Jump to content

JBird

Member
  • Posts

    529
  • Joined

  • Last visited

Posts posted by JBird

  1. I think much of that has to do with the fact that generally, only the lower-quality funds accept FOF money.  Like most of the industry, FOF money is fickle and short term.  An excellent value manager will know this, and not wager the integrity of their fund on the high chances the FOF manager decides to redeem after a "bad" quarter.

     

     

    I run a small registered investment adviser just for separate accounts, and would like to start an LP fund when my Masters is complete in a year or so.  My compliance guy doesn't do funds but would update my Form ADV.  Since I'm already registered, I imagine the first steps are LP setup (easy), then having a law firm draft the PPM, LPA and other offering docs, and then figuring out admin procedures, CPA audit and prime brokerage.  The $20k quotes seem high - what is the breakdown there?  Is most of that for the offering docs?  I probably spent about $5k all-in to get the RIA up and running.

     

    What's the upside with the LP fund you don't get with the SMA structure as an RIA?

  2. Estate and gift taxes raised only about $14 billion last year. That’s about 1 percent of the $1.2 trillion passed down in America each year, mostly by the very rich, former Treasury Secretary Lawrence Summers estimated in a December blog post on Reuters.com. The contrast suggests “our estate tax system is broken,” he wrote. 

     

    I'm not too worried that people are allowed to accumulate a lot of money.  The outrage seems to be that families are keeping their money and not having it stolen from them by the public treasury?

     

    A fair point. I do wish our culture would further encourage individuals to give much of their wealth away; in essence, promote meritocracy.

  3. IMO they charge the way they do because the average person doesn't think about it the way you do (and not just about this), they think about how much perceived utility they get.

     

    People who buy these things see the car being X thousand bucks cooler in their minds, not the hundreds the components cost and the negligible extra labor required.

     

    This is a very perceptive observation

  4. I have had a comical time researching these Hyundai preferred's. Hyundai doesn't have investor relations so far as I can tell. So I've called every corporate office on this continent asking about the economic rights of the preferred and the call features. No one knows anything. One guy had the naivety to refer me to a local car dealer.

     

    It appears from the statements that the preferred have the same economic rights as the common, plus the added dividend. Does anyone have info to the contrary?

  5. I've been trying to think about this on a probability basis, using an expected value to answer the question of how far to project.

     

    With a simple example, say we're looking to purchase $1 billion of float run-off that will last 1 year. We know the policy book. The question we have to ask is, how much float are we likely going to have throughout the year? It'll start with $1 billion but just how fast will it taper off? Absolutely nobody knows with precision how fast it will diminish. So we do all we can do; judge the probability of the different possible outcomes. For simplicity, say there are 2 possible outcomes, the first being that we have an average amount of $750 million, second being that we have $500 million. We estimate the odds are 60-40, respectively. So on a probability-weighted basis we'll have $650 million of float. Now it's only a matter of deciding what you're willing to pay for $650 million of float for 1 year.

     

    I'm not suggesting this process be done with precision or that it must be laborious, but I think it may yield a useful answer.

     

    My thesis is that you should project float out for as many years as you can judge the probability-weighted amount there will actually be.

     

    Clearly this is easier when looking at an insurer like GEICO that has a strong competitive advantage. But if you're interested in projecting their float out 5 decades, what's your expected value for Year 40? Year 50? Those seem like a tough questions. Just consider how far away that really is. There are so many variables and unknowns. If we can't estimate the odds that far out, maybe it's safer not value those years. I'm not saying it's unconservative to value that far out, just that from my perspective it looks tough.

     

  6. How do you reconcile your statement attributed to Buffett vs the claims that he has rarely (never?) used a DCF model...do you think (as I do) that it simple a mental framework in which to analyze an investment?

     

    "We don't formally have discount rates. Every time we start talking about this, Charlie reminds me that I've never prepared a spreadsheet, but I do in my mind. We just try to buy things that we'll earn more from than a government bond - the question is, how much higher?" -WEB

     

    I believe him when he says he doesn't write them out. Can he do them mentally? 1) We're talking about a man who can calculate compound annual return figures in his head; I think the mental math ability is there. 2) I am not suggesting the DCF is done with precision. He's noted before that others would be surprised at just how imprecise he is.

     

    The more I do these DCF calculations in Excel the more mental shortcuts I find. With enough practice I don't think doing these without Excel is so far fetched.

  7. 1. The risk-free rate or anything above it.

     

    2. Same as 1

     

    3. I want to earn more than the risk-free rate. In order to do that I either have to buy below PV of future cash (margin of safety) or use a higher discount rate.

     

    4. I share Buffett's view that DCF is the only logical way to measure the relative attractiveness of assets.

  8. I assume the $1B float must be invested at 5%, but I can reinvest my equity in excess of that as I please. LC makes the opposite assumption.

     

    So the float produces $50M risk free per year, and I require a 10% return. I will pay $500M.

     

    Fantastic.

     

    And finally, how far out can we project real-world float in the future and still stay within the bounds of conservatism? 20 years out? 50? 100? If it depends on the quality of the insurer, how far out can we go for the highest quality insurer's float?

  9. Good discussion. I'd like to pose one more hypothetical.

     

    $1 billion of cost-free float that must be paid back after 50 years is for sale. The float can only be invested in risk-free assets. The risk-free rate is 5%. Your required return rate / discount rate is 10%. What's the maximum amount you're willing to bid, and why?

    87.2 m is the present value but you must account for inflation and sovereign risk. Probably something around 75m.

     

    This example is in a sphere of unreality; so no inflation and no sovereign risk. I'm curious how you arrived at $87.2 million?

  10. I have one...

     

    What is a 75B cost free float in perpetuity worth assuming a risk free rate of 3-6%? Should this be deducted from the book value as a liability as if it was due to be paid back?

     

    In my view, the answer to the first question depends on the amount of investment income the float will generate over time, and when it will be generated. The second question is rhetorical, we all know the answer.

  11. Good discussion. I'd like to pose one more hypothetical.

     

    $1 billion of cost-free float that must be paid back after 50 years is for sale. The float can only be invested in risk-free assets. The risk-free rate is 5%. Your required return rate / discount rate is 10%. What's the maximum amount you're willing to bid, and why?

  12. If the risk free rate is 10%, inflation is running pretty high. Or is that 10% real?

     

    I don't believe the real risk free rate is ever likely be 10%. I also have my doubts about the existence of "risk free".

     

    Another good question for the real world. Let's say 10% real risk-free. Inflation is at 0%.

  13. A good question when dealing with the real world. But for the sake of simplicity the float doesn't even have to be from insurance. There are no constraints on your ability to invest it. It can be 100% in equities if you want.

  14. Float is money held but not owned. The question is, how much are you willing to pay for it?

     

    1. $1 billion of static float that is both cost-free and enduring (it will never be paid back) is for sale. The risk-free rate is 10%. What's your maximum bid, and why?

     

    2. $1 billion of static float that is cost-free and must be paid back in full after 100 years is for sale. The risk-free rate is 10%. What's your maximum bid, and why?

×
×
  • Create New...