Parsad

Hey Guys, Specifically Cardboard and Liberty...feel free to debate and make generalizations about broad groups...but don't target each other in your posts. I also recommend that to all participants...feel free to rant and rave...but other than a quote embedded in your reply...don't take shots at specific posters. Thanks everyone! Cheers!

With low interest rates and rising home equity, North American's have been buying alot of new cars, and I've found that alot of really, good used cars are available...both at dealerships and private sellers. I've almost always bought from the dealer, but other than my Mini when I bought it, I have never bought new. My latest replacement is a 2012 BMW X1 that had only 47,000km on it and was less than half the price of a new X1. It was in really fantastic shape, mint interior, all the features I wanted, looks and runs terrific! It also had 1.5 years left on an extended bumper to bumper warranty, so if I find anything wrong I can get them to fix it. I've always followed the manufacturers recommendations for service, and have never had a problem with any of my vehicles by doing so. Yes, I may have paid an extra $300-500 a year more in maintenance, but I've never been stuck on the side of the road and my car has always run incredibly well. I also buy only used cars that have been serviced according to the maintenance schedule. In terms of pricing, you have to do your research and know what you are looking for and what is a reasonable price for the year, make, model, condition, packages, etc. You might save a couple of thousand buying from a private seller, but at least with a dealer you do have some recourse and rules on canceling a sale and returning the vehicle. You also can get accurate service records and many dealers provide free Carfax on the vehicles they are selling. In Canada, you are also required to disclose any accidents or repairs over $2,000 or $2,500...can't remember exactly which...but reputable dealers won't risk their reputation or business by not disclosing, whereas a private seller has every incentive to do so, as they are disposing of a single vehicle. I think the best way to view your car purchase is if you are driving your vehicle 3 hours a day, 5-6 days a week, thorough rural roads, mountain highways, and lousy weather conditions, etc, how important is it that you save that $2-3K when you weigh it against 5-6 years of ownership?! Most people spend more on Starbucks coffee annually! I'm ok paying that much more by buying a great used car from a dealership rather than a private seller. Cheers!

In my opinion the whole real estate thing is a mirage and the possibly the next shoe to drop. These retailers occupy huge swaths of real estate. These retailers are going out. Plus they're going out at the same time. Who's gonna come in their place and absorb that huge supply? Definitely nobody that's gonna pay current market prices for it. The real estate's a dud. Depends on the real estate...Sears had already distributed their better quality properties into Seritage. They were stuck with lesser quality properties...thus they had to sell their brands. The problem wasn't that Lampert invested in Sears. The problem was that he sold off assets at a snail's pace, until he had to sell off assets to stem huge losses at a business that he didn't want to put any more capital into and it was dying. It was bad execution, not a bad idea. Cheers!

As per the title of REM's song: Everybody hurts sometimes! Cheers!

Francis has been looking to buy a private business for many years, but could not find what he wanted. I have no idea if this is in line with that objective, but from what I understood, the intention was never to take the business public if acquired. He planned on using it to acquire other businesses over time...more like a personal holding company...his own personal Fairfax Financial. If he ever does go public, this would be one guy people should definitely invest into as a shareholder. If he does not go public...well, then you are out of luck! Cheers!

Terrific interview as always! Thanks!

Prasad, Mohnish, is certainly impressive in that he had the integrity to make his clients whole: + 6% / annum after 10 yrs. However, 6% return in 10 yrs is a 80% gain, the S&P 500 TR has return more than that in 10yrs, so as you said, he made a profit something like $8M above expenses, all for lagging the S&P500 TR. Just want to clarify things for real...... thanks Well it depends on what time frame you are examining. - If you invested with him from day 1, you're money has compounded about 9 times and beat the S&P500 TR by about 4-5% points a year. - If you examine the last 10 years, he's hit the minimum target for his fund partners and been compensated based on the LP agreement. - If you use the last 3 years, then he's demolished the index...should he be compensated exorbitantly for this short-term over-performance. You can argue for or against Pabrai depending on what time frame you pick out of the air. The one argument you cannot make is that his fund design is not the most equitable for partners who invest over the long-term. And if partners are focused on only short-term...which many normally are, no matter how "long-term" minded they say they are...then they should not be investing with fund managers and go with passive investments. But to answer your question as clearly as possible...yes, he deserves the compensation he receives, because it is based on him beating the set hurdle agreed upon, and getting compensated solely on the success of that...as the LP agreement and design of the fund were intended to do. Alternatively, he could change the LP and set the hurdle at 10% and ask for 50% of any profits above that as the incentive fee. But then you would still have some people say that the markets have returned 15% compounded over the last 7 years and he's only returned 10% a year! Cheers!

I completely agree. And you know, IIRC the reason Buffett chose a 6% hurdle was because that was the average 30? year treasury rate at the time. What are your thoughts on that? Or even a floating annual hurdle rate that mimics the 30 year? We've used 6%...Mohnish has used 6%...it certainly hasn't hurt either of us. What do you use now? And what made you change? We still use 6%...so does Mohnish. We've never adjusted the hurdle and it's carried over year to year from the high watermark. It's the most equitable way to be compensated and in the best interest of the partners. They don't make money, we don't get paid for anything...the better we do, the better we get paid. Cheers!

I completely agree. And you know, IIRC the reason Buffett chose a 6% hurdle was because that was the average 30? year treasury rate at the time. What are your thoughts on that? Or even a floating annual hurdle rate that mimics the 30 year? We've used 6%...Mohnish has used 6%...it certainly hasn't hurt either of us. You'll get the argument that there are managers who have done very well for their partners even though they may have a "0.5 and 25","1 and 20", etc. My rebuttal has always been then if they are that good, why NOT go to a 6% hurdle, no set management fee and only an incentive fee? The set management fee protects the fund manager, not the partner. The no fee, adequate hurdle (can't be less than 5%) and compensation based solely on incentive fee protects the partner and rewards the successful manager. Cheers!

wow! how much did he manage at the end? found the answer: $75M, if he takes 2%/per year that is still $1.5M per year Kudos to Tilson for taking the high road and graciously choosing to close his fund. But $1.5M a year...and I believe he may have started with more capital...for an 8.4% cumulative return over 7 years?! Mohnish didn't get paid a nickel for 10.25 years, and he's still called a bum by some. I think all fund managers should be operating using the "Buffett Partnership" model. Cheers!

Hm, I would be careful about this. IIRC, Rick Guerin did something similar, and he ended up selling his Berkshire shares to Buffett @ $40 a piece to satisfy a margin call. He's already reduced his BRK position as seen in the 13F's. Yes, he used leverage at that time, but did not use it much before...BRK was under $100K at the time. Today it's at $270K+...I doubt if the fund is levered at all right now. Cheers! Works until BRK falls 50% as it has done 2 or 3 times.

The 99% number was a bit of hyperbole on my part...it was simply meant to convey that most managers think very highly of themselves...that the investor takes the risk on because of the opportunity they are getting with that manager. Very few managers think of it the other way...they are privileged to have investors trust them and invest with them. Cheers! What you cannot do is guarantee that partners will not lose money, and you also cannot guarantee to make some partners whole from the capital of other limited partners. You can certainly redistribute your own GP stake to limited partners, but this may create some tax issues as the partnership is a flow-through vehicle. We are doing this with one of our partners in the Canadian fund which we are closing, who put money in about a year before we decided to close. While we have no obligation to make him/her whole, we felt that our decision to close was contrary to the expectations he/she had when he/she invested, and felt we would be around for a long time. There are very few managers...you can probably count them on both hands...who have ever made partners whole, either through a partnership or mutual fund. 99% of managers would say that is the risk the investor takes. That is correct to a certain degree, but I think common sense and discretion should also be part of any fiduciary's responsibilities. Cheers! Well said. It's a shame that it is as high as that, 99% with a clear lack the fiduciary responsibility. For most ordinary investors, the dumbest money they spend is on investments (versus houses, cars etc. ). And likely their biggest one over their lifetimes. It is hard not to notice Buffett taking a louder and louder stance with this. Inviting Bogle to the meeting, giving that hf bet lots of publicity etc. Wish more well meaning celebrities would join Bogle/Buffett in educating the masses.

What you cannot do is guarantee that partners will not lose money, and you also cannot guarantee to make some partners whole from the capital of other limited partners. You can certainly redistribute your own GP stake to limited partners, but this may create some tax issues as the partnership is a flow-through vehicle. We are doing this with one of our partners in the Canadian fund which we are closing, who put money in about a year before we decided to close. While we have no obligation to make him/her whole, we felt that our decision to close was contrary to the expectations he/she had when he/she invested, and felt we would be around for a long time. There are very few managers...you can probably count them on both hands...who have ever made partners whole, either through a partnership or mutual fund. 99% of managers would say that is the risk the investor takes. That is correct to a certain degree, but I think common sense and discretion should also be part of any fiduciary's responsibilities. Cheers!

No problems here. Running smooth. Cheers!

He has 5 staff plus himself...you need a small boardroom...small kitchen...storage/filing space...Dhandho staff as well. Even if he only uses 2,500-3,000 sq ft, multiplied by probably somewhere around $45-60 per square foot in Irvine. I probably estimated a little on the high side with the $15-20K quote. Cheers!

Pabrai Funds has 5 part-time staff...so just say they make $30,000-$40,000 each, plus rent is probably $15,000-20,000 per month...you're already around $325K-$375K. Add in the other stuff, and it's actually probably low. Cheers!

Sorry, he said it was around $5M at the meeting, so that should say $450,000 per year. But you have office rent, salaries, benefits, insurance, GP accounting, GP tax returns, GP legal, supplies, internet, phone, cell phones, etc. Those expenses don't come out of the fund in Mohnish's fund, mine or many others...those are carried by the GP. Cheers!

Yes, Mohnish talked about alot of things. You will always learn something and he's very entertaining. - Only about 12% of the fund is now in US stocks. - Essentially he is out of GM. I think he uses the word "mistake" too liberally in relation to his investments. - He called GM a mistake, even though it was essentially slightly better than a double. - Management didn't realize the full value of the underlying assets, unlike Sergio at Fiat...called Sergio one of the best executives of the last generation/decade. - Dhandho will be liquidated and cash distributed over the next three years or less. - Deal for Stonetrust is essentially done...cost $30M and put in $30M, but made $19M in investment gains in the last year. - Doesn't want anything to do with insurance ever again...he's putting the toothpaste back in the tube! - Expects about 50% of the cash to be distributed this year and then gradually distribute the rest of the assets over the next couple of years. - Investors will be left with a stub in the GP for the fund business (not Pabrai Funds...dream on)...I would be happy to buy anyone's stub if they desire to sell! - Just killing it in the fund...up something like 20%+ in July and August - Will receive his first incentive fee in 10.25 years...somewhere around $13M! - For all you guys who talk shit about Mohnish, you have to admit that his fund structure and the way he's run it is more than partner-friendly...how many other managers would have continued running a fund, eating costs of about $800-900K a year, and not get paid for over 10 years! - Mohnish talked about a ton of other stuff, including answering a bunch of questions from the audience...I can't remember some of it because Ajay was talking to me over and over about the near-comeback by Nebraska! ;D Always a good meeting! Cheers!

I understand the desire to read things that are hard or even near impossible to access, but please be mindful of copyright laws. Do not publish, link or attach anything where the author/owner has not given permission to share. Cheers!

Well, this is probably the last board that will get created here. I think we now cover almost all of the bases between boards. The new "Personal Finance" board is exactly that...for discussing personal finance, day-to-day saving, spending, living, taxes, etc. You want to talk about finance blogs, Cash Flow Quadrangle, How to Grow Rich, Spending Habits of the Wealthy, etc...use this board. Got a deal on gift cards, want to compare big-screen tv's, or you're looking for a new car...talk on this board! Cheers!

Hi Flesh, That has nothing to do with the ads. Are you using a new mouse? You may be clicking on the scroll wheel on the mouse when moving up and down, and it will lock in the direction you clicked it. Would love to hear if anyone else had this issue, as this is the first time I've heard of it...if related to ads. Cheers!

Good post Txvestor! If I were Fairfax, I wouldn't get antsy buying back shares or deploying that money. We've learned from history that cash is king at certain times, and Fairfax is in the rare position of holding a boatload of it. Have we solved all of the problems that existed for them to hedge markets and hold deflation hedges? Not even close! Governments are just beginning to unwind their bond positions...Europe is still at very real risk of falling apart...sovereign debt loads have rarely been higher on a global basis. Notice the things that are occurring...Germany repatriating gold...China forcing changes to how state-run sovereign funds are deploying assets...increasing global tension...huge increases in ETF investments...massive algorithmic trading...still historically low global interest rates...consumer leverage still very high...margin of safety in assets prices is quite low...you can go on and on. The markets are ripe for a correction...it will only take one single event to make things unravel! My opinion...Fairfax just sit on the damn cash and wait for the fat-pitch! Cheers!

Parsad, could you elaborate? They've sold one of the absolute crown jewels. Yes, they got a high price. And yes, they surfaced some hidden value, and yes, they can de-lever a bit. Good for the short term. But long term the success of this will hinge on how much value the Mitsui partnership delivers, and that seems very vague. Yes, a crown jewel, but they received a stupid price for it...over 3 times book! What I can't believe is that they get to underwrite 25% of MSI's insurance book. The $1.6B was indecent enough, but that 25% is simply criminal! Take a look at slide 3. You notice three significant regions where Fairfax does not do as much business as MSI: Russia, Japan and South America. FC does about $400M in GPW...MSI does $25B GPW in Japan alone in non-life business. Then add the Russian market and parts of South America that Fairfax wasn't heavily involved with. Just think it was a really one-sided deal...and fortunately Fairfax is on the right side of it! Cheers!

Incidentally, alot of this success should rightfully be attributed to the Athappan's...both father and son! They've essentially built much of our Fairfax Asia business from scratch. And Sam Chan who has overseen Fairfax Asia since the beginning! Cheers!

Just a great deal for Fairfax in every way! Cheers!