Podcast: Investing Your Wealth After a Business Sale

By Noah Rosenfarb
Published: March 22, 2015 | Last updated: March 22, 2024
Key Takeaways

Plan for the transition from earning money or wealth accumulation as a business owner, to spending money or wealth utilization after you sell your business.


In this session you will learn about:

  • What should someone do to figure out how much they need to be financially secure after a business sale;
  • Ways to prepare emotionally and financially from value creation as a business owner to wealth preservation after a sale;
  • Strategies used by high net worth individuals to minimize taxes;
  • What you should look for in a wealth manager; and
  • The differences between brokerage firms, RIA firms, and family offices out there advising clients about their investments.

About the Guest

Kaushal "Ken" Majmudar, JD, CFA serves as chief investment officer at Ridgewood Investments and was recognized by "" as one of the 50 Most Experienced Independent Advisors in the country. Ken is active in the leading professional groups for investment and wealth managers as a member of both the CFA Institute and the New York Society of Securities Analysts. He is also a member of the Value Investors Club – an online members-only group for skilled value investors.


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Read the Full Transcript Here:

Noah Rosenfarb: Hi, I’m real pleased to have with us today Kaushal Majmudar, the Chief Investment Officer of Ridgewood Investments, a Top 50 Independent Advisor. Ken, my good friend and partner, I’m so glad to have you with us today. Let’s get right into it. Why don’t you tell our listeners what they should be doing if they’re trying to figure out how much money they need to be financially secure?


Kaushal Majmudar: Thanks, Noah. It’s great to join you here today. I’m glad to be a part of this podcast series and glad to share our knowledge in the areas that might be helpful to various business owners as they think about their financial alternative.

I’ve worked with a lot of people and as you get older or when you look at a life event like an exit, what I find experience-wise is that people actually don’t really know how much money they need but there is a way to figure that out, the way that I generally recommend to people. In fact, we have some budgeting tools that we send to people.

The first part of the exercise is to take one of these budgeting tools or even something as simple as a spreadsheet and really try to capture your expected expenses. The way that we do it in some of our sheets is we actually divide these expenses into two different categories. The first category is what we call Non-discretionary Expenses. These are the expenses that you have to have. The things like tuition, rent, health costs, and things like that would fall under that category, the non-discretionary.

Then you also have the second category, which is Discretionary Expenses. These are the things that you would like to have ideally, and that would include a budget for eating out, entertainment, vacation, travel, and things like that.

Typically the best way to figure out how much people need is really to look back at what they’ve been spending and doing it on a detailed basis each month, looking at your budget over a typical year and projecting that forward. I think a lot of times when people do that exercise, if they do it meticulously, they’re often surprised that the actual result may be different than maybe what they would have guessed.

I think that that's a good exercise for most people to do and often it’s helpful for people who may not be used to doing things like that to work with an experienced financial professional such as Freedom, with your approach to comprehensive financial planning, just helps that process go as smoothly as possible.

Noah Rosenfarb: During that process, let’s say you’ve figured out you’ve got about $12,000 a month of non-discretionary stuff, stuff that just comes in the door every month whether you like it or not, and then there's another $20,000 of discretionary expenses between the cars, the travel, the entertainment, and the fun stuff you’re doing.

So I’m spending $360,000 a year, net of taxes, now what? I’m 55 years old. Do I need it for 50 years? Do I need to account for inflation? Do I have to account for investment performance? How do you think those two things weigh in on someone’s decision?

Kaushal Majmudar: Yeah, clearly you do need to account for all of those things but I guess that would be the second part of the exercise. In Part 1, which is what we were just talking about, you’re actually looking at your current costs and you’re solving or trying to figure out what your budget is, both discretionary and non-discretionary.

Incidentally, the reason why it’s good to distinguish between the two is because to the extent that you’re going to the second part of the exercise, which is now solving for that type of a cash flow going forward as your situation transitions from one phase of life to another, obviously the non-discretionary part is essentially non-negotiable for the most part or maybe only bendable in the long run, whereas you might have a little bit more play on some of the discretionary parts. Doing the exercise actually helps you identify where maybe the low hanging fruit is on that side of the ledger.

On the other side of the ledger of course is an even more involved exercise of trying to say okay, now that I know how much I need in terms of my cash flow to cover my discretionary and non-discretionary expenses, what do I have on the asset side to meet that need. For income, passive income, let’s say you’re talking about moving into a phase of life where you’re going to live off of or harvest off of the value that you have accumulated or created, that's a whole different exercise. That’s one that definitely needs the input of an experienced financial team, particularly someone who knows investment asset classes and investment returns, and is able to design an approach because there are multiple ways to try to solve for that cash flow and each possibility, each possible option, has many different risk and reward parameters associated with it.

That’s kind of a multivariate optimization problem, so to speak, and it’s one that’s really best done with a team of folks who really know not only the finance side of things but also the investment side of things, and know what the options are. Obviously, that’s not going to be a static strategy. It also changes over time.

The other reason why it’s really important is because depending on how you do the strategy, it will drive possibly needing changes in one form or another. You might find in one situation that the assets are more than enough to generate that income. In other situations where that might not be the case, you need to iterate and go back and see where the moving pieces are and where you can try to optimize it so that it’s the best it can be in a given situation for a given client, given the cash flow that they need and the assets that they have available.

Noah Rosenfarb: So with some of your clients that are living off of their assets, what was the experience like for them during the market downturn? Do you feel like some of those clients that felt financially secure maybe had some insecurity? Did people’s math change of how much they actually need to feel comfortable?

Kaushal Majmudar: Well in our case, it didn’t. I’m happy to say that largely people that we have been managing money for, that have completed through the down cycle and the subsequent rebound which in my experience, when markets go down they also always rebound. So I think the key trick there is to make sure that your investment strategy doesn’t get compromised or essentially changed at the worst possible time.

In our case, we planned for cash flows going out for the next five or seven years and we never expose those to market risks. We’ll minimize the market risk that they’re exposed to and I think that that should be a part of any sensible cash flow strategy. If you do that, if you follow some of those basic sensible and somewhat conservative rules, you really shouldn’t be in the position where the market falls and all of a sudden you’re forced to worry or forced to panic, and then switch your strategy around. That’s obviously the wrong time to do it.

So no, in our case we, I think, did a decent job of giving people portfolios that could withstand that, which also makes sense because actually if you look at the history or markets, I tell all of our clients upfront and we try to educate them on market history and what they can expect, that one out of every four years, 25% of the time, markets fall. Sometimes they fall a little and sometimes they fall a lot. The good news is that they also always recover but sometimes it takes a little bit longer. Sometimes, it’s not obviously every fourth year. It can be two years out of eight in a row. So we know that the market is going to fall roughly that frequency. History teaches us that so we have to prepare for it.

That’s one of the key things that we do as an investment advisor. It’s try to design portfolios that can succeed in a variety of market environments and under a variety of circumstances as long as the client sticks to their long term plan.

Noah Rosenfarb: I've found that to be the case. So in talking about that type of long term planning and what goes into the emotional considerations that people have to be conscious of when being a long term investor, one of the most significant changes during the exit planning process and transitioning from earning money or wealth accumulation, to spending money or what we call wealth utilization, is a real difficulty in a lot of the mindsets for people who are so used to creating value with their own efforts and are now with this pile of liquidity that’s getting redeployed in a variety of ways, and maybe the value creation or utilizing those assets is a very different experience. Maybe you could talk about that. How do people get prepared for that and what frame of reference might they want to adopt?

Kaushal Majmudar: Yes. Well, I think that preparation clearly helps you. I think that one of the issues that we’ve certainly encountered—I’m sure you have seen this as well—is that in a lot of cases, people haven’t prepared at all or minimally. So they really have no clue what to expect and then it’s a big transition.

I think one of the advantages of working with people well ahead of an exit event is obviously a multifold one. It gives you a lot of guidance and a lot of coaching in terms of what to expect so that the transition is actually smooth. Obviously, another big area of focus that a lot of folks in this area, including yourself, do is how to actually maximize the value that you get. Both of those things are, I think, extremely valuable. So if you do it right, it shouldn’t be a situation where you suddenly have this life altering event just drop down on you. You’ve prepared for it and the transition will be much smoother as a result.

But that having been said, clearly it’s a big change. On the emotional side, that's probably more of something a coach or a financial person could help you with. I can speak on the financial or investing side to the fact that from a financial point of view, I think of assets, whether they be a business that you’ve built with your own sweat and equity, or passive assets like you own in securities markets, to me are essentially fungible.

If I were to look at it purely logically and rationally as a business owner, I view transition as basically taking a concentrated ownership position in a business. Probably in many cases, it’s a business that’s really done well and they’ve created tremendous value, probably more value than they might have done in any other way including working somewhere, but now that they’re exiting, whatever the reasons are, we’re going to take those assets that are generated and try to efficiently deploy them in other assets.

Certainly, there’ll be income assets but also attractively, there’ll be business assets. The difference is that in your own business, you have to obviously work hard and any time that something goes wrong, as most of our businesses can relate to, ultimately the buck stops with them. Well now we’re going to transition their ownership to publicly traded or a more diversified set of assets including many good businesses.

The benefits of that is they will get a lot of the economic gains and growth of those businesses over time. They’re not responsible like they were in their own business for keeping the lights on, making sure everybody shows up, and dealing with every fire or emergency that comes up. Obviously, one of the good attractive aspects of that is in that phase of life when they’re trying to maybe have a greater balance between working and generating money and actually having time to enjoy the fruits of their hard work over many years, that type of an approach where we’re investing in other businesses that are professionally run can obviously be much better for the last opt point of view yet it still preserves a lot of the benefits of business ownership.

Just because you sell your business, it doesn’t mean you can’t be a business owner. You can be a business owner and you can get a lot of the benefits of being a business owner through securities markets with the crucial difference that you’re giving up that control and you’re also giving up all the headaches that go with that. I think that’s a big benefit for people in a certain phase of life.

Noah Rosenfarb: And I think a lot of times in deal structure that has an influence, some people don’t mind selling to a private equity firm where they give up control but they still have their responsibility and other people that drive them nuts so they’d rather sell to a strategic acquirer and get rid of the whole thing. Hopefully, they’ll redeploy their assets to some extent in publicly traded securities where they’ll continue on as a business owner but they won’t have those headaches.

How does that play out in the portfolios that you advise on? Do you see that certain business sellers are looking for concentrated stock positions or kind of more focused bets based on your expertise?

Kaushal Majmudar: In general, I think that there’s a nice mix of you want to have, a certain of extent of diversification, so it’s never basically just putting all your eggs in only a couple of baskets. But I do think that probably most portfolios in the world to an extent may have a level of diversification which may be more than they need. I think that when you own businesses, whether they be the business that you own directly or a handful of businesses that you own indirectly through passive positions of the public markets, at the end of the day owning a business is owning a business.

That’s, I think, one big differentiator between our approach, which is modeled after the Warren Buffett view of investing, and maybe the conventional view, which is we work at investing very similar to the way that probably most of those owners out there look at investing in their own company. Every time we buy a position in a company, whether it’s publicly traded or not, we’re really looking to analyze that as a business owner would analyze owning the whole company. Such a small change in the way we look at it actually leads to very large differences in terms of what we ultimately end up doing and the ultimate results that we end up generating.

So I think that a lot of the business owners that might be listening to this or reading this online will probably be able to relate more to our approach, which is really what I’m saying: How can we own good businesses that we want to own for the long run through these other alternatives? That’s really not so different from the analyses that all our owners would do when they were looking at maybe an expansion in their own business or buying a company that they want to invest in for their current company. I think actually investing, when it’s done well, is very business-like and the thought process and the analysis that we do is not that dissimilar from the thought process or analysis that many of these business owners would already be familiar with.

Noah Rosenfarb: Let’s change gears and talk about taxes. Maybe you could describe what strategies your wealthiest clients use to try and minimize the income taxes that they’re paying.

Kaushal Majmudar: Sure. A lot of times, there are some basic strategies and there are some advanced strategies. I guess the first point I’d make is investing well is a distinct question that a lot of times, people chase tax savings and they actually invest badly to get tax savings. I wouldn’t necessarily be an advocate of that but I do see that all the time. Many times, things are done in the name of taxes that end up being terrible from an economic point of view. There are a lot of pitfalls there that one would really want to avoid before we even get into the question of what to do to kind of minimize your taxes.

When you get directly into the tax minimization itself, there are strategies you can do even well before you sell your business. One common one is how your retirement plan is structured. In certain companies which are more closely held, a little bit smaller staff, a type of retirement plan called the Defined Benefit Plan, which we’ve helped many of our clients set up when it’s appropriate to their situation, can be a great way to defer a good amount of their income from taxes, which lets them build substantial value in these retirement plans that can be part of the mix once they actually retire. Often exit is associated with that type of an event. Definitely considering tax deferral plans including the Defined Benefit Plan and even the 401K plan to a lesser extent is definitely a piece of the puzzle.

In many cases, you can get into more advanced strategies when you’re talking about taxes which really aren’t in the scope of this discussion. For a substantial business, a substantial small company or middle-sized company, things like captive insurance companies and employee stock ownership plans can also be part of it. These are more advanced strategies obviously.

Just for completeness, I should mention municipal bonds where the interest isn’t taxed. There are a lot of pros and cons to them but certainly that would be something to have a conversation about and that should be in the next. Actually, one thing that people don’t really focus on as well is that capital gains rates are much lower than ordinary income rates. So one way to actually save and defer taxes is to simply, similar to our portfolio approach which again is similar to the way Buffet invests, not have too much turnover in your portfolio, if you can find a smaller number of great businesses that you can buy to get priced and hold onto for the long term.

The nice thing is that the companies can build up that value and you’re never really paying taxes on it until much later so it can be a compounding vehicle. Then when you eventually sell, you’re paying long term capital gains at least at today’s 15% rate, which is a lot more tax efficient than having a high-turnover portfolio that generates a lot of ordinary income.

Noah Rosenfarb: Those are all great recommendations. When people are running their business, they’re likely to have some team of advisors in place that they’ve been working with, they’re running their money on their own, or their wealth is so concentrated in their business that they’re not focused on who’s helping them. Usually during an exit plan, I find owners are thinking about building a team and how to please people on their team.

What should they look for in their money person, in the person who’s going to help them with their investments, with their financial planning? Give us some descriptions. Obviously, your experiences on the money management side, maybe you could start with that and maybe get a little broader and work backwards.

Kaushal Majmudar: Sure. I’ll be happy to address that. I think it would be nice if we lived in a world where people are very strategic about how they did things but the reality, as we all know, is that everybody’s really busy. Often people are so busy just fighting the fires that arise and just trying to do the work that’s in front of them that they often don’t have the time or they don’t feel that they have the time to focus on actually having a high quality team around them. Ultimately of course—everyone has a lot of examples of this—it can end up being very costly.

So I would first of all say to somebody that it’s very important to have a team and having high quality members of that team will really pay a lot of dividends. If you take the time to consult with somebody who can help you put that type of a team together, that can pay a lot of dividends going forward.

Specifically, let’s make the assumption that you do have a team and you’re trying to identify specifically on the investment management side who to take advise from and who would be good, I definitely have some thoughts on that. The first thing I would say, even though I’m an investment manager or an investment advisor, it’s been my experience that the vast majority, certainly over 50% of the folks that call themselves money managers or investment managers I believe don’t really do a good job. One of the reasons, which I’m sure many of our readers might be able to relate to, is the "business is full of people who really are just sales people pretending to be professionals." That can have devastating consequences if you’re not really aware that really all you’re doing is dealing with a sales person with certain conflicts of interest and maybe not the type of professional background that you really would need in somebody.

Being aware of that, you really need to sort out and try to weed out the people that are more than just sales folks. What I would look for in somebody who was managing my money is a handful of things. One is I would definitely scrutinize their background in terms of educationally and professionally. I think that a lot of people who are pretty smart, savvy, and intelligent end up seeking advice from people that maybe aren’t nearly as smart, savvy, and intelligent as they are. I think that that ends up being a mistake.

So I do think that one should try to screen for those qualities however way it makes sense to them, whether that may be looking at the person’s academic credentials, work experience, and certain financial designations. I’m a CFA, as you know, which stands for chartered financial analyst. That’s certainly a kind of credential that’s recognized worldwide and involves a number of criteria.

One thing I’d be cautioning people on by the designation side is that in this financial industry, because it’s so sales driven, there are a lot of kind of fake designations that have been created just so people can add letters to their name so it’s not enough just to see that a person has a bunch of designations, really scrutinize those. The two that I think are the most respected are the CFA and the CFP. If you see anything other than those two, then I’d suggest you just do some due diligence and research to see what the criteria was.

So one is the background of the person. The second is I would also look at what successes they’ve had, their ethics, and try to probe those issues as much as possible. That would be another aspect. A third aspect is what’s their philosophy? In our case, we have an investment philosophy which is modeled after Warren Buffett, called value investing. The reason that we have that philosophy is that we have found that over the long run, the track records show that value investing is one of the most successful, if not really the most successful way, and that's for the long run. I find that a lot of people don’t have a philosophy so there really isn’t any true north that they’re really espousing.

Another thing that I would suggest to anybody to look for in their investment professional or money person besides the things that we’ve already talked about is their approach. In our case, we take very much an educational-type approach as opposed to a sale-type approach. I would definitely recommend that people screen for that. When they’re talking to their potential advisor candidates, they should be probing to see what the dominant mode through which they’re trying to serve their clients is. Are they really taking a view of trying to be an educator or a mentor or are they really trying to take a maybe different approach? So those are definitely some of the other criteria.

Obviously also, one should look at the track record. Many money managers or financial advisors don’t actually offer a track record whereas many do. I would certainly scrutinize the person’s track record but I would view that as just one piece of the puzzle, and probably not even the most important piece. If those other aspects are there, then you know the track record should be a reflection of that, as opposed to the other way around where people sometimes are inclined to chase a track record rather than really trying to look at the whole package of how the track record was generated, the quality of the people involved, the background, and so on and so forth.

Noah Rosenfarb: Maybe that dovetails into my next question for you on understanding the differences between the types of people that exist in the world to serve the affluent business owner, the brokerage firms, the Merrill Lynches of the world, RIA firms like yours and mine, family offices, and other people that are out there advising clients about investments, insurance advisers. They run the full gamut and as you mentioned, some of them can produce these track records, some of them can’t.

Maybe you could describe a little bit about the distinctions between those groups and are they relevant to someone that’s out shopping, so to speak?

Kaushal Majmudar: I think there are good people in every different type of a package but maybe the proportions are a little bit different. As far as ourselves, we’re set up as what’s called an RIA, which stands for registered investment advisor. All that really means is that we’re authorized due to our status as an RIA to offer investment advice to clients for a fee. We charge a fee that we disclose upfront to provide the services of managing people’s money in an intelligent fashion, utilizing the research, the professional talent, and the experience that we have accumulated in order to help people invest their assets and generate a reasonable return with risk profile that they’re looking for. That’s the RIA firms.

The brokerage firms, or what’s also called the broker dealer, they’re really the firms that tend to have representatives that also are advisors in a sense. Often, they work more on a commission basis rather than a fee-only basis. Generally, they’re larger. They’re generally a little more sales oriented than most RIA firms are.

As far as family offices and things, that's really more of the type of thing that individual families who are usually high net worth sometimes establish though. Again, as an RIA firm, we clear this conflict of the multi-family office and so we kind of fall a little bit into that category.

The other thing I would say is that there is somewhat more of an overlap between these different factors. From my point of view, and obviously I’m a little bit biased, I think that certainly wealthier and sophisticated people after an exit should really be looking for people who are independent-minded and who are fee-only or primarily fee-based as the core of where they’re going to seek advice. I believe that that minimizes conflicts of interest and I think in the long run, we tend to lead to a far better result.

That having been said, there are great advisors at brokerage firms and in other formats as well but I do think that the world is shifting much more towards the RIA model and has been really for the last several decades.

Noah Rosenfarb: I just read a statistic that 50% of millionaires now work with registered independent advisory firms like yours and mine and I think that trend is continuing. Maybe you could describe what some of the distinctions are, like a fiduciary standard, things like that might be important to an investor that they might not understand and some of the legislation that’s trying to go on recently with duties to the clients. Is that something you could talk about a little?

Kaushal Majmudar: I think it gets a little confusing for a lot of people and some of these distinctions are a little bit finer distinctions that sometimes have importance and sometimes don’t. To put it in very simple terms, the sales-oriented organizations, and I would put brokerage firms and insurance firms largely in those categories though sometimes there are exceptions, they operate under what you hinted at, a suitability standard which simply means that they have a lower bar that they have to clear before they can sell a product to a client.

Since they’re generating commissions, there are a lot of instances that have been documented and those circumstances where clients were sold things that really ultimately were not appropriate for them. Because of that suitability standard, that lower bar that they have to clear, they were able to do that.

Registered investment advisors overall generally operate under a higher standard called a fiduciary standard where they really are required to think about whether a particular approach is right for the client. They have to act as a fiduciary, really act in the best interest of the client, which is often not the case in that other model.

Even if that weren’t the case, it think registered investment advisors, due to the technology changes that have happened, tend to do things which just make a lot more sense. They’re more transparent. There’s more separation of the various components of the services that they provide. There’s more transparent disclosure of what the fees are that the clients are ultimately going to pay.

Whereas in that other model, the fees are often hidden but it doesn’t mean you’re not paying them. They may not be invoiced to you but you will often end up paying more in that other model. Those who are ignorant of it don’t think that they’re paying anything but them ultimately what happens is as those hidden fees are taken out and accumulating, they’re ultimately going to see less value of their account because the fees are being paid. They’re just being hidden.

Whereas in the transparent model, it’s disclosed. Here’s the fee that you’re paying. Here are the services that you’re getting. It gives you a lot more ability to decide for yourself whether you’re getting the value that you were hoping for, for a given model of fees that you’re paying.

I think you could look across a number of different metrics. I would say to most people that the RIA model, in my opinion at least and the kind that is I’m in an RIA of, is they set up because I think it makes sense so my view is probably somewhat biased, that I think that most people really should be looking at the RIA model very carefully. I think that various characteristics including the transparency and the unbundling are really better for people and lead to better results in the long run for the most part.

Noah Rosenfarb: I couldn’t agree with you more. Another topic that I think people are really concerned about when they’re planning an exit and they’ve seen what’s happened over the course of the last few years with some of these large-scale Ponzi schemes, especially Madoff’s, the biggest one that has come around.

There are always people out there looking to take your money so aside from screening your advisors in the way that you described, what are some of the other things people should be thinking about? How do they make sure they protect their wealth from people that are looking to steal it from them?

Kaushal Majmudar: That’s really important. I think it was Will Rogers that quipped that he wasn’t so much looking for a return on his money than the return of his money. I think that in a lot of situations, people do things and the Will Rogers that quipped that he wasn’t so much looking for a return on his money than the return of his money.

I think that in a lot of situations, people do things and the Madoff stuff is probably the biggest example but obviously there have been other schemes like this in the past where ultimately people "invested their money" and they didn’t even get their principal back. Obviously, that’s just an unmitigated disaster and one that really should be avoided at almost any cost.

I think that there are a number of things that one can do. As an aside, I knew two people, well actually three, that had lost money with the Madoff scam. In two cases, I didn’t even know these people when they made those investments. In one case, I was approached by a friend of mine who had considered investing in that with us and unfortunately for him, ultimately invested with Madoff.

When he described to me how great Madoff was, and I’d never heard of Madoff before this but this was circa 2005-ish, well before the scam was uncovered, the way he was describing the financial characteristics if this investment immediately set off red flags. One of the things is just very simple. If it’s too good to be true, which essentially anybody who promises that they can make returns when other people can’t or they’re always right and the market is up and down, that doesn’t meet the basic sense of logic.

There are a lot of really smart people with great backgrounds and a lot of money looking for a small investment edge. I just think it’s highly unlikely that somebody off the reservation would suddenly have discovered some black box or magic box that allows them to do what nobody else is able to do. I think that that’s a huge red flag.

I think the corollary to that is the idea that, especially those people that are listening to our podcast where they’ve already generated substantial wealth, I don’t think one needs to get too greedy and try to chase astronomical-type returns. I think that following those basic rules of investing that we definitely recommend that people follow, that is basic diversification, investing with some different pools of money, each with a different characteristic, some conservative for income, some for growth, etc., and honing businesses that they understand that are really good businesses.

The other thing is when you’re dealing with money managers, which wasn’t done with Madoff and would have avoided all of the problems, is insist on independent, third-party custodians. For those who aren’t familiar with that term, I mean essentially we as an RIA don’t really, for the most part, other than one or two private funds that we run, keep the money in-house. We utilize third-party firms, very well known firms like Charles Schwab, Fidelity, TD Ameritrade. These firms hold all the assets that our clients want us to manage.

Our role is simply to supervise and use our investment expertise and research to deploy those assets intelligently but the assets are independently held by these firms. There’s $50 million of SIPC and excess coverage there. The client independently through the mail would receive their own statements. In that scenario, I’m not aware of a circumstance, with the trillions of dollars in those platforms, of anybody actually losing their account or money disappearing. If it were to happen, it would be covered by these firms, which have substantial resources. That’s very simple. It’s something anybody can do and most RIAs do. This would have avoided all these problems.

So there are a number of factors but I think the main ones that brought it down is make sure that the thing that you’re investing in meets this smell test and isn’t too good to be true. Secondly, insist on third party verification and these third party custodians to actually hold your money so that there really isn’t any opportunity for people to abscond with those assets. I think that a lot of misery could have been avoided if people would have just followed those two basic rules.

Noah Rosenfarb: Great advice. Anything else you want to share with our listeners before we wrap our call?

Kaushal Majmudar: Well, we didn’t really get to go into a lot of detail but I think anybody who’s interested in investing should study carefully the example of Warren Buffett and why value investing makes a lot of sense. That’s one thing I would definitely say.

The other thing that I would say is that good investing, the way we do it and maybe some others also do it, can be an incredibly powerful ally to people. Even well before they even do an exit, you can accumulate substantial wealth just taking some of the cash flow from your business and diverting it to investment accounts that already start implementing the type or strategy that we’re talking about. One can build substantial wealth but then obviously post an exit, where the liquid wealth can jump substantially, I would definitely tell people that they really ought to look at these types of strategies and these types of approaches because with 20 years of experience looking at a lot of different options, I believe that the Buffet model and the value investing approach is really right at the very top in terms of the types of risk-adjusted results that people can get.

For many people who’ve pursued this type of approach over time, it has produced pleasing results, obviously including all those original investors that invested with Buffet. Even if you can generate just reasonable, steady compounding, the results end up being quite, quite excellent over the long run.

Noah Rosenfarb: So if our listeners have an interest in learning about value investing but maybe don’t want to do the research themselves, is that something you offer? Is that something that you can speak to them to? Do you offer any resources for that on your website?

Kaushal Majmudar: Yes. Our website,, as well as, has a number of resources. As I touched on earlier, our firm takes very much an educational-oriented approach to building client awareness and client goodwill. Along with you guys and other firms, we’ve done a number of different educational events. There’s a number of books. If you go to our website under the "Food for Thought" link, you will see links to some books.

There are obviously some people who really want to learn a lot about it but the majority of people, certainly, the majority of our clients, get to a point where they really want somebody else to do it for them. Our value proposition is that hopefully, we strive and actually succeed with no effort on their part, just the effort to find us and make the decision to utilize our services, that they can basically receive benefits of value investing without doing all the hard work, which is a lot of hours as well.

Noah Rosenfarb: That’s the best solution I find. Ken, if our listeners want to get in touch with you, where should they visit?

Kaushal Majmudar: They can go to, which is our main website, and then our main number is 973-544-6970. I’m at extension 1 if they want to reach one. By email, [email protected].

Noah Rosenfarb: Great. I want to thank Ken Majmudar, the Chief Investment Officer of Ridgewood Investments, which is a Top 50 Independent Advisor. Thanks so much for joining us today.

Kaushal Majmudar: Thank you.

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Written by Noah Rosenfarb

Noah Rosenfarb
Noah Rosenfarb, CPA/ABV/PFS has devoted his career to advising business owners on all things related to money. He is a Personal CFO and Holistic Wealth Coach at Freedom Business Advisors, which provides middle market business owners guidance on how to successfully transition out of the management and or ownership of their company. Mr. Rosenfarb is the author of EXIT: Healthy, Wealthy and Wise.

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