fwallstreet
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This is non-investment related.
He mentioned that he would teach any of his employee, who is thinking of striking out, how to start and run a business. Even if the employee is competing against him in the future
Not a single one of them clone his method.
Can share his methodology and advice for business owner?
I found no mention of this anywhere.
TIA and really grateful for opening this up.
Similar to the above, most of Mohnish Q&A's focus on his investment process and skills - what advice does he have on managing an investment business specifically, especialy for those who are looking to start one in the future? What are some things he wished he had known when launching his fund and the lessons learned from his mistakes/experience managing a hedge fund?
Hopefully, I'm getting the gist of my question across but looking for insight into the aspects of how he manages the business outside of actual investing, like marketing (or lack thereof if mainly through referrals), communication with investors, etc etc - especially as it relates to his early years. Also, ditto the above poster, thank you Joel!
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I took a look through the Books board and didn't find too many books on this subject. I know many board members have successfully started and operate funds/RIAs and other non-finance related small businesses. Could you guys share some books or any other resources (websites, blogs, etc) that you found helpful - especially those that provide more practical, specific info vs. motivational or very generic advice?
Thanks in advance!
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Interestingly the 6% rate was also the rate that Buffet will pay LPs if they wish to send money prior to a scheduled opening. It is a form of financing for the fund. Regarding a fee structure for a fund, I spent a ton of time trying to devise a clever fee structure that would align my interest with my LPs. I thought about setting the 10 year treasury as the hurdle and let it float each year. You start running into issue with the fund admins with a floating rate fee structure. I know some individuals who use 0,6,25 and actually ran into trouble with fund raising because of the 0. From prospective LPs' perspectives, some of them want to pay the GP during lean years. Great fund managers with great moral compass tend to be easier to pick in hindsight. Most fund managers who are down 40-50% would often just close down the fund and start a new fund. Hence, the prospective LPs understand that a 0,6,25 fee structure can lead to a GP not having any cashflow for 2-3 years. Hence, having a 1,6,25 fee structure will motive the GP to work his/her way out of the hole.
If I were an LP, a 0,9, 25 would make me uncomfortable (my 2 cents). The GP can't cover expenses unless there is substantial out performance.
Great points, I think your reasoning makes a lot of sense when you think about the fee structure from a practical view - which is clearly what's important - vs a theoretical/what would Buffett do now perspective. If you don't mind sharing, what fee structure did you ultimately end up settling on?
To everyone else, thanks for the great discussion.
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Thank you Eric! I skimmed through the letters awhile back trying to remember why I kept thinking the 6% was related to some equity market return after realizing the govt yields didn't fit. Obviously I totalled missed it, thanks for digging that up - much appreciated.
http://finance.zacks.com/average-return-dow-jones-during-its-lifetime-3314.html
This article seems to show that he was certainly in the right range if looking across its history all the way to 1890s! I'd be interested in knowing others thoughts on what hurdle rate would be appropriate if launching a fund using the Buffett fee structure like many on this board have done now or in recent past (obviously small list but Pabrai, Sanjeev, etc). Since the Dow obviously has many flaws as a price weighted index, demonstrated by standard benchmark being market cap-weighted S&P nowadays, would you guys feel that someone who wanted to stay true to Buffett's thinking should raise the hurdle higher to maybe 9%? Just thinking out loud.
IMHO seems like that would be too high of a hurdle and is one of the reasons why my first attempt to rationalize the 6% was similar to stahleyp's - using the 10 yr yield. Also the rationale behind that seems to make a lot of sense too as others here have pointed out - fund manager is only paid based on outperformance over the easily accessible, risk-free return of govt bonds rather than "riskier" equity market. Plus I'm sure it certainly helps (justifiably) these fund managers when they can say they're using the same fee structure as Buffett did! :)
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Thanks for both of your thoughts. My first guess was also the 10 yr, but based on the historical data that I've looked at in the mid to late 50s, seems like 10 yr yield was in the 3.5% to 5% range.
I also thought I read something along the lines of it being related to avg equity market returns, but again based on historical data that I looked at, that didn't seem to fit either - closer to 9-10%. Andy, your info on the inflation factor might be the missing link and makes the math seem to work.
Also agree with your other thoughts - preaching to the choir! - but I guess what triggered this question was what Buffett, Pabrai, Sanjeev or any other fund manager that uses this relatively unique fee structure would say to an investor that asks, "So why a 6% hurdle? Why not 4% or 8%?" Maybe this isn't a common question bc I imagine after comparing it to other fund fee structures - esp. those without hurdle rates - this one understandably comes off as being extremely fair and a perfect alignment of incentives.
Would still be interested to hear what others here think if different from the above two - thanks again to you both!
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I've always wondered how he arrived at 6% for being the hurdle rate to use after consolidating the early partnerships. But I can't remember reading anything that outlined his thinking. If someone knows or, preferably, could point me to a primary source detailing his reasoning, I'd appreciate the info.
Is it based on historical gov't bond yields up to or from the late 50s? Or equity market returns? Thanks in advance
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What if you just want to help friends and family without necessarily making a profit? What would the best course of action be? Right now I have 2 family members and 1 friend that asked me to manage part of their money, and I have to meet with them, go into their account together, etc. I'm very prudent with their money and there's not much particularly worth buying or selling so they just have a couple 5% positions and tons of cash right now, so I don't really have to meet with them too often. But it's going to get annoying for me over time, plus they have a life themselves so meeting all the time is just not very practical for any parties.
They have each different tax status with their accounts (1 rrsp, 1 tfsa, 1 taxable - in Canada) so I don't know how that would affect anything. Any help would be appreciated, and sorry for kind of taking over.
Have you looked into Interactive Broker's Family and Friends account? It's a basic but effective platform to manage SMA's (including different tax statuses) with some helpful trading procedures to manage allocations across the accounts evenly. I'm based in the US so not sure if its different for Canadian accounts, but I currently use to manage accounts for friends and family and am very pleased with it. Again, not familiar with Canadian laws, but as long as you fall under the de minimis exemption in your state for number of clients, you do not have to register as a RIA to open this account in the US.
Is there a billing function in the IBRK friends and family?
Yes and there is the option for both a standard management fees or performance fees. Again, just a reminder, the ability to charge these requires RIA registration and certain client status (eg qualified investors for performance fee) if you do not fall under the de minimis exemption in your state (more than 5 investors in my state). I spoke with a rep before setting up the account and they pointed me to one of their online video tutorials or something like that, which allows you to see many of the F&F's accounts features - its essentially the same as their professional advisor account. I'd look into finding that video demo to check it out for yourself.
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What if you just want to help friends and family without necessarily making a profit? What would the best course of action be? Right now I have 2 family members and 1 friend that asked me to manage part of their money, and I have to meet with them, go into their account together, etc. I'm very prudent with their money and there's not much particularly worth buying or selling so they just have a couple 5% positions and tons of cash right now, so I don't really have to meet with them too often. But it's going to get annoying for me over time, plus they have a life themselves so meeting all the time is just not very practical for any parties.
They have each different tax status with their accounts (1 rrsp, 1 tfsa, 1 taxable - in Canada) so I don't know how that would affect anything. Any help would be appreciated, and sorry for kind of taking over.
Have you looked into Interactive Broker's Family and Friends account? It's a basic but effective platform to manage SMA's (including different tax statuses) with some helpful trading procedures to manage allocations across the accounts evenly. I'm based in the US so not sure if its different for Canadian accounts, but I currently use to manage accounts for friends and family and am very pleased with it. Again, not familiar with Canadian laws, but as long as you fall under the de minimis exemption in your state for number of clients, you do not have to register as a RIA to open this account in the US.
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Happy Birthday!!!
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Sry accidentally posted without finishing.
Hey everyone, I've been trying to incorporate some special situation plays into my portfolio recently. Just like I imagine many of us do with our more traditional holdings, I was hoping to use some 13Fs of special situations and event driven funds as a starting point. Do any of you guys track any specific funds via 13Fs that focus on these sorts of situations? If so, I would really appreciate any recommendations. So far, with my limited research, I've looked at Jana Partners, Mount Kellet and Seneca Capital.
Thanks in advance!
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[amazonsearch]One Up on Wall Street[/amazonsearch]
Just finished reading, and while I enjoyed it, it might be a bit simple for those already versed in financial analysis. Though the flexibility of his investment style was refreshing after having spent the past few months going through the value investing classics, so if you're looking for a change, I'd highly recommend this!
I really enjoyed his explanation of his 6 categories because its been forcing me to start thinking about my holdings and potential ideas through the appropriate lens and with the right expectations, something I've done vaguely in the past but will now be sure to do explicitly going forward. The categories are slow growers, stalwarts, fast growers, cyclicals, turnarounds, and asset plays. The discussion of 10 baggers was also really interesting. Selling really is one of the, if not the hardest, parts of all this. Hopefully, I'll give my winners more room to run going forward if the fundamentals remain intact or better yet improve. Haven't done a great job of that in the past.
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http://thedailyshow.cc.com/extended-interviews/z9b8f1/timothy-geithner-extended-interview
This is an excellent conversation, and I think most of you will find it well worth the 40 mins. I'd be very interested in hearing people's thoughts on it because its a conversation I've had many times in the past with both financially literate people and...well let's just say, others less so, and it often reaches the same impasse that that these two did by the end.
I could stop there, but since its the internet, I can't resist adding my own thoughts. Stewart brings up some interesting points, but I ended up almost completely agreeing with Geithner here. And the almost is more a function of my lack of understanding of the intricacies of the financial system (esp. in terms of authority of Treasury) that Geithner briefly mentioned rather than any real disagreements. Daily Show is one of my favorite shows and I believe Stewart is an incredibly smart guy, but I often find that his understanding of topics related to economics and finance is overly simplified and too black and white - not that I'm an expert by any means.
Anyway, makes me really want to read the book. Has anyone yet? I actually haven't read a book on the financial crisis and would appreciate people's recommendation on the best one iyo. Too Big to Fail? The Big Short? Those are the only ones I can remember off the top of my head.
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Great interview in new G&D with the founder of Denali, cheers! http://www8.gsb.columbia.edu/valueinvesting/sites/valueinvesting/files/Graham%20%26%20Doddsville%20-%20Issue%2021%20-%20Spring%202014.pdf
+1, his thoughts on options are very interesting. Some good ideas to explore as well!
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Thanks to all for thoughts on Competition Demystified. Definitely on my list now!
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New Jersey
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(And I wish Greenwald would write more books.)
Likewise! I forgot to ask, has anyone read Competition Demystified? Was thinking about tackling that soon.
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[amazonsearch]Value Investing: From Graham to Buffett and Beyond[/amazonsearch]
Was surprised this wasn't on here already, so figured I'd add it. Just finish reading and really enjoyed it. I liked his discussion of Earnings Power Value (EPV) and the value of growth (or often lack thereof). Plus, he also discusses the many flaws with more traditional valuation methods like the DCF, which many of us probably recognize and know of, but he articulates them very well.
To briefly summarize, he describes asset valuation, EPV and value of growth with examples. Then, the book moves on to profile a couple of value investing greats and specifically what makes their process different. Highly recommend!
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Perhaps many of the board members are already familiar with this incredible FREE resource, but just wanted to post for those that are not aware of it. This podcast is simply amazing (no I'm not a sales rep for Manual of Ideas nor do I have a subscription, unfortunately). John and his brother interview some value investing greats and some more obscure but upcoming value investors on the show. On the well-known investors front, some examples are Howard Marks, Chuck Akre, Guy Spier, Tom Russo, Vitalily Katsenelson, etc etc. The discussions are excellent and range from guests' background to investment ideas to drilling down into these guests' thought/research process.
https://itunes.apple.com/us/podcast/value-investing-podcast-thought/id642016120?mt=2
I have been crushing these over the past few months and have been absorbing an incredible amount of knowledge. The podcast is available for free on iTunes, but these are just excerpts (usually 30 mins to 1 hr) of the full interviews, which are available with a subscription. Regardless, the abbreviated conversations are still excellent. I think a few months ago John changed from posting these weekly to monthly, and now the podcast contains the full conversations.
Enjoy!
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Thanks for the link, that memo was an incredible read. I imagine most members here "know" and share most, if not all, of these thoughts, but what has always impressed me about Marks is how well he articulates these concepts. The guy is a master of words
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I didn't realize that. Great presentation Tim, well done! I really liked the slides on Buffett's early years.
Do you mind sharing a bit more detail about your research process and how you source/screen ideas? Any good resources/sites that focus on mircocap or smaller stocks in general that you follow? How about special situations (hadn't thought about "forced sales" as a distinct category before so thanks!)? The two I now know off for the latter are: http://www.stockspinoffs.com/ and http://spinoffmonitor.com/
I realize I may be asking stuff that might be part of your secret sauce, but figured I'd try and ask anyway. Again, great job on the presentation!
Thanks. I am fascinated by Buffett's early years. I wish there was an easy way to source ideas. If there is I haven't found it. I read, I revisit past ideas, I look for otc stocks that trade above $1 and have real operations, etc. For example, I found Awilco on a blog nearly a year ago, but the incredible returns would have been from reading that Awilco purchased the rigs and then started trading in Norway at $4 to $5 per share. That is where the incredible returns are, and what I seek to find.
Appreciate the additional info. I guess it's like they say, if it were easy, everyone would be doing it.
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I didn't realize that. Great presentation Tim, well done! I really liked the slides on Buffett's early years.
Do you mind sharing a bit more detail about your research process and how you source/screen ideas? Any good resources/sites that focus on mircocap or smaller stocks in general that you follow? How about special situations (hadn't thought about "forced sales" as a distinct category before so thanks!)? The two I now know off for the latter are: http://www.stockspinoffs.com/ and http://spinoffmonitor.com/
I realize I may be asking stuff that might be part of your secret sauce, but figured I'd try and ask anyway. Again, great job on the presentation!
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www.spinoffmonitor.com is a great resource for finding spinoffs and other spec sits (reorg,restructurings,etc)
Did not know about this site. Thanks for sharing!
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Didn't catch it live so don't know how long he was on for, but here's a good 15 min clip with a couple more down the article. The main one includes his comments on large market drops (and how he doesn't foresee one in near future).
http://www.cnbc.com/id/101494538
Btw, great handle!
13th Anniversary!
in General Discussion
Posted
Congrats Sanjeev! Thanks for all the work you put into the board and to all the board members as well! It really is a rare and special place on the internet