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Mohnish Prabrai and Guy Spier performance


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They must have burned their fingers on e.g Horsehead holdings, Graftech etc. Anyone who knows their actual return performance since inception?

 

I notice dataroma shows a decline in aum for prabrai from 300 to 80 musd but could be due to many things

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They must have burned their fingers on e.g Horsehead holdings, Graftech etc. Anyone who knows their actual return performance since inception?

 

I notice dataroma shows a decline in aum for prabrai from 300 to 80 musd but could be due to many things

 

I believe Pabrai has holdings in India that are not showing up on dataroma. 

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I had looked at Mohnish's record to see if I'd recommend, and found that, in his PIF3 (not his best nor his worst performing fund) there were only 3 years when, had you put in your money at 12/31 before that year, would you have outperformed the S&P through the end of 2019. So each period, like 2002-2019, 2003-2019, 2004-2019 etc., represents a "vintage" as PE calls it.

 

The three "good" vintages (or good times to be invested) were 2002-2019, 2003-2019, and 2009-2019. Obviously, the first two reflect his early performance, and 2009 reflects his blockbuster comeback year - I doubt many avoided the 2008 carnage and hopped in at the end of the year.

 

The other 15 or so vintages, you would have done worse, often significantly so, than the S&P. It isn't just recent: If you had invested in that fund any year end between 2003 and 2007, you'd be behind by a few points per annum as of 12/31/19. But the recent vintages (besides a 12/31/08 start) are much worse. Again, this does not include 2020/COVID.

 

I don't consider either the end year to be anomalous here - the 2004-2008 vintages for the S&P show average market returns - 8-9% through 2019.

 

I think MP is a hard worker and smart - and the next few years may change this analysis if he has really strong results. But it's worth some caution.

 

I don't have Guy's recent results to compare.

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I had looked at Mohnish's record to see if I'd recommend, and found that, in his PIF3 (not his best nor his worst performing fund) there were only 3 years when, had you put in your money at 12/31 before that year, would you have outperformed the S&P through the end of 2019. So each period, like 2002-2019, 2003-2019, 2004-2019 etc., represents a "vintage" as PE calls it.

 

The three "good" vintages (or good times to be invested) were 2002-2019, 2003-2019, and 2009-2019. Obviously, the first two reflect his early performance, and 2009 reflects his blockbuster comeback year - I doubt many avoided the 2008 carnage and hopped in at the end of the year.

 

The other 15 or so vintages, you would have done worse, often significantly so, than the S&P. It isn't just recent: If you had invested in that fund any year end between 2003 and 2007, you'd be behind by a few points per annum as of 12/31/19. But the recent vintages (besides a 12/31/08 start) are much worse. Again, this does not include 2020/COVID.

 

I don't consider either the end year to be anomalous here - the 2004-2008 vintages for the S&P show average market returns - 8-9% through 2019.

 

I think MP is a hard worker and smart - and the next few years may change this analysis if he has really strong results. But it's worth some caution.

 

I don't have Guy's recent results to compare.

 

These are the Spier numbers, but I only have till the start of 2019. The first column is the Aquamarine Fund A class shares, second column is the SP500 with dividends and last column is relative performance.

 

2018 -13.3% -4.4% -8.9%

2017 34.9% 21.8% 13.1%

2016 8.5% 11.9% -3.4%

2015 -16.0% 1.4% -17.4%

2014 5.5% 13.7% -8.2%

2013 34.9% 32.4% 2.5%

2012 27.9% 16.0% 11.9%

2011 -3.1% 2.1% -5.2%

2010 19.2% 14.8% 4.4%

2009 39.3% 25.9% 13.4%

2008 -46.7% -36.6% -10.1%

2007 17.0% 5.5% 11.5%

2006 37.1% 15.6% 21.5%

2005 7.2% 4.8% 2.4%

2004 11.2% 10.7% 0.5%

2003 29.6% 28.4% 1.2%

2002 -1.7% -22.0% 20.3%

2001 1.9% -11.9% 13.8%

2000 21.4% -9.0% 30.4%

1999 -6.7% 20.9% -27.6%

1998 25.3% 28.3% -3.0%

1997¹ 3.1% 3.6% -0.5%

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These are the Spier numbers, but I only have till the start of 2019. The first column is the Aquamarine Fund A class shares, second column is the SP500 with dividends and last column is relative performance.

 

2018 -13.3% -4.4% -8.9%

2017 34.9% 21.8% 13.1%

2016 8.5% 11.9% -3.4%

2015 -16.0% 1.4% -17.4%

2014 5.5% 13.7% -8.2%

2013 34.9% 32.4% 2.5%

2012 27.9% 16.0% 11.9%

2011 -3.1% 2.1% -5.2%

2010 19.2% 14.8% 4.4%

2009 39.3% 25.9% 13.4%

2008 -46.7% -36.6% -10.1%

2007 17.0% 5.5% 11.5%

2006 37.1% 15.6% 21.5%

2005 7.2% 4.8% 2.4%

2004 11.2% 10.7% 0.5%

2003 29.6% 28.4% 1.2%

2002 -1.7% -22.0% 20.3%

2001 1.9% -11.9% 13.8%

2000 21.4% -9.0% 30.4%

1999 -6.7% 20.9% -27.6%

1998 25.3% 28.3% -3.0%

1997¹ 3.1% 3.6% -0.5%

 

Thanks. With this data, going up through 2018, Guy's first 5 vintages (1997-2002) show a few points per year of outperformance - his returns falling in the 8.5% p.a. range and the S&P falling in the 5-7% range. He held up well in the 2000-2002 crash. The next four vintages match the market +/- 30bps. Vintages after 2006 all underperform with the exception of 2017-18 which matches the market +/-.

 

If anyone has 2019 I can update. Thanks.

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Good thing they're both great at marketing...

 

You're not paying them management fees, and you only pay for performance above 6%.

 

Maybe that's why Pabrai is taking so many speaking engagements...his main business isn't paying the Irvine, CA bills anymore.

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Good thing they're both great at marketing...

 

You're not paying them management fees, and you only pay for performance above 6%.

 

Say you invest $1 million with a manager who has a 25/6 fee structure. He compounds the million at 15% per year for 5 years, then down 50%. What are the gross returns? Zero, of course.

 

How much has the manager collected in fees? About $150,000, during the first 5 years. You have $850,000. He's way below his high water mark of course, but scale this up to a $100 million fund and you can see that he's not going to starve either.

 

As an example, if any LPs entered PIF3 at the end of 2011, they paid big fees in 2012 and 2013, but as of 12/31/19 would be behind the market by about 5%/year, net.

 

So yes you pay for performance, but if performance suffers later, you don't get a refund.

 

For the record I don't really take an issue with the fee structure, but the idea that you pay for performance and that's that is wrong - pay for performance would only be symmetrical if there was a clawback. HF managers have a call option.

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Good thing they're both great at marketing...

 

You're not paying them management fees, and you only pay for performance above 6%.

 

Say you invest $1 million with a manager who has a 25/6 fee structure. He compounds the million at 15% per year for 5 years, then down 50%. What are the gross returns? Zero, of course.

 

How much has the manager collected in fees? About $150,000, during the first 5 years. You have $850,000. He's way below his high water mark of course, but scale this up to a $100 million fund and you can see that he's not going to starve either.

 

As an example, if any LPs entered PIF3 at the end of 2011, they paid big fees in 2012 and 2013, but as of 12/31/19 would be behind the market by about 5%/year, net.

 

So yes you pay for performance, but if performance suffers later, you don't get a refund.

 

For the record I don't really take an issue with the fee structure, but the idea that you pay for performance and that's that is wrong - pay for performance would only be symmetrical if there was a clawback. HF managers have a call option.

 

Funny, shouldn't the investor decide when to take his money away from the HF manager? Why would you be a HF manager if you were on the hook for every penny you ever earned?  How is that symmetrical?

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Good thing they're both great at marketing...

 

You're not paying them management fees, and you only pay for performance above 6%.

 

Say you invest $1 million with a manager who has a 25/6 fee structure. He compounds the million at 15% per year for 5 years, then down 50%. What are the gross returns? Zero, of course.

 

How much has the manager collected in fees? About $150,000, during the first 5 years. You have $850,000. He's way below his high water mark of course, but scale this up to a $100 million fund and you can see that he's not going to starve either.

 

As an example, if any LPs entered PIF3 at the end of 2011, they paid big fees in 2012 and 2013, but as of 12/31/19 would be behind the market by about 5%/year, net.

 

So yes you pay for performance, but if performance suffers later, you don't get a refund.

 

For the record I don't really take an issue with the fee structure, but the idea that you pay for performance and that's that is wrong - pay for performance would only be symmetrical if there was a clawback. HF managers have a call option.

 

Funny, shouldn't the investor decide when to take his money away from the HF manager? Why would you be a HF manager if you were on the hook for every penny you ever earned?  How is that symmetrical?

 

Symmetry: He who has upside for gains shares in downside for losses. Very simple. You don’t need to claw back every dollar to make the mechanism work well. It’s the same problem at banks where traders shoot the lights out, get paid, and then blow up.

 

HF manager has an option on their clients capital. It just is what it is. I’m fine with anyone entering into that arrangement freely - but not managers who paper over the truth. (That one can quite easily pay for non-performance over time)

 

Simple fact is that the time series of returns determines compensation. If you took my example above and reversed the years so the bad one was early on and the better ones were later, you’d see that no comp would be paid for the very same 6 year record. It’s an artefact of the 12-month measurement period.

 

I understand that these managers also have their capital at stake in the fund, which I admire.

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I'm surprised that Mohnish hasn't performed better. I listen to his talks and I think he has clearly absorbed a lot of investment wisdom from Buffett and Munger and elsewhere. He doesn't seem to be merely parroting it back. My own record is far superior to his, but I have the advantage of working will small sums. I don't know that I could succeed with $500 million or whatever it is he manages.

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Managing OPM is a totally different ball game from managing your own (at least for me). I'm a lot less willing to take big risks with client capital. For me that has translated to client accounts usually doing better than my own over the long run, but there are periods (like this year since March) where my personal account does much better.

 

Part of this factor might be at play here.

 

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I'm surprised that Mohnish hasn't performed better. I listen to his talks and I think he has clearly absorbed a lot of investment wisdom from Buffett and Munger and elsewhere. He doesn't seem to be merely parroting it back. My own record is far superior to his, but I have the advantage of working will small sums. I don't know that I could succeed with $500 million or whatever it is he manages.

 

Totally disagree

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I'm surprised that Mohnish hasn't performed better. I listen to his talks and I think he has clearly absorbed a lot of investment wisdom from Buffett and Munger and elsewhere. He doesn't seem to be merely parroting it back. My own record is far superior to his, but I have the advantage of working will small sums. I don't know that I could succeed with $500 million or whatever it is he manages.

 

You think he has absorbed wisdom from Munger? For being such a big Munger fanboy, Pabrai's portfolio is more Ben Graham than Munger or Phil Fisher.

 

Horsehead Holdings, Micron, Seritage, Fiat Chrysler, Graftech Int'l...and the list could go on and on (though I don't know his foreign holdings). Which of those would you say is a good business in the mold of any of the examples Munger or Phil Fisher provided? He had great returns in FCAU, but it does not take away from the fact that it was a horrible business that is now only mediocre while to Pabrai's credit he correctly identified some valuable hidden assets in Ferrari, the parts businesses, etc.

 

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Here's the issue for me. I would be willing to bet that on the total aum he has probably underperformed the market. Given that if you take away his first year or two he's underperformed, it's very reasonable to say that he if didn't invest money for a living and that those investors had originally thrown the money into a S&P 500 index they would have been far better off.

 

All the while, he has sucked roughly $40-$80 million out of his investor's pocket. So, this guy has a large net worth but has underperformed the average.

 

What kind of other profession pays people an insane amount of money to be below average?

 

Though I will admit his hedge fund really does play to his investment philosophy - heads I win, tails I don't lose too much (the clients...well, eh don't worry about them).

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Investors could have pulled their money out at any time (with notice), but didn't.

This is no different to failing to sell a share, and then riding the price down through reluctance to act. The error is on the investor - nobody else. The market doesn't reimburse your loss, and nor should the HF manager.

 

If you want the HF manager to share the downside risk with you, you need a different comp arrangement - a richer one.

Insurance underwriters (& now bank bonuses) typically pay-out on a rolling 3-yr basis.

 

SD

 

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The 6% performance fee hurdle is quite dated. Perhaps in the early 60s when Buffett was operating the partnership it seemed reasonable but these days when there is exhaustive data to suggest the average stock market return over long periods tends towards 10% then you are essentially rewarding below average performance. So to suggest it is a model of fairness simply because Buffett adopted it is dodgy marketing. Investors in Buffett's partnership made out very well not because of some kind of utopian fee structure but because he trounced the index year after year.

 

And yeah the fee structure is pure Dhando. Heads he wins. Tails he doesn't lose. And because of the variable nature of stock market returns even if he only matches the index the good years will be sufficiently remunerative to more than make up for the bad years where he gets paid nothing. So even underperforming the index by some distance he can make a very good living.

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Investors could have pulled their money out at any time (with notice), but didn't.

This is no different to failing to sell a share, and then riding the price down through reluctance to act. The error is on the investor - nobody else. The market doesn't reimburse your loss, and nor should the HF manager.

 

If you want the HF manager to share the downside risk with you, you need a different comp arrangement - a richer one.

Insurance underwriters (& now bank bonuses) typically pay-out on a rolling 3-yr basis.

 

SD

 

I don't think hedge fund managers should share in the downside risk, but I do think a 3 year or so clawback is more than fair.

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