GregS

Maybe we're in a bubble, maybe not, but I've been hearing this type of shoeshine boy stuff for about 7 straight years.

Figure out who the regulator is in Texas. They will be the Department of Corporations, Dept of Securities Regulation, Dept of Business Oversight, something like that. Hopefully they have a lot of information on their website about how to register and governing law. Call them up if you have questions. Often the offices regulating this kind of thing are quite small and if you get ahold of the right people they are knowledgeable. This stuff can get pretty complicated and there are few clear sources of information, which is why many suggest paying for a service. Are you comfortable drafting an investment advisory agreement, for example? I did the registration myself and it was very frustrating at times. I had a number of items I had to correct on my application, including some things the state wanted in the ADV that weren't in the regulations or any other materials they provided. I learned a lot in the process but it definitely took a lot of time and energy.

I should add that I don't think you have to register in California if you are managing for a small number of people but not receiving any compensation. So if you want to set up a fund with family or friends and build a track record, but not receive any fees, you are probably ok. I would caution anyone doing this to research the law, however, as there are probably numerous ways to run into trouble with the regulators, like if you are holding yourself out as an investment advisor or soliciting. More info here: http://www.dbo.ca.gov/Licensees/Broker-Dealer_and_SEC_Investment_Advisers/State_IA.asp Looking at this, it appears there is a de minimus exception in CA if you have fewer than 6 clients and no place of business in the state. Again, you have to start with whatever state you are operating in because they are not all the same.

California is pretty clear that if you receive compensation for advisory services from any client you have to register. I don't know if the rules are different if you are from another state and have only a few California clients. Some states have de minimus exceptions but you have to look state by state.

I think it depends on the state. In CA if you provide advisory services to anyone for compensation you have to register as an investment advisor. Other states may be different.

Agree with this 100%. Respect to 17mile because he put it all out there, but calling him a "value investor" is a bit much. Fundamental driven sure, but used leverage, extreme concentration... He put up amazing numbers for awhile but was clearly focused on upside, not downside and margin of safety. I'll bet he is a better analyst than I am but value investing is about a lot more than stock picking.

Thanks for the insights, Travis. So for new clients/added cash, have you generally held cash and waited? Do you do any performance reporting on a firm-wide basis, and how have you managed that? (average across all accounts, used a model account, etc)

I like Marks' The Most Important Thing.

Ok, I just registered and scheduled the exam. Fill out the U-10 first (you have to register an account but you don't need a CRD). Leave the section on firm information blank. They will get back to you about a day later with an enrollment window and an ID number. When you go to schedule the exam, use that ID number to register your account (yes, you have to register again and provide the ID number) and then schedule your test. I've seen a lot of confusion on this point, but you do not need to be sponsored by a firm to take the series 65. Series 7 and possibly others yes, but not the 65. After passing the exam you have two years to get you and your firm registered/licensed.

Yes. On FINRA's website it is asking for this CRD #. I will be the IA myself, so it sounds like I need to establish my firm first to get the CRD # before I can take the series 65 exam? I don't think that's right. I think you file Form U-10 if you are not currently with a firm. It asks for firm information but it is not required.

I've been looking at companies that have been hit because of O&G exposure but are outside the industry. URI is one of my holdings. Looking at ACM right now. They did a big merger last year (bought URS) so there's a lot to analyze. I'm also digging around in US housing and consumer finance. Seems like the cyclical winds are at their backs so finding an undervalued company gives you lots of ways to win. I don't have any names right now though.

^This If you don't want to put in the work to find and follow stocks, focus on asset allocation, dollar cost averaging and rebalancing. Find a plan you and your family is comfortable with and stick to it. ETFs and index funds make this easier and cheaper than ever. Your returns will be acceptable but not outstanding.

"I am a better investor because I am a businessman and a better businessman because I am an investor." - Buffett Once you've been investing for awhile, you will realize that valuation and financial statement analysis is the easy part. The next step is to learn business analysis and it is a lifelong process. Read widely.

My story: I quit my job at a prestigious law firm several years ago when my wife finished residency and we decided to relocate closer to family. I planned to find another job after we settled but ultimately decided to stay home with our kids. Life as dual working parents putting in 80+ hour weeks with a one year old at home had taken its toll, and we were both very happy with the much calmer lifestyle of one parent working. My wife replaced my income with fewer hours and I managed the home front. I understood what it was like to be the breadwinner and yet worry about child care that got screwed up now and again. I wanted to let me wife focus on her job as much as she could without worrying about the household. There was definitely an ego hit in not pursuing my career, even if I voluntarily quit a job that made more money than many of my friends do currently. However, I didn't miss my old job for one day. My head and heart were always with my family and I hated when work got in the way of that. I was never able to find the balance and don't think I ever would. My two kids are older now and in school so things are changing quite a bit now, and I'm planning on getting back into work. My ambition was on hold - possibly beaten out of me by a terrible job - but with the time off I rediscovered it and found passions outside of law. I may work for myself. I think I'm going to like where I end up even if my path is less linear and takes longer. In the long run, I will never regret the time close to my wife and kids. Some thoughts: A lot of people have discussed prestige and regret, and I think those are key issues. Don't take the job because some external pressure says you should if your heart really wants to stay. Ambition is a strong force if genuine and internal but totally destructive if it comes from other people's expectations. You will end up pursuing the wrong things. I see over and over again people climbing the ladder because it is what they are supposed to do without ever thinking about whether it's the right ladder to be on. On the other hand, don't decline the job because of family if you really want to take it. Five years down the road you don't want to feel that your family held you back. You have to be comfortable with staying where you are, at least for a time. Commute - sounds like you already nixed the commute idea, but I think that's a horrible idea. Especially if you are the primary caregiver for your children. Don't waste 2+ hrs of your day in a car. Getting a shorter commute would be a reason in favor of moving. Child care - Are you having family take care of your child currently? Have you done child care options outside of family? Think hard about this one if you are moving away from a family-supported situation. If you haven't gone through it, child care will be much harder than you expect. Nannies get sick or have to run off for emergencies or quit on you. Child care centers close. Finding good ones is not easy and transitions are very hard. Being able to focus on work because someone you trust is taking care of the kids is priceless. Career - Aside from just working at a better hospital, I'm guessing there are things you can do at the new hospital that you cannot do at the old one (research, cutting-edge work). Is this important? And don't discount the importance of working at a hospital with an underserved population. My wife worked at such a hospital in residency. It was one of the reasons she went into medicine and she misses that part of her old job terribly. She fulfills that need with an occasional medical mission but it's not the same. Opportunity - Is this a once in a lifetime chance or will such opportunities be available in the future? Impossible to say, I'm sure, but something to think about. Taking a longer timeline to accomplish something isn't the worst thing in the world when the kids are young. Things will look really different when the kids are older. Moving kids - I moved a couple of times when I was young (at age 6 and at age 10) and while it was bad enough for a time that I remember it vividly, the pain was also something that passed. I adjusted. Good luck!

Another website: http://www.stockspinoffs.com/ If you have not read Greenblatt's You Can Be A Stock Market Genius, do so.

MKL

I will generally use pre-interest cash flows to EV and deduct interest when using market cap. But it is hard to compare values of levered to unlevered companies for this reason. I usually look at EV/EBITDA, EV/EBIT and P/FCF and try to find something that works on all the metrics. If one of those numbers is an outlier that's telling you something, whether it's something in the capital structure or reinvestment needs. I think the balance sheet risks need to be assessed separately from value. Leverage works both ways. So do you care more about upside or downside? There's nothing wrong with some leverage if the cash flows are fairly secure, but that might be a lot of leverage. If the stock is trading at book then debt is 2x equity, more if P/B is higher. Is there a margin of safety? As far as capital allocation, I think debt handicaps them. Aside from any covenants restricting dividends or buybacks, they will have fewer options to take advantage of low rates to pay buyback stock, do an acquisition or reinvest in the business. If you don't trust management to make intelligent decisions then it's probably a pass anyway. But if you like the levered business, I would focus on position sizing. I look at potential downside in sizing positions.

^^This

"Investing is simple, but not easy." - Buffett

Good points, Tim. Do you have experience with clients stealing ideas? How did you address it? Anyone else encounter this?

The landscape has changed for funds. The rule on who you can charge management fees to has changed, the bar is higher. So ask yourself, do you have enough people who are going to be qualified investors for whom you can charge a fee? Remember you're still allowed to charge them a performance fee on a separate account as well. Separate accounts aren't as "sexy" as running a fund. If you care about the swagger and being able to say you run a hedge fund pay the costs. Otherwise I'd say go the RIA route, it's cheaper and far easier to setup. For the few high balance accounts you can charge performance fees, and if your great aunt maude wants to invest with you you'll be able to put her in some index funds and get paid for it. This is where a fund makes sense, if you're dealing in esoteric non-liquid investments. If so it becomes really hard to allocate them to different accounts. In that case you want a single fund. You said you're going to be doing long only liquid investments so I'd consider SMA's seriously. Nate I think this is right on. Certain strategies only make sense in a fund. Outside of that, the SMA structure is way better for the client as they offer greater transparency and liquidity. I think this can be a key selling point for many potential clients. I do think more sophisticated investors, and particularly institutional investors, are going to want to see the kind of professional support that others have mentioned in this thread regardless of your firm's structure. But if you want to balance cost, SMAs are probably the way to go. If you are a total unknown, institutional money is a pipe dream anyway. Leigh Drogen wrote a great post several years ago about this issue: http://www.leighdrogen.com/the-hedge-fund-structure-is-dead/ Also, I think you have to register as an RIA if running a hedge fund.

1. The Intelligent Investor - The first pure investing book I read. Literally changed my life. 2. One up on Wall Street - In my investing style, I probably identify with Lynch more than any other major investor. 3. The Most Important Thing - So much clear thinking on risk. I could read this book over and over and still learn things. 4. Value Investing from Graham to Buffett - Learning the academic concepts in this book really helped mature my thinking on valuation. 5. The Smartest Guys in the Room - This book on Enron showed me how greed and perverse incentives can result in enormous hype and then disaster. It helped me realize how and why the bulk of the financial industry is so corrupt and incompetent.

^Winner^

I wrote my last response before seeing this, but one of the questions I haven't figured out is how they break up the improvements between leasehold vs. other building improvements and equipment, fixtures, etc, and how these numbers get reflected in the depreciation/amortization charges. I don't think you will have to rebuild the entire new club every 20 years but lots needs to be replaced. What falls into what category? I don't know. It's also interesting that they are spending $20-22m on new clubs while also looking at closing 5% of their clubs this year. Will this increase revenues and profits or just maintain them? If the latter, it gives credence to the idea you do need to replace the clubs completely.

I mentioned in the CLUB thread that if depreciation is lower than maintenance capex I am suspicious they are underinvesting. Let me explain a bit more what I meant. Whether depreciation should be the same as maintenance capex really depends on the business and industry. I think you already know all this, but let's go through it. Sometimes accounting rules mean that a company will depreciate an asset at a faster rate than its useful life. So maybe a company has to depreciate over 20 years, but its useful life is 40-50 with minimal maintenance. This will cause a company to understate earnings, and the difference will show up in FCF/owner earnings as the depreciation charge you add back to get cash from operations is higher than the maintenance capex you deduct. But if the reinvestment requirements are high, the company will eventually have to spend at the level of depreciation (or higher) just to maintain its revenues. Let's look at CLUB as a possible example. What concerns me about CLUB is that although their stated maintenance Capex is less than depreciation, they really do need to reinvest at a high rate to maintain a competitive position. Steve Wynn often slams people who use EBITDA because depreciation is a real expense for his casinos. If they don't continue to invest in the casinos they will lose customers and revenue. Fitness clubs are like casinos in this regard - you need to keep spending to keep people coming. I don't know whether the numbers should be equal but it is something to figure out. How often do you need to basically rebuild an entire fitness club? Every 15-20 years maybe? The building itself is probably good for longer but almost everything inside needs to be replaced and upgraded just to maintain membership and revenues. I'm a long term member of a club right now that hasn't upgraded locker rooms, fixtures, etc. in like 20 years and I will probably switch next year to the brand new club being built one mile away. And when you are dealing with a company with high capex requirements and declining revenues, you have to determine if they have continued to invest at the required rate or if they have been cutting back on capex to keep cash flow high. If they have cut back, eventually that bill will come due. I don't know enough to say whether CLUB's maintenance capex should equal its depreciation but when there is a discrepancy it needs to be investigated. Growing retailers are similar. They have huge capex for growth as they build out stores. Maintenance capex on these new stores is usually very low at first, while depreciation charges increase, making FCF look good. But eventually stores get old and stale and the company needs to reinvest if they haven't been doing it all along. Capex either shoots higher or the store will start losing customers. If it gets really bad, you could be looking at a death spiral where failure to reinvest results in loss sales which dries up funds for reinvestment. There's a certain popular stock on this board where I believe that is happening, and people are left valuing the company based on the land underneath its decaying stores (oh yes, and some brands, don't forget the brands). Maybe the real estate/asset thing will work out, I don't have an opinion, but a retail turnaround cannot happen without massive reinvestment. So the answer is it depends. If maintenance capex is less than depreciation, you really need to know why and whether any problems may be created down the road. I hope this advances the discussion.