Tim Eriksen

It isn't about whether it will reach $1 million, only a fool doubts that; however, it is all about how long it will take. 1k to 10k in 9 years 10k to 100k in 13 years 100k to 192k in almost 8 years It could very well be 15 to 20 years from today.

Was that really the price he paid after the salad oil collapse?? Pretty close. AmEx had 4,461,058 shares outstanding at the end of 1964. 1962 year end book value was $68 million. 1963 year end was $79 million. 1964 year end was $83 million. At that time they had not taken a charge related to the scandal. If Buffett paid around $40 per share initially he would have been buying at 2.2x book. EPS in 1963 was $2.52 per share. That means 16 times earnings. Dividends were $1.40 per share.

Good points, Tim. Do you have experience with clients stealing ideas? How did you address it? Anyone else encounter this? I have had the experience. It didn't make me particularly happy. I had to live with it since the alternative would have been to terminate the relationship (which from a financial standpoint would not have been wise for me at the time).

I do some of both. You need to know what your state requires in terms of compliance. In my state you have a lot of paperwork that has to be completed for each client, such as tracking all trade orders (not just filled orders). So unless you have a good software program, tracking 100 clients could be quite time consuming. Transparency is a mixed bag - while it should give comfort to the client, some use it to "steal" ideas (they let you manage $100k while they duplicate much of the portfolio with a larger sum), others question every mistake and worry to much about the day to day.

Just curious who your admin is...so I have a reference point in a few years if I go this route. We use Unkar Systems out of Pleasanton, CA as admin.

I don't think 7 years is short term, but maybe I am not "smart." =) Statistics don't lie, but our interpretations of them can be quite faulty. One person sees material historical outperformance while another sees recent average performance. Both are true. My point is that there are a number of value managers who looked great from 2000 to 2005 but average since. Why is it seen by some as wrong to judge on the short term results since but not the short term results previous (2000 to 2005)?? It just seems to me that performance has waned noticeably as the fund grew larger and he was no longer in a very favorable environment for value investing.

I will agree with the figures thrown out so far. We are charged $725 per month for admin, $12k per year for audit and taxes. Start up costs were similar to those listed. You will pay 2 to 3 times that for big name firms. Admin is a lot more complicated than just looking at balances. Admin tracks all capital inflows and outflows. They allocate all income in the period based on realized ST or LT gains, unrealized gains, dividends, interest, etc for each client. They track accruals for audit, admin, and dividends. Their reports are what allow audit to be relatively cheap. I would guess it takes 4-6 hours per month. The rest of the cost presumably relates to the software to track everything.

1x in the last seven years is trouncing all benchmarks by an insane margin - I don't know many over $1b funds that don't short that did better. Are you sure? I was being generous with the 1x in 7 years. The way I read the chart his fund is up about 61% since the end of 2006 and 56% since 2007. That is worse than the Nasdaq and Russell 2000, the same 7 year return as the DJIA (although better over the last 6 years), and only about 8 percentage points better than the S&P500. I am probably just jealous that money is pouring in for his fund. =)

I don't mean to be harsh, but his fund went up nearly 4x in the first 7 years (a great time for value investors) and not even 1x in the the last seven years. It seems like performance is waning as the fund has grown. Why is money flooding in?

He's a tech guy, they constantly get price to earnings confused with price to revenue. I agree with you Palantir on the thinking. I am sure he also realized that the team currently makes about $11 million according to Forbes. The new national tv deal in a couple of years is expected to add another $30 million annually, as will a new local tv deal (currently $30 million). It is possible the local deal ends up much higher based on what the Dodgers and Lakers ($150 million average over 20 years) are getting. It is my understanding that he can deduct goodwill for taxes, which will be about $100 million annually, the earnings are all tax deferred.

Every company is different. Some have a majority shareholder so it is all pointless to pay the costs to solicit votes. Others will not reimburse the broker for the cost to distribute information so the broker doesn't do it. Some try to be private. Best thing to do is call them and make sure you are on the information list. Ask them what is the best way to make sure you get information. Build bridges. Find the chatty person whether it is the CEO, CFO or someone else. You may need to own a share in certificate form to ensure notification.

Is it your impression that Buffett leaves existing compensation plans in place when BRK acquires publicly traded companies??? From my reading over the years it seems clear that he changes them from options to cash. He also is involved in capital allocation. If they can't meet a certain hurdle they send cash up to the parent.

He was referring two of the slides in my presentation which showed the market caps of the more prominent positions Buffett held in the partnership years. The smaller end of the spectrum is the easiest to understand and in IMO is typically the most likely to be undervalued. Anyways, I try to think like he would think with a similar amount of capital, which is look for substantial discounts to intrinsic value where that value can be realized in a reasonable amount of time. Of course we don't have PE's of 3 and easy arbitrage that he benefited from, but I try to find PE's of 6-9, or companies with cash levels near the market price.

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.

Thanks. It was my second time, and was a great privilege. Guy wasn't there this year, which is unfortunate. He has had some great ideas over the last few years.

During the partnership years in particular he made this claim due to work outs (Arbs, corporate actions, stocks like Sanborn Map) generating profits regardless of how the general market performed, thus he would outperform the market in bad years, but likely lag in good years. He clearly states that the generals will likely decline similar to the indices. During the last few decades, I believe he has said that Berkshire will function similarly. I don't think he says portfolio. So I take that as being based on his focus on Berkshire's book value continuing to grow since most of the business will still be profitable in down years.

The way I read the standings is that his bracket is not in the billion dollar challenge. It is in the Yahoo tournament thus shows in overall leaders. https://tournament.fantasysports.yahoo.com/quickenloansbracket/group/bdbc

NJ would be quite unusual. Most states mimic the SEC rules. A few are more restrictive, like Washington. I do know that the SEC established that performance fees may only be charged to qualified clients ($2 million net worth and above, up from $1.5 million previously). As to earlier posts, there is no SEC rule limiting fees to 2% and performance fees to 20%. It is possible to charge more, but you will have to include a lot of disclosure.

I haven't met Sean. We are on each others distribution list. As for length of track record, the letter notes the performance of his South African only vehicle in rand since 2007. I also don't know the size of the fund, but we seem to view things similarly - concentrated value approach in an inefficient market. He focuses on South Africa. While I focus primarily on US micro caps. Concentrated funds are going to have one or two winners generate a significant amount of the gains. That is the design. More concentration in your best idea. I don't think I would call building a large position in a single idea "taking a flyer." To me it is the most logical way to approach investing.

In addition to IRA Services Trust and Equity Institutional, Millennium Trust is another firm that some of my fund's investors have used. Most of my clients were the least pleased with Equity Institutional.

Never been a fan of KEWL in terms of share price in relation to value of assets. And don't even get me started on the quality of management. Since you can't harvest all your trees at once, cash flow is still what matters. PDER is my preference, even though it has become more of coal royalty play the last decade. With 700,000 shares at $220 and they own 150,000 acres of timber it ends up being close to 1k per acre. Annual reports are on scribd.

If most retail investors who invest in hedge funds lag the index it is due to making the same mistakes those investors make in investing in common stocks or mutual funds. They assume bigger is better and don't rationally evaluate if the future will be like the past. For an individual to outperform the market he/she has to find value (i.e. an undiscovered stock). To outperform in a mutual or hedge fund, I would argue you have to find a manager who follows that strategy. Which likely means he or she is an undiscovered manager managing less than $200 million as well because it is near impossible to substantially outperform with a high level of assets. That is basically what Buffett's bet was about. There is no way he would take that bet against smaller managers.

The discussion is about the fee structure and its strengths and weaknesses. I am not sure why that is amusing. I do have a question for you. Do you want your $120 managed like it is $120 billion? If you do, then BRK is the way to go. Over time high single digit returns is what he says to expect, and it is what you would have got over the last decade. The huge sum he manages is quite an impediment to decent returns. If someone investing in equities can't outperform BRK I would argue they should not be managing other people's money. Do I want my $120 managed like it is $120B? Absolutely why I've invested in BRK. Treating every individual investor the same as himself is how things are run at BRK. Over time high single digit returns is what he says to expect I am sure you have heard all the quotes by Buffett acknowledging it. I've heard him preparing BRK investors to not expect the 20% returns of the past. If you have the quote where he pins it down to "high single digit returns", please share. Besides, if 9% is the actual return over the next 15-20 years, I'm very good with that. The choice for me is BRK or the S&P index. I don't pay fees. Not to mutual funds, not to advisors, not to anyone. I've had over 15 years of mediocre results after paying fees that lead me to this conclusion and to BRK. If someone investing in equities can't outperform BRK I would argue they should not be managing other people's money. Agree wholeheartedly. Only issue is for the investees, they get to find that out after 5 or 10 years or longer and lots of fees that this is how it turned out. While on the subject of fees, I'd like to point out that Warren has also been cautioning ordinary investors (the Gotrock family story in the AR a few years ago) against paying fees. There is also the bet he has going on with the ror of the fund of hedge funds vs the index. Time will tell and I suspect Buffett will be correct. The Buffett partnership of today is free. Pabrai's is not. Not everyone can invest in Pabrai's fund (or something like that). That's my point about the title, seen from the perspective of an investee. Thank you for clarifying that you were looking at it form an investee perspective. The discussion was clearly from the manager perspective. Regarding BRK. What makes sense for you is not necessarily true for others. Many on this board (including those managing OPM) have done significantly better than BRK over the last 5 or 10 years, not because they are smarter than Buffett, but because they are not handicapped by managing such a large sum. A 15 to 20% return compounded over time is substantially greater than 8 to 10%. Buffett was quite clear at the 2008 meeting, and I am fairly certain subsequently, that he would be very happy with 10% pre-tax returns on the investment portfolio: "We would be very happy if we earned 10%, pre-tax" on the additions to Berkshire's equity portfolio, said Buffett. "Anyone that expects us to come close to replicating the past should sell their stock; it isn't going to happen. We'll get decent results over time, but not indecent results." Buffett's actions show that he believes in active management. He hired Weschler and Combs over indexing. Why? He is paying them modest hedge fund like fees to manage part of the portfolio. Thus you actually are paying fees in BRK for the managers to invest the portfolio and someday when Buffett is gone you will pay even more.

The discussion is about the fee structure and its strengths and weaknesses. I am not sure why that is amusing. I do have a question for you. Do you want your $120 managed like it is $120 billion? If you do, then BRK is the way to go. Over time high single digit returns is what he says to expect, and it is what you would have got over the last decade. The huge sum he manages is quite an impediment to decent returns. I am sure you have heard all the quotes by Buffett acknowledging it. If someone investing in equities can't outperform BRK I would argue they should not be managing other people's money.

I briefly had to work in late 2008 and early 2009. In 2009 we rented our house and agreed to manage a storage facility with on site housing. This eliminated housing costs and the "pay" covered utilities. Did that for a year and a half until the seed deal was completed. My wife had to work full time to provide income and medical benefits since 2008. We have four kids so expenses are somewhat high. She still works since the base income is not sufficient to cover our expenses. The 150k was the initial AUM in 2006. It is almost $5 million now. I did not think it wise to go with the Buffett/Pabrai fee structure and initially went with 2 and 20 with a 10% hurdle, calculated and assessed quarterly. Later changed to 1.25 and 20 with no hurdle assessed at year end. While a bit more expensive at first glance it was combined with contributions into the fund by the seed investors which lowered overall overhead costs on a percentage basis by spreading it across a larger base. So it was beneficial to existing investors.