Tim Eriksen

Regarding new money. Obviously it depends on the fund documents, but most funds are set up so that each investor has their own high water mark. If an existing investor adds money after the NAV falls the new money is usually subject to the new high water mark ($14 in your example) as well. I am sure there are some exceptions to that though.

In your example the answer is $15.90. $15 was the new high water mark. To quote from US Regulation of Hedge Funds by the ABA (Shartsis Friese): "Traditionally, an investment adviser's performance fee or allocation is charged only on profits above the previous highest value of each account" pg. 329. Tim

WSJ has an article out today on Block. http://blogs.wsj.com/deals/2011/06/10/china-researcher-carson-block-captures-investors-interest/

Your math is wrong in terms of total cost. It is not $132 x 12 months x 62 years. The balance will continue to decline and so would your minimum payment requirement, which is typically 2 to 3% of the balance. At $132 per month the balance would be paid off in about 95.5 months, or $12,610 of total cost. If you made just the minimum payment forever it would end up around $30,000.

Actually BYD is not one of the companies since the latest 10-Q says concentrated in five companies, while the previous 10-Q said concetrated in three companies. Tim

bargainman. You said what I have been thinking about the whole situation as well. Buffett should admit that he should have asked for more information or requested that all the information be given to the compliance officer.

Finding something better than what you have is certainly a good reason to sell. I prefer the something better to be something I have owned in the past since I will then be more familiar with it and less likely to make a mistake. Failure to sell when the thesis changes is a mistake many continue to make. While we don't try to do it, we often create an alternative thesis, which is probably based more on hope than reality, to justify owning the stock. A bad outcome does not mean that it was a bad investment. If the process was done right you are still going to have occasional bad results. Anyone who has ever played poker knows you can do everything right and still occasionally have a bad outcome. As for me, the money management world is treating me good. It has been a interesting journey. Just over ten years ago I came across Marketocracy that said it was looking for good money managers outside of Wall Street. I did well and got some opportunities to write articles for them. In 2004 I quit my corporate job to work for Walker's Manual writing a subscription newsletter on quality otc stocks. In 2006 I started my own fund. Later that year Forbes.com did a nice feature article on me. Things were progressing fairly well until the 2008 crash scared off some customers (mostly the large ones). Thought I was going to have look for something else to do. Thankfully, I met Zeke Ashton of Centaur Capital, and that eventually led to a sale of part of my business and an introduction to some great investors.

I certainly agree with Myth on reasons two and three, but not quite on reason one. Below are my thoughts on selling from our January 2011 letter: Over the years we have seen many a portfolio manager holding (and often touting) a stock that is near to their price target. We think this is a huge mistake that prevents many managers from outperforming the market. Let me give you an example. In our October (2010) month end letter we profiled Calamos Holdings. At the time the stock was under $12 per share and we estimated fair value to be $17.35 per share based on a multiple of earnings of 13, plus adding back cash and the net present value of its tax deferred assets. Since then, Calamos’ assets under management have continued to rise and thus our estimate of fair value is around $19 per share. The stock currently trades at just over $17 per share. Has Calamos hit our price target of fair value? No. Have we started selling some shares? Yes. The reason why is that the risk/reward relationship has changed as the price rose. Obviously, there is now less upside to be gained. When we purchased we paid 50 to 70% of our estimate of fair value, meaning we had potential returns of 42 to 100% if Calamos reached fair value. With a current price of $17 and fair value of $19, we only have a potential return of 12% to reach fair value. In addition, if we had continued to hold all of our shares, what started out as a 5% position, with 42 to 100% upside potential, would have risen to a 7% position, with only 12% upside potential. We have no interest in having 7% of the fund be invested in a security with so little upside compared to other opportunities available. (I would note that management of Calamos made recent statements about their desire to create a greater degree of clarity regarding the company’s market capitalization, which is positive for the stock, and means that our $19 fair value estimate could be too conservative.) In other words, our quote in our one-page update about holding until fair value is reached, is generally true but should be read as having the qualification that we will begin to trim a position as it approaches our price target due to the price increase changing the risk/reward relationship. At times a position will be sold before it reaches our price target if a more attractive opportunity presents itself. We think this approach allows us to capture the “easier” returns and helps the fund be more conservatively positioned by owning stocks that are trading at a meaningful discount to our estimate of their intrinsic value. Tim

FWIW here is my take. As background we made a 10 bagger on the SPAC warrants, unfortunately it was only a 1% position for us. We also bought the stock at $10 and I touted the stock when it was $12 in an article on Forbes.com. We sold as it rose in price all the way up to $20. So we have made good money on the company. All along I figured there was the possibility of fraud, and that possibility increased over time in my mind due to company actions. I put the chance at higher than 2%. More like 5% to 10% initially. The first interview I saw of the CEO scared me. My impressions were not favorable. The minimal dividend announcement created more fear due to its small size, when they had no use for the cash. The poor way they responded to accusations smelled of incompetence, which made me wonder how they were so successful. Granted these are all subjective but they matter. Ultimately though it came down to this reality. Assuming they were legit, the have zero moat. Anyone can come along and pay more to the bus owners. According to economic theory, a company with few barriers to entry should see competition which will drive down the ridiculous margins CCME has. Anyone with capital would be foolish not to compete in a market with that kind of earnings potential. Since they only have five year rights, how can I pay much more than 5x earnings plus cash. Thus I could only come up with a $20 conservative value, a bit more if I asumed they could keep some of the clients. China is a land of opportunity but it is hard to believe that a company can make the kind of money CCME is/has so easily, with so little capital, and if they truly were making money so easily why go public? Tim

It is my understanding that it was a consequence of the all or none trade. Assuming it is not a stock under a $1, I would suggest breaking up the 1950 shares into modest 300 to 500 share chunks and then do all or none trades (even if it is at the same price). That should avoid the 50 share execution, without killing you on trade costs.

Uccmal I am not following your point on taxes. Everyone reports pre-tax results (mutual funds, hedge funds, and I would assume individuals). Am I missing something? Tim

Since no one else has stepped up to say it, I will. I disagree that the 80% is "getting the shaft" or that the situation is necessarily "immoral". ( I am not talking about CEO pay - that is a rigged system). To be clear, I have spent all, or nearly all, of my life in the bottom 80% not the top 20%. This country provides opportunity like few others. What people do with that opportunity is up to them. Net worth, in general, is achieved through smart decisions. It starts with emphasizing education and avoiding drugs and alcohol. A good education in a well-paying field combined with living below their means allows one to accumulate savings. To that they must add the knowledge of how to invest and odds are good that they will have a significant net worth as they age. If that knowledge is passed on to their children, then odds are high that their children will do even better than the prior generation. I would also note that the article has a clear liberal bent (UC Santa Cruz is known for being a liberal school). But the bias is seen in the use of the term "leftover" when describing what the bottom 80% have. As well as "ultra-conservative" to describe those against inheritance taxes. One would be well served to counter the article with readings from Thomas Sowell. He shows how income disparity, particularly the racial disparity, is not due to racism but due to level of education, stability (marriage), and other factors. That is not to say that racism does not exist in our society, because it clearly does, but it is not the primary cause of the net worth disparity. Equality of opportunity is the goal, not equality of outcome.

Bronco, You keep using the word "worth" as if the current share price equals worth. FMMH's worth didn't change after the offer. The share price did. They are NOT the same. I own a number of stocks that I would not sell just be cause they rose in price. Tim

You got it figured out. Asset manager net-nets are extremely rare. When one exists it is usually due to the company experiencing significant ongoing losses. Calamos was briefly a net-net at the end of 2008. Highbury was as well. Even though CLMS is not a net-net it is still one of the more attractively priced asset managers in my opinion. I have it at less than nine times earnings (net of cash). A 3% yield too.

Buffeteer, To call Biglari an "amazing investor" is quite generous. From what I have read he produced an average 13.6% return over the last decade. While that is better than the indices, there are great many value investors that exceeded that over the same timeframe. Frankly, it looks more like he bought some lousy businesses, and was probably fortunate to have it turn out well. If Biglari wanted to get rich the way Buffett did, he should have stuck with this hedge fund. There is also no getting around it, that his recent actions show poor judgement. The FMMH offer was screwed up. His arguments reaked of hypocrisy. The tender offer was flat out stupid. The timing and amount of his compensation deal is atrocious. If SNS was fixed by adjusting capex and a few other things, that does not IMO (and many others) entitle him to 25% of profits after a 5% hurdle.

It seems clear to me that the SNS shares are held in the Lion Fund, which Biglari Capital is the general partner. The GP is being sold by Sardar to SNS. The Lion Fund will continue to operate. The SNS shares held in the Lion fund are indirectly owned by the investors of the Lion Fund. Thus they were not retired.

Parsad's 0.8% figure is definitely on the low end of what you should expect. Third Party administrators are typically a $1,000 a month minimum, and many want to charge a % of AUM in addition. An audit is $10,000 to $25,000 per year. If AUM is only $1 million it is possible to have a 3 to 4% annual expense ratio and that is not including management fees and the costs to start the fund (legal for documents and state and SEC filngs). What makes sense form a cost perspective (e.g. doing administration yourself) may not be allowable per your stae regulators. As for the deferred tax component question. New investors in mutual funds get hit with any realized gains. In a private partnership they typically do not due to the allocation being done monthly.

Plymouth Rock's web site www.prac.com has annual reports and yearly appraisal information. The 2009 appraisal valued Plymouth shares at $3,265 less a 20% discount for lack of marketability, resulting in a $2,610.00 per share value. It looks like Central Securities discounts it further to $2,200 per share ($154 million divided by 70,000 shares). EPS for Plymouth was around $200 per share in 2007 and 2008. Book value was $1,543 at the end of 2008. 2009 results will benefit from the sale of Direct Response Coroporation which will result in a $14.9 million gain before income taxes ($81 per Plymouth share before income taxes).

I gotta take Schroeder's side in this one. Her task was to write a biography on Buffett, not to write about his investing process. Yes, she revealed a side to Buffett most of us were unaware of, and some may not have wanted to know. I personally found it interesting. Buffett is clearly one of the greatest investors in history, but not one of the greatest people. I admire his investing approach and his emphasis on integrity in business. His personal life, passivity on boards, and fathering skills I do not. I believe her blog is quite informative. I also think she hits the nail on the head in the post. Her comments on the difficulty of discussing Buffet are spot on: "For years, I have read and listened to people talk about Warren Buffett in a way that is frustrating. One the one hand, you have a cadre of people who appear to be envious and who slam everything the man does as if it were either for some evil purpose (usually having to do with taxes) or, "Buffett doesn't get it," as if they have to feel intellectually superior to him. On the other hand, you have a group of people who uncritically assume that he is perfect and everything he does is unassailably correct. This latter group can be extremely frustrating to deal with because their views are internally inconsistent." She is striving for a full picture of the man. It is refreshing in my opinion.