racemize

I've been thinking about this some, as I know some people invested with Arlington, and they've been spooked by this. I certainly don't think Arlington is a fraud, but how might one convince yourself that it's definitely not? That is, is there anything that would provide definitive proof? -M It is very easy to show it isn’t a fraud, you have the auditors check the reported account balances, which I’m sure they do every year.

Oh and the Berkshire question--I think it depends on the time period and the person, but I'm not sure how easy it is to quantify it. Schloss didn't own it. Munger was contemporary. I doubt the tweedy partnership owned it (and their mutual fund didn't outperform, so it doesn't matter). I think Sequoia benefited from it quite a bit, but they generally did well otherwise, except for this recent Valeant debacle. Russo definitely had a big position throughout. Longleaf hasn't owned it in a while. Gayner is pretty diversified, but Berkshire is consistently 10% I think? Looks like Oakmark doesn't own it. Akre never had a huge position in Berkshire (he always had MKL). It isn't a position in Yacktman. It's a 20% position for Giverny I think it is consistently 12%+ for Aquamarine Pabrai only held it as a cash replacement in between ideas Fairholme owns other stuff generally Arlington--I'm not sure whether he's always had it--he took a huge position when it hit book value in 2011 or 2013 (whichever it was), so that was more than just a buy and hold type of deal.

I think I'd call a few things out. First, there's a huge amount of selection bias in this essay (although this wasn't a statistical paper for all funds), so I would caution the conclusion that waiting gets you outperformance--it does, so long as the investor is actually good. It can be very hard to know whether they are good while the underperformance is happening. But, that is the point of this type of analysis, to see how often they do well and whether they are worth being patient with, but perhaps that was what you meant already? The other thing I'd say is that many times the percent outperformance at the 10 year mark wasn't as good as I had hoped it would be coming in. To me, if you are an outside investor and you were patient for 10 years, you need to be rewarded almost all the time (say 95%), but there are investors with clear skill that are much less than that. Even more surprising is seeing Schloss, who absolutely crushed the markets over long periods of time, have underperformance over 20 year periods. Imagine being the one guy who joined then. Ouch. That has led me to the conclusion (and I think this is coming out both from the essay and how the markets have been the last few years) that opportunistic value investing is quite lumpy but high quality investing is very consistent. If you are taking outside money, then that consistency is important. If you are doing it on your own, then it probably doesn't matter (i.e., outside money, the statistics over various holding periods matter because people go in and out, but for the investor himself, only the overall matters). Also, I'd caution you a bit on the 0.7% outperformance--these don't include taxes, so unless you are in an IRA, I would bet that the after tax performance is actually less than the S&P. I have a couple of essays on that topic that may be interesting. I'd expect a 1% drag on most long-term results. On that point, Russo actually calculates his tax drag (and he holds most of his stuff forever) at something like 0.7%, so almost everyone will be above that. Further, the Davis family is really interesting to read about. The first one had an insane record (I think right up there with Buffett) and had caught on to insurance companies around the same time. I think his son said he kept complaining that Buffett would buy his companies, but he ended up with a fair amount of Berkshire the whole way through as a result. The Davis mutual fund was his son first, who had a great record. Now the third generation took over and the results are not that great. Of course it is a financial fund and there was a financial crisis, so Chris may well pull it out. Anyway, changes in PMs at funds make me nervous about making any conclusions using numbers from the previous PM.

If it were me, I would read everything and performance would matter--I think this is what everyone assumes, as that's the kind of people that are on this forum. I've just noticed that it seems much more important whether the person decides they trust you and everything else is kind of... unimportant? So if you want a lot of assets, it is definitely story and sales driven, just like people are saying. With regard to performance, I used to want 5%+ annual outperformance per year. After looking over all those famous investors records in the essay I posted recently and looking at the prospective returns of the market over the next 10 years--I think 10% a year is going to look very good going forward. So, while my 2010-current record is around 19% a year (mostly from 2010-2013), my personal goals are at least 10% a year and to beat the market (I'd be happy with 2%+ outperformance). Stahley, I don't think you're going to find much luck in your criteria! Also, we're waiving fees due to size, and I want our performance to be better, so I'm not pulling any money from this.

I like the common still (See Viking's posts). I'd probably convert if I were a warrant holder, although timing is tricky. Leverage is cheap, but price volatility could go either way between now and expiry.

I'm transitioning still--I work a couple of days a week and spend the rest of the time on the Fund. I can basically retire without the Fund making any money in a couple of years anyway, so this is a second job/side gig that can will turn into a career once it: A) has a size that is appropriate and B) has a record I'm happy enough with.

May all our hobbies earn $200k! (or $50k). Actually, we don't charge any fees right now anyway, so it actually costs me some money at present. The other thing I'd say, and this gets to Nate's point--almost everyone I meet with doesn't read anything I've written. They also don't usually pay any attention to our record. As far as I can tell, they just decide if they trust you and think you are smart/successful, and then most of the time they hand you some money, even after only 45 minutes and a meal. Most people are more interested in what else they have going on in their lives than reading about investing.

Well, if I were going to compound at 10% in your scenario, I'd rather be the guy with the fund than Costco. You've described a $50k salary--sure it's low that year, but in 7 years, it's 100k. In 14 years it's 200k. That's assuming absolutely no one adds money, which won't be the case. E.g., I spend a minimal effort on attracting capital (a few meetings a year), but I'd say I have a decent network of friends/family. I started with $700k outside capital (my GP partner and I added more). We ended up with $2 million more additions from those and other partners, adding more of our own capital along the way. After 4 years, we are at $6.5 million. Maybe we are inadvertently decent at selling though. When we do sit down with someone, I think our conversion rate on meetings to partner is 60% or so. I've thought about why that is the case, I'm guessing it is: 1) We don't actually care if the potential partner joins or not; and 2) We're so straight-forward/honest that people just tend to trust us. Or maybe just that my GP partner is really tall, certainly doesn't hurt...

Alternatively, you could just get good returns, have a small fund, and have a salary that increases with your ability to compound capital. You have to get to $2.5 or so for your overhead to be low, and your salary is decent at $5 to $10--good enough to live on as a value investor anyway (or have enough savings to get there). So I would ask why do you need to be a big fund? I'd rather have a small quiet fund with great partners (not just the hot money your likely to get, that won't stay during periods of underperformance) that pays enough for me to live on and compounds rather than just trying to get rich by collecting assets. But maybe you want to collect assets and be rich. Then performance doesn't matter and selling does as Nate and Jurgis said. I know a guy who had a small fund (I think around my size but maybe a bit bigger) and switched to long volatility, as in, his fund only invests in long volatility products. He has $300 AUM now. It's a good story and isn't too hard to sell people on the niche of "historic low volatility" and "you need insurance for this market!" He's fun to talk to.

Net returns for hedge funds include dividends as they just keep them in the account. I believe all of the returns from the mutual funds are all total returns as that is the standard reporting method and lines up with morningstar's numbers who are TR. The S&P numbers are all total return, so I believe dividends are accounted for in the results.

I just realized I screwed up my own record (that's what I get for not using XIRR), so updated-updated version now (same link).

I fixed some minor errors, updated for 2017 year-end results, and added Tom Gayner to the list (equity returns). https://drive.google.com/file/d/0BxTPR9eP5nWebFdOTnZSR3l1eVk/view

I think he (and most other sophisticated investors) are referring to a normalized earnings or owner earnings. It's quite difficult to come up with such a number that is accurate, but once you do, you get a normalized P/E which is likely the most important thing (ultimately, most investments come down to cash flow). Most of the other metrics are there to tell you about normalized earnings, e.g., P/B is usually a short-hand way of figuring out what price to pay based on a normalized RoE for an industry, but if you had the normalized earnings, you could skip it. On the other hand, RoE, RoIC, etc., tell you about growth, which you also need to know to assign an appropriate multiple to the earnings.

Hi All, I'm going to update my evaluating performance essay to correct some minor errors, finish the year out for the still-going investors, and add Tom Gayner's record, but I'm missing a data point or two. I was hoping you guys might have access to return information: Looking for 2017 results of Tom Russo; confirmation of Braddock Partner's 2017 results; net returns of Aquamarine (I believe this isn't out yet though). If you have this, could you please PM me? Also, if there's any other investors that you have return information and would like a report on, please let me know and I can add it in. Cheers!

That's very helpful, thanks. I was not familiar with Array Formula--I had thought it was used for a group of cells not a single one.

Old question I've never worked on figuring out and wasted a bit of time on this morning: Is there a fast way to calculate cumulative gain from a set of gains? E.g., annual gain in column A: 15% 4% 30% Currently, I calculate total gain by: =(1+A1)*(1+A2)*(1+A3)-1 There's got to be something easier (other than creating a new column that is A+1)? It would be a ProductSum, but I don't think such a function exists.

Well, I'd like to think this one is a bit better in terms of bookmarking and not having a twitter advertisement on the first page: https://drive.google.com/file/d/0BxTPR9eP5nWeU3BUSFZYTEE3bGs/view?usp=sharing Please don't tweet this out to the twitosphere.

As of December 31, Fairholme had 27 % of assets in cash, 26 % in FnF prefs, and 31% in common stocks and 16% in bonds. Berkowitz might be selling a large amount of prefs but it would not likely be due to redemption pressure < 3 months after the annual report (see below). He is also involved in serious litigation (regarding FnF), the termination of which has not been reported. He would likely sell FnF before selling JOE, which I infer from an interview last year. He could of course sell a small amount of prefs as part of a selling program to manage redemptions or to raise more cash. I would be surprised and disappointed if he were voluntarily giving up on FnF prefs. That might mean that the Fairholme Fund was starting to liquidate. Always possible but again unlikely, given that over the entirety of last year, which was as bad as it realistically can be, net redemption was around 25% of the Fund shares. If Fairholme were under massive redemption pressure, he could optionally redeem directly from holdings rather than in cash. The recipients might then sell and drive the price down; such an action by the shareholders in this hypothetical situation would not be a surprise. perry and ackman are likely selling too. hopefully for business reasons, but unfortunately maybe for other ones too. and then add in those who can't wait another year = here we are. Pershing Annual says they were buying and now hold preferreds. Page 15.

#1 question for me is how much of their net worth is in the fund. If it isn’t very high, they need a damn good reason.

Conference call transcripts are typically free at the beginning, and then they go behind the pay wall later. I just PDF anything I like from SA before it goes behind a paywall.

Both are fine, but the second one should be labeled “tangible book value”.

It's a discussion of current holdings.

Look at the bookmarks, should be pretty self-explanatory at that point.

Lancashire for insurance.

that would require fairfax india to list in india for the minority shareholders of these companies? not sure about the exact rules, but as an investor in the indian markets, i dont know of any foreign company being dual listed in india. the reverse exists where a few indian companies are listed in the US via ADRs I think he's saying that FFH would give the shares to FFH india in exchange for FFH india shares. Since they are both in Canada, I don't think there would be an issues?