frequently the fund manager is trading, and how much risk you are taking in your investment portfolio. • Not accessible to average small investor. Only accredited (wealthy) investors are allowed to invest in hedge funds. 9
  10. 10. EXCHANGE TRADED FUNDS (ETF) GOOD, BAD, AND UGLY – ALL MIXED TOGETHEROPTION 3 • Passive ETFs suffer from the risk of over diversification. These ETFs track an index. So, you own the lousy businesses in the index along with the good businesses. In addition, some indices are very narrowly structured and, therefore, can be risky. • Active ETFs have the same problems as mutual funds: inaccessible portfolio manager, lack of significant ownership by portfolio manager. 10
  11. 11. 11
  12. 12. What is a Spoke Fund®“A spoke fund® is a group of separate investor accounts linked to a portfolio containing most of the liquid net worth of that fund’s manager” 12
  13. 13. Key Advantage Over Mutual FundsMUTUAL FUND SPOKE FUNDPortfolio Manager is usually not an investor in Portfolio Manager invests most of his ownthe fund investable assets in the fundAll investors’ money goes into a single pool of All investors’ accounts are separate andinvestments mirrors the same core portfolioTotal expenses and fees difficult to find from No hidden expenses or feesbulky prospectus and SAI documents Investor only pay taxes based on the holdingsTaxes are passed on to the investors in their account(s)Transactions and holding are not transparent Each investor can view his/her holdingsPooled fund structure often means portfolio No pressure to sell low and buy high as eachmanager may need to buy when market is investor account is separatehigh and sell when market is lowActions of large investors can hurt returns of Actions of investors have no impact on othersmaller investors investors 13
  14. 14. OUR SPOKE® FUND: THE MOSAIC PORTFOLIOwww.thefreeinvestors.com 14
  15. 15. THE MOSAIC PORTFOLIOOur flagship Mosaic Portfolio seeks to achieve long-term capital appreciation by investing in great companies at cheap prices. We take a long-term, business-owner approach to investing. We buy common stock of well-managed companies that boast strong financial positions, operate in industries that we truly understand, and that are selling their stock at low prices. 15
  16. 16. THE MOSAIC PORTFOLIOOur investing philosophy is to invest in good business with the plan to own their stocks for years. Gopal Gantayat, portfolio manager of The Mosaic Portfolio, has nearly all of his investable assets in the Mosaic Portfolio. 16
  17. 17. Our Portfolio Strategy:Sprinkle Cupcakes 17
  18. 18. OUR PORTFOLIO STRATEGY SPRINKLE CUPCAKES • “Stable Cake Base”: Stable, high quality companies: This layer forms the stable foundation of The Mosaic Portfolio and consists of relatively stable and high quality businesses. Over the years, these companies have generated market-beating cashflows and income for their shareholders. We are betting that for the next few years that trend of superior performance will continue and, in the long term, their stock prices will catch up to the businesses’ performance. • “Delicious Icing”: Disruptors, innovators and thematics: The companies in this layer make up the bulk of the Mosaic Portfolio. These include innovators, disruptors, and companies riding an emerging theme. Typically, these companies are growing faster than most of their competitors by disrupting current industry top players, innovating and creating new markets, or better executing an emerging theme. We believe this category of companies has the potential to substantially beat the market in the long run. • “Colorful Sprinkles”: Early stage companies, turnarounds and event-driven: Just like the sprinkles on a cupcake, these companies are the smallest layer in the Mosaic Portfolio. These include some early stage companies. The market verdict on these companies may not be clear for at least a few years. Wall Street analysts are likely to be wary of these companies because of their need to estimate/predict the stock price for the next quarter and the next year. We, with our eye on beating the market in years or decades to come, are happy to invest in these early stage, industry- transforming companies and to wait for the investment thesis to play out in coming years. 18
  19. 19. OUR FIRM: THE FREE INVESTORS (TFI)www.thefreeinvestors.com 19
  20. 20. The Free Investors (TFI) is an independent registered investment advisor located in Princeton, New Jersey. Our flagship SpokeFund® is named The Mosaic Portfolio, a long-term, total-return- focused equity portfolio. 20
  21. 21. OUR MANIFESTO “We believe that your portfolio manager should be as accessible and transparent as your close friend/partner and invest your money for long-term, right alongside his/her own money. Period. No hidden fees, commissions, penalties, and year-end window-dressings. No intelligent-sounding, but opaque, illiquid, and risky investments using your hard earned money. No excessive trading, portfolio churning, and high commission investments.” 21
  22. 22. [TFI Difference [ We are like your neighborhood community small-business. So, unlike the institutional structures and layers of hierarchy atACCESSIBLE other investment management businesses, our Portfolio Manager is directly accessible to our clients, just like a small business owner to talk about any questions they have about their portfolios or investment philosophy etc. 22
  23. 23. [TFI Difference [ We use a Spoke Fund® model which makes your portfolio completely transparent. You can log in to yourTRANSPARENT account anytime and see what securities your portfolio manager has chosen and what fee has been charged to your account. 23
  24. 24. [TFI Difference [ We invest for the long-term. With us you can be assuredLONG-TERM that we are not swayed by the investment fads of the time, stock market momentum, or the loud mouths in theINVESTMENT financial media. 24
  25. 25. [TFI Difference [ Our portfolio manager has nearly all of his investable assets in ourNO fund. So, your money will be invested right alongside ours. We charge a fee based on the amount of assets you have underCONFLICTS management. This way our interests are aligned with yours. We only make more money when you make more money by growingOF INTEREST your assets. We have no reason to churn your portfolio to generate commissions or to sell you expensive products that pay us more. 25
  26. 26. [TFI Difference [ We are penny pinchers at heart. Our portfolios minimize costs. The few trades we do make pay littleLOW COST to no commissions to the custodian. There are no hidden fees. 26
  27. 27. [TFI Difference [ We are an independent firm. We have no ties to Wall Street or any other companies, for that matter. We haveINDEPENDENT no pressure to sell preferred products or prepackaged solutions. We do not accept commissions, kickbacks, gifts, or any other payments from any third party. 27
  28. 28. OUR NEWSLETTER AND “THE MOSAIC PORTFOLIO”FIND OUT MORE 28
  29. 29. MORE ABOUT US• Every month we share our thoughts on investing philosophy, state of the market, portfolio performance, and much more. Sign up for our free email newsletter at www.thefreeinvestors.com/newsletter• Visit out website (www.thefreeinvestors.com/portfolio ) or call/email us to learn more about the investment process of our flagship Spoke Fund® - “The Mosaic Portfolio”. 29

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