Grading Promoters – Fairpointe… B

I ran across a site advertised on Google today – – run by a company called Fairpointe. This post is just my initial opinion from reviewing their web site. I haven’t spoken with or met these people or anyone who has done business with them. Once I have I will post an update.

Fairpointe offers self directed IRA investors the ability to invest in deeds of trust for properties in Colorado. A deed of trust is essentially a mortgage. Fairpointe’s site says in one place that the minimum investment amount is $25,000, while in another place they claim it’s $50,000. Either way, I immediately can respect what they are promoting more than those who promote putting all your retirement funds into one or two pieces of real estate through direct ownership. They also seem to allow, possibly encourage, forming an investment group so that each investor can invest a smaller amount which allows for diversification. I like the sound of that.

In the past, I’ve run across self directed IRA/401k promoters who really bash the stock market. Usually it’s in a very emotional way that just comes across as a cheap shot, and those people lose credibility in my book. Now, Fairpointe on the other hand does oppose the stock market, but in an interesting way. They point out what I believe to be the single misunderstood fact about numbers, math, money and investing. In fact, I think that the securities industry would not exist if everyone understood this concept:

Lying averages

Ever heard the phrase “numbers don’t lie”? Oh, yes they do. If 4 different investment portfolios each start at the same time, start with the same amount of principal, experience different gains/losses each year, but have the same average return during a period of time, would they perform the same during that period of time? No.

While many people believe that a portfolio having an average return of 14% means that it performs the same as if it had experienced actual returns of 14% each year… this simply isn’t true. It’s a fuzzy mathematical assumption that runs contrary to actual math. If two portfolios are compared during a period of time that both have the same average return, but one has losses, the portfolio without the losses will outperform the other… even though they both have the same average return. Fairpointe’s How Deeds of Trust Beat the Market explanation should be enlightening to anyone who has ever believed the classic stock market pitch. I briefly checked Fairpointe’s math, and the portioned I examined was accurate. Check it out.

Now this company’s web page has its share of grammatical and punctuational errors, but I don’t see that as a deal killer for reviewing a mortgage broker. I’d like to see more companies like this across the country, and less Waterfords and CheckbookIRAs.

Once I actually meet and learn more about Fairpointe, I’ll post an update and revise their grade score accordingly.

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