benhacker

I think it's a risk for sure, and managing for others will no doubt change at least some aspect of how you view investing. However, I will note that investing for others also comes with many additional benefits (I manage some funds for little kids and it is great to think about your skills going to help pay for some part of their future, etc). The way I have suggested to deal with this is to be very very clear with potential clients how you expect them to interact with you. If they complain about investments, or nag you all the time, you have failed at this initial screening and education. If you want to just take all comers as clients, than I believe this is an issue (you are highlighting) that is unavoidable and you will need to ignore it, or learn a way to smooth over clients emotions like high touch advisors do. In my experience, careful filtering, and selection (and some pruning as well) of clients leads you to a much better place to mentally focus on whatever it is you do to make good returns and enjoy your life. But even with all of that said, at the end of the day you need to think about what makes your mind work. Some folks are stressed out by underperformance, some are stressed out by temporary losses, some by market crashes, some are stressed out by the fear of clients calling and asking "WTF", others fear making a mistake (vs temporary loss) and having to disclose to clients. Know yourself, it is likely that over a career as an investor, everything that can happen will happen, so prepare yourself both mentally and from a business perspective to prosper throughout it all. I've been doing this about 8 years, and I have found that mentally for me, losing money in a down market (but outperforming) was actually much less stressful than having poor (relative / absolute) but positive returns in strong bull markets. But neither of these (for me) is as stressful as simply making a clear mistake, and having to say so. I think it's because a "mistake" is the one thing you should be able to control the most. That's my 2 cents.

Doug, I think a fun total to add is what the Treasury / Government's IRR on it's cash flow / support to the GSE's since the 08 bailout.

Shawn, anything news worthy on ELF that made you buy? Thanks.

You can create a ticket with IB to add a security for listing... you should try that. I don't have any specific guidance beyond that though if you have already tried. Go to "message center" -> "ticket" -> "product" -> "add new product" or something like that.

Just to recap this last interaction because I thought I was drunk at first...: Value^2 - Asks to know (a rhetorical question seemingly) FFH's "investment performance", not just book / share growth, because that has been improved some by equity buybacks below book, and sales above. Value^2 says this would be interesting because he feels that Fairfax is an overrated investor. Richard - Highlights "investment performance" for both bonds, and stocks. Value^2 - Clarifies that overall investment portfolio performance should be compared to the S&P, not just equities, but the entire portfolio. Notable something no other insurance companies do. Richard - Says politely, ok.... Value^2 - Then implies his metric "total investment performance" is the metric favored by Berkshire, when in fact the metric favored by Berkshire is equity per share growth (compared to the S&P)... the exact metric that Value^2 threw out the window in his first post dismissing Fairfax's "investment abilities". ------ Had to write it down to make sure I could follow along with sophisticated trolling; use of ignore activated. Ben

I can't find it right now, but there was a study done maybe 8 years back that captured what I believed about analyst reports quite simply: 1) The study found that the financial forecasts were pretty reasonable 2) The study found that the price targets in reports were manipulated to match pricing. So basically, it appeared to the folks doing this study as if the analysts did real work on the industry, markets, competition, and then screwed with the final output to make the target price "work" for what the market or their bosses wanted. I think this is another way to say that getting raw data on an industry, trends, etc is useful, and perhaps even some of the analysts cash flow, debt, etc forecasts... but definitely ignore the buy / sell / hold and price target info. My 2 cents,

Persistentone, check out this thread where Muscleman pitched the idea: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/prhta-bonds/

I used to think this too, but then I was told something. Performance fees allow a scheme such as this: 1) Find 1000 idiots 2) Make highly assymetric bets (I win +100%, or lose -100%), do 500 folks one direction, the other half the other. 3) Repeat for 250, 125, etc. You would make a tremendous amount of money, and at the end have a handful of folks who think you are Buffett. This was done in the 1910-1920's IIRC... and was the motivation for higher regulatory scrutiny of %-of-profit fee models. I too think that some level of performance fee could be created in certain cases (like where the manager is investing the same way as his clients, and has only one strategy), but it doesn't seem like a trivial thing to do. Perhaps a simpler alternative is to have the performance fees that are available to mutual funds, where the fee is 0.5% or something, but it's 1.5% if performance is above a hurdle. The latter has timing / look back problems for mutual funds and separate accounts... but perhaps avoids the real risk I highlight above.

Yes, my point is only that this effect has nothing to do with Fairfax. Any company with shares in both USD and CAD will do the same. This is not Fairfax specific, it's just the math of currency movements coupled with cross border share arbitrage.

Jurgis, Thanks for your comments: Of your 3 points, I agree mostly that they are good caveats, thank you... on the first, for me at least, I came from a poor background, and of my original clients, they were almost all friends (I have a big family, but most were not interested in mixing money and family) <30 years of age, and none of them came from money. However, I was an engineer by training, so I did have the advantage of knowing a lot of folks with good incomes, even if they were young, so it certainly helped. Also, I think you made a great point about being at least somewhat outgoing... I guess I would describe myself as social, but not really outgoing. That said, when I use the words marketing and promotion, I meant that in the way of an investor actively seeking new clients as a focus (in the article, the fund had a handful of employees and two were dedicated to raising funds... this to me is marketing / promotion). I definitely think (and again, to me this is obvious, but perhaps to others it's not) if you are managing a small amount of capital, you should be explaining what you do, how you do, and how you think about investing to every single person you can as the opportunity arises. To me this isn't promotion, it is just sharing your passion when appropriate. I agree if you can't talk with friends / strangers about your passion, it would be hard to raise money. However, for me, I feel that if you can't talk about your passion to people, you probably aren't "introverted" (or whatever the word is), you probably just haven't found your passion yet... perhaps not being very introverted, this is an unfair statement for me to make. Race, Glad you are doing well on your goal. You are moving faster than I did, good work!

This discussion is near and dear to my heart, so please allow a related mini-rant. :) I think there are some assumptions that need to be summoned when talking about these related issue (size, performance, marketing to grow, etc). #1 is what folks think the purpose of investing OPM really is. -- Is it to build a great record, is it to do the most good for the most clients (outperforming by 2% with $10B clearly better than 20% with $50m for example), is it to have fun, is it to become famous, is it to be perceived and recognized as a good investor, is it to grow a large money management firm like BEN/TROW? I see the note about the guys going from $110m to $1.6B (presumably most of the growth is in new money)... is that good? Are they happy? (I understand they are based on the article). At 1% on $110m, you make $1m+ pre-tax... #2 is what folks think having more AUM means in terms of performance. -- If you don't think more AUM means lower (absolute / relative percentage) returns, I don't know what to say. I don't care if you deal only in $10B names, managing $100m is worse than managing $10m, and you can tell as a trader (actually doing the trades), and I would bet most medium-big investors can actually quantify their market impact. Now it may be that 0.1% slippage isn't a killer, but whenever I see folks say that size doesn't matter when you are in the tens of millions, I just think they mostly haven't dealt with tens of millions (I speak not just from personal experience, but talking with folks who have grown the sums they managed into the $100's of millions). I deal in mostly liquid names, though not always, (I have only ~$10m AUM), and I notice market impact even in $1B+ cap companies (i'm concentrated, so if you are large cap only, and highly diversified, your problems are even smaller... but I think still noticeable). At $1B in AUM, many many issues arise... of course firms don't say this, because they have a severe conflict because they don't want to close their doors... generally.)... but it's a real issue. -- I think you can make some, relatively weak, arguments that activist strategies maybe scale differently for low / high AUM, but I think that's hard to measure as activists really have counter-AUM scale more with their prominence and notoriety; but these effects are hard to separate from AUM as they are highly correlated. -- I think it is a completely uncontroversial idea that gathering a huge amount of AUM will not happen without marketing, or a *tremendous* track record (like 10-15% annually for 7+ years)... but "huge" is relative. The implication (at least as I read it) of the lead post is that managing $110m is not successful, or 'good enough'... if that is so, I think there are many who would be happy with that kind of non-success. Managing $100m seems 3-4x more enjoyable than managing $1B, and yet the difference in utility of an income of $1m vs. $10m, to me at least, is essentially identical. I've said it before, but I will say it again. If you perform quietly, with no promotion, you will quickly manage a sum of money that will employ you comfortably (if you think you are a counter example of this, please PM, I would seriously love to get your story). That # isn't $1B, but to imply that marketing is somehow required for this business I think is either: a) Making an easy excuse for those who can't really perform over time, so they must market themselves and/or b) An insult to those who don't desire what others think folks in this business must desire (sh1t tons of money) by looking on their path of success as a failure. and/or c) A statement of obvious fact that yes, a good track record, when coupled with smart marketing, will always result in much larger AUM. -- One of my heroes in this business closed (to new money) a year or two ago with $30m in AUM... said he was struggling to buy / sell and wasn't performing as well as he felt he owed his clients. If he is a failure, may we have more money mangers who fail repeatedly like him. Ben PS - this business is filled with so many fakes, scoundrels, and talented but extremely greedy folks, I feel like a reality check is needed sometimes. I know nothing about the Alpine guys in the article, but to seemingly belittle those managers who stick to their knitting and try to do a good job and subtly imply that their lack of extreme wealth / income / AUM is somehow a fault (when perhaps their lack of desire for marketing simply a life choice, or perhaps a truly long term self-interested decision to avoid hot money) is turning the world upside down IMO. PPS - Palantir, I don't know what exact thoughts you had when starting the thread, but I'm inferring your tone based on follow up comments, and many similar discussions I've had over the years. My note above is more in general though, not really trying to confront your perspective... as I mentioned, I think it is true (and not controversial) that if you want to grow AUM, some level of marketing is much more useful/required than great performance alone... in most cases, I would think both performance and marketing are required - but again, all money managers have their own specific goals I'm sure!). Hope that's clear!

cwericb, and Gio, -- You guys are talking about a hedge in a strange way, and I think I can clarify for you... it is not the correct way to approach thinking about owning foreign securities, and it's actually quite important: 1) An investor buys an assets out of their *cash* pile. 2) If an investor is Canadian, presumably they would buy the investment with CAD, and US investor would buy with USD. I think the 2nd step is confusing the discussion of both Fairfax and what a hedge really is. If you take two investors who are buying Fairfax (either FFH, or FRFHF) they are making an identical decision, so how can one get different results? The answer is they can't, so it's easier to think about when you separate the decision to "buy" into two transactions (same for sell transaction) which is more accurate but generally irrelevant to think about (so we ignore it) - in this case it is not irrelevant: Step #1 - *Sell* currency to receive USD (or CAD, or ???) - this could be a loan, or more accurately just a reduction in outstanding cash holdings. Step #2 - Use currency to buy asset (in same currency) Step #3 - Sell asset, receive currency (in same currency) Step #4 - Sell currency to extinguish currency *loan* (or more accurately, just add to cash balance) -- If you look at the above, and then compare to the quotes at the top of the post, it is clear that FRFHF vs. FFH is a "hedge" only in the sense that a buyer has to hold USD currency to make the purchase. I would not call this a hedge. You are simply imposing a requirement on the investor that they held some USD instead of selling their CAD currency to USD to buy FRFHF. If you think this through, the investor is really just doing two transactions: 1) Currency conversion (CAD to USD) -- Yes, this is a "perfect" hedge... because you are selling the thing you are hedging. 2) Buying Fairfax, this is not currency specific, and not required to get the hedge, or even related to it. -- This is something very explicitly understood for those who have IBKR as their broker because as a US investor, I can buy FFH in CAD, but if I do, IBKR opens up a CAD loan to make the purchase (because I don't hold CAD currency in my account by default), and if I don't want a CAD loan, I simply extinguish it on purchase (at the going CAD / USD rate). Thus buying a foreign stock (or selling) requires the two steps I mention above. *if* I chose to leave the CAD loan open when I bought FFH.T instead of closing out the loan, you could describe me as hedging CAD dollar with the purchase (I'm short CAD explicitly)... but that is frankly an inaccurate way to talk about my FFH.T investment. I am long FFH, and I am explicitly short CAD... two separate transactions. I can do one without the other. If I want to protect myself from a falling CAD, I can just short CAD... Fairfax doesn't help me do this. Buying USD with CAD (aka, borrowing CAD) helps this. Hope that helps. To clarify, my prior post above assumed that everyone understood this... and thus I was only talking about if FFH itself (meaning the assets it owns, etc) benefits from CAD depreciation, and is thus an investment that is a "good hedge"... that is an entirely separate discussion it seems from what cwericb was getting at when talking about a hedge... so I just wanted to clarify what I meant originally and what I am explaining in this post.

I think there is some confusion here, or at a minimum, this explanation is not quite accurate. Whether Fairfax or any other firms results (or stock price) are quoted or reported in USD has nothing to do with how the firms' business will perform vis a vis certain currency movements. You can take any Canadian firm, and quote their stock in USD, and their results in USD, and nothing would change... if the CAD rises or falls, the CAD translated results will always be the same as the USD translated results (again, translated to a common currency). Fairfax may indeed be a hedge against USD / CAD movements, but if it is, it must be because of the underlying assets they own, not because their financial results are quoted in CAD, YEN, USD, or Gold... it's irrelevant. Fairfax is heavily long USD nominal assets (bonds) versus their liability base (salaries, CAD and other insurance liabilities)... thus, I would tend to agree that they are relatively a decent way to play CAD weakening vs. USD... Hope that helps... currency and financial reports only provide a snapshot in time of assets, liabilities, and income/revenue. Whatever currency you use as a measuring stick is irrelevant to how the assets behave over time with currency movements. Everyone should focus on the latter, not the former.

Yeah, I kind of would caution myself to think that advent of digital advertising won't in fact increase the pie in terms of how much $$$ on advertising is spent as it becomes more measurable and effective. I think betting that a substantial portion of digital advertising is ineffective would be a hard sell for me. We see those ads and we think they are ineffective, but the cost to get that ad in from of you was so cheap, that 99% ineffective may still be a very high ROI proposition. I guess this is a side note of how to short the social media boom... I would find a crappy company at a crazy valuation that has a catalyst, or a good company at a crazy valuation that is going to experience to change in fundamentals. To make the bet, you short or you buy puts... I don't think there is really too much magic beyond that. What are some really crappy social media companies?

I think many folks here are using imprecise language and are thus talking past each other. The 7% references above are on the "portfolio" of FFH investments. This is much different than assuming a 7% ROE or growth in book equivalent. Not arguing for one or another being the right number, just trying to help the communication barrier.

Didn't realize these charges were not kept, thanks for the info. I had no idea of this whole story, I just recently read the Wired article and that's all. Thanks,

Didn't the guy willingly intend to have more than one person killed via 3rd parties? I mean I like Libertarian's and all, but am I missing something? A hero? Don't mean to start a war here, I'm genuinely curious if the evidence is all trumped up or you just think the good he did outweighed the bad or something.

"I drop unexpectedly... like bird shit." - Notorious B.I.G. and for a more investment related rap lyric... "In anticipation for precipitation, I stack chips for a rainy day." - Jay Z

Love: WINCo (regional price leader, constant markup, grocery store) Hate: Comcast (as soon as I could, I dropped them like a bad habit - used to own the stock. ;)

You can always do both...

His post was from 5 months ago Race...

I think when someone says "endowment" it generally means to me a pool of money that is used to pay out a large % of it's assets each year in benefits, like 5%. Regardless of size then, I would suggest that endowment investing absolutely must care about volatility, because when you need to spend 5% of your bankroll, volatility = risk. Those of us building a nest egg to be used in 30 years don't give a shit about vol, but I think volatility is definitely a major risk for any distribution based pool of capital. I would agree Jawn that managing $25B also changes the game, but the vol component is more because of withdrawal rates, not size.

I actually think part of the challenge of this mentality, is that thinking % wise, actually means you should diversify more as you get bigger, because when you are young / poor / small, the dollars you invest are a small portion of your lifetime income (including salary). Few of us include our NPV of salary income in our portfolio, but I think our minds do it subconsciously. So I think as you get larger you need to think very hard if "10%" is something you can risk on an idea... if you are 25 and 10% is $5k that's much different than if you are 35 and 10% is $100k, or 45 and 10% is 500k. Some of the answers above seem to imply that it's no different... I would would argue that is a dangerous way to think. Clearly you can recover a $5k loss at 25 more than you can recover a $500k loss at 45 (I'm just making up numbers, obviously just examples)... so I would think a rational person would certainly consider their future lifetime earnings (remaining) compared to current bankroll when deciding how much to invest. I don't have an answer for your original query, but I guess I'm saying that your views should change (slightly) as you get more current paper wealth and age... it's different. Now, to be fair, I don't think it's that different, and if you really are a true "no loss" investor, then it may not change much, but I do think thinking it through is important.

I think these two charts are what I would use if I wanted to defend a discount rate reduction: 30 yr TSY yield -- http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tyx&insttype=&freq=2&show=&time=13 10 yr TSY yield -- http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tnx&insttype=&freq=2&show=&time=13 I think the discount rate and associated growth rates embedded in DCF models are very complex and misunderstood, but it seems clear to me that US investment managers are tacitly agreeing that they should expect lower returns going forward... corporate boards are doing the same (via higher priced buybacks).

FYI, recently posted, but 1 year old...