full time private investors who left their day job

[CorpRaider]

don't know the timing really :D

But he only put $100 in that hedge-fund of his own capital :D

but it was about that time I believe the magic of the hedge-fund industry help warren a bit.

But he was nice regarding fees which is not so today 99% are corrupt regarding fees now.

 

All true.  But I do think it is noteworthy that, as the original poster on Buffett's analysis of this issue pointed out, he had his $1.5MM (in today's dollars) at 26 without the benefits of OPM and determined that he could just run that and live from it (and probably still hit his goal of becoming a millionaire by 40).

[Guest]

I guess most of us have thought about giving it all up and just running a PA account at some point.  My thoughts:

 

Given that returns are going to be taxed, and you can maybe do 10% at best over the full cycle, unless you are exceptional, I suggest that $1mln is nowhere near enough, if you assume the market could fall substantially very soon.  We are in the middle or end portion of a MASSIVE bull market.  I would suggest that the margin of safety approach is to make the move to managing your own money only after a large market downturn, when the tide is in your favour.

 

In the US at least, your returns won't be taxed (on a federal level) if it's a long term capital gain at certain levels. For instance, if you're married and file jointly, you can earn about $94,000 a year in long term capital gains and not pay any federal taxes. If one lives in a low cost of area part of the country with no state income tax, that could work out fairly well. 

 

Keep in mind that I'm not a tax adviser (always speak to one!) but here is some additional information for those who are interested.

 

http://www.bankrate.com/finance/money-guides/capital-gains-tax-rates-1.aspx

"On Jan. 1, 2008, the best of all possible tax rates -- zero percent -- took effect for investors in the 10 percent and 15 percent income tax brackets.

 

Previously these taxpayers had to pay Uncle Sam 5 percent of their long-term capital gains. Now any long-term assets they sell will be exempt from capital gains taxes."

 

For those in the 15% tax bracket or less, no federal tax is due on long term capital gains.

 

The way I'm coming up with the $94,000. Here are the updated tables.

 

http://www.forbes.com/sites/kellyphillipserb/2013/10/31/irs-announces-2014-tax-brackets-standard-deduction-amounts-and-more/

 

Married filing jointly, if you make up to $73,800, you're at 15%. If we had in the standard deduction of $12,400 and personal exemptions of $7,900 ($3950 *2) that gives us a total of $94,100.

[SwedishValue]

Sweden is special when it comes to investment gains, and I believe Sweden is the best country I have heard of when it comes to tax on capital income for privately managed accounts.

 

What we have, is a special form of account where you get taxed 30% of the Swedish government yield for the year. Last year this corresponded to a 0,62% tax on the aggregate capital (this tax is also deductible by interest expense, which means that I will pay very little of it as I have a mortgage on my home). If you invest in this type of account, there is no withdrawal tax and no tax on capital gains or dividends.

 

Also included is government sponsored "free" college and healthcare for any Swedish citizen and a lot of other privileges... Oh, and did I mention that the women are hot?

 

Edit: Also, I think the concerns that ukvalueinvestment brings up are very valid. For me, I would consider my college degree and personal expenditures of less than 3% of my investment portfolio yearly to be some margin of safety - but I am running scared of becoming "the turkey" that Taleb talks about.

[ukvalueinvestment]

It gets really dark and cold in winter though!

 

 

[CorpRaider]

But you can use that winter time to put together your furniture...

[yitech]

But you can use that winter time to put together your furniture...

 

+1  :D

[roughlyright]

But you can use that winter time to put together your furniture...

 

;D That is so funny

[longlake95]

+1 on the furniture. LOL :D , but I still don't like the caviar in a tooth paste tube.  ;)

 

http://www.google.com/aclk?sa=l&ai=C7Sw0nzofU4fBCciHyQHNrYHwBOLLpcQD2q_lgYABppiQ2wEIABABIJmo2R4oAlCRjeD5-P____8BYH2gAbXriv8DyAEBqgQhT9DsDClBnB5FF_TBYoX0AvpxMEnvhX53XcVa8JyJ-19_gAWQToAHs5R1kAcC&sig=AOD64_1EFge0TwhZ1wnj3DqE7e4wYp-xOg&rct=j&frm=1&q=kalles+kaviar&ved=0CCoQ0Qw&adurl=http://www.swedensbest.com/abhertid.html

 

Orebro is one of the nicest quaint cities in Europe. Great place to rent a bike and drive around, and have a brew at the Orebro castle. Ya, the girls are hot!

 

LL

[wescobrk]

A tad off topic but I was wondering if anyone is aware if there are laws against talking about a limited partnership fund while doing a podcast? I'm in the United States.

I still have my day job but would like to do something else in 5 years.

I believe sec/finra finally relaxed rules for talking about investment funds to the public?

[learner]

But you can use that winter time to put together your furniture...

;D Hillarious.

[yadayada]

to the poker players, what made you quit, burnout or games dying?

[SwedishValue]

I think I'm at the top ten percentiles when it comes to coping with emotional pressure, but after a couple of years poker got emotionally very tiring. It certainly didn't help that the variance of my win rate increased at the same time as the win rate itself decreased. It's funny, because during the big financial meltdown of 2008 I was extremely calm. I had a very high disposable income and felt very fortunate to be able to buy shares (although I did a lot of second guessing and looked over the numbers of my purchases all the time just to make sure the intrinsic >25% fcf yields were still around from the day before).

 

From time to time I think of playing a bit for the extra income, but games have gotten incredibly tough.

[Hielko]

Recognizable even though I currently still play (but it's most accurately described as part-time since I also spent a lot of time on investing and other hobbies). My winrate has roughly halved the past two years while I also dropped down in stakes. Game isn't getting easier, and at the moment probably not investing enough time in learning to maintain my current win rate. We'll see where this goes... so far still doing alright though.

 

About investing in 2008; I had ~50% of my net-worth in some semi-random stock fund at the time, and while the sum was considerable for someone of my age it wasn't that big compared to my disposable income. Probably checked the value of my account a few times that year, so guess that tells something about the (lack of) stress about what the market was doing. Probably going to be (a lot) tougher to see a similar decline today because my net asset value is higher in an absolute sense, and higher compared to my earnings power.

[no_thanks]

Isn't every saying wage inflation is about to pick up, and the stock market is overvalued.  Individual stocks can obviously still be undervalued, but it seems like you would be sailing against the wind trying to start this right now.  And with wages very close to inflating, there could potentially be a bit more to lose in lost wages going forward. 

 

 

[Packer16]

Where do you see wage inflation except is some niches where there are few folks?  I see automation/internet removing costs lowering wages in sales jobs.  So I see more jobs being eliminated or wage declining versus increasing.  In my business we are seeing some price pressures and I think if you ask most folks that still is the case. 

 

Packer

[no_thanks]

Where do you see wage inflation except is some niches where there are few folks?  I see automation/internet removing costs lowering wages in sales jobs.  So I see more jobs being eliminated or wage declining versus increasing.  In my business we are seeing some price pressures and I think if you ask most folks that still is the case. 

 

Packer

 

You are right, there is no good evidence of it yet.  I just am reading about it some in different places, and thought that people need to consider it when debating this idea.  Just one small part of the pro/con on this question. 

[rohitc99]

Where do you see wage inflation except is some niches where there are few folks?  I see automation/internet removing costs lowering wages in sales jobs.  So I see more jobs being eliminated or wage declining versus increasing.  In my business we are seeing some price pressures and I think if you ask most folks that still is the case. 

 

Packer

 

You are right, there is no good evidence of it yet.  I just am reading about it some in different places, and thought that people need to consider it when debating this idea.  Just one small part of the pro/con on this question.

 

One trend I see is that in the IT space, earning power tends to stagnate or reduce with age (may due to stagnating skills or age bias or something else) and as you get older (40+ or more), the chance of getting replaced by a younger person is quite high. Unfair as it may seem, I think it is quite rational for a company to replace someone with 30% less skill but being paid 50-60% less.

 

reason for bring up is that becoming a full  time private investors, looks like a good option as one ages in tech space as the opportunity cost is going down (unless you have the passion for tech and are acquiring the latest skills)

[oddballstocks]

Where do you see wage inflation except is some niches where there are few folks?  I see automation/internet removing costs lowering wages in sales jobs.  So I see more jobs being eliminated or wage declining versus increasing.  In my business we are seeing some price pressures and I think if you ask most folks that still is the case. 

 

Packer

 

You are right, there is no good evidence of it yet.  I just am reading about it some in different places, and thought that people need to consider it when debating this idea.  Just one small part of the pro/con on this question.

 

I wish there were wage inflation.  All I've seen across my industry and from friends are costs rising faster than wages.  Where is there wage inflation?

[no_thanks]

I am not 100% trying to argue for it, I am just hearing more about it picking up some, and anecdotally, my wife just got an 8.5% raise (off a pretty low base) and a friend just got a 25% bump for moving to a new job. 

 

Two stories don't prove a point, though.  So you all believe that, if you were trying to decide to quit your job and manage money, wage increases down the line wouldn't be something you feel like would be a big deal?

[jay21]

Where do you see wage inflation except is some niches where there are few folks?  I see automation/internet removing costs lowering wages in sales jobs.  So I see more jobs being eliminated or wage declining versus increasing.  In my business we are seeing some price pressures and I think if you ask most folks that still is the case. 

 

Packer

 

My theory is that wages are local markets and are facing competition from globalization.  Why would anyone pay someone a high wage to someone when they can pay a lower wage to someone else to do the same job?  Technological advances are only making working remotely and globally easier.  The wage differential between developing and developed markets will continue to narrow over time.

 

I do not think I am saying anything insightful, but I feel developed markets will continue to face wage headwinds even after a recovery.

[stylized_fact]

Where do you see wage inflation except is some niches where there are few folks?  I see automation/internet removing costs lowering wages in sales jobs.  So I see more jobs being eliminated or wage declining versus increasing.  In my business we are seeing some price pressures and I think if you ask most folks that still is the case. 

 

Packer

 

You are right, there is no good evidence of it yet.  I just am reading about it some in different places, and thought that people need to consider it when debating this idea.  Just one small part of the pro/con on this question.

 

One trend I see is that in the IT space, earning power tends to stagnate or reduce with age (may due to stagnating skills or age bias or something else) and as you get older (40+ or more), the chance of getting replaced by a younger person is quite high. Unfair as it may seem, I think it is quite rational for a company to replace someone with 30% less skill but being paid 50-60% less.

 

reason for bring up is that becoming a full  time private investors, looks like a good option as one ages in tech space as the opportunity cost is going down (unless you have the passion for tech and are acquiring the latest skills)

 

Here are some observations on this topic from someone about to graduate from the Columbia CS program:

http://www.nytimes.com/2014/03/16/magazine/silicon-valleys-youth-problem.html

[moody202]

Where do you see wage inflation except is some niches where there are few folks?  I see automation/internet removing costs lowering wages in sales jobs.  So I see more jobs being eliminated or wage declining versus increasing.  In my business we are seeing some price pressures and I think if you ask most folks that still is the case. 

 

Packer

 

My theory is that wages are local markets and are facing competition from globalization.  Why would anyone pay someone a high wage to someone when they can pay a lower wage to someone else to do the same job?  Technological advances are only making working remotely and globally easier.  The wage differential between developing and developed markets will continue to narrow over time.

 

I do not think I am saying anything insightful, but I feel developed markets will continue to face wage headwinds even after a recovery.

 

 

If it was that easy to replace jobs with cheaper personal offshore...most of us would un-employed by now!

[matts]

Where do you see wage inflation except is some niches where there are few folks?  I see automation/internet removing costs lowering wages in sales jobs.  So I see more jobs being eliminated or wage declining versus increasing.  In my business we are seeing some price pressures and I think if you ask most folks that still is the case. 

 

Packer

 

My theory is that wages are local markets and are facing competition from globalization.  Why would anyone pay someone a high wage to someone when they can pay a lower wage to someone else to do the same job?  Technological advances are only making working remotely and globally easier.  The wage differential between developing and developed markets will continue to narrow over time.

 

I do not think I am saying anything insightful, but I feel developed markets will continue to face wage headwinds even after a recovery.

 

 

If it was that easy to replace jobs with cheaper personal offshore...most of us would un-employed by now!

 

Yes, but it is easier to work remotely now. And aside from the very top schools, you don't think the gap between american and global education is shrinking?

 

I'm sure people working Berkshire in the 40s thought they were irreplaceable too because they were just so skilled.

 

[Aurelius]

to the poker players, what made you quit, burnout or games dying?

 

I lost the passion for it and wanted to take my life in a different direction.

Continuous increased competition would mean lower win rates and thus more and longer break even/losing stretches. If you don't truly enjoy it I don't think your results would be any good.

To justify playing poker you need to make quite a bit more than at a regular job.

[ukvalueinvestment]

If you know how to invest, I don't think poker makes too much sense.

 

Especially if you have a full time other job.  I can pick up company reports and other reading any time eg, on the train, at home etc.  But if something comes up, I can put that reading down.

 

In poker, you can't really stop if you're in the middle of a tournament or good cash game.  I believe it's impossible to have a job, a family and be successful at poker.

 

Plus, long term, you can be average at investing and still make money.  That money will compound, so really anyone with patience, and a conservative and humble temperament will do ok.

 

With poker, your expected return is less than zero, because of dealer rake.  And variance, for all players is huge.  It's much harder to compound with poker.

 

So I think value investing is a better way to make money, though knowing poker is enormously helpful because you get  feel for odds, and EV, and realising that even if you do the right things, sometimes bets will go wrong.