muscleman

oddball, that's exactly my plan. Keep my current job (or switch to another employer who's less demanding), and start the RIA on the side. Eventually when big enough, do it full time. I will have partners to do the other things of marketing and sales. I will focus on trading.

Agree on the rabbit hole, though I'm just thinking about the case in general with my question. Bush did commute Libby's prison sentence, though yes it wasn't a full pardon. I'm not saying there will be perjury or pardoning here, but the political consequences were much more dire for Bush. By that time the majority of the people were against him and the war. In this case, it's safe to say that the government is the political favorite against the Wall St. plaintiffs. On a related note, do you think Wheeler not awarding damages was politically motivated at all? He made it seem as if the only alternative was an AIG bankruptcy, but why couldn't an alternative be a fair interest rate/fee for the deal and just award damages in excess of that? Do you think he didn't want to get on the government's bad side too much? Richard Epstein said that judges give plenty more deference to the government over citizens, all else being equal. Just worried about how politics play into all of this. It would suck to see a win based on legality only to be taken away by Presidential power, or because of unnecessary deference, etc. Wheeler's ruling said that awarding damages based on the illegal excess profits of $22 bn that the government made would be a more feasible way but the plantiff didn't ask for this approach. I think this opens the door for appeal. Basically, Wheeler might be suggesting that had the plantiff requested award of $22 bn based on the illegal excess profits, he may have awared them the $22 bn.

I think so. If the deposition goes public, that probably implies the judge is completely not on their side and they will eventually lose anyway. So why let it go public? That will kill a bunch of people's career. But the question is who has the authority to settle? We all know how bureaucrats work. There will be a bunch of finger pointing going on right now, but whether these politicians will reach an agreement to settle is in question.

I think the biggest problem with classic value investors is that they claim market price and fundamental value are two completely different things and over the long run, fundamental value can influence market price and market price should converge with fundamental value. This understanding is missing the second part of the reality, which is that market price CAN also influence fundamental value. For example, an over valued stock, if under the helm of a great CEO, can start an acquisition spree and after each acquisition of FAIR valued deals, the fundamental value of this company goes up, therefore confirming the Wall Street's bias that the stock is good, therefore further pushing up the stock price. Another example, all value investors like AMZN's business fundamentals, except that people say, oh shit, this stock is way overvalued. I'd love to buy at $40 per share instead of $400. Let me tell you this, if AMZN opens at $40 tomorrow, 90% of the star software engineers will leave within one month. Do you believe that? Then AMZN will immediately get into deep trouble. Therefore it is exactly the Wall Street's negative bias that destroy the fundamentals. I think if people in the classic deep value investing clubs understand the above, then their performance would be better.

The first half will likely make you a worse investor, and the latter half will likely make you a better one. Perhaps the two will cancel out. :) I disagree on modeling, but I get why you say it :). I think there's a lot of value in building models since it helps an investor get a general conversion of growth/discount to P/FCF or P/E. It also provides a check of whether assumptions are realistic (can a niche company really grow at 20% for 10 years). I agree that models can be an investing crutch really quickly if decisions are made solely based on the output of one. Creating an intricate model should ultimately be just a map of how money moves around the financial statements and what the effects of potential improvements/downturns are. I don't use models as much lately but I have built a lot of generic and company/sector specific ones from over the years. I always read Buffett's statement "that he doesn't model his investment decisions" as the result of experience. I bet he generally knows what the model will spit out at this point. It only happened from modeling so many companies. I choose not to work on the sell-side because I didn't want to become a worse investor :). I hate that they force you to have a positive opinion [or even an opinion] so often. I think I would have taken a buy-side position over starting a fund so early if the opportunity had been present. Same feeling here. Regarding the knitty gritty of the financial statements, you can learn by reading some great books like: 1. Quality of Earnings. 2. Financial Shenanigans. 3. What's behind the number I have a friend in the PE industry and I have also contacted a few funds, pretending that I am interested in investing with them and then pointed to their largest position and said, oh I am scared of this one. This one has xxx problems so why are you buying it? Their answers are mostly unsatisfactory to me. Personally I don't think they understand a lot of the quality of earnings and other accounting tricks. They look at models and they have the institutional imperative to buy whatever other funds buy.

I like investing a lot more than my current job as a software engineer. The whole reason that I chose computer science was because I wanted to join a quant fund after graduation, but that's impossible in 2008. Then I got into Microsoft and got stuck as a green card slave until now. But after learning investing for so many years, I am more interested in doing it on my own instead of joining a hedge fund and work for them.

Thanks a lot! I'd like to start as RIA first and then after a few years convert to a hedge fund or preferrably permanent vehicle.

Got it. So regardless of whether they are officers or not in the LLC, they have to pass series 7 in order to bring in clients? One of my friend is not a US person and he is targeting foreign clients, so does he still need the series 7? It sounds like I do need to get director and officer liability insurance for both me and my friends. I will go talk to a lawyer.

Thanks a lot! I will talk to a lawyer to get started. I should register an LLC first right? And then employ myself from the LLC and get director and officer liability insurance? How much would that cost?

Selling securities? So if I run a hedge fund and try to sell some shares of my hedge fund, that would require series 7 right? But for investment advisory, that's probably not needed because I am not selling securities right? I have no plan to become a broker. no you would not need the Series 7 to sell interests in your own hedge fund. Just the 65, and not every state requires that. WA does. Ok. So my friends will be the main guys trying to get clients and I will mostly be trading and researching. Only I need the series 65 and my friends won't need series 7, is that right? So how can I ensure that my friends talk about the right things and right promises when they tell their clients? Do I have to train them?

Are you suggesting that without the 2012 3rd amendment, FNMA and FMCC would be worthless anyway, so there is no fair compensation to shareholders? That logic doesn't resonate in my head. ::) In fact I think that's what the government lawyer is suggesting all the time. They said they think FNMA and FMCC would be unlikely to return to profitability and unlikely to repay the senior preferred, so that's why they adjusted the terms. But facts suggest that the fact is exactly the opposite. Fairholme is not suing the 2008 bailout of FNMA and FMCC for its previous common shareholders. It just argues about the 2012 3rd amendment.

Someone suggested to me via PM to start as investment advisory instead of a full fledged HF manager. The cost would be much lower and I would only provide services to manage individual accounts. I log into their accounts and trade, instead of asking them to send me their money. This will be much easier to earn trust than asking people to send me money and just trust whatever I do with their money. IB has an automated feature to support this and it sounds like it can automatically withdraw fees from client's account into my advisory master account. I've considered this, but what bothers me is that the client can see all of the trades being made. What's stopping them from just copying everything you do in real time, while giving only a small amount of money? Also, I fear giving access to real time portfolio value, with all of its ebbs and flows can cause distress to a client, and in turn problems for the portfolio manager. I think this is why Buffett reported account value only once a year, but I might be wrong on that. Hmm..... This is indeed a big concern. I certainly don't want clients to log in everyday and monitor my trades in real time and calling me all the time. That would be very annoying. Is there a way to block clients from viewing their own account in IB?

Selling securities? So if I run a hedge fund and try to sell some shares of my hedge fund, that would require series 7 right? But for investment advisory, that's probably not needed because I am not selling securities right? I have no plan to become a broker.

I talked to a brilliant entrepreneur this morning. He founded and IPO'ed more than 3 startups. He told me that I should pass series 7. He didn't know much about series 65. I am a bit confused. Which one should I actually pass?

This is somehow still an understatement :). You should be able to pass the 65 with minimal amounts of studying before you even consider starting a fund. I planned for over a year, had clients lined up for once I was live, and I had experience managing money already. Even then, I still wasn't fully prepared for everything and I have been working >60 hours every week for months now (I have not taken off a full weekend in over 10 months). 99.9% of portfolio managers do not have the glamorous job Ackman or Einhorn have. 1 man shops should expect to work at least 60-80 hours (preferably closer to 80) a week and be available literally 24/7 (meetings or calls with potential clients, current clients, mgmt for perspective investments, networking, ect). Buffett was successful because investing was his entire life. With this much $ available to be earned, you better believe the Larry Bird axiom is true; "When you're not working, someone else is". Be prepared to compete directly with billionaires and ivy leaguers. You should be (no particular order): 1) A fantastic stock picker/financial analyst 2) Comfortable speaking about nearly any financial product (the younger you are, the more broadly knowledgeable you need to be in my experience) 3) Excellent public speaker 4) Excellent salesman (or woman) 5) Have an excellent track record (5+ years minimum; most folks want to see at least 7-10) 6) Be prepared to have your track record audited (a lot of institutional investors will not consider you without this) 7) Enjoy learning and have excellent recall (you are competing with the brightest folks in the world considering how much $ can be earned) *You should probably have experience in accounting/auditing, financial analysis, programming, and possibly banking (imo). There's no single job I know of that will adequately prepare you for living off your own research/work. My structure will not be a 1-man shop. Research and trading will be just me but meeting clients and those things will be done by my partners. Otherwise it will be a huge distraction.

Someone suggested to me via PM to start as investment advisory instead of a full fledged HF manager. The cost would be much lower and I would only provide services to manage individual accounts. I log into their accounts and trade, instead of asking them to send me their money. This will be much easier to earn trust than asking people to send me money and just trust whatever I do with their money. IB has an automated feature to support this and it sounds like it can automatically withdraw fees from client's account into my advisory master account.

Thanks a lot! I will ask Racemize for more details.

Thanks a lot! It sounds pretty complicated. Do you think an offshore hedge fund would be less complicated?

Nice to see that Cooper & Kirk is ratcheting up the pressure. Looks like a response is due by 6/29. I think undoubtedly the response would be "No, this will cause financial system breakdowns and we cannot reveal any of those information." :) Then what happens? Will both sides schedule oral argument or will the judge just rule whether the information will be unvailed?

merkhet, I think you did a good summery here regarding Maniere case: 1. Maniere case has two claims. 3rd party beneficiary claim and takings claim. People's eyes are glued to the third party beneficiary claim ruling, and that is not even what the government is trying to apply to FnF. The government is trying to apply takings claim in Maniere case. 2. Maniere case's taking claims ruling evolves around "at the time of taking". In FnF's case "time" is continuous from August 7th 2012 to today. Therefore every shareholder of today is eligible to sue the government, because taking is still happening as of today, but in Maniere case taking was a one time event. I think that argument is sufficient to throw out the government's motion, and that's why they didn't file the motion last year. Thoughts?

I just got the green card yesterday so I no longer need to continue to be a code monkey for the longer term. I've been learning investing since a few years ago and had reasonable results. I'd like to start a hedge fund but I have no clue how to get started, any things to pay attention to and how to keep the costs as low as possible. Can anyone give me some advice? Thanks!

I am not a lawyer but here is how I view it: If this Maniere case is so powerful to dismiss the entire suit, then government should have thrown it out last June when it requested Fairholme's stock purchase records. The fact that government didn't file this motion of dismiss until discovery and deposition has gone this far implies this is more likely to be a desperate struggle rather than an effective defense.

My guess is that this case's relevance is weak. Otherwise the government lawyer should have placed this onto the table in May last year instead of now. It just doesn't make sense, unless either: 1. This is just a desperate struggle. 2. This is indeed relevant but government lawyer is so crappy that they didn't know this case until now. I think #1 has a much higher probability than #2, but who knows..........

I goolged really hard but can't find the original ruling for Maniere. The fact that so many case are citing it implies the document should be available in a lot of places, but we can't find it. ::) merket, do you have access to some legal library? I find it perplexing and anti-common sense if shareholders bought after the taking cannot sue. I remember someone said that Fairholme or maybe Perry case has 3 original preferred shareholders who held from 2008? In that case, the suit should still be valid even if Maniere case applies right?

Just finished reading this ruling that you provided here. Thanks a lot! How did you find this one? That's an interesting case.