Parsad

I spoke to Mohnish yesterday about this because I'm getting a number of such queries. There are a few people (between family and friends) who are pooling their assets together into one entity and investing in Dhandho. Mohnish is ok with that, but would be resistant to anyone setting up a for-profit fund that profits on the back of Dhandho Holdings, since it defeats the purpose of the low, equitable compensation structure in Dhandho. As a director for Dakshana Canada, I thought about setting up a non-profit fund, with a small management fee (say 0.5%) after operating costs going to Mohnish’s foundation, Dakshana. But unfortunately, I think it would stretch me a bit thin with all of my businesses and activities. Let me know how many people would seriously consider investing in such a non-profit vehicle giving them exposure to Dhandho, and I will reconsider my decision if the number is large enough and would mean at least $25-30K a year going to Dakshana…it would mean $5M in capital would have to be raised! If not, my time is better spent setting up an annual event where I could raise as much for Dakshana. Cheers!

I have a feeling Manual of Ideas doesn't need the synergy, and is probably doing a much more effective job. Cheers!

Dhandho Holdings will be listed after the initial financing is closed on the Nasdaq or OTC. An IPO for $100M will then be undertaken in 2015, where Pabrai Funds will put in $70M. After the initial 99 slots are filled for the financing, where he could raise a minimum of $35M to $150M...I think it will on the higher side...the partnership will become a listed company once the insurance acquisition is complete and they will then do an IPO. Pabrai Funds, as mentioned above, will invest $70M in the IPO, thus investors in Pabrai Funds will have exposure without having to participate in the initial financing. Compensation is interesting too for the initial LP! I just did a quick read, so if anyone sees anything different, feel free to correct. There will be a 1% fee, through which all operating costs will be run. Investors receive 100% of distributions until it equals their capital accounts...in other words, no incentive fee until he doubles your money. Then after that, the distributions will be 90/10 to LP/GP with no hurdle. If you run the numbers it seems to fall in around 9% hurdle with 25% incentive fee, only after he's doubled your capital account. Not sure how that changes once it is listed as a company and after the IPO. Cheers!

Nooo! Mohnish thinks of me more as a little brother...literally...there's a foot difference in our height! ;D Guy is his sounding board and equal! Cheers!

Yup. I believe one of the funds paid incentive fees in the 4th quarter, and so far in January, it looks like the two other funds will also be paying incentive fees according to the letter. Cheers!

I'm sure you will at some point, like with any other business. But think about how well read Mohnish is, and how well-connected he is at this point in time. I would dare say, there are probably a number of private businesses that he could easily approach, that are well off anyone's radar. That large frontal lobe of his has amassed a pretty good base of knowledge about the various public and private companies out there! ;D Cheers!

Good question. Once I read the offering documents, I'll be able to let you know. Cheers!

Also, initially it looks like Dhandho will be capitalized with about $150-200M, so alot of smaller companies targeted by activists, may decide that Pabrai is their Indian knight! Cheers!

I have an inkling that if that Vice Chairman title has anyone on it, it will probably be somebody whose name ends with "Spiers". It would only make sense. Cheers! Instead of saying "I have nothing to add to that", she can just say: "yeah, yeah, yeah, yeah, yeah" "yeah, yeah, yeah, yeah, yeah" Not Brittney...Guy Spiers! Sheesh!

I have an inkling that if that Vice Chairman title has anyone on it, it will probably be somebody whose name ends with "Spiers". It would only make sense. Cheers!

No, because they would not be able to analyze if the purchase price was at intrinsic value or less. What if Fairfax was trading at 3 times book if something happened to me? My family also already knows not to sell any of the FFH we already own if they can help it and just let it ride. I would rather have them give any capital outside of FFH to money managers I trust, who will always allocate the capital into undervalued securities for them. And now they have Mohnish as a choice going forward! I could not invest with him as a Canadian, but will do so through Dhandho Holdings. Cheers!

When is your turn? Maybe 2014 or 2015. No intent on getting involved with insurance, at least not in the early years. Just a public company that will acquire both marketable securities and small private businesses. Like Mohnish, will run congruent to MPIC Funds. Cheers!

Intent is to take it public in 2015. Will buy both marketable securities and private businesses. Friendly, not activist. Initially will raise about $35M to acquire the insurer and add about $30M in surplus capital. Has run zero-cost float for a long-time. He and his family will put in at least $9M. Cheers!

Mohnish is in advanced talks to close a purchase of a private insurer according to his latest letter. After the initial financing of about $32M, Pabrai Funds will also put in about $70M+. This is going to get very interesting! Sorry, I cannot post the letter. Cheers!

Sanj, I have been a member of this board and your previous board for more than 10 years. Rarely have I disagreed with your viewpoint in any material way, but this time I must. Prem's past 25 years have been fantastic. But I don't make money based on the past, and nor does Prem. The past 25 months have been the problem. I do not have a problem with the hedges, because those were at least well thought out and constituted (excessive?) risk management initiatives. But RIM? Nobody had a problem when FFH threw a few bucks into King Pharma. Nobody had a problem when FFH threw a few bucks into Watson Pharma. And nobody had a big problem with having thrown a few bucks into the Brick or the crappy restaurant stocks. Those were small bets on dubious opportunities. But when FFH starts putting meaningful amounts of capital into something, then yes, long-time shareholders get a bit concerned. When he put big bucks into Abitibi we swallowed hard and crossed our fingers...and same when he put big bucks into H&R. But what he's done with RIM has crossed the line. The cumulative investment goes well beyond "big bucks" and is now 15 or 20 percent of market cap. If it had been JNJ or WFC nobody would have even blinked. We would have mused about whether that sort of large cap would offer a reasonable return, but there would be no bellyaching whatsoever. But RIM offers crappy products and has a tertiary market position in one of the most competitive, rapidly changing industries. There is a strong probability that he has effectively flushed 10 percent of FFH's market cap down the toilet, to say nothing of the personal time that he has wasted on RIM through his board membership and the buyout proposal that he initiated. Unfortunately, this is not an asymmetrical bet; you cannot just look at RIM like the credit default swaps or like H&R and say, it's a dhando type of investment. RIM is entirely different. In this case, it's about even odds about whether FFH doubles its money or gets wiped out. Heads I win, tails I don't lose much? Not on your life! When he makes such a drastic departure on position sizing and on risk of a permanent loss of capital, it should hardly be surprising that some of us think that he's fallen off the rails. And that's my first major philosophical disagreement with you in more than 10 years. SJ Stubble, with every investment you pointed out, he's had an equally successful investment. Everybody is talking about the size of RIM, when the Bank of Ireland investment is nearly as big. Everyone talks about Abitibi, but no one talks about Resolute. Everyone talks about Level 3, but they've pretty much gotten all of their money and then some out of Level 3. My point and opinion, is the same one I give to investors of any manager, even the ones I don't like...let them work! You have a chance to ask them anything you want once a year, and they are one of the most accessible. Just let them work! Screwups happen to the best of them. They screwed up with TIG and C&F, but came back stronger. They may have screwed up with RIM, but let them work and prove that they know what they are doing. And this advice applies in particular to those invested in Fairfax, not those that DIY and aren't invested in Fairfax...but those guys can shut up a bit too and just see what happens. A couple of years ago, people were second-guessing Berkowitz, now everyone is coat-tailing. 7 years ago investors were ripping into Mohnish's 70% drop, but now it's hey Dhandho, dhandho everyone...play the bhangra music and coat-tail Pabrai! These waves of love-hate come by alot. Once in a while they are right about the manager, but more often than not, they are wrong and the manager hasn't suddenly become an idiot. One of my other favorite dogged managers right now is Tim McElvaine. I had lunch with him today. The size of his fund is significantly smaller than in the past, since investors always judge their managers by what have you done for me lately. Yet, he's one of the smartest, most ethical managers I know. Without a hesitation, not even a temporary moment to second guess, I would have my family move all of our assets over to him to invest if something happened to me. Yet many of you out there don't get that! Francis too...a couple of years ago people were saying the same things about him as they were saying about Berkowitz. Well, he's kicked ass in his funds since, not unlike Bruce. My family knows, everything goes to these two to manage if I'm not around. And they've heard it from me over and over...no matter what happens, whether the fund is up dramatically or down dramatically, don't do a God-damn thing. JUST LET THEM WORK! Cheers!

Could the same be said of Fairfax? That Fairfax worked out only by the grace of God? Yes of course! That's why it's not really fair to call them a loser or winner. If investment managers make it 25 plus years, they deserve a little respect for not blowing themselves up well before that! Cheers! Of course, in 15 years when I will then need 40 years to prove myself. ;) Sanj, It has nothing to do with respecting Prem or not. He built a massive and successful company from scratch, using skill, honesty, and savvy. That is incredible in itself. That does not mean I have to invest with him right now. Your remarks about the difference being a few right calls that fell on the margins applies to both us DIYers, and FFH. Had BAC collapsed, those of us who invested at $5 or $7, would have moved onto something else. I took a major hit by betting on RIM, my biggest all time loser, incidentally before FFh was really involved. I got out and moved on. The same of course could be applied to the leveraged returns on FFh. Had that blown apart this conversation wouldn't be happening because all of us would have gone down, including FFH. The board would still be called Berkshire Hathaway Shareholders. But that is not the way it unfolded. Has Prem suddenly lost his marbles? I doubt it. Holders of FFh today should do reasonably well over the long term, and may do exceptionally well in a major downturn. But from my perspective, today, FFh is not the best place to have my capital. On a look forward basis I figure there will be sub aspirational returns for awhile yet. I, for one, am very cognizant of the possibility that it has all been luck, and it could just turn out that the EMH is nearly always right. Put another way, could you or I suddenly become crappy investors? I worry about this, and maybe that is part of the key. It certainly works for Seth Klarman. Prem, Buffett, and others have shown me the path to developing a framework that works for me, until today, at least. Hi Al, I wasn't saying that it was luck...be it you, me or Prem. Just that the fine line between a successful investment and failure is pretty thin. Alot of things have to go right, especially for value investors, because many of the investments are distressed turnaround situations. I think the main point was that 5 years is a lifetime to the average investor...while it is really just a blink of an eye in terms of value investing, where things aren't necessarily won in years, but sometimes takes a decade to see the success. And of course, it also goes back to what the investor pays for the investments. Anyone who paid $600 back in 1998, will be kicking themselves for another few years. Fairfax isn't the greatest investment at any price, but neither is Berkshire...nor Apple for those (perhaps singular would be more appropriate) who think so. Cheers!

Could the same be said of Fairfax? That Fairfax worked out only by the grace of God? Yes of course! That's why it's not really fair to call them a loser or winner. If investment managers make it 25 plus years, they deserve a little respect for not blowing themselves up well before that! Cheers!

You are only as good as your last game in most circumstances. Prem is getting kicked in the gut at the moment by the DIY'ers, since they look like geniuses over the last 4 years. Many who did well over the last ten years on here, would not have done so, if it weren't for Prem's prognostications and their significant leveraged positions in Fairfax. Now they've done great over 5 years, and it's Fairfax missed the boat on this one! I understand the frustration, but at the same time, how many have done as well over 25 years? That's right...look at all those hands drop! If Europe did blow up, as it very well could have, and still may at some point, everyone would be talking about how smart Prem is. Instead, they are talking about how stupid he is for having hedges. Even for us, we only had about 5% in Fairfax in the last couple of years, but as much as I would bet on myself...I would never bet against him! The degrees by which investors are correct or incorrect, is far thinner than one might expect. BAC could have exploded...MBIA could have exploded....FIAT could have gone bust if not for intervention...many other winners that worked out did so only by the grace of God...that grace being fiat currencies and a massive attempt to influence interest rates. So Prem is a loser for the last 4-5 years...big whoop...they called him that 10 years ago too! Cheers!

Title of thread has been adjusted, as we are now down to our last 30 tickets. Cheers!

[amazonsearch]Viking Raid[/amazonsearch] From the author of "The Shipping Man". Endorsed by Mohnish as well: http://www.marketwatch.com/story/wall-street-shipping-industry-leaders-welcome-the-release-of-viking-raid-sequel-to-the-shipping-man-2014-01-14?reflink=MW_news_stmp

Hi Cardboard, don't worry, no offense was taken. You have known me too long where I would be offended by anything you say. At some point, we will probably hire an administrative assistant, and that will free up my time. But I'm a bit too cheap, so I won't hire someone until I'm absolutely exhausted. I remember Francis telling me when he knew he needed to hire an assistant. When he was personally trying to answer 100 calls a week while managing about $500M! Now that's busy! And he was still a VP at Fairfax and working for them too. ;D Cheers!

I have often thought this same thing as well. If I had the capital to buy a small public company why would I want to put myself through that hassle instead of just investing the capital and relaxing? The truth is no one buying these companies is using their own money, they're using someone else's money which is why this suddenly becomes attractive. You get to buy a public company with someone else's money, then earn fees on that money and get paid a salary. You can then use your earnings to buy out your partners and consolidate your ownership. From there you start to buy other companies, build an empire, justify a high salary and hit the links. This is truly the ultimate game plan for how to get rich if you have no capital to start with, use someone else's money. The brilliance of this is you don't even need to be a good investor, just good at raising the initial capital. Once the initial capital is raised and a company is purchased there are all sorts of tools the manager can take to ensure they will never be kicked out by shareholders (how about reincorporate in Indiana or Ohio...). The problem with this is I don't see many tiny companies issuing capital at attractive rates who aren't using scummy brokers to sell the offering. There isn't exactly a thriving secondary market for companies in the $5-15m range. Heck, most of these companies are trying to flee the markets quickly. I have kicked around this idea for maybe the past year and a half with a friend. We found a company trading at an insane valuation, where if the CEO were kicked out this plan could work. The problem is the CEO's golden parachute payout sucked up a lot of the margin of safety in the investment. It's potentially still attractive, I even recently had someone offer to front the cash for the entire deal. The problem is the outcome is binary, if it goes well it goes really well for everyone involved. If it doesn't succeed, and there are a million reasons why it wouldn't, I would probably end up broke and in lawsuit hell. The company is dark and the only way to get financials is to hold registered shares, mine are sitting on the desk right next to me, constantly reminding me of the potential.. It's always other people's money, unless you are some rich trust fund brat or inherited a significant amount of wealth...this accounts for about 50% of money managers by the way! ;D I have no problem with people using other people's money to generate wealth both for those people and themselves. The question, and this may simply be semantics, is how fair is the compensation structure and is it in alignment with the long-term interests of shareholders, especially in terms of the risks and amount of work the CEO will be undertaking. I was ok with Biglari getting $900K a year. I was ok with Biglari even having an incentive fee structure if it was something like a 8-10% hurdle, and 10-15% incentive fee. I was even ok with Biglari having both a salary and a reasonable incentive fee. I was not ok with Biglari having an incentive fee identical to a hedge fund, since there were enormous structural advantages of captive capital. Where people's opinions lie on these matters will vary across the spectrum. But almost everyone will have a point where things become excessive...be it in partnership form or a public corporation! Cheers!

With your track record do you really have problems with partners trying to pull their capital at inopportune times? Have you ever considered going the CEF route? You can raise capital much easier, and you don't have to deal with those pesky partners anymore either, they become nameless shareholders. The ongoing fees are much smaller than an open ended mutual fund, and you essentially have the permanent capital you desire. Yes, but you no longer provide liquidity for your share/unit holders. If you acquire public or private businesses with overpriced shares, those owners may want to liquidate part of their sales proceeds to pay taxes, distribute capital amongst their own shareholders/heirs, or invest somewhere completely different. With a CEF, doing that may prove difficult in a relatively short period of time if it is a significant percentage of outstanding shares, and thus turn away a considerable subsection of the companies you may be targeting. Cheers!

You guys are missing the biggest, and by far the most important point...access to permanent capital and financial markets. While the downside is more regulatory hurdles, filing/legal/listing costs, and greater scrutiny of daily share valuation. The upside is complete freedom from partner/shareholder redemptions, as well as the ability to quickly raise more capital through public markets. Although, if your private corporation generates more than enough cash flow for future needs, and you will not need access to capital markets, than simply going the private company route is better than public. Cheers!

Hey, they might not have lasted as long with such a crappy business! ;D Cheers!