oddballstocks

Interesting. I think this is just the domestic $300 premium membership with access to US screeners and newsletters (speaking of which, how is the net-net one doing?) In regards to yadayada, you can easily develop a high quality, non-pinksheet global net-net basket right now. The US net-net offerings aren't the best now, but there are enough that there would be at least some representation in a 30 stock basket. In regards to risk, I've never understood why a $50M market cap is considered too small or subject to scams. It's certainly large to an individual, just look around at most small businesses. People buy and sell those with a lot less information than we have on even the smallest listed stock. Most small businesses would be terrible stocks, but somehow, operating at say 1% net in comparison to total sales, provides tens of peoples with jobs and keeps the business afloat. By looking through stocks instead of local business listings, you at least gain a method of quick liquidity though exchanges (you may not get the price you want, but you can get a price) and can avoid all the small businesses like restaurants and gift shops that routinely pop up and disappear a year or so later. If you see a company with large insider ownership, you can at feel more confident that greed and self preservation on the side of owner-operators will make them not want to screw themselves (as stockholders) over. Can outside minority holders get a raw deal? Sure. But at least you're getting a deal at all and more than likely, when something like this happens, you are in the green on that particular deal. I write the GuruFocus article and so far I don't have access to the site, so I'm not sure how true that page is, although I do get paid to write monthly. That said the newsletter is hit and miss, partially because of some constraints imposed by GuruFocus. They want net-nets that are listed, US preferably and are liquid. I've tossed in some international ones and a few illiquid ones (which have done very well), but it's tough.

Pretty much every study on the matter disagrees with your hypothesis. Net net investing still very much works. I agree many net nets are hideous companies with poor management, but the strategy still works. Simple strategies based on valuation almost always outperform the broad market over time, even if they are widely know and followed. yeah but you still need to find a basket. Gl with that. Unless you want to go through the pink sheets. But then you really want to find a catalyst. I mean sure in bear markets you can find 10, but why would you if you can buy companies with a moat for a PE of like 7 or 8. Id much rather have those. Just seems with all the opportunities out there, why the hell bother with this outdated strategy. You had great returns when markets were less efficient then they are now. But I searched in the US for net nets, and I could find like 2 good ones. But that would only be a v small portion of your holdings then. I supose it could work in like Japan now. And it probably worked in Korea like 8-9 years ago. Yeah but a much better strategy is to have a watch list of like 100+ good to great companies. And then buy the ones you like when they get really cheap. I would rather put 100% of my stock portfolio in that when everything is cheap, then in some v mediocre company trading at 20% assets. If i can buy a growth story with a PE of 7 or 8 I will make more on that, and it seems less risky. It sounds like your mind is made up, this is some old fuddy-duddy strategy that doesn't work anymore. I guess my question is why are you still even thinking about it? I'm going to go get my cane and flip through some Moody's manuals looking for pink sheet stocks, maybe an old timer like me with out-dated old fashioned tastes can find a few cheap companies. On, and just curious, what companies are you talking about with a defensible moat and a P/E of 7?

+1, and a variety of other names... I'm not convinced any stock is obscure, someone somewhere always seems to know about any company. I would argue that temperament is really the key to this investing style. Research, be confident in your decision, and be patient.

The problem is there is no "IT Industry", there are many different subsets and each is different. There might be some general research, but you're essentially asking for "energy industry research" do you mean utilities, or oil and gas, or exploration companies etc. Once you can narrow down what you're looking for Gardner and Forester are two IT specific research companies. You can typically find good company specific research and market research on almost any segment you can imagine.

http://freebeacon.com/chinese-naval-vessel-tries-to-force-u-s-warship-to-stop-in-international-waters/ Yes, we are so much smarter and more civil now...this time is different, it can't happen again...

Even I don't own just net-net's, they make up maybe 20-25% of my portfolio, potentially less right now. I own other types of value stocks as well, low P/B, hidden assets, sum of the parts, cheap earnings etc. I do not concentrate in any holdings, or even in any style. To yadayada's point I think you're looking and thinking about these incorrectly. People look at some mispriced large cap and say "but with such a brand at 5x earnings it's misplaced." No one expects that some acquirer will come along and buy it at fair value, they believe in the gravity of the market. Something so egregiously mispriced will be pulled to fair value eventually. That's the same thing with net-nets, no one is liquidating these things, these are egregious valuations. The gravity of the market will eventually pull them towards fair value. It's easy to get hung up on terms or categories of things. Investors doing Graham net-nets, or Buffett moat stocks or whatever. Forget the terms and think in terms of the cheapness spectrum. There is a spectrum of value ranging from free to expensive, every company falls on this spectrum. A net-net is just something that's clearly on the cheap end of the spectrum. Maybe a high flier is the opposite of a net-net, clearly on the overvalued side of the spectrum. Yes, some net-nets do self destruct, just like some high flying growth stocks never come back to the ground, they continue to fly higher. Over time the gravity of the market is strong and pulls all things towards the center. To me a net-net is a shortcut, I know the company is cheap the second I start looking at it. I don't have to divine that it's cheap like I might with a moat or some great business at a fair price. Yes, you could probably compare a net-net to some large company that's hit the rocks, and guess what, if you studied both maybe the large company is much cheaper. The key is there is a lot more work required. I go for simple and easy, this is a quantity game. I'm not looking for the world's cheapest business, I just want to buy a ton of cheap stuff and sell it higher. This is like a garage sale. I fill the garage with a number of items, I sell some for much more than I paid, some for a little more and maybe some never sell, but overall I generate a satisfactory return. Many investors approach investing like owning five classic paintings. They are searching for the absolute best paintings with the most value, they want to maximize the value they sell these paintings for. They're hunting for these paintings and won't settle until they find the best paintings at fair prices. That's fine, it works for some. I'm buying paint by number water colors, and some old grandmother down the street is buying them at my garage sale. I don't care that it's a paint by numbers of some farm or a rooster. If I can sell it for more than I paid, and I can do it in quantity I am happy. For me there is no purity in investing. If I discovered a way to trade options profitably and consistently tomorrow I'd do it. At the end of the day I start with a pile of money and I want to grow it. I have found for myself that I do best with the warehouse of cheap stocks approach. It's the simplest and most reliable way for me to make money. I don't have pie in the sky hopes for my returns either. People on here want to do the Buffett 50%, I'll let them have it, I am content with 15%. If I do 15% for years I'll be a hero to my wife and kids, the ones for whom the money matters. None of my friends are into investing, they will ask general questions about the market. There is no pride if I own AIG or BAC or Bowl America, no one recognizes any of the names in my portfolio anyways. This is a small rant, but there are a LOT of smart people on this forum. I think smart people are prone to tinker and try and figure out the best solution. I have found in life that being good enough and consistent is much more valuable than being the best at anything. There is a lot of intellectual thrashing on this board trying to distill the absolute best investments. I'm happy with good enough investments. I enjoy investing, I enjoy thinking about business. But I'd rather play with my kids and spend time with my wife or go running or skiing rather than read an AIG 10-K. I recognize that this fatal flaw of not being obsessed or committing my life to investing won't make me the best, but I don't care, to me there are much more important things in life. My last thought is this, I'm not surprise that maybe 70-80% of investors dismiss net-nets, that's the reason these companies are cheap. Most investors, including most on this value board write these types of companies off, that's exactly why they are valued so low. The arguments that people put up against them make sense, that's why most investors believe them, and that's also the same reason why these opportunities exist.

Yeah, that's very understandable, and it might help to expand on this a little. I'm giving up a big secret here, but what the heck... I have a master plan for this, trees are part of it. In PA there are sheriff sales at a certain point in the year, they are for places that are delinquent on taxes, you pay at auction and get the property free and clear of liens. Northern and Central PA are mostly forested and empty, many of the areas are filled with "camps" essentially small buildings or trailers sitting on a few acres. It's not uncommon for these places to fall into a sheriff sale, an owner passes away or has hardship and it's easier to just let it go. You can get a cabin plus a few acres for about $1k, these are actual transaction details from a friend's family member's transaction. You end up with a few acres of timber, and land to grow a small stand, and potentially a cabin. The cabins I can resell as camps to people in Pittsburgh who aren't going to the sales. A camp for $1k at a tax sale might go for $15-20k on Craigslist, a dumpy one for $5k. I want to go up there, buy a few camps, sell off the decent ones and grow trees on the rest. The ones that I sell double/quadruple or more my initial investment right way, then I get the timber kicker for some point down the line. The return from the trees is about 7%, but from the whole process much higher, I would expect maybe 50-100% returns a year or more, which is attractive. If you talk to people who have experience with the area (and someone on this board who also writes an OTC blog does..) it's not uncommon to buy large plots of land with a big house and make enough from the timber harvest to essentially pay for the property. It's the old buy the assets get a business for free, up there it's buy the land get a nice house for free.

Yes, I'd hire a company to harvest it. In Pennsylvania and West Virginia a state forestry officer will do something called a cruise for free, that's how you can estimate value. The key is really tree size and type. Small trees are worthless for anything other than pulp. I don't remember the price per board foot on this anymore, at one point I had a little formula I used to estimate value based on the types of trees and amount of land. Ok, I Googled my blog, I remember writing about this at one point, here's what I had dug up: That's per acre, so if you buy an acre for $500 and it has enough trees that are palpable you get your money back on the first harvest, minus harvest expenses. I'm in my early 30s, I had always thought this would be a great retirement. Purchase 20 acres, plant hardwoods, let them grow until I'm 60 and then harvest. In the meantime I can take my kids there camping or whatever and enjoy the land. A possibility of a small amount of hunting lease revenue might exist as well. Time is running out for me to plant a new stand if I want to see it harvested. If I don't act in the next five years or so I will be planting work for my sons to take care of, and they might appreciate the land and eventual payoff, but it's also inheriting a headache.

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. Tim, I agree on KEWL's management, their letters to shareholders trying to refute the activist who targeted them is all you need to read. PDER is a good company, I'm familiar with what they own and the areas they own it, they're good assets. The nice thing about them is their holdings seem to balance each other out. When coal is bad timber helps them etc.

This may simply be because in a globalized world, these opinions are almost impossible for the mainstream media to voice. Look at Bloomberg, or JP Morgan, and you quickly realize that the world has changed from one of pre-WW1 localized economies to one of worldwide (often lateral) ownership. With that, comes the risk of repossession and retaliation for the smallest of perceived slights. Any real talk of a potential war between China and Japan on the opinion page of the Wall Street Journal would therefore quickly result in huge diplomatic pressure against the US government as well as screws being tightened on News Corporation and Rupert Murdoch personally. More trouble than it's worth, so it's cheaper to not discuss it. That way you avoid the accusations of nationalism, racialism and political interference as well as holding onto your foreign assets and business. If you want to seriously find out more about the odds of a large-scale global conflict, you're better off visiting some looney-tune websites from time to time and sifting through the mountain of crap for the 1 or 2 worthwhile geopolitical insights you're likely to find every couple of weeks... I recommend you read "Guns of August" because ALL of the arguments you made were made before WWI as well. The world was very globalized then, especially Europe. Many rulers were intermarried, there was essentially a ruling family across most of Western Europe. War was thought to be impossible, commercial ties were strong, and the mood at the time was that the world had progressed beyond war, especially a European war. I'm not saying we're heading to a global war, but I'm saying that all this talk of why a global war is impossible is just history repeating 100 years later. We've forgotten the lessons of the past.

I have looked extensively at timber as a personal investment. I've looked at direct holding, which is all I'd want. There are a few vehicles if you want something traded, look at KEWL, they have some mining upside as well. Here was my grand theory in Pennsylvania. I wanted to buy up "junk" land, areas that aren't suitable for building, but have no problems sustaining a forest. There is a LOT of areas like this, my entire backyard is a small example. I live at the top of a hill, the whole backside of the hill is forested but can't be built on. I wanted to buy areas like this cheaply. I explored different options and found a way to get these plots of land for about $1k an acre or less in tax sales. So I start to move forward with this plan and my timing happened to terrible, the shale gas was found at the same time. Suddenly all these people with junk land think they're sitting on gold mines with mineral rights. The price of an empty acre went from $1k-5k. At $5k an acre there is zero money for timber. This is still something in the back of my mind, and I look from time to time, but it's harder to find good land. My criteria was land I could drive to (4hrs or less) and with reasonable drainage and the potential for hardwoods. Ragnar on the board mentioned there is some cheap land in Kentucky, but it's out of my easy driving range. Maybe if I land more time I'll continue to explore this further.

I believe all of the above (with the exception of possible extinction) were widely believed before both of the major world wars in the last century. Agreed. Don't overestimate the decisions of humans in large groups. I agree. The other popular opinion immediately prior to the first world war was that there was too much wealth, trade, and economic dependencies between the various countries of Europe to go to war. That the governments would never risk killing the goose that had been laying the golden eggs. This was all true of course, but they decided to kill the goose anyway.* Never underestimate the desire of the political classes to actually get to use all of these toys that they've spent all these years building. *EDIT: Maybe they didn't actually kill the goose, but they did give him a damn good beating, as well as destroying almost every egg it had laid up to that point. There's a great book, "The Guns of August" that expands on this. One thing I liked was that UK insurance companies were insuring the German fleet before WWI, people thought it would be impossible to go to war due to commercial connections. Yet the UK was dragged in, and fought against German, mostly against their wishes.

Maybe this will be the comment that sets off the crash.. I don't really see any speculative bubble fever in the market. Maybe I'm naive, and those smarter can correct me, but I think we're in this middle market. The easy gains are over, many things are fairly valued or slightly overvalued. I know in a lot of areas I used to find bargains are fairly valued. Some junk if flying, but other junk that was selling at 2x earnings is now 7x earnings, is that crazy? I've also seen a lot of companies that looked like they had a foot in the grave finally start to report earnings and shore up their balance sheets. Hopefully they'll have enough time to right the ship before things turn south again, but you never know. I think the pain for value investors is that the easy finds are over. Since 2009 we've been shooting fish in a dixie cup, that's four years of easy hunting. I'm still finding some relatively cheap stocks out there, it's just that I have to look a lot harder than before. I commonly trawl through all the pink sheet companies that file each week, in the past I'd find a few potential purchases, now I might read through a month's worth of filings before finding a name, out there, just more work.

Ben, Really appreciate the honesty and transparency, it's cool to see how your business as grown over the years. You took the ideal route, starting on the side and growing into something sustainable. I think for younger managers this is probably the best way to start, invest on the side and grow into a bigger asset base. Nate

No it will not, no one will know your story unless you tell them. Why is your fund different, not why better? There will always be the best performing fund, you need to move away from absolute performance and discuss what differentiates you from the pack. You have returns as a result of <something>. Here's the other thing, moving away from returns helps keep investors, maybe you're invested in owner operators, you believe over time they outperform, so investors have a reason to invest, but it won't happen every year. You want investors to buy into your story, your philosophy, so when you have down years, and you will they'll stick with you. They're still invested in the story, not the returns. Just my $.02. If you're marketing returns and returns alone don't be surprised when investors run for the door when returns disappoint.

I agree with your reasoning, but I have a different view on the numbers. With 5M$ AUM, I would be making 25K$ annually as a base from the 0.5% management fee, plus the performance fee (10%). Say for argument's sake that NAV per share increases 10% annually (not a very good result but anyway), that's another 50K$ annually on average. Now 75K$ doesn't look like much in the US, but it's plenty enough in my country (even the 25K$ base is OK). Also consider that some expenses drop drastically and life improves in general when you don't have to drive to work every day. You save 1-2 hours a day commuting (that's huge), you don't have to pay higher rent to live near work, and you can raise your kids personally instead of paying for daycare and meeting them for the "first time" at age 14 because daddy is too busy working. I consider these very important advantages to being self employed in this manner. Hence I'm quite happy with my setup. I have the same experience. Most investors have no idea what they want or how to assess a track record, integrity, etc. Give them some buzz words and a nice hassle free offer, and it's in the bag. However I would argue that in order to succeed professionally (as opposed to financially), one has to be patient and selective when dealing with investors. There is absolutely no need to go for 100M$+ AUM in 5 years in order to be successful as a professional. Of course, the quick buck requires a salesman :) Again, it depends on what you're trying to achieve primarily - financial success or professional success. Getting both requires a great deal of patience, good partners, and some hard thinking. For wherever you're at you have a good setup, in the US $25k is right around the threshold for poverty. Someone earning that in the US could work at Costco, have less stress and make more. You do have good arguments about working for yourself, but I could counter I work for a company and have all the same benefits. I work from home, see my kids often, no commute, and I make a nice salary with zero market risk, almost zero risk in general. I would say professional and financial success are closely linked. The starving artist who paints pictures that sell for millions after their death doesn't consider themselves a professional success. I would also contest the view of sales you paint. Selling isn't all guys with slicked back hair and sport coats with elbow pads. Selling is the process of helping a potential client find a solution to a problem they're having. For an investor their problem is they can't manage their own money, you are providing that solution. Nothing to feel bad about, no gimmicky stuff, no showy things either. You aren't out selling raffle tickets here. There is no shame in being promotional, marketing and selling.

This raises another interesting point that I'm sure I'll be lambasted for... I would argue that actual investment acumen doesn't matter, it's marketing and sales skills that matter. You have ETF's raising billions of dollars and guaranteeing that people will not outperform. Hot money does flow to managers with great records, but not if people don't know about them. If you look at opening a fund management business as a business you need to serve two things, serve your clients and make a profit. You maximize your profit by accumulating assets, you serve your clients by not losing them money. If you have the greatest track record in the world then have three years of 30% losses you will have no clients. If you have an absolutely average track record but haven't lost client money you will be able to sell the heck out of your fund and gather assets. There are brokers who I know who've raised 10s and 100s of millions of assets and investing them in average value funds. They all tell me the same thing, clients don't care about performance, they care about the story, and not losing money. I feel there's a giant disconnect at times on this board, and in this thread. There's this ideal that if you establish a great track record you will attract assets and be successful. If you establish a great record you will be looked up to by other investors, but it doesn't guarantee assets. I would argue that sales technique regardless of track record is much more important. If people are able to gather assets with terrible track records why are those with great records having trouble attracting assets? I think it's sales and marketing.

5M$ AUM is consistent with my own calculations for a full fund structure to break even after a reasonable salary/incentive for the investment manager. The quotes I received for setting up a full fund structure in the BVI are similar - 20-30K$ initially, and around 15K$ annually. Needless to say with such costs you might have a few rough years in the beginning and I would advise to start with at least 300-500K$ AUM. However, 90% of success is showing up - so don't be discouraged. Can you walk me through your numbers? In terms of expenses this is what I see to hit a $100k salary. I say $100k because that's a reasonable analyst salary, why take on all this risk with all the work if you are making 50-75% of what an analyst is making? $100k salary $20k health benefits (for a family, maybe $10k for an individual) $15k SSN/Medicare $15k ongoing fund expenses $150k in fees to provide the same $100k income. On a $5m fund that's a 3% expense ratio. The issue I have is you can bend the numbers to make this work if you hit the hurdle, and if the fund is clearing the hurdle every year everything seems to work fine. It's what happens in a lean year, or a 2008 when it might be 2-3 years before the hurdle is met again. So say you have $5m and hit 2008 and lose 40%, you're down to $3m in AUM, and 1% on that is barely enough to cover ongoing expenses and health care, looks like it's food stamp time. A lot of people have clearly done well managing money, it's great to make money with other people's money, and I congratulate all of those who have started small and persevered. The route just seems tough, and everything looks great with ideal numbers. Personally I would rather have the numbers work on the worst case scenario and in the best of times cut the management fee or rebate it to clients. But I'd hate to set up a business that works if everything works in a perfect scenario, and in the worst case I'd be better off making minimum wage at McDonalds. I was talking to my fund's administrators last night. They said that the independent fund management business is just like any other: 80% fail within 5 years. I would imagine that those 20% that succeed studied the potential pitfalls closely. But more than that, they are probably people who, like Sam Walton said: "Get at it and stay at it." The future is unknown, it will always be so. There is only one time to start your dream and that is yesterday. Mind you, 3 years of annual living expenses in savings will likely get you over the bumps. Also important to remember, without your spouse/life partner on board, you may end up single. I agree with you, fundamentally investment management is just another type of business, although few investors view or treat it as a business. The same care taken when considering opening a coffee shop needs to be taken when considering opening an investment management business. You're absolutely correct that any business faces uncertainty, but it's prudent to plan for uncertainty, in your case you saved three years worth of expenses. I have long considered managing investments, it seems like a nice business, but after cycling through all of these things I decided I'd rather own a traditional business. We have a product we sell to customers (finance related), the value of the product doesn't reside in the ups and downs of the market. My upside is possibly more limited, but so is my downside. I have an alternate upside which is if I can grow the business and decide I want to leave I can. Investors are investing with a manager, if the manager leaves capital does too, unless one builds a giant team to run the fund with them it's hard to sell a small investment management practice, whereas selling a small business isn't very difficult.

5M$ AUM is consistent with my own calculations for a full fund structure to break even after a reasonable salary/incentive for the investment manager. The quotes I received for setting up a full fund structure in the BVI are similar - 20-30K$ initially, and around 15K$ annually. Needless to say with such costs you might have a few rough years in the beginning and I would advise to start with at least 300-500K$ AUM. However, 90% of success is showing up - so don't be discouraged. Can you walk me through your numbers? In terms of expenses this is what I see to hit a $100k salary. I say $100k because that's a reasonable analyst salary, why take on all this risk with all the work if you are making 50-75% of what an analyst is making? $100k salary $20k health benefits (for a family, maybe $10k for an individual) $15k SSN/Medicare $15k ongoing fund expenses $150k in fees to provide the same $100k income. On a $5m fund that's a 3% expense ratio. The issue I have is you can bend the numbers to make this work if you hit the hurdle, and if the fund is clearing the hurdle every year everything seems to work fine. It's what happens in a lean year, or a 2008 when it might be 2-3 years before the hurdle is met again. So say you have $5m and hit 2008 and lose 40%, you're down to $3m in AUM, and 1% on that is barely enough to cover ongoing expenses and health care, looks like it's food stamp time. A lot of people have clearly done well managing money, it's great to make money with other people's money, and I congratulate all of those who have started small and persevered. The route just seems tough, and everything looks great with ideal numbers. Personally I would rather have the numbers work on the worst case scenario and in the best of times cut the management fee or rebate it to clients. But I'd hate to set up a business that works if everything works in a perfect scenario, and in the worst case I'd be better off making minimum wage at McDonalds.

Tim, Thanks for the answer and the transparency. I have a lot of respect for someone trying to do this with kids, let alone four! It's cool how you pieced different things together to continue to pursue the dream, very innovative with the storage facility and housing. Nate

I'm interested in the response to both this, and a related question, what's the AUM point where the fund will pay the bills as well, say a $100k salary?

I'm state registered (Oregon) and costs are very low. Maybe I paid $500-800 in startup, ongoing is maybe $500 / year. I do separate accounts, not a fund. Managing separate accounts is a lot easier. In Washington state (one of the strictest) you need to pass a Series 63 test to be a Registered Investment Advisor. It is wise to create an LLC for the management company, which will cost a few thousand bucks to set up. Annual fees are just $70 for the LLC and FINRA dues which are probably $200. Capital requirements are $10,000 or $35,000 if you have custody of assets. The management company is not required to be audited. No insurance required. Starting a fund is a lot pricier. Initial offering documents are 10k to 35k. You are required to have the fund audited (12k to 30k). Outside administrator is strongly suggested. That is another 8k to 20k. Independent party (lawyer or accountant) to authorize all disbursements adds $200 to every disbursement including management fees or redemptions. Same capital and insurance requirements. We expected to launch with $3 million and only had 150k. Being optimists we went ahead. Small size means you either cover the overhead or face quite a headwind (2 to 5%). I couldn't afford to cover the overhead and take virtually no income so we faced the headwind and survived. Then 2008 happened. Wouldn't have made it without some seed investors willing to take a chance. Tim, congrats on persevering, did you take a job and run the fund on the side or just live off savings the entire time? Was the $150k the capital in your management firm, or your starting AUM? I'm impressed by the people on this board who started with tiny sums and grew it. If you don't mind sharing what have you been able to grow AUM to since, are you earning fees that cover the cost and provide a living now? I love seeing these stories, cool examples of sticking to something and not giving up.

Thank you for the compliment! ;D Not really if you do it frugally. We launched our company with about 150K$ initially. It cost 7K$ all in all to set up and costs around 3K$ to maintain annually, including all fixed costs. Actually, thinking about it, knowing what I know today I could do the same thing for 3K$, and 2K$ in annual maintenance. No need to go for expensive fund structures before you have at least a few M$ AUM. Hi Edward, The $3K doesn't include your audit costs does it? Do you do the books yourself? What about K-1's for the partners and the fund tax return...do you do them? Way to keep it lean! Cheers! 3K$ annually is a very minimalist structure. No auditor fees (as substitute we attach the bank and broker balance statements to the financials as these include 99% of all assets). No trustee, no administrator. What it does include is annual company maintenance fees, and fixed annual bank/broker fees. No general/limited partners structure - we incorporated in BVI as a "C" corporation with one class of shares. As a result we do not deal with tax authorities on the behalf of shareholders as a company but advise shareholders to file their own returns in their country (as the company is a separate corporate entity). The upside is that there are almost no expenses/hassle in general. We set our own rules and avoid unnecessary expenses. Essentially, we leapfrogged towards the "Berkshire" structure without first going through a limited partnership route. The obvious downside - it makes for a harder "sell" to prospective investors and advisers who are used to traditional, domestic, full fund structures. Also there are some possible international taxation repercussions that vary from country to country and these have to be carefully examined before attempting this setup. I am curious. With such low overheads, are you exempt from registering as an investment manager or adviser? In Ontario, I cannot professionally advise (or market) a fund, no matter what the fund structure, if I am not registered with the Ontario Securities Commission. Registration requirements include: annual registration dues ($1,000), liability insurance ($3,000), annual audit of the management company ($4-5,000), and minimum working capital at the management company ($100,000). Annual expenses of at least $8,000 and a constant existence of $100,000 of unencumbered capital. I understand the annual expenses are much higher in the US, and the UK requires a professional address for the management company (or, at least, it used to). I'm no expert, but I'm almost 100% positive fees in the US are much lower. I know advisors aren't required to have $100k in working capital either.

Sanjeev, Just wanted to say congrats on persevering, I could never do what you did, what you've accomplished is impressive! I firmly believe that most success in life is showing up, you continued to show up through thick and thin, I can't imagine after all the 'lean' years how you won't have a number of 'fat' years as well. Nate

We have a fee structure of 0.5% - 10% in our company. I absolutely agree with the sentiment voiced by oddballstocks and this is the reason we chose this structure. If you take only a performance based fee and bear the expenses, it is a very risky proposition. You might be unlucky for a few years and if your cost structure isn't very low you're going to be under massive pressure, not to say anything about trivial stuff such as food and shelter while you're at it. I like your structure, also enjoyed reading the letters on your site. Great job on Renault, I looked at that one and passed, not exactly a brilliant decision..