AUTHOR: Ed Kadala on 8/8/2024 FIRST: Randy Dobkin on 8/8/2024 | RECENT: Randy Dobkin on 8/9/2024
Comments
It’s great to see the interest in sharing reviews of books that HumbleDollar readers feel are relevant to the community. As Jonathan mentioned, book reviews are welcomed as regular Forum posts. But, in my “humble” opinion (I couldn’t resist), it would be helpful to have a dedicated section for book reviews, similar to the one set aside for Articles. Otherwise, these posts can easily get buried within the broader Forum discussions.
A dedicated space would make it easier for readers to browse and discover titles others have found valuable. I’m not familiar with the level of effort required to modify the site to enable this suggestion, but if it’s feasible, I think it would be a nice addition to HumbleDollar.
This is a follow-up comment to my earlier comment on Adam’s article. I read an interesting article in Forbes.com titled “Why Private Equity Is Betting On Tokenization” by Azeem Khan, dated May 04, 2025. By tokenizing private investments Wall Street firms find a slick way to distribute illiquid, risky and potentially non-profitable assets to the public under the guise of block-chain technology. Here’s a ChatGPT summary of Khan’s article: Over the past decade, private equity (PE) firms thrived in an environment of low interest rates and easy capital, rapidly expanding their holdings across real estate, healthcare, tech, and infrastructure. Assets under management surged past $13 trillion by 2022. But by 2025, the macroeconomic climate has reversed: inflation remains persistent, interest rates are high, and liquidity has dried up. Traditional exit routes—IPOs, acquisitions, and secondary sales—have stalled, leaving PE firms sitting on vast portfolios they can’t easily monetize.
In this new landscape, tokenization is emerging not just as a novel innovation but as a strategic necessity. By converting illiquid assets into blockchain-based digital tokens, firms can fractionalize ownership, enable round-the-clock trading, and potentially tap a broader global investor base. Major financial institutions like BlackRock and Franklin Templeton are already building tokenized fund structures, signaling a broader shift toward blockchain infrastructure.
Crucially, this shift isn’t being driven by a sudden love for blockchain—it’s being driven by pressure and need. Firms are turning to tokenization because they need new "liquidity rails" for assets that no longer have viable exit paths. The technology is becoming a distribution tool for offloading hard-to-sell holdings, especially to retail investors, who are being invited into markets that were previously the domain of large institutions.
That’s why understanding the motivations behind tokenization is vital. While it may democratize access and improve capital efficiency, it also risks becoming a mechanism for transferring illiquidity and valuation risk to less sophisticated investors under the guise of innovation. Without adequate regulation and investor protections, tokenization could mask deep structural problems in private markets.
Excellent article, Adam. This topic—does PE outperform publicly available investments—has interested me as I’ve had the opportunity to invest in private markets, but have remained skeptical. Having read various articles on the subject, I’ve reached the same conclusion as you have. I also perceive that PE is a way for wealth management firms to lock in clients and collect fees, since it’s difficult to leave a firm that has an investment association with a PE firm in which you are invested. The long lock-up periods inherent in PE investments reduce portability (clients staying with the firm) benefiting the advisor and in some cases more than the client. As expense fees have been reduced with the advent of index funds and ETFs, Wall Street has had to innovate—often cleverly—to protect and grow its fee base. PE investments have emerged as a profitable approach offering firms a means to reclaim margin lost to low-cost passive products. While some private equity funds have outperformed public benchmarks, persistent outperformance is rare, especially net of fees. The lack of transparency, high costs, and illiquidity make it difficult for the average investor to fully evaluate risk-adjusted returns. In many cases, the theoretical premium for illiquidity simply doesn’t materialize once all costs are accounted for.
I recalled Charles Ellis broaching this subject in his book “Figuring it Out”. So, I asked ChatGPT to summarize Ellis’ position (a faster and more accurate approach than myself trying to): 1. Illusion of Outperformance: Ellis argues that private equity (PE) and other private funds often appear to outperform due to the way returns are reported. Private funds use Internal Rate of Return (IRR), which can be misleading because it assumes reinvestment at the same high rate and ignores the timing of capital deployment. Public funds report time-weighted returns, which are more reflective of actual investor experience.2. Risk and Liquidity Premiums: While private investments do offer some premium, Ellis points out that much of their “excess return” can be attributed to illiquidity, concentration, and leverage—not superior skill. Essentially, you’re getting paid more because you’re taking on more risk and giving up liquidity, not because the investments are inherently better.3. Selection Bias: Ellis highlights survivorship and selection bias in private fund reporting. Underperforming funds are less likely to be included in performance databases, and firms selectively market only their best-performing funds.4. Declining Alpha Over Time: He emphasizes that as private equity has become more popular and capital has flooded into the space, the opportunity for consistent outperformance (alpha) has diminished. Competition has driven up prices and reduced the inefficiencies that early PE funds once exploited.5. Access and Fees: Ellis also critiques the high fees of private funds—typically “2 and 20” (2% management fee, 20% of profits)—which erode returns. He argues that these fees, combined with opaque reporting and limited liquidity, make private funds less attractive for most investors compared to low-cost index funds.Ellis’s overall conclusion is that the average investor is unlikely to benefit from private funds, especially when compared to the simplicity, liquidity, and transparency of public market index investing.
This past tax filing I was looking for clarification in completing Form 1040, line 4a “IRA distribution” and 4b “Taxable amount”. Our IRA distribution consisted of non-taxed funds rolled over into our Thrift Savings Plan (similar to a 401k) for civil servants, proceeded by converting the non-deductible funds into our Roth accounts. I carefully read the instructions that address these two lines. The instructions were fairly clear, but I still wasn’t 100% sure on the interpretation of the “Exceptions”. So, I called the IRS before the end of the tax year, thinking they shouldn’t be overwhelmed by tax filers with questions. Well, getting to talk to an agent was quite a challenge between having to wait over 45 minutes just to get to the section that handles these types of questions to being hung up on as I was being transferred. This happened more than once. So, I decided to check with AI ChatGPT and received a coherent and straight forward explanation, which was how I had interpreted the rules. I still pursued having a discussion with an IRS agent and I finally got a hold of one. All they did was read the instructions back to me, really not much help. So, I asked the person if they were familiar with AI ChatGPT and they said no and didn’t have much interest in it. As I hung up the phone I thought, this person may be out of a job whenever the IRS employs AI. I used TurboTax to complete our tax return and it handled the required inputs and outputs and even typed “ROLLOVER” next to line 4b as mentioned in the 1040 instructions.
If I was not in a rush, I would definitely request the store correct the pricing error. Not so much for my sake, but to alleviate other customers from being overcharged or hassled with getting a refund. In fact the other day I picked out an item in the frozen section at Costco. When checking out the price was a few dollars more than I recalled seeing. So I went back to check the price and then to customer service. The one lady behind the counter was busy with a customer who was taking forever. My wife said let’s go and I said I didn’t want others buying the product getting ripped off. So I asked if they could get another person to the counter since there was now a line behind me. Another person came to help and sent someone with me to check the price. Well, the price I saw was on the shelf containing the stack of items, where the actual price was on the shelf above. My mistake,10 minutes lost. I’ll be more careful next time.
Interesting story on fate Andrew. Here’s mine which i think is somewhat unusual and not what I would have ever envisioned. After I graduated from university I got a job with the railroad refurbishing the northeast corridor. A job i enjoyed. I liked reading about finance and after a couple of years I thought about getting an MBA. Anyway, me and two buddies went on a trip out west to visit national parks. We stopped in Reno, NV and I lost $9 in a casino playing blackjack, so I bought a short book on blackjack strategy and studied the basics. When we got to Las Vegas I visited a casino to test the strategies I learned. I sat at a $2 table and played blackjack. With a little skill and plenty of luck, betting only $2 a hand and sometimes splitting cards and doubling down I was up over $100. A guy next to me was intrigued and struck up a conversation. He asked what I did for a living. He worked for the Naval Engineering Department in Washington DC and said they were recruiting engineers and gave me his card. This was during Reagan’s 600 ship Navy buildup. I was curious so I called him. I was intrigued by the program the Navy had to train civilian engineers in naval engineering. They said they’d also send me to graduate school if I wanted. I was okay with getting a MS in engineering vice an MBA. So I left the railroad and started with the Navy. After two year I went to the University of Michigan for Marine Engineering and Naval Architecture. I met a girl in my apartment complex who was studying music performance. We became friends. She graduated at the same time I did. I went back to Washington DC and as fate would have it there was an opening in a military band for her instrument. She won the audition and moved to Washington. After a few years we married. So from that fateful visit to a casino, I won a $100, got a career and a wife. Talk about luck! Incidentally, I haven’t gambled at a casino since that time.
Steve, you alway pick interesting things to write about. If active ETF’s trade more than passive ETF’s, they may generate capital gains. We may also have to consider after tax returns if held in a taxable account.
Matt, I found your article enlightening. I have 2 SMA’s, a global growth equity account and a municipal bond account. You are correct, the management fee is less than most similar mutual funds, although not ETFs. Where the equity account shined was in 2022 market sell off. In October of that year I had the SMA sell 10 of the 27 companies I owned for the tax loss and bought a MSCI All Country World Index ETF to stay-in-the-market. 31 days later, to avoid violating the Wash sale rule, I had the SMA sell the ETF and buy back those companies. This proved very advantageous. An advantage of the muni bond SMA is 50% of the bonds are from the state I reside so I pay no federal or state tax on the interest earned on those bonds. Also, the SMA doesn’t have to sell bonds when the environment is unfavorable due to redemption requests common with mutual funds. As for evaluating performance, your advice is spot on. I can compare my results to the SMA company’s mutual fund that hold most of the same companies. Although not an apple-to-apple comparison the MSCI All Country World Index ETF has out performed my SMA. One reason is the index holds NVIDIA, Meta and a few other high fliers, which my SMA doesn’t hold, but are held elsewhere. When compared to a National Muni Bond ETF, my SMA has also slightly under performed, although the ETF‘s credit quality, duration and holdings differ. I can instruct my SMA to lower the credit quality a little and extend the duration to try and pick up a little more yield.
Adam, good article. How about a word on a bond fund’s sensitivity to Fed’s fund rate changes? This can be estimated based on the bond fund’s duration, a concept that may be confusing to some.
Comments
It’s great to see the interest in sharing reviews of books that HumbleDollar readers feel are relevant to the community. As Jonathan mentioned, book reviews are welcomed as regular Forum posts. But, in my “humble” opinion (I couldn’t resist), it would be helpful to have a dedicated section for book reviews, similar to the one set aside for Articles. Otherwise, these posts can easily get buried within the broader Forum discussions. A dedicated space would make it easier for readers to browse and discover titles others have found valuable. I’m not familiar with the level of effort required to modify the site to enable this suggestion, but if it’s feasible, I think it would be a nice addition to HumbleDollar.
Post: Sharing What We Read: Book Reviews for HD Readers
Link to comment from May 7, 2025
This is a follow-up comment to my earlier comment on Adam’s article. I read an interesting article in Forbes.com titled “Why Private Equity Is Betting On Tokenization” by Azeem Khan, dated May 04, 2025. By tokenizing private investments Wall Street firms find a slick way to distribute illiquid, risky and potentially non-profitable assets to the public under the guise of block-chain technology. Here’s a ChatGPT summary of Khan’s article: Over the past decade, private equity (PE) firms thrived in an environment of low interest rates and easy capital, rapidly expanding their holdings across real estate, healthcare, tech, and infrastructure. Assets under management surged past $13 trillion by 2022. But by 2025, the macroeconomic climate has reversed: inflation remains persistent, interest rates are high, and liquidity has dried up. Traditional exit routes—IPOs, acquisitions, and secondary sales—have stalled, leaving PE firms sitting on vast portfolios they can’t easily monetize. In this new landscape, tokenization is emerging not just as a novel innovation but as a strategic necessity. By converting illiquid assets into blockchain-based digital tokens, firms can fractionalize ownership, enable round-the-clock trading, and potentially tap a broader global investor base. Major financial institutions like BlackRock and Franklin Templeton are already building tokenized fund structures, signaling a broader shift toward blockchain infrastructure. Crucially, this shift isn’t being driven by a sudden love for blockchain—it’s being driven by pressure and need. Firms are turning to tokenization because they need new "liquidity rails" for assets that no longer have viable exit paths. The technology is becoming a distribution tool for offloading hard-to-sell holdings, especially to retail investors, who are being invited into markets that were previously the domain of large institutions. That’s why understanding the motivations behind tokenization is vital. While it may democratize access and improve capital efficiency, it also risks becoming a mechanism for transferring illiquidity and valuation risk to less sophisticated investors under the guise of innovation. Without adequate regulation and investor protections, tokenization could mask deep structural problems in private markets.
Post: Suffering in Private
Link to comment from May 5, 2025
Excellent article, Adam. This topic—does PE outperform publicly available investments—has interested me as I’ve had the opportunity to invest in private markets, but have remained skeptical. Having read various articles on the subject, I’ve reached the same conclusion as you have. I also perceive that PE is a way for wealth management firms to lock in clients and collect fees, since it’s difficult to leave a firm that has an investment association with a PE firm in which you are invested. The long lock-up periods inherent in PE investments reduce portability (clients staying with the firm) benefiting the advisor and in some cases more than the client. As expense fees have been reduced with the advent of index funds and ETFs, Wall Street has had to innovate—often cleverly—to protect and grow its fee base. PE investments have emerged as a profitable approach offering firms a means to reclaim margin lost to low-cost passive products. While some private equity funds have outperformed public benchmarks, persistent outperformance is rare, especially net of fees. The lack of transparency, high costs, and illiquidity make it difficult for the average investor to fully evaluate risk-adjusted returns. In many cases, the theoretical premium for illiquidity simply doesn’t materialize once all costs are accounted for. I recalled Charles Ellis broaching this subject in his book “Figuring it Out”. So, I asked ChatGPT to summarize Ellis’ position (a faster and more accurate approach than myself trying to): 1. Illusion of Outperformance: Ellis argues that private equity (PE) and other private funds often appear to outperform due to the way returns are reported. Private funds use Internal Rate of Return (IRR), which can be misleading because it assumes reinvestment at the same high rate and ignores the timing of capital deployment. Public funds report time-weighted returns, which are more reflective of actual investor experience. 2. Risk and Liquidity Premiums: While private investments do offer some premium, Ellis points out that much of their “excess return” can be attributed to illiquidity, concentration, and leverage—not superior skill. Essentially, you’re getting paid more because you’re taking on more risk and giving up liquidity, not because the investments are inherently better. 3. Selection Bias: Ellis highlights survivorship and selection bias in private fund reporting. Underperforming funds are less likely to be included in performance databases, and firms selectively market only their best-performing funds. 4. Declining Alpha Over Time: He emphasizes that as private equity has become more popular and capital has flooded into the space, the opportunity for consistent outperformance (alpha) has diminished. Competition has driven up prices and reduced the inefficiencies that early PE funds once exploited. 5. Access and Fees: Ellis also critiques the high fees of private funds—typically “2 and 20” (2% management fee, 20% of profits)—which erode returns. He argues that these fees, combined with opaque reporting and limited liquidity, make private funds less attractive for most investors compared to low-cost index funds. Ellis’s overall conclusion is that the average investor is unlikely to benefit from private funds, especially when compared to the simplicity, liquidity, and transparency of public market index investing.
Post: Suffering in Private
Link to comment from May 3, 2025
This past tax filing I was looking for clarification in completing Form 1040, line 4a “IRA distribution” and 4b “Taxable amount”. Our IRA distribution consisted of non-taxed funds rolled over into our Thrift Savings Plan (similar to a 401k) for civil servants, proceeded by converting the non-deductible funds into our Roth accounts. I carefully read the instructions that address these two lines. The instructions were fairly clear, but I still wasn’t 100% sure on the interpretation of the “Exceptions”. So, I called the IRS before the end of the tax year, thinking they shouldn’t be overwhelmed by tax filers with questions. Well, getting to talk to an agent was quite a challenge between having to wait over 45 minutes just to get to the section that handles these types of questions to being hung up on as I was being transferred. This happened more than once. So, I decided to check with AI ChatGPT and received a coherent and straight forward explanation, which was how I had interpreted the rules. I still pursued having a discussion with an IRS agent and I finally got a hold of one. All they did was read the instructions back to me, really not much help. So, I asked the person if they were familiar with AI ChatGPT and they said no and didn’t have much interest in it. As I hung up the phone I thought, this person may be out of a job whenever the IRS employs AI. I used TurboTax to complete our tax return and it handled the required inputs and outputs and even typed “ROLLOVER” next to line 4b as mentioned in the 1040 instructions.
Post: TCJA – What to Keep, What to Toss
Link to comment from April 23, 2025
If I was not in a rush, I would definitely request the store correct the pricing error. Not so much for my sake, but to alleviate other customers from being overcharged or hassled with getting a refund. In fact the other day I picked out an item in the frozen section at Costco. When checking out the price was a few dollars more than I recalled seeing. So I went back to check the price and then to customer service. The one lady behind the counter was busy with a customer who was taking forever. My wife said let’s go and I said I didn’t want others buying the product getting ripped off. So I asked if they could get another person to the counter since there was now a line behind me. Another person came to help and sent someone with me to check the price. Well, the price I saw was on the shelf containing the stack of items, where the actual price was on the shelf above. My mistake,10 minutes lost. I’ll be more careful next time.
Post: Getting Rolled by Jonathan Clements
Link to comment from September 19, 2024
Interesting story on fate Andrew. Here’s mine which i think is somewhat unusual and not what I would have ever envisioned. After I graduated from university I got a job with the railroad refurbishing the northeast corridor. A job i enjoyed. I liked reading about finance and after a couple of years I thought about getting an MBA. Anyway, me and two buddies went on a trip out west to visit national parks. We stopped in Reno, NV and I lost $9 in a casino playing blackjack, so I bought a short book on blackjack strategy and studied the basics. When we got to Las Vegas I visited a casino to test the strategies I learned. I sat at a $2 table and played blackjack. With a little skill and plenty of luck, betting only $2 a hand and sometimes splitting cards and doubling down I was up over $100. A guy next to me was intrigued and struck up a conversation. He asked what I did for a living. He worked for the Naval Engineering Department in Washington DC and said they were recruiting engineers and gave me his card. This was during Reagan’s 600 ship Navy buildup. I was curious so I called him. I was intrigued by the program the Navy had to train civilian engineers in naval engineering. They said they’d also send me to graduate school if I wanted. I was okay with getting a MS in engineering vice an MBA. So I left the railroad and started with the Navy. After two year I went to the University of Michigan for Marine Engineering and Naval Architecture. I met a girl in my apartment complex who was studying music performance. We became friends. She graduated at the same time I did. I went back to Washington DC and as fate would have it there was an opening in a military band for her instrument. She won the audition and moved to Washington. After a few years we married. So from that fateful visit to a casino, I won a $100, got a career and a wife. Talk about luck! Incidentally, I haven’t gambled at a casino since that time.
Post: Friday the 13th, the Luckiest Day of My Life
Link to comment from September 15, 2024
Steve, you alway pick interesting things to write about. If active ETF’s trade more than passive ETF’s, they may generate capital gains. We may also have to consider after tax returns if held in a taxable account.
Post: Active vs. Passive ETFs: Fidelity and T. Rowe Price Meet Vanguard
Link to comment from September 13, 2024
Matt, I found your article enlightening. I have 2 SMA’s, a global growth equity account and a municipal bond account. You are correct, the management fee is less than most similar mutual funds, although not ETFs. Where the equity account shined was in 2022 market sell off. In October of that year I had the SMA sell 10 of the 27 companies I owned for the tax loss and bought a MSCI All Country World Index ETF to stay-in-the-market. 31 days later, to avoid violating the Wash sale rule, I had the SMA sell the ETF and buy back those companies. This proved very advantageous. An advantage of the muni bond SMA is 50% of the bonds are from the state I reside so I pay no federal or state tax on the interest earned on those bonds. Also, the SMA doesn’t have to sell bonds when the environment is unfavorable due to redemption requests common with mutual funds. As for evaluating performance, your advice is spot on. I can compare my results to the SMA company’s mutual fund that hold most of the same companies. Although not an apple-to-apple comparison the MSCI All Country World Index ETF has out performed my SMA. One reason is the index holds NVIDIA, Meta and a few other high fliers, which my SMA doesn’t hold, but are held elsewhere. When compared to a National Muni Bond ETF, my SMA has also slightly under performed, although the ETF‘s credit quality, duration and holdings differ. I can instruct my SMA to lower the credit quality a little and extend the duration to try and pick up a little more yield.
Post: False Comparisons
Link to comment from September 13, 2024
Adam, good article. How about a word on a bond fund’s sensitivity to Fed’s fund rate changes? This can be estimated based on the bond fund’s duration, a concept that may be confusing to some.
Post: Giving Credit
Link to comment from September 8, 2024
Steve, I appreciate this article and your due diligence that supports your conclusions. You write well, keep it up. Thanks
Post: Nasdaq 100 Option-Income ETF: Is the Sequel to JEPI Just Theater? by Steve Abramowitz
Link to comment from September 6, 2024