BG2008

I think some of the names here take more concentrated positions than other. I think when some of the smaller funds taken concentrated 10-30% positions in industries that you can understand, it is a very meaningful signal. I find that Steel Partners tend to take control of companies and roll it into a the Steel Partners conglomerate. Steel tends to have their own agenda and it typically doesn't work that well for the minority. Royce's largest position is less than 2%, I find that to be hardly a signal. If Baker Street takes control of a net-net in an industry that you understand, it's probably a good bet to coattail them as they will probably put the company up for sale. However, their large cap and energy selection have been so-so lately. A pretty good list

Most charitable organization have mandatory 5% redemption each year for tax reasons. This introduces an interesting dynamic where if the endowment is down 30% in a given year, then you have to distribute 5% on top of it. Volatility becomes a big issue in that situation. Interest rates is very important. Having sit in a few investment committee meetings for a tiny endowment that I'm personally involved with, it's apparent that 1) decision making is done by committee 2) There's a lot of CYA from a legal perspective (does the by-law/mission statement specifically state whether we can allocate X% to bonds/equity/alts etc 3) As interest rate has fallen, reinvestment risk goes up. There was a meeting where people asked the question "do we need to go out the risk curve in order to earn a higher yield". It's interesting to see how risk takings gets ramped up on a wholesale level when interest rates is reduced. If we were asking those questions, then other endowments must be having the same discussion. We decided as a group that we are not going to chase yield. But those 6% 10 year treasuries from a decade ago surely do look mighty nice.

http://www.nytimes.com/2015/04/28/opinion/rent-a-foreigner-in-china.html?smid=fb-nytimes&smtyp=cur&bicmp=AD&bicmlukp=WT.mc_id&bicmst=1409232722000&bicmet=1419773522000&_r=0 While this is a silly practice. It has profound implications in that there are arms length transactions in large enough sample sizes determining the premiums assigned for various types of races. As expected, people overseas pay a larger premium for Caucasians. Comments regarding race based pricing starts at 2:00 Man the real estate bubble is quite bad in China!

Cut the cord about 1 year ago. Wife and I really enjoy the no-advertisement part of watching Netflix. I do miss ESPN and the sports from time to time. Initially it wasn't the cost of the cable as much as Time Warner thinking that they still have pricing power and jerked us around. Our bill would fluctuate by more than $15 a month without any explanation. The taxes and fees alone were 2-3x of Netflix. We said enough is enough. Now we get mail to beg us to come back to cable. At $8/month, I don't think we'll ever go back to cable TV. What's the deal with Netflix Blue Ray? Do they provide the latest releases? If Netflix streaming has a fault, it's that there are no new release like the Netflix DVD.

FWIW, I know some US based RE developers 2-3 years who were tired of "not making money fast enough developing RE in the US" and wanted to develop mega projects in China. Some of the conditions that they listed 2-3 years ago were quite ridiculous. There seems to be less of these exuberance lately. On the ground, no one from China has admitted that things are bad, but the consensus is that it's tough to make money in RE development in China in the last 1-2 years. Overall, I find the bunch to be way too optimistic. There was too much of the Chinese government will supply the liquidity, be the backstop, will never let it fail etc.

Tilson spoke at the 2015 Columbia Value Investing Conference in the short selling panel He along with another Long/Short guy laments that shorting stock is a terrible way of making a living. His advice is that if you're just starting out, don't do it. I've heard the same sentiment from many other L/S hedge fund managers. I wonder why fund managers don't stop short selling once they have this light bulb moment. Perhaps, it's a matter of selecting the "Long/Short" bucket when they launched their fund. Hence, every conversation that they have with their LPs involves selling a long short hedge fund product. Hence he's handcuffed to a strategy, albeit a less optimal one. Personally, I feel Tilson has an urge to be more than a hedge fund manager. He's like a girl who craves attention and will go to great length to be in the limelight. I feel like he'll do better if he just stick to his longs and buy some OTM SPY puts. I feel that over 90% of fund managers will do better if they just adopt that strategy.

Some suggestions You can offer more than one share class I think you should ask for lock ups - It automatically filters out the fast money - If someone is willing to lock up their money for 2 years, they are likely taking a long term view on investing with you You have to be realistic with what your third party fund admin is able to provide. Typically, it is a ton of trouble to give money back, i.e. 3% fee and then reimbursement. I forgot the exact reason, but it may involve tax reporting. It creates complication. What is fair is not market and sometimes you have to offer what's fair will create enough complication that the investors won't invest with you. There's theory and then there's what's practical. One thing that I am surprised about is that if you don't charge a management fee, i.e. 0,6,25, people are weary to give you money. They are worried that if you have sub 6% performance for 2 years, you won't have any income to live on. So, I would encourage that you charge 1, 6, 25.

Given that O&G production at the individual well level are public information at state Commission websites. Does anyone know how to 1) identify which well is owned by which publicly traded company or if you have a public company in mind, how do you find the wells? 2) Take the production data, plot the graph and try to figure out the total recoverable hydrocarbon? 3) How does one think about production cost and breakeven? There certainly comes a point when it is no longer economical to pump if the production rate is low and the price per barrel is atrocious. Is it possible to back into a total reserve figure by backing into the historical production figures?

Mrholty, Thank you for sharing your story. I am personally familiar with some of the names that you have listed. As someone why run a concentrated portfolio, I have printed out a copy of your post and put it next to my "checklist" as a reminder for myself.

There were discussions in the past on the board of credit cards that allow you to defer payment for 6-18 months @ 0% interest. I found them to be extremely helpful because it allows me to defer payment until year end which allows me to put an additional $5-20k to work in the market. It also solves my monthly cash management issues as I no longer to keep move cash around (this is probably the bigger benefit). Please let me know if anyone is aware of any good deals with a large limit and a long duration.

The fighters are picking Cormier to beat Jones. Any thoughts from the board?

One way of thinking about protecting your cash is buying a "death put" in your broker. For example, if your prime broker is Goldman, buy the April 2015 $100 put at $0.21 per put. This gives you 476x protection in case GS goes under. You will have to roll the puts 4x a year.

A bunch of value investors want to watch Bones and Cormier smash each other? What's the world come to? A fan of MMA here, been following the sport from the early style versus style tournaments to its present form. It's amazing how quickly the sport has evolved and answered so many of the age old questions of "who's really gonna win a fight among elite fighters." Have never bought a PPV. I guess that's me, hard for me to shell out $50-60 for a PPV. I tend to watch "free fights" on youtube. A bunch of the guys fighting, Chris Weidman (my best friend beat him back in HS wrestling), Eddie Gordon (wrestled in my weight class), Matt Serra (hometown), grow up in the Long Island area. Most of the guys from my HS wrestling team at one point or another had tried a fight or two in the lower circuits. There's a pretty hilarious interview with Chris Weidman about how his older brother used to physically abuse him. I mean some of the crap that Charlie Weidman did was pretty crazy. During the county tournament my junior of HS, I was in Charlie Weidman's weight class. Charlie was walking around with a dog bone in his mouth. http://www.cagepotato.com/video-so-chris-weidmans-older-brother-sounds-like-a-really-nice-guy/ Starts at 9:20 or so.

Huge fan of Shake Shack. I truly believe they have the best burgers out there. Got have the Shack Stack with a beef patty, fried portabella breaded with cheese. It's just so sinful and wrong, but so good. You can kind of use food porn words to describe the experience. Juicy, succulent, feels so wrong, yet so good, etc. I see a ton of red flag on this IPO. P/Sales multiple at 8X. Although, there is a time where P/Sales does make senses, i.e. 10x P/S for a single location that can be successfully rolled out nationwide. At $1bn valuation, it's tough. I think that Shake Shack has limited market to penetrate. NYC is a great place to start shake shack when a slice of pizza cost $4, it's "okay" to pay $9 for a shack stack burger, and another $6 for a its frozen custards, etc. Basically a meal at Shake Shack for two with fries, drink, and burger will run you about $30. It's an amazing experience, but I seriously doubt whether the rest of the US and world can afford that type of luxury. What's more troubling is the intention of the IPO. It seems like it's a mechanism for the insiders to cash out rather than raise capital to grow the store counts. Also, $12.5mm of G&A for running a burger joint that does $82mm in sales? I've noticed concepts that stars in NYC tend to have very high G&A as everything is expensive. According to the filing, Shake Shack plans to use the IPO proceeds to buy interests in a private partnership owned by investors including Mr. Meyer and private-equity firms Leonard Green & Partners LP and Select Equity Group LP, all of which own more than 5% of Shake Shack. (Alliance Consumer Growth, which invested in 2013, also owns a stake of at least 5%.) That partnership then will use some of the money it receives to repay a credit facility led by J.P. Morgan Chase & Co., which is a lead bank on the IPO with Morgan Stanley . The credit facility will be used in part to fund a $22 million payout to private investors before the IPO. Some of the money going to the partnership also will be used to fund new restaurants and renovate existing ones, the company said. It said it plans to open 10 new U.S. Shake Shacks a year starting in 2015 for the “foreseeable future.” After the IPO, the private investors also will continue to get payments from Shake Shack equal to 85% of certain tax benefits the company might receive, an arrangement known as a “tax receivable agreement,” according to the filing. The company said it expects the payments to be significant. Robert Willens, an independent tax analyst in New York, said the arrangements are common and can be controversial. But, he said, if they are “fully disclosed and…reflected in the IPO price, it’s probably not that objectionable.”

I also have a friend who works at a fund who mentioned that it is a pain in the ass to have to wait around for a K-1 when preparing taxes. Is this your experience?

NoCalledStrikes, Do you have to file or separately pay income taxes in your IRA due to your MLP holdings? How do you know how much depreciation is left? How do you adjust for what your purchase and exit prices are? I understand that it is your custodian who has to file a tax return and most of the time they don't know what to do any way. Why do you own MLPs to begin with? For income? Just trying to understand who are the natural owner base for MLPs.

If I recall correctly, USO Is a terrible instrument if there is contango in the forward curve. You should look into that and see how contango eats away at the performance of USO.

Frommi, I think the 50% put protection is a wise idea. It's all about protecting tail risk. Tail risk by definition is often unknown and unpredictable, rigs blowing up, medical devices resulting in death etc. By definition, if you're putting 50-100% in 1 idea, most likely it is a 3X or a 2x with a clear catalyst. Either the deep undervaluation itself is a catalyst or there is some sort of corp event that will re-rate the stock. Personally, I wouldn't mind paying 10% cost of ATM put to hedge a 100% position. I would also argue that the optimal put protection is likely somewhere between the ATM strike and 50% lower. The rationale being that the upside is so large relative to downside that it should take care of itself over time. Why buy the put and own the stock? I think it gives you an undistorted view of your exposure. Also, it's often much easier to enter/exit the common shares when needed. Getting in and out of LEAPs can be tough in size.

I second the philosophy that personality and skill set plays a big role in choosing concentrated versus diversified. I may also add that if you invest part time versus as a day job also plays a big role.

To a certain extent, I do think that return stats do create envy and all the unintended consequence of driving others to take on more risk. On the other hand, understanding Eric, Packer, and other's out performance forces me to investigated why did they outperformed? Can we improve upon their strategy? Would they do anything different. I think Eric's extreme concentration has been very enlightening. Although, I would probably buy some put protection whenever I decide to put >80% of my networth into an idea. Packer has consistently outperformed by finding leveraged situations. It's almost like he's participating in public LBOs without paying a take private premium. He rinses and repeats. Both Eric and Packer have found a methodology to compound at an crazy rate. If you are a student of value investing, you have to ask yourself why were they able to get to where they did without blowing up. Admittedly, I probably won't size my positions as large as Eric. Buffet also said if he had less than $1mm or $10mm, he can guarantee that he can return 50%? This naturally cause me to be curious and want to reverse engineer that CAGR rate. Why would Buffet make such a bold statement like that when he is known to under promise and over deliver? Take one of Munger's quotes, "invert, always invert". Let's dig into that a bit. Buffet, allegedly was compounding at 60% prior to launching his fund. Why? I've also have the luxury of getting to know people on this board and off it who have achieve 50+% CAGR for 5+ years where each trade was "life changing" for them. When evaluating their strategies, I don't think their risk under taking approached the level of "running through a firework factor with lit matches." I think their risk under taking was closer to "I may lose 20-30% of my networth if everything that could go wrong did go wrong by have 2-3 ultra concentrated positions. But that probability was likely low because of how compelling their investments were." No one here would question Joel Greenblatt's wisdom. He compounded at 40% per year in a fund that had several hundred millions of assets. He was before his time and held 6-8 positions that specialized in spinoffs and specials situations. If Greenblatt had not written his book, I think we all should've still investigated spinoffs and special situation. Happy holidays to all. Again, would appreciates thoughts on the diversified versus concentrated approach and your thought process about position sizing etc.

I think we can all learn from each other regarding a diversified versus concentrated method to riches. Over the years, I've learned that when you really really understand an investment, it's best to back up the truck and really own it. If you run a fund, there are limitations on what your max position size is. Obviously, your LPs may not appreciate you taking a 50% position in a name (if it can be hedged at 3% OTM for 2% premium, then it's likely okay). Your position size with LPs are pretty much pre-agreed upon. I think that there's a place in a diversified portfolio for a couple concentrated position and there's a place in a concentrated portfolio for a few diversified positions. Over the years, I've gravitated towards concentrated positions. Here are a key checklist items I use for concentrated positions. 1. Do I really understand the company? This means O&G, Tech, Financials, growth companies, etc are automatically weeded out. Any company that has a weak balance sheet, commodities exposures (miners, O&G), etc are weeded out within the first 5 minutes. Companies that have tail risk, i.e. Awilco Drilling's rig explosion risk, regulatory risk etc are out. Personally, BAC, AIG etc are out for me. Simply because I, personally, can't figure these companies out. 2. Is there a clear catalyst? If not, the investment needs to be cheaper than a 30 cent dollar with intrinsic value growing. Most of the time, the investments needs to be simple enough so that the next investor will understand it within 5 minutes. If it's too complex, then the price may not re-rate. 3. Either you are perfectly okay getting in bed with management team or there is an activist presence that will enforced proper behavior. This absolutely cannot be under appreciated. Often time, I wait till after management have pissed off every shareholder and an activist have filed a 13 D. 4. Complexity of the situation - There is only 1 variable in the outcome and it's very easy to gauge. If you need 3-4 things to go right for you to make money, it's probably hard to achieve. If you just need to get 1 variable right, it's a lot easier. 5. Would you buy more if the price were to drop by 20% tomorrow? If the answer is yes because it's so cheap and safe, then you're onto something. If the answer is no or depends, then you probably shouldn't take a 50% position on the name. There are other items to check on the checklist, but I feel like if you get these 5 right, you've cover the bulk of the items. However, I have also notice that sometimes, it's good to have 1-3% positions when you've come across something that you can't dot all the i's and cross all the t's. For example, I was made aware of Kreisler Manufacturing at $10.50 per share. It was pretty close to a cashflow positive net net and we had an activist in AB Value watching over the company. I also knew that these small defense/aerospace manufacturers tend to be cashcows because no one wants their planes to fall out of the skies due to parts failure. But I couldn't bring myself to size this at a >5% because management will never return my call. I meant to go visit the company, but they simply won't talk to me. The price moved up pretty quickly after I bought and I only owned a 1% position. There is a place in a concentrated portfolio to quickly allocate 1-3% to a name like KRSL upon a quick smell test. Other names that pass the smell tests are names like Straight Path Communication, Volcano Corp, etc. These names are harder to figure out. How much was Straight Path's IP litigation assets and spectrum worth? Hard to tell, but it seems a lot more than the $60mm market cap that it was trading at initially. More importantly, the management team utilized a low SG&A burn approach to monetize the IP and spectrum assets. They can finance 5-7 years of cash burn with the $14mm of cash on their balance sheet. Volcano Corp was a 60% gross margin medical device company and an activist had written a lengthy letter telling the company to sell itself. The company has also alienated all its shareholders in the last few years via its poor capital allocation. At the time of purchase, Volcano was trading at roughly 15X-20 OCF. The issue here is that I don't know much about intravascular ultrasound or fractional flow reserve. But I do know that medical device companies with 60% gross margin can usually be bought by larger competitors and the SG&A cost can be rationalized creating a ton of value for the acquirer. If you run a concentrated portfolio, I've learned that it's wise to allocate a small position, 1-3% to names like KRSL, STRP, and VOLC despite not fully grasping the business quality and risk of the company. From 30,000 feet, the risk/rewards are so compelling that it pretty much justify a 1-3% positions upon a few hours of research and accepting the fact that you're not going to figure everything out. Buy the small position and move on to hunt your elephant. I would love to hear other people's thoughts on these topics. I would especially like to hear how people manage to stay on top of 20+ names. If you run a strategy of 10 positions at 10% each, I would love to hear the reasoning and how you stay on top of news/filings, etc.

Yeah, the dividend announcement was very much explicitly conveyed in the Qs, conference calls, investor presentation etc. You just have to piece all the information together. Ok, thanks. Was that in the annual/quarterly reports before the announcement or could someone just act on the publication of the information and still get a similar result?

Corporate actions that obscures financials followed by dividend announcement that made it easier for people to figure out the financials. Without dividends = no man's land. With dividend = yield driven investors. What were the catalysts in these cases?

I understand that distributions that you received is actually netted against depreciation charges. Sometimes the distribution maybe larger than the depreciation and expenses,etc. Is the gain from the differential between the dep/exp versus the distribution and/or from your purchase price and final sale price? Any idea how this is calculated?

Does anyone have any experience with MLPs and Grantor Trust in your IRA and the headaches associated with it? If there's 50-100% upside, is it worth the headache to buy it in your IRA? Would appreciate any feedback.