Kraven

Fisher House Foundation

Query whether hedge fund Buffett if sprung out of the womb 30-40 years ago and was operating his partnership today would have the same outperformance on a relative basis compared to his peers that he had back in the day. No doubt that he is brilliant and so on, but many of the things the "Graham crew" did were the result of information arbitrage. They knew where to look and how to do things that others at the time didn't. Nothing wrong with that at all, but in today's world thousands would be turning over those same rocks. The competition would be much fiercer. If somehow one was able to clone Buffett and have a younger version available today running hedge fund money in the same amount as Tepper, I'd invest with Tepper if that was my only choice.

Got your purchase Gio. Really, you are bringing her! Wonderful! Cheers! That takes a lot of guts. You must feel very confident. There's nothing women like more than a roomful of value investors. A value guy is like the Marlboro Man of the investing world. A man's man. Just about anyone there could probably be cast in one of those Viagra commercials where they show a burly, greying guy and the voice over talks about this being the age of knowing how to get things done and make things happen.

Now if he said that, I think it's a silly comment. He knows that artists are artists, and scientists are scientists. For what it's worth, here's what LC was quoting: http://youtu.be/VdYxVx3PHxk?t=2m39s Artists are artists until it doesn't pay to be an artist. Generally speaking, laborers follow the money. Trust me on this one and ignore Buffett's jibber jabber -- we are not going to lose our talented scientists to art school. Can Bill Gates sketch my child for a trillion dollars? Highly unlikely! More likely to spin straw into gold. But yes, a scientist can run a hedge fund. He cannot, however, be an artist unless he has the talent. +1 Buffett's argument, like everyone else who makes that argument, is seriously flawed. I've heard it in many different contexts and it's almost always wrong. The assumption that if someone wasn't doing something unproductive or sub-productive that they would be doing something wonderful is nice in theory, but not realistic. People do what they do. Someone painting Buffett's picture, as Eric said, isn't going to be finding the cure for cancer if they weren't. Instead they'll be sitting around in their living room watching soaps and attempting to figure out how to make it through life. But Buffett doesn't want to acknowledge this, so instead he claims he's doing them and society a favor. Meanwhile, he just doesn't want to spend the money on the portrait. Why should he when thousands of adoring fans would happily paint him one for free? This argument is used all the time in business. Don't take "poor business" J.P. Morgan had admonished. This led to the modern mantra of don't take unprofitable business with profitability determined by a black box like process. The assumption was always that if you weren't doing that unprofitable business you'd be doing some huge piece of business instead. Life doesn't work that way. In most cases whatever business someone had, that was it. It wasn't either/or in most cases.

I don't have a bearish view necessarily on FFH. I just think it's currently at best fairly valued and probably overvalued. I never buy something hoping for or expecting growth. Today I think it's not a bargain. That's it.

No, I am certainly not as good as other board members… I am very well aware of that! I just wanted to point out that I don’t need to do things I don’t understand… because, although I will never achieve Eric’s or Packer’s returns, I can live quite comfortably with mine! And I sleep soundly at night! ;) Gio Gio, it's not about being as good or not as good as other board members. You know yourself and what works for you and what you are comfortable with and you've been successful with it. That puts you about 2 steps ahead of most people. You have almost certainly noticed there are a number of investors who always believe there is something they are missing. That there is something just beyond their grasp that if they could just grab ahold of would ensure a path to the investor land of milk and honey. You know what you can do and what you can't. I wouldn't keep justifying myself if I were you. While I personally wouldn't agree with your FFH analysis I understand your rationale. I think at this point your response to the constant drumbeat against it should just be a nice hearty "F you and the horse you rode in on .... but best of luck!"

~100. Actually, no clue what it will do at any time. I never make any predictions. I just react to what I see.

While the long-term annualized results may not be quite as impressive as some other hedge fund managers, you have to be quite amazed by someone who has not had a single down year. If you are a widow or orphan, investing with Vito may be a much better alternative to anything out there. Cheers! I had no comment on his returns. I don't even recall what they are. I was simply commenting on the words in his letter. I am sure you are right about how he's done.

Thanks for posting. It's a good letter but seems to make the same fundamental mistake that others do. He discusses how he expects low to negative returns from "virtually all assets classes". However, unless he is investing in an index I am unclear how that directly impacts individual securities. If he said "I can't find any undervalued securities so I'm in cash" that would be fine. But that's not what he says. He says indices are overvalued. There is no discussion of any individual opportunities. So while a market downturn may (or may not) affect in some way all or most securities, to the extent one believes that the underlying valuation is unaffected it's a flawed sentiment.

There were some sparks flying in that interview.

You are over analyzing the situation and should reconsider your priorities. In twenty five years in the business, I have seen hundreds of bright young people, often from great schools, get nowhere in the finance field because they choose to "strategize" their career path instead of responding to opportunities. I remember laughing at 25-year old Ivy League MBAs who didn't want to run financial models because they feared being pigeonholed as a "numbers guy". They wanted focus on the "big picture". In two years these empty suits were gone. They go it backwards by thinking that the firm was there to serve them. This new fund is a critical test for you. Ignore the assurances from your superiors that this is your choice. It isn't. If you say no, you have put yourself ahead of your firm and for that there will be consequences. Maybe not tangible way, maybe not immediately, but people will take note and it will happen. The bottom line is this: you should take the job and work your tail off with a positive attitude to make it a success, or leave the firm. The best way to advance in your career is to gain a reputation as a "can-do" individual who will do whatever it takes for the benefit of your current boss and your firm. Once you succeed here (and it will take many years of effort), opportunities will follow. Lots of them. When bosses start to fight over you and you start to get job offers outside the firm, then you are making good progress! +1. Exactamundo

The career advice and the girlfriend advice are being given to different people. It's important to stay on top of these kinds of things. I am fortunate that I am able to both guide a young person in his career and someone else in his love life at the same time. It's not easy, but somehow I manage to do it.

Hey Kraven! Be patient! You know I am in love… and it is obvious I have my head in the clouds… How could it be different?! You shouldn’t have given me such terrific advices, if you wanted a “rational Gio”!! Your fault!! ;D ;D ;D ;D Gio I do my best. Now that you are a couple, she needs to see that you are sensitive and caring. Tell her frequently that her best friend is really attractive and dresses quite stylishly. Make sure that when they are together and you come upon them that you hug the friend first and hold it a few seconds too long. When you release, say "that feels good and you smell really nice". This will show your girlfriend that you're not afraid to give compliments and are good with her friends.

This is not good advice in the least. It's advice for people with their head in the clouds. It's not realistic. It's what people want to hear. Just follow your dreams! You can do anything! The truth is most people can't do anything. It's fine to follow this path so long as someone is aware that in 10 or 20 years they may have "enjoyed" what they do, but have nothing to show for it. If you do this, have a backup plan . . . and then a backup plan for the backup plan.

I have given a lot of career advice in my time. Most things tend to fall into the same general categories. You have not been "asked" whether you will take this position, you have essentially been "told" to take it. Of course you have options. You don't have to take it as you haven't been ordered to, but there are ramifications for that choice. Even if you hadn't said your age I would have known you were young when you talked about the fact that you don't think you will enjoy analyzing sovereigns. It's nice to be young and idealistic. I have to assume you don't have a family to support and the only one impacted by your decision will be yourself (if that isn't true, please say). It's nice to be in that position. It's nice to be able to think about what you enjoy. Let me translate your situation for you. Your shop wants to start a new fund. There is no one around to do it and they don't want to hire someone. You are smart, your boss likes you and you've presumably done a great job so far. So he will give you this great "opportunity". There is very little downside for the firm. If you do well, great! If not, well, nothing ventured, nothing gained. If there are medium results and AUM is rising they can always transition you again. So what do you do? If you buy what I'm saying that you have been told to take this position, then you have a couple options. Take the position and see what happens. Young people always think that if they "waste" 6 months on something or a year that it's the end of the world. It isn't. In 10 years you will barely remember it. So take it and maybe you like it. If not, you see if there are other opportunities at the firm. Otherwise, dust off that resume and move on. Or, don't take it and see what the ramifications are. If you start getting the cold shoulder, time to dust off that resume again and look around. If possible, if you have a good relationship with your boss, I would attempt a heart to heart. Take him out for a drink and tell him your feelings on it. That it sounds great, but you have some concerns. See what he says. Of course to open that door you best be sure that you haven't opened the door to your execution. Hope this helps a little.

I am not sure I understand. So you are making no money from your fund? In 2016 you'll start making money ideally. You are viewing this as getting the opportunity to build a track record? I can see why you would do this and commend you for it, but seems as if there is a lot of risk involved. Say you had started this not in 2011, but in 2007. You would be making nothing and have walked into a shit storm. There is a lot of risk involved in managing money that I think this thread has not adequately illustrated. Lose money for clients and those good souls may not be so good. That's when the lawsuits start to fly. Hell hath no fury like an investor scorned. I treat it like any new business; the first few years are rarely cash flowing. I gave myself five years and saved enough (and cut spending enough) to give myself the best possible chance to make this work. Luck will always play a role. This business isn't guaranteed in any way. You need to love bathing in the seas of uncertainty. Fair enough. Takes a lot of guts to know you're going to go 5 years before making a dime.

I am not sure I understand. So you are making no money from your fund? In 2016 you'll start making money ideally. You are viewing this as getting the opportunity to build a track record? I can see why you would do this and commend you for it, but seems as if there is a lot of risk involved. Say you had started this not in 2011, but in 2007. You would be making nothing and have walked into a shit storm. There is a lot of risk involved in managing money that I think this thread has not adequately illustrated. Lose money for clients and those good souls may not be so good. That's when the lawsuits start to fly. Hell hath no fury like an investor scorned.

Not really true. WEB is contributing to the obesity epidemic with his KO investment and as more studies come out and more people (as well as governments) recognize this, I think you will start seeing the first signs of evaporation in the coke moat in the coming decade. I'm not worried about the future of steak houses. Well, then he will be part of the cause of the greenhouse gas problem. I mean, come on, Prem, do something right! Kraven, I hate to be the one to break this to you... but you and Mrs. Kraven, and the little kravens are part of the greenhouse gas problem, especially after those bean burritos.... I think this is a good acquisition, finally. Although I never eat there - too pricey - the parking lots are always full. Did I say it was too pricey.... Kind of like Sees Candy. Hmmm. So is the problem Mexican food then? We don't eat it much. Maybe the problem is the hot air coming from Rob Ford?

Not really true. WEB is contributing to the obesity epidemic with his KO investment and as more studies come out and more people (as well as governments) recognize this, I think you will start seeing the first signs of evaporation in the coke moat in the coming decade. I'm not worried about the future of steak houses. Well, then he will be part of the cause of the greenhouse gas problem. I mean, come on, Prem, do something right!

I got your point. Your point, that a HWM may misalign interests, partly hinges on your belief that a manager should not be punished for having poor performance which is undeserved (2008). So I asked if you would return your fees in a hot market. i.e. why should you be paid on gains that are not deserved? When you get the point, I will respond.

Oh great. Now Prem will be directly contributing to the obesity epidemic. Can't this guy do anything right? First Blackberry, now red meat. Where does it end?

So do you turn down your fees when you benefit from a hot market? No. You missed the point.

I was making a different point. I don't disagree with the incentives, but if I am a manager and I lose money in 2008 it's not necessarily because I didn't make good decisions. In fact, I was probably sweating it out and ruining my life for my clients. And what do I get in return? I have to work for free (other than my base fee) for years. Why is that the proper way to incentivize someone? Why not just say "if you're unhappy with me, take your money out". If you go to a doctor and he treats you, but you still die, the bill is still outstanding. He doesn't waive the fee. To me, the incentives aren't necessarily aligned with highwater marks. If I lose too much money, I'll just walk away and open a new fund. Now maybe I'll have trouble raising money, but maybe not. Either way, why should I kill myself when it might take years for incentives to kick back in and frankly, even if I do well clients have short term memories and the second things get better they probably still pull their money and give it to someone else.

These are good points. I've never understood high water marks except as a matter of marketing and asset gathering. From the standpoint of managing money though why should someone have to make an investor whole before they get paid? They did the work and oftentimes a loss is due at least in part to just overall market performance. My feeling is that unless lookups are unreasonable if someone isn't happy with performance take your money out and fire the guy.

I found it amusing that they listed themselves (Columbia Business School) on the list of super investors. Also, a few are deceased.