You might have thought it was time for spring break, but school is in session today. For today’s lesson we are going to be covering biology and some basic math.
Are you familiar with a remora? Just in case, the remora is a fish that attaches itself to a host. Hosts for remoras typically include sharks, whales and rays. While many people believe the relationship between the remora and its host is a mutually beneficial one or even commensal (one party benefits and the other does not suffer), scientists are shifting their thoughts that the relationship may be more complex.
Remora literally means “hindrance.” When studying remoras we look at their diets. Remoras that live in the open ocean feed mostly on crustaceans. The assumption is they are removing and consuming crustaceans off their hosts. Scientists now believe remoras are simply eating crustaceans that fall off the host naturally and happen to fall right in front of the mouth of the remora. Kind of like how advisors do not control the performance of the market, but so many investors think otherwise.
While the common thought is remoras do not harm their hosts, let’s look at the attached video showing quite a few remoras on a whale shark. Having this many remoras attached to the host absolutely has to slow it down as it moves through the water. Heck, my sons swim and they shaved for high school swimming finals. That is high school, so imagine the drag on a whale dealing with this nonstop. Talk about being exhausted from the reduced effectiveness of its movement through the water. Again, maybe not a commensal relationship. Seems more like a parasitic relationship where one benefits and the other suffers.
Every time I see or hear the name remora I instantly think about Jack Bogle and how fees and commissions slow down portfolio performance. If you have been reading my stuff for some time this will be familiar to you. To cite him directly, I turned to an article in MarketWatch from a couple of years ago:
"Let's assume the stock market gives a 7% return over 50 years. If you get to 7%, each $1 goes up to $30. If you get to 5% (that would be 7% less the industry's typical 2% all-in costs), you get $10," Bogle recently said in an interview.
"So $10 versus $30. You put up 100% of the capital, you took 100% of the risk, and you got 33% of the return! As I say to people, if that strikes you as a good deal, by all means do it!"
Now, I came across a great video recently. It shows a cormorant feeding on remoras on a whale shark. I thought it was a great visual representation of what I do as a flat-fee CFP®. I help my clients figure out how to control fees, choose lower-cost investment strategies, minimize taxes, stay away from high-commission products, and more. Maybe I need to change my firm mascot from my two dogs to a cormorant? Regardless, it is important for you to think about the remoras you have in your financial life. Hey, but maybe you are okay with free-riders who are significantly dragging down your performance.