The "bane" of Mitt Romney's political life will always be his connection to another "Bain."

"Wait I didn't want to look THAT closely at my business record."

Courtesy of The Big Picture:  

Ignore the anecdotal attacks from both opponents and supporters. Thanks to two intrepid Wall Street Journal reporters, the full Romney/Bain record has been reviewed. During the GOP primaries, Mark Maremont of the Journal completed a comprehensive assessment of Bain Capital, including all “77 businesses Bain invested in while Mr. Romney led the firm from its 1984 start until early 1999.” And on August 5, Brett Arends released the ebook The Romney Files, which includes extensive reviews of Bain Capital. 

Let’s start with the WSJ article. Among its key findings: 

• $1.1 billion invested generated $2.4 billion in gains for its investors over 16 years; 
• 22% of the companies either filed for bankruptcy reorganization or closed their doors; 
• An additional 8% ran into so much trouble that Bain lost 100% of client money invested in each deal; 
• Bain’s returns came from just a small number of investments. Ten deals produced more than 70% of the total dollar gains. (4 of the 10 of these businesses later ended up in bankruptcy court). 
• Several of Bain’s biggest successes became household names: Staples, Domino’s Pizza Inc. and Sports Authority.

So essentially in a fifteen year period Bain Capital was able to double their investor's money MOSTLY because they got lucky with about ten of the 77 businesses that they invested with.

I'm not a business guy, but does THAT sound like it gives Mitt Romney bragging rights?

Apparently not:  


That January 2012 analysis looked at the specific deals Bain did. How did they actually perform as a fund over that same time period? 

For that, we need to go to Brett Arends’ new ebook: The Romney Files: From Bain to Boston to White House Bid. (excerpt here). 

Let’s start with that silly 113% per year: Thats a more than doubling each year, and it would have turned $1.1 billion into $9 trillion over the same time period. So please ignore that absurd silliness. As Arends explains, it derives from the way Private Equity calculates internal rates of return. You can use it to compare private equity investments to each other, but not for anything else. 

Arends calculates that: 

“Bain Capital, as we’ve seen, produced real dollar-on-dollar investment returns that were, at best guess, somewhere between 20% and 40% a year. If we figure the money was typically tied up for five to seven years, it was below 30%. 

From 1984 through the end of 1998, the stock market overall produced gains of nearly 20% a year. If you had leveraged each dollar with $2 in debt at corporate interest rates, your returns would have ballooned to nearly 30% a year. If you’d been able to borrow $3 at corporate interest rates, you’d be up towards 35% a year. That’s how much money you could have made by issuing company bonds and then spending the money picking stocks out of the paper at random. 

If they look pretty similar to the returns Bain Capital earned under Mitt Romney, maybe that’s not a complete coincidence.”  

In other words, Bain produced all Beta, no Alpha. They used high leverage and took big risk for what was essentially market level rates of return. Any investor who listened to Vanguard’s John Bogle would have done about the same during 1984-1998 – just buy the S&P500 index, and hold it, reinvesting the dividends. The net returns would be ~20% per year — without giant fees or excessive risks necessary. 

In my opinion, the whining (from the right!) about Bain’s outsourcing, layoffs, and the fortunes produced for insiders are misguided. That’s not why Bain should be criticized. Their fundamental flaw, at least according to the math, is that they took lots of risk, use immense leverage, and charged enormous fees, for performance that was more or less the same as indexing. If they look pretty similar to the returns Bain Capital earned under Mitt Romney, maybe that’s not a complete coincidence.”

Now does THAT sound like it, in ANY way, indicates that Mitt Romeny has some incredible knowledge of business? Or that he has ANY idea in how to turn this nation's economy around?

No it certainly does not. Yet THIS is the very foundation on which Mitt Romney has built his case for WHY he should be the next President of the United States. 

You know based on this I don't think I would hire him to balance my checkbook, much less manage the finances of the most powerful nation in the world.