premfan

Thats a great frame of thought.

Okay great everything is cleared up for me! I wanted to be emotionally prepared if the operator asks me for equity. If the operator asks for equity the gameplan would be to give him a fair percent and within "x" timeframe he buys my stake out after the business is appraised. The given equity can be framed as "sweat" equity cause he built up the business. I would prefer if we can partner up and scale this thing but, its really his choice. I cant scale this thing without him cause he is an extremely motivated and talented operator. I'm laser focused on the bookkeeping and most of our funds are from insurance and credit/debit charges. The cash part is a concern though. The bookkeeper can easily say "x" paid with a credit card and not cash. Then pocket the cash because credit/debit charges are one lump sum deposited in the business account.

Hi Eric, Great post. I couldnt agree more about keeping the internal controls tight running a passive business. Three months ago i hired a operator for my wellness office. I'm at the office two days a week instead of five like before. I'm using buffet's management style by letting the operator report to me. Basically giving him total freedom in operating the business and how he trains the staff. I'm there to pay all expenses and bascially market the office. The question i have is when does giving equity of the business come into play? We dont have a set time where equity is given. Should i wait for him to bring it up? My plan is to try and scale this thing up and the way its going ( knock on wood) i should have another office up and running in late 2013- to early 2014. My plan is to give him 15 percent of total profits of the next office for managing and training the other doctor we would have to hire for the other office. My thinking is if i give him 15 percent he is not going to want any equity. The 15 percent would be passive income for him and hopefully he is going to stay around. He is a talented operator and i dont want him to get bored. Since you are experienced in running passive business's i love to hear your take on this.

1.) Thats a lot of hookers. Better to open up a brothel and scale it up to niche areas where brothels are non-existent. 2.) Maybe financing small business's would work. ROIC make have to be stellar to make it interesting. 1-2 small business's max with 100k. 3.) Can throw down 100k and get a 400k mortage and buy some rental units. Or a luxury condo in the city.

Small business with operating leverage.

Congrats man ! It would be fun if you can acquire permanent capital so all your friends on this board can join you on the fantastic journey of compounding.

Good thread. Most people make a lot of sense. Using a quote from the late great jim rohn " Think winter in the summer and think summer in the winter". Everyone has their own definition of what summer is and what winter is. But it doesn't matter what YOU think. It only matters what the collective market thinks. The times we should be worried is when EVERYONE thinks its summer. Personally, I don't feel most people think its summer. The truth really is that the fed controls the seasons. Interest rates are the season predictor.

I'm extremely concerned with the real estate market. Two weeks ago i was looking at a multi family property that has listed on the market for 12 days. Within 12 days it had 2 offers and one of the offers was from an international buyer! This market has NEVER been a market where there are international buyers! I had a convo about this with a president of a local bank and he said that its a dangerous time to invest in real estate due to rent rates have not increased really since 2007. But asset prices have increased 25 plus percent since the lows.

Have you looked at what's on TV? Divorce rates? Single and unwed parents? Acceptable drug use? A book that talks a bit about the change in culture is "Quiet: The Power of Introverts in a World that Can't Stop Talking." She goes in some depth about how, at one time, we were a culture of character (Buffett's generation and prior). Doing the "right" thing was championed. Now, we are more of a culture of personality (people like Kim Kardashian). Where we value what gets are attention compared to what's intrinsically motivating. I totally agree that what's on tv is scary, but as Peter Diamandis explores in the following video, maybe it's a bit of an over representation. I mean I totally agree things are bad (and I do agree that the likes of Kim kardashian are rotting at the morals of our society) but I think things haven't really gotten worse, if anything there's a lot that's gotten better. As the video shows, majority of the people living under the poverty line still have access to things that were a luxury even 10 to 20 years ago. I think the world requires a great deal of work, for sure, I'm right with you on that, but maybe the media isn't the best representation for the current state of affairs. Just my two cents(in collaboration with Mr. Diamandis) :) Here's the video: P.s. even things like the Sandy Hook shootings and the Boston Marathon Bombing, as bad as they are (with much respect to the departed), I think they made to seem much worse because of what is over coverage by the media in my view. Constant coverage of such things by the media, I think, just promotes fear and leads to increased anxiety and other issues among people. Also, speaking of Kim Kardashian, haven't the masses always wanted a means to get a glimpse into the life of superstars and royalty (in exchange further enriching and idolizing such people). I mean I love this sorta discussion (on society and morals) but I feel like a lot of people just would much rather read about the new poodle Kim Kardashian just bought or something. Question: Do you have any sort of ideas as to how the morals of society can be "improved"? (Improved in the general sense I guess meaning toward less greed, selfishness, doing the "right" thing, etc.) I love thinking about this question. Btw, I haven't read that Susan Cain book, but I've seen the TED talk, definitely a good one! yp, thanks for the video. I'll try to check it out in a bit. I'd suggest Cain's book. It's certainly a worthwhile read. She goes a bit into how things used to be versus how they are now. Popular books then included topics about improving ones character and the like. I think the only real way to improve morality is to value it. Unfortunately, there isn't a lot of money or fame to be made on that. :P Good point. Morality is undervalued and money/fame is overvalued.

Rkbabang, People can want "more" as long as that are aware they are attached to something that is not tangible and is an illusion. The wanting "more" is ego based behavior and is intrinsically human. The wanting "more" ultimately creates destruction due to ego behavior. People can want "more" by creating a win-win instead of zero sum. The win-win creates less suffering for people. The zero sum creates a negative or positive feedback loop that feeds the ego until destruction happens. Capitalism can be refined ( i think it is) to create more win-win's with communities, the earth, and everyone involved. Yes money can buy happiness. If happiness is attached to not tangible and things of illusion. Happiness is a state of mind that views the future greater than the present moment. So buying a car yes will make you happy. This fades away fast . Real happiness as cliche as it seems is within the body. The consicous awareness that we are all connected. The practice of being in the moment and connecting with the enivornment.

As long as our society ( western civilization) is ego based it will never "improve". Attachment to profit and a sense of entitlement is all ego based behavior and creates a feeling of always wanting "more". If your self worth is attached to your stock quote then you're playing a losing game its all an illusion. Even if you're net worth keeps increasing you will always want "more". So is capitalism killing our society? In the end i would say no if you're aware that its all an illusion and ego based. The sheer awareness ( consicousness) will create change and create conscious capitalism. John Mackey the founder of whole foods wrote a book about this. Capitalism with the intention to connect the world, change lives, and show compassion over profits will bring what i call capitalism 2.0. Paradoxically, capitalism focused on connecting the world and creating real change will equate to more profits. Step one is always awareness. With awareness you know nothing is tangible in this world. We all are going to pass and this game we play should be played cause its fun not for profit. And our goal as humans is to try to end suffering for our fellow humans cause we all are connected. Capitalism is on the right track cause companies out their do focus more on connecting the world over profits. We are in the beginning stages of the refinement of capitalism. Capitalism works so well cause us humans are hardwired to be ego based until the ego destroys the world. Being aware of how dangerous ego based behavior is we can change capitalism to end suffering. I think people understand this better now since 2008-2009. Or maybe not . Maybe we are doomed to repeat the same mistakes over and over again. I hope not. Capitalism 2.0 seems like a better game to play.

Russia entering the WTO recently is a game changer. Picking individual companies is to hard but buying a etf makes sense. Also i have no position but check out vostak nafta if you want exposure to russia.

Added more coinstar today. Its my largest position.

Gio is right buying owner/operators at or below bv is the safest way to achieve 15 percent in the market. The variable in achieving the 15 percent is having the ability/skill to allocate capital to the owner/operators that will compound capital at the fastest rate in the future. I think this is where qualitative skill comes in. The key qualitative points are( their are more i dont have the time to write it all): 1.) Whats the culture in the owner/operator business? Can you trust the owner/operator?Whats the essence/motives of the company? 2.) Do they have a system of creating cheap leverage ( this would be a competitive advantage ) 3.) Are they in big enough markets ( ideal is big but not too big. A big enough size niche) 4.) Does the owner/operator have skin in the game I believe gio posted the floats/moats presentation. Its one of the most amazing presentations i have ever read and its personally made me money ( i bought groupon after reading the presentation) . Looking for cheap leverage thats essentially a revolving fund is huge in building a future compound machine. Insurance float is obvious and also the most competitive. Royalty fee can also be framed as cheap leverage. Having say a 30 yr fixed rate at a cheap rate is also one. Hedge funds are also cheap leverage. Finding ways to obtain cheap leverage is absolutely essential as the backbone of any owner/operator compound machine.

Hi racemize, ok, that’s how I see it: I started some years ago with a capital of $1 million. My goal was to increase capital 15% each year for 50 years. To achieve that goal, I rely both on the operating earnings of the businesses my firm controls, and on the results of my favorite businesses which my firm possesses little pieces of. That way, by the time I retire, I would be a billionaire. And throughout my whole career I would have earned on average $1.6666667 million each month! If you could find a reliable way to achieve that result, why stray far from the sure formula?! Aren’t you satisfied with $1.6 million a month?! Won’t it be proof enough that you really have done things intelligently, and you really have succeeded in creating wealth over time? The surest formula I know of is to partner with outstanding capital allocators, and to constantly generating the cash that enables you to double down on them, when the market gives you the chance to do that. Like Kraven is used to saying “you don’t know, what you cannot know”. So, be aware of the “man at the helm” risk, as I like to put it. And spread your bets among 10 to 15 compounders. Otherwise, I really don’t see how you can fail to achieve your “$1.6 million a month” and “billionaire at the end” status! ;) PS Until now I have increased capital at a 17% annual rate… so far so good! ;D giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes Very nice on the 17 percent annually. When did you start investing?

I dislike that too in general, but if you look at what Energold did specifically with they money it raised, I think they get a pass because of the kind of returns on incremental invested capital they get (just look at what they paid for Dando!) and because debt is dangerous in such a cyclical industry. I'm in awe how cheap energold is . Investors are not realizing that bertrams earnings will go straight to the bottom line in 2015. The current price its trading is absolute madness in what its going to earn in 2015. This is also modeling in horrible earnings from the mineral division.

Kiltacular's post was important: namely the part that the best assets in an inflationary environment require little capital expenditure. So you can sell inflated goods without having to spend on inflated maintenance capex. Being tangible asset light with pricing power are the best businesses in inflationary times. These are the cokes and see's of the world. In private business the goal is to create operating leverage. Like previous posters have mentioned getting a rate fixed now and then paying off the asset with cheaper dollars in the future is a great plan. That being said if people believe the endgame is crazy high inflation then waiting til that manifests and buying real estate is a home run. Also service based private businesses with little tangible assets would do well only if you are considered the "expert" in town. An expert can easily increase prices while slightly increasing demand or keeping it relatively fixed. Due to competition if you are not considered one of the best i dont think inflation would be your friend. Due to obamacare there will be a shortage of doctors due to increased demand of people getting healthcare. This seem like a good profession but, insurance companies are combating that with reinbursing doctors less money per service rendered. In the end doctors will have to much work harder and render way more services for a bit more income. I think the problem with the asset-lite company that can raise their prices is they can be hit by a demand slump. In a perfect world with high inflation where workers wages keep up this isn't an issue. Unfortunately wages don't keep up and workers get squeezed, that's why inflation is difficult. When inflation is high people start to cut back on non-necessary items, I would think Cokes and See's candies would be in the discretionary purchase category. I don't think there's a good investment in an inflationary environment. I don't think it's anything anyone should ever hope for either. Outside of the wealthier who own companies resilient and have ample cash most citizens are seriously harmed by inflation. If inflation were a good investment people would be flocking to Argentina right now to capitalize on their rampant inflation, instead money is trying to escape, not get in. Depends on the value proposition. If i increased my prices by 10 percent i would make 50 percent more income due to operating leverage. The price increase would go straight to the bottom line. To increase prices there was to be a reason given to the customers so then they can rationalize it so they are getting the same or greater value proposition. Coke and very few other companies can increase prices in shealth mode. Would anyone care or really even notice if coke increased there prices by 10 percent tomorrow? Would the demand suddenly drop? I agree if wages dont increase it would be an issue . I dont think coke or see's is a discretionary item due to what it represents in the mind( happiness/ v-day). It all depends on the value proposition of the product and what it represents in your mind. Price is what you pay and value is what you get. In an scenario of high inflation and wages not keeping up. The customer would still buy discretionary items ( This is the US its what we do) only with the greatest value proposition.

Kiltacular's post was important: namely the part that the best assets in an inflationary environment require little capital expenditure. So you can sell inflated goods without having to spend on inflated maintenance capex. Being tangible asset light with pricing power are the best businesses in inflationary times. These are the cokes and see's of the world. In private business the goal is to create operating leverage. Like previous posters have mentioned getting a rate fixed now and then paying off the asset with cheaper dollars in the future is a great plan. That being said if people believe the endgame is crazy high inflation then waiting til that manifests and buying real estate is a home run. Also service based private businesses with little tangible assets would do well only if you are considered the "expert" in town. An expert can easily increase prices while slightly increasing demand or keeping it relatively fixed. Due to competition if you are not considered one of the best i dont think inflation would be your friend. Due to obamacare there will be a shortage of doctors due to increased demand of people getting healthcare. This seem like a good profession but, insurance companies are combating that with reinbursing doctors less money per service rendered. In the end doctors will have to much work harder and render way more services for a bit more income.

It also begs the question...if things are so good and improving in Europe, why would a Euro country resort to such drastic measures? Are they simply playing the North Korea of Europe and bluffing for an easier to implement plan? If so, at what point to other Euro nations get tired of the bluffs from Greece, Cyprus, Spain et al, and say go fu*k yourself! I'm still of the mindset that a monetarily united Europe, is not possible without a fiscally and politically united Europe...we're in the 3rd inning of a 9-inning game over there! Cheers! What is the endgame? Using chess as an example which is a finite game. Either you win, lose, or tie. Chess would be essentially an infinite game if there was no way to tie. Your opponent would make there best move then you would make your best countermove and it would repeat forever. If this European situation cant create a "tie" isn't it logical that each side would make the best move and the other side would make its best move repeatly creating no endgame.

It looks like the rules have changed again. The rules have been changing since 2008 and all the players in the game keep adjusting there moves to the new rules placed in the system. We are an optimistic society so all the rule changes don't matter until it does.

Just ordered the book. The cheapest one left was 1.93 + shipping costs. Looks like 5 forum members bought the book before me! My family has experience somewhat scaling apartment complexes. My dad came to the US in 1979 and bought a apartment complex for lower income residents in NYC in 1983. He told me that back then it wasnt hard to find apartment complexes that were yielding a 20 plus cap rate. Back then the city was in the dumps. Full of crime and banks wouldn't lend to anyone. He finally convinced this bank in chinatown to lend him money. He accumalated units until 1998 when he sold out. He mentioned during the late eighties the city started enforcing rent control. A couple points he made 1.) Buy the best location even when its alot of crime and dangerous 2.) Buy crappy buildings that make cash flow then redevelop the property to charge higher rent rates 3.) Scale as fast as possible. My family is in the apartment business too and what your Dad says is exactly what I'm doing with the company now. After managing an eight unit building during college, we tripled the number of units in 2012 and hope do to the same again this year. Premfam if you don't mind can you add some more specifics about your family's experience with RE? How many units did you guys have at the peak and also when you sold out? Dealing with financing issues? Any thing else you want to add? It's always interesting to learn more from others! Cheers! My Dad said his first purchase was a 16 unit building in harlem. The purchase price was 125k and he put 25k down. He found the building in the new York times. He bought it from a old lady. Three years later he bought two other buildings in harlem that had 32 units total for 450k. Three years later he bought 10 units with one commercial space. Purchase price was 150k with 25k down. Sold out in 1998-1999 to multiple buyers due to his feeling that the market was toppy. Total units at peak= 58 units with commercial space rented as a Chinese restaurant He was a one man show and at that point I was too young to help out ( I'm 30). The plan was to slowly redevelop the property and increase rent. I saw his journal during the mid 80's and the rents were silly cheap in that area. Like 250-300 for a one bedroom. I saw a couple in the mid 100s ! You frame it as an arbitrage between putting money in the buildings and increasing rent. NYC during in the 80's is not how it is now. No one wanted anything to do with the city. This was also the era that trump made his money by redeveloping prime real estate in manhattan. You go where no one else wants to go. Being a landlord in that area is not a glamorous profession. I remember him going to court like every two months or so to kick out a tenant that wasn't paying. There is always a price to pay to make money. He had fun doing it so it wasn't ever really work to him. When he sold out we moved to the west coast. He used the money to buy downtown commercial property and apt units mostly with cash. My goal recently has been to find something I can scale up. Coming to a realization that my small business isn't scalable. I'm open to everything from being a franchisee, owning a hotel, or buying 8-10 unit property. I'm not seeing the no brainer deals like they were back in the day. There is too much opportunism compared to back in the day. I wasn't really thinking about doing anything but my small business until recently so I missed the good buying opportunities from 2008-2010 in RE. Congrats on tripling the apt units!

Bill Miller had $200 million of Bear Sterns. He gave a short talk the morning of March 14, 2008 explaining why Bear Sterns was a good investment. As he was talking Bear Sterns was crashing. LOL! Yeah, I remember that. Alot of things were crashing, while alot of people were talking in 2008, though. He's long Groupon, so let's see if that was a canary in the coal mine in a year or two. Cheers! Groupon has no long term debt and cant even be compared to bear sterns. If you think groupon dies in a year or two this wont look good for overstock either.

Great post. I been on this board long enough to know that cardboards insights are usually early in timing, but right in the longer term. I agree with everything you have said. I'm very cautionous right now and like you i have no clue where we are in the "normal" business cycle. I do have two companies where i believe the earning power in 2 plus years is not being expressed in the market price. I'm finding some reasonable priced companies but, i'm hestiant to pull the trigger due to the bullish consenous currently in the market. I rather hold cash and add to my current positions.

Hey moore, whats your take on the mining sector? There seems to be an inverse relationship between gold prices and gold mining service stocks. If would seem juniors should be able to get financing now since the markets have been performing well for awhile. I'm not really expecting gold to raise alot but, there seems to be a severe disconnect with the price of gold and the earning power of mining companies that havent manifested yet in the market. I see huge earning power in certain companies 2-3 years from now even if gold doesnt move higher. The catalyst are juniors getting financing. Although, i dont really know why juniors are not get financing this year and last year even though the capital markets are percepted to be much improved.

Great summary man. We can all learn from eric.