thepupil

http://www.trunkclub.com Sounds somewhat like trunk club. They pick expensive clothes for you and send you outfits. You send them back what you don't want. It pops up on my Facebook newsfeed a lot. I've never used it.

http://thelongshorttrader.com/2012/09/25/the-alchemy-of-reits/

http://www.milwaukee.gov/ImageLibrary/Groups/cntyHR/pdf/GMO_Presentation_210.pdf Googled GMOs client list, got this. Big institutions who , by the nature of their size , must consider asset class level valuations when making decisions.

Also is be aware that the big indices and ETFs probably include the more expensive internet companies like yandex , mail.ru, and some other ones I can't think of. These are much more garpy than the deep value energy and financials

I like sberbank and have 2% in the ADR with the intention to build as i learn more (and verify info about the ADR, I was undisciplined and was buying when there was blood in the streets before I could confirm all the particulars. I'm sure it's super corrupt and has all kinds of issues, but they make money and pay a dividend and grew book value by like 10x since 2001. Sahm of Kerrisdale had a nice writeup in VIC about 30% ago (can be viewed on delay access). http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/107293

ourkid, we actually totally agree! Perhaps I wasn't clear. Backward looking, ANY fee structure would seem cheap on that kind of ridiculous and amazing performance. Forward looking, if you hired 10 guys at 2.45% flat or 1 + 15% w/ no hurdle, you'd have to be the world's best manager picker to meaningfully outperform. I very much dislike allan's fee structure and much prefer Mohnish's, Sanjeev's, Todd's and Ted's (unfair since they are managing gigantic sums of permanent capital), and many other long only fee structures purveyed by managers that are far more favorable.

No one should care given the performance! I would love to have paid Allan all those fees. In fact I expressed a desire to pay him more (the structures I think make more sense from a limited oartner perspective would definitely have paid him more). I just think there should be more pay at risk in the case of the hefty well above market flat fee of 2.45% (which by itself is awful and incentivizes growth in AUM over returns, once again judging the structure , not the man, his skills or his fund) And in the case of the no hurdle 15%, I don't think people should be paid for the component of returns that is market driven. No ones returns sre purely skill and over the long term some market benchmark or reasonable absolute hurdle should be used to strip the "beta" (I know many here hate that word) which is and should be free out of someone's performance. Please do not mistake this for me saying that Allan's returns are market driven. He started pre crisis apparently and has absolutely killed it. I do t know him like many here do and he seems to be in the top 0.01% of managers. All I'm saying is his fee structure is awful. I think Berkshire will outperform SPY by 500bps per annum over the next 10 years (9% vs 4%). I could be wrong. I could be right. I am certain I will pay no fees. I may think Allan will outperform by 1000 bps. I may be wrong, I may be right. I'll certainly pay him 245 bps of that; can't say that about other structures mor favorably aligned with limited partners.

Not knocking the guy ( because he has obviously earned it many times over!) but those are actually pretty high fees to pay a long only w/o a an absolute or index hurdle. Is it actually 15% of gross profits? Or is it 15% of outperformance ( much better, even better if hurdle compounds is hard and has a clawback). Those fees are at the high end of any long only institutional manager I've ever come across ( not hedge funds, people bend over for alpha). The toniest of hedge funds that have been launching long only products don't charge 2.45%. He has earned it, deserved it, and his investors have prospered, but it is despite the fees, not because of them. So lets say he makes 10% and SPY makes 10%, he gets 1% + 0.15*9= 2.35%. Or with the flat fee he gets 2.45%. I don't thinke he should make anything in that hypothetical year. I don't want a fee structure where I give 20 +% of profits to someone even if they just make what the index did in a given year. 1% and 15 over something seems fine though. I'd prefer 0 and 25 over index or a reasonable absolute number. Even though I would've paid more fees and be less wealthy than the current structure and it would've been better under the current regime, on principle I don't want to have to count on knock your socks off performance to come away with good net returns.

I think it's important to remember what exactly every investors role actually is and how they've positioned themselves. Whether it's Watsa, Buffett, Klarman, or whoever, they all do different things and are positioned accordingly. WARNING: long rant with little coherent thought and many statements of the obvious Buffett has positioned Berkshire to be a constant buyer of high quality businesses. He basically keeps insurance float in cash and fixed income for a rainy day and constantly buys something with every dollar that comes in from his wholly owned businesses and investment income. He basically has multiple years of insurance disaster in an "emergency fund" and then reinvests everything else. His time horizon is perpetual and he ALWAYS has a sizable portion of his overall firm's assets and equity in cash coming in. Berkshire, the corporation, is like a miser with a very stable job and 3 years of spending in the bank. Why wouldn't said miser plow all additional earnings back into assets withe the highest expected long term returns? Last year Berkshire had $28B of Pretax income, it invested 11BN in capex, 3B in bolt on acquisitions, 12BN on Heinz, added a little XOM to the mix and ended up with a similar amount of cash. The gun gets constantly reloaded so there's no worry about not having bullets for a more promising hunting environment. Also, if there is anything I have taken away from Snowball and studying Buffett, it's that it is in his DNA to always want more, to keep continue compounding (in a safe way and for society's benefit) but he is in it for the journey, there is no destination. I remember being shocked when Buffett said he liked JPM and owned a million shares in his PA. Not because I thought JPM was a bad investment, but because of the window into his psyche that offered. Why on earth does Buffett need a PA? He owns tens of billions of Berkshire. In my opinion he is simply wired to seize every great opportunity and compound his net worth. I would have all cash and gold hidden under various mattresses, jurisdictions, fields etc. in my PA if I has 1/100th his wealth in a stake in a nicely diversified growing public corporation. Klarman runs a value oriented gigantic hedge fund that makes the bulk of its money (from what i've read of him, which isn't very much besides his book which is dated) on distressed credit and equity opportunities. His investors have no tax considerations (he only takes non profit clients) are hopefully sophisticated and strong enough to give him money when the time comes and his opportunities increase. Imagine if Berkshire gave back large portions of its assets and then tried to raise money quickly in the depths of the crisis. It would likely be very value destructive. Not so for Baupost. There is no insurance liability to offset, no mandate, AND no perpetual mindset or social obligation like a corporation with 300,000 employees that is also the nation's most important railroad and utility. According to wikipedia, Baupost has 42 employees. Running Baupost, the management company, is entirely different than running berkshire. Baupost can stop playing the game whenever it wished and then come back. Burlington Northern, GEICO, National Indemnity, MidAmerican cannot stop playing the game because the lights would go off, the oil would stop being delivered; their capital expenditures and purchases of investments must go on. There is a difference in mandate. Baupost does not control most of the companies it has positions in so price is very important because returns come from rerating and changing prices. Baupost buys 50 cent dollars and sells them. Berkshire buys 80 cent dollars (and some 50 cent one's too) and then reaps perpetual equity coupons (the economic return of those dollars). Post purchase price and rerating are much less important to berkshire because it rarely sells. As for Watsa, I see him as somewhere in between the two. He is more levered than Berkshire (8/36 < 220/480), owns lower quality businesses and not as much in sheer dollar terms to have tons of non insurance cash pouring in, and is therefore more sensitive to drawdowns in market prices and economic conditions. He has to worry/care about the macro. Maybe he is going about it in the wrong way, maybe not. I like his Russell short (though obviously he was WAY early), his low downside high upside deflation bets, etc. But whether he is right or wrong, he is doing what he thinks is best for the organization he runs, and that's what the other two titans are doing as well. I don't know if that really was coherent or added anything to the conversation, but its just my two cents. You always need to consider what exactly the person does when he gives some sort of advice or opinion on positioning. EDIT: Personally, I'd rather just buy way OTM puts on Berkshire to hedge the Watsa scenario. Imposing this hedging cost (which obviously compounds over time and is significant) allows me to stay more than fully invested with comfort. I've probably spent 3% of my berkshire on berkshire hedges over the course of the past 3 years, but that's allowed me to be comfortable with a big position in it and never be tempted to sell. If i always have savings coming in and i can't lose more than 20%, then the depression/deflation scenario doesn't phase me too much

HJ, really enjoyed this post. thanks for your perspective. the CLO vs. TRS example is great.

Generally yes that's the basic reasoning. But as zach pointed out, it's an oversimplification of the implementation and Ray Dalio isn't worth billions for just levering up every asset class.

I don't write them off; and did not mean to do so. they are the best macro guys out there. i love Dalio's writings and the writing of the broader organization. And they have compounded capital at a crazy rate , and huge amounts of it. I just don't totally buy into the risk parity thing and am not going to manage my capital in that manner. Edit: but i did not mean to write off Bridgewater's capability in doing so.

On a very broad level, it means having the same amount of "risk" (defined as volatility) in each asset class in order for those asset classes to "act" as proper diversifiers. My understanding comes from Bridgewater's writings as well. According to them, a portfolio of bonds, can be expected to return its initial yield to maturity. If you buy AGG your return over 5-6 and ten years will be the YTM because even if prices change, coupon reinvestment should (before defaults) bring your yield to your initial YTM. Because bond yields are generally low and bond "risk" is generally low (even 1994, which saw the fed raise rates like 300 bps in a short time, bonds made close to 0%if i remember correctly), Bridgewater would tell you that you don't get enough return from bonds to act as a good diversifier unless you lever them, i.e. you match or pare your expected volatility with your equity book. They argue levered bonds with more duration are a better diversifier of returns. The 2008 experience would confirm this as if you went in levered long of duration (of the government sort, not the credit sort), your bond book would've acted as a great divirsifier. Like rpadebet, I think they are fighting the last war and the strategy does not acknowledge that bonds and stocks can move down in tandem like they did in the early 70's. Buy long duration mREITS if you think what I've told you has any merit.

Shifting away from farms and folksy wisdom conveyed by Mr. Buffett, what a year of operating performance! $28.8B of Pretax Income, comprised of: $15B non insurance operating (sustainable and growing) $3B of insurance underwriting (i hesitate to call that sustainable but they do keep grinding it out) $2.6B derivative gains on index puts (non recurring) $4.7B investment income from securities portfolio (will take a short term hit from crisis investments being called, but should then grow) + some other stuff i can't think of and am not going to look up write now So 28.8B/220B = pretax roe of 13% (using end of year equity as denominator) and post tax roe 8.9%. In terms of adjusting for the quasi permanent delta between cash taxes paid and tax expense (MidAmerican + BNSF related), income tax expense was $8.9B and cash taxes were $5.4B, so there is a portion of the difference between pretax ROE and ROE that is on permanent loan from the government and benefits shareholders. I think of non insurance operating earnings + investment income as the sustainable growing earnings of Berkshire which are about 70% of this year's pretax ROE. So I see Berkshire book as a bond that never matures and pays a growing 9% on a growing par value. I am very happy to own that bond at 127.5% of par (particularly since I've accumulated said bond over the past three years at 96% of today's par). Underwriting gains and losses will add and detract to this coupon in a given year. This year they added 135 bps (3/220) and the derivative gains added 118 (2.6/220), a nice little bonus coupon. I did not go into any discussion of change in the value of the securities portfolio. Most of the benefit of that is captured in the future increase in investment income. This helps grow par value and can be exchanged for growth in coupon. For example the recent swap of Phillips 66 shares for one of PSX's businesses is a great example of turning investment gains (growing par) into operating profits (coupon). A similar deal with Graham Holdings is in the works. Edit: And unlike a bond where your coupon gets reinvested by you, this coupon i reinvested by the century's best capital allocator and his handpicked team of successors (and into the nation's most important railroad and largest utility). Also the 9% is pretax, bonds are purchased pretax as well (unless held in a tax advantaged account)

far OTM TSLA Leap calls to ensure that I live to fight another day >:(

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's. (VFINX)) I believe the trust's long-term results from this policy will be superior to those attained by most investors -- whether pension funds, institutions, or individuals -- who employ high-fee managers." Why not Berkshire?

http://www.amazon.com/gp/aw/d/0393061264 I bought this a an impulse purchase at penn station once (thought it's be cool to read about trains on a train). It was entertaining and informative. It went into great detail about how the early railroads ere built with the funneling of minority shareholders and bondholders money to management owned construction companies. These were the granddaddy of related party transactions and haven't totally gone away (for example CBL, the B mall REIT, has a captive construction company owned by the Leibovitz family).

He makes money being fully hedged By owning things that go up more than the market or are not correlated to the market, like a post reorg paper products company or a dying handset manufacturer with supposedly valuable stuff. Prem has basically taken on huge "basis risk" in hedge fund speak where his "hedges" are not overly related to his longs (Irish banks, Greece, resolute, blackberry etc.). I don't see how being short russell hedges out any of the risk involved in those longs. I think being short russell is not necessarily a bad thing and actually am myself, but I see it as a bet against the valuation of small us companies, not a hedge. I don't follow fairfax closely so I may be misinterpreting it. Does prem have a bunch of u.s small cap longs of which I am not aware?

Also, presumably over the next ten years he may get a bonus or raise that allows him to pay off the mortgage with money that is not from his 401k. Isn't it very conceivable for him to get a bonus of that size? He's been able to save $20k in a 401k by age 25 so I am assuming he must have a decent job, not much college debt and maybe his wife has income too. Just from the limited info we have he seems like the type that can handle a little mortgage debt and should keep growing his liquid wealth.

How likely is he to stay in the home for the next 10 years? Does anyone his age stay in the same place that long anymore? I'm 25 and most of my college friends have moved at least once in addition to their initial move from school. In my opinion the savings on interest are far less certain than the drawbacks of raiding the 401k. He will certainly pay the 10% penalty. He will certainly pay tax on the withdrawal. But it is not certain that he will save the full amount of interest. What if he gets promoted tomorrow and needs to move across the country? Or has twins and needs a bigger place? What if he gets laid off? There are many situations where it is plausible he will pay off the mortgage anyways. When was the mortgage originated? At what stage of amortization is it in? I just don't understand why you'd want to take away the foundation of your tax deferred retirement vehicle at this early stage in the game. That $20k will likely become $40k in ten years will become $80k in twenty, will become $160k in 30, all the while never incurring the friction of taxes. He can't say that about his home and he is losing out on that compounding and paying for all that interest savings upfront. Home equity is great and all and is another way of building tax deferred (tax free below a certain threshold) wealth but corporate equity is better. Does he have savings outside his 401k?

Your friend seems to be confusing a personal finance and asset allocation decision with a security selection decision. The wells 401k can be converted into other investments; even if he can't roll it over to an IRA now. I worked for a big bank for almost 2 years and was able to jam 3 full years contributions into company stock at a discount (stock was cheap too). I left And now that is my IRA and in other stocks. Your friend seems to think it is Wells Fargo stock or nothing else, which seems strange. I think your friend should just focus on whether or not he should pay off his mortgage and whether or not he should deplete his tax advantaged savings vehicle; the return projects of Wells Fargo vs other investments is a debate for another day. What is the rate? What is the rate after tax? What is his income? Does he have/want emergency funds? My gut is to say keep the mortgage (cheap tax deductible debt) and to keep as much money possible in tax advantaged accounts.

Is the reason your group is not doing as well cyclical or structural? You want to your group to do well (in terms of a cycle) when you are more senior and are receiving a greater percentage of the plunder. So if you like what you do, I would focus on doing your best and becoming a 1. If your group does better in a few years, the money will take care of itself. If you don't enjoy what you do, focus on doing a good job, becoming a 1, and then moving on with a good reputation and something else in hand.

It would be unfair to the index funds right? Because they started at a much higher valuation than BRK relative to today? http://www.multpl.com/table S&P PE ratio was ~30 in 1999. It is now 19.6. So the returns have to fight that multiple contraction. This was interesting imo. One could argue that it would be more unfair to Berkshire Hathaway. This is pre Mid-American, Marmon, and BNSF, when Berkshire was much more dependent upon insurance leverage of its equity holdings. By trading at a much higher multiple of book (which was comprised of very expensive stocks) Berkshire has had to fight the multiple contraction doubly. Here's an article from 1997 explaining the phenomenon of the "double premium" http://money.cnn.com/magazines/moneymag/moneymag_archive/1997/12/01/234603/index.htm Although purchasing Berkshire gives you the world's best investor and a portfolio of great companies, many of those firms are overpriced and you're paying extra for the privilege of buying them. Using the May 2013 Tilson presentation for a quick look, Berkshire's per share pre-tax earnings were a mere $918.66 in 2000. Now you could argue my point is moot because Buffett should have perhaps sold Coca Cola at 50X PE or whatever, but I think Buffett did effectively do that by buying a boring utility that year. He diluted his positions in high fliers like KO and DIS and such with his purchase of MidAmerican. Maybe I'm being too kind too Buffett. But the underperformance of his shares from one day 15 years ago to today or 5 years ago to today does not make me question his record. The outperformance in all 5 year rolling periods except the last one and the tremendous growth in earnings power are more fitting testaments of his record.

Sellside fixed Income trading (1.75yrs)--> asset manager (0.5yr)

I think BAMSEC is still pretty undiscovered. I love it. Bamsec.com