Parsad

Prasad, Mohnish, is certainly impressive in that he had the integrity to make his clients whole: + 6% / annum after 10 yrs. However, 6% return in 10 yrs is a 80% gain, the S&P 500 TR has return more than that in 10yrs, so as you said, he made a profit something like $8M above expenses, all for lagging the S&P500 TR. Just want to clarify things for real...... thanks Well it depends on what time frame you are examining. - If you invested with him from day 1, you're money has compounded about 9 times and beat the S&P500 TR by about 4-5% points a year. - If you examine the last 10 years, he's hit the minimum target for his fund partners and been compensated based on the LP agreement. - If you use the last 3 years, then he's demolished the index...should he be compensated exorbitantly for this short-term over-performance. You can argue for or against Pabrai depending on what time frame you pick out of the air. The one argument you cannot make is that his fund design is not the most equitable for partners who invest over the long-term. And if partners are focused on only short-term...which many normally are, no matter how "long-term" minded they say they are...then they should not be investing with fund managers and go with passive investments. But to answer your question as clearly as possible...yes, he deserves the compensation he receives, because it is based on him beating the set hurdle agreed upon, and getting compensated solely on the success of that...as the LP agreement and design of the fund were intended to do. Alternatively, he could change the LP and set the hurdle at 10% and ask for 50% of any profits above that as the incentive fee. But then you would still have some people say that the markets have returned 15% compounded over the last 7 years and he's only returned 10% a year! Cheers!

I completely agree. And you know, IIRC the reason Buffett chose a 6% hurdle was because that was the average 30? year treasury rate at the time. What are your thoughts on that? Or even a floating annual hurdle rate that mimics the 30 year? We've used 6%...Mohnish has used 6%...it certainly hasn't hurt either of us. What do you use now? And what made you change? We still use 6%...so does Mohnish. We've never adjusted the hurdle and it's carried over year to year from the high watermark. It's the most equitable way to be compensated and in the best interest of the partners. They don't make money, we don't get paid for anything...the better we do, the better we get paid. Cheers!

I completely agree. And you know, IIRC the reason Buffett chose a 6% hurdle was because that was the average 30? year treasury rate at the time. What are your thoughts on that? Or even a floating annual hurdle rate that mimics the 30 year? We've used 6%...Mohnish has used 6%...it certainly hasn't hurt either of us. You'll get the argument that there are managers who have done very well for their partners even though they may have a "0.5 and 25","1 and 20", etc. My rebuttal has always been then if they are that good, why NOT go to a 6% hurdle, no set management fee and only an incentive fee? The set management fee protects the fund manager, not the partner. The no fee, adequate hurdle (can't be less than 5%) and compensation based solely on incentive fee protects the partner and rewards the successful manager. Cheers!

wow! how much did he manage at the end? found the answer: $75M, if he takes 2%/per year that is still $1.5M per year Kudos to Tilson for taking the high road and graciously choosing to close his fund. But $1.5M a year...and I believe he may have started with more capital...for an 8.4% cumulative return over 7 years?! Mohnish didn't get paid a nickel for 10.25 years, and he's still called a bum by some. I think all fund managers should be operating using the "Buffett Partnership" model. Cheers!

Hm, I would be careful about this. IIRC, Rick Guerin did something similar, and he ended up selling his Berkshire shares to Buffett @ $40 a piece to satisfy a margin call. He's already reduced his BRK position as seen in the 13F's. Yes, he used leverage at that time, but did not use it much before...BRK was under $100K at the time. Today it's at $270K+...I doubt if the fund is levered at all right now. Cheers! Works until BRK falls 50% as it has done 2 or 3 times.

We bought tons in May and August...in fact, it was going to be double the size of any of our positions, but the order in August was only 1/5th filled! :( We have not sold any...fair value is in the $37-45 range, especially if they spin-off the blockchain business...that's about $10-13 by itself in this market, and Overstock retail is about $27-35. Cheers!

The 99% number was a bit of hyperbole on my part...it was simply meant to convey that most managers think very highly of themselves...that the investor takes the risk on because of the opportunity they are getting with that manager. Very few managers think of it the other way...they are privileged to have investors trust them and invest with them. Cheers! What you cannot do is guarantee that partners will not lose money, and you also cannot guarantee to make some partners whole from the capital of other limited partners. You can certainly redistribute your own GP stake to limited partners, but this may create some tax issues as the partnership is a flow-through vehicle. We are doing this with one of our partners in the Canadian fund which we are closing, who put money in about a year before we decided to close. While we have no obligation to make him/her whole, we felt that our decision to close was contrary to the expectations he/she had when he/she invested, and felt we would be around for a long time. There are very few managers...you can probably count them on both hands...who have ever made partners whole, either through a partnership or mutual fund. 99% of managers would say that is the risk the investor takes. That is correct to a certain degree, but I think common sense and discretion should also be part of any fiduciary's responsibilities. Cheers! Well said. It's a shame that it is as high as that, 99% with a clear lack the fiduciary responsibility. For most ordinary investors, the dumbest money they spend is on investments (versus houses, cars etc. ). And likely their biggest one over their lifetimes. It is hard not to notice Buffett taking a louder and louder stance with this. Inviting Bogle to the meeting, giving that hf bet lots of publicity etc. Wish more well meaning celebrities would join Bogle/Buffett in educating the masses.

What you cannot do is guarantee that partners will not lose money, and you also cannot guarantee to make some partners whole from the capital of other limited partners. You can certainly redistribute your own GP stake to limited partners, but this may create some tax issues as the partnership is a flow-through vehicle. We are doing this with one of our partners in the Canadian fund which we are closing, who put money in about a year before we decided to close. While we have no obligation to make him/her whole, we felt that our decision to close was contrary to the expectations he/she had when he/she invested, and felt we would be around for a long time. There are very few managers...you can probably count them on both hands...who have ever made partners whole, either through a partnership or mutual fund. 99% of managers would say that is the risk the investor takes. That is correct to a certain degree, but I think common sense and discretion should also be part of any fiduciary's responsibilities. Cheers!

No problems here. Running smooth. Cheers!

He has 5 staff plus himself...you need a small boardroom...small kitchen...storage/filing space...Dhandho staff as well. Even if he only uses 2,500-3,000 sq ft, multiplied by probably somewhere around $45-60 per square foot in Irvine. I probably estimated a little on the high side with the $15-20K quote. Cheers!

Pabrai Funds has 5 part-time staff...so just say they make $30,000-$40,000 each, plus rent is probably $15,000-20,000 per month...you're already around $325K-$375K. Add in the other stuff, and it's actually probably low. Cheers!

Sorry, he said it was around $5M at the meeting, so that should say $450,000 per year. But you have office rent, salaries, benefits, insurance, GP accounting, GP tax returns, GP legal, supplies, internet, phone, cell phones, etc. Those expenses don't come out of the fund in Mohnish's fund, mine or many others...those are carried by the GP. Cheers!

Yes, Mohnish talked about alot of things. You will always learn something and he's very entertaining. - Only about 12% of the fund is now in US stocks. - Essentially he is out of GM. I think he uses the word "mistake" too liberally in relation to his investments. - He called GM a mistake, even though it was essentially slightly better than a double. - Management didn't realize the full value of the underlying assets, unlike Sergio at Fiat...called Sergio one of the best executives of the last generation/decade. - Dhandho will be liquidated and cash distributed over the next three years or less. - Deal for Stonetrust is essentially done...cost $30M and put in $30M, but made $19M in investment gains in the last year. - Doesn't want anything to do with insurance ever again...he's putting the toothpaste back in the tube! - Expects about 50% of the cash to be distributed this year and then gradually distribute the rest of the assets over the next couple of years. - Investors will be left with a stub in the GP for the fund business (not Pabrai Funds...dream on)...I would be happy to buy anyone's stub if they desire to sell! - Just killing it in the fund...up something like 20%+ in July and August - Will receive his first incentive fee in 10.25 years...somewhere around $13M! - For all you guys who talk shit about Mohnish, you have to admit that his fund structure and the way he's run it is more than partner-friendly...how many other managers would have continued running a fund, eating costs of about $800-900K a year, and not get paid for over 10 years! - Mohnish talked about a ton of other stuff, including answering a bunch of questions from the audience...I can't remember some of it because Ajay was talking to me over and over about the near-comeback by Nebraska! ;D Always a good meeting! Cheers!

We have two in Canada...RRSP (up to 18% of your gross income to about $27K max each year) and TFSA ($5,500 a year). You get a tax credit with the RRSP, but income is taxed when you withdraw the funds. With the TFSA, no tax credit, but no tax upon withdrawals. Cheers!

I understand the desire to read things that are hard or even near impossible to access, but please be mindful of copyright laws. Do not publish, link or attach anything where the author/owner has not given permission to share. Cheers!

Well, this is probably the last board that will get created here. I think we now cover almost all of the bases between boards. The new "Personal Finance" board is exactly that...for discussing personal finance, day-to-day saving, spending, living, taxes, etc. You want to talk about finance blogs, Cash Flow Quadrangle, How to Grow Rich, Spending Habits of the Wealthy, etc...use this board. Got a deal on gift cards, want to compare big-screen tv's, or you're looking for a new car...talk on this board! Cheers!

What are you guys bickering about anyways? It's not like financial blogs are anything new, and personal finance books have been around since the dawn of capitalism. Rather than being overly skeptical or overly enthusiastic, maybe people should pick and choose which pieces of information are applicable to their own lives. There is no one single answer for everyone! Alot of people like nice things, and many eschew material things. Just because Buffett eats breakfast at McDonald's everyday, doesn't mean you should too. He also flies around in a private jet and gets seats ringside to Floyd Mayweather fights. A little extravagant don't you think? But it sure sounds fun! Some of you are incredibly anal, so you try and maximize every moment and dollar you have to squeeze out the most value you can...be it investing or buying avocados at the grocery store. Some of you aren't that extreme, but like to save money where you can and find good investments. And then there are those on here who like to act like they are frugal, but they do their grocery shopping at Whole Foods (before the discounts) and drive around in a new Range Rover. So be it! Each to their own! So who cares if this lady retired at 28 years old! That's great for her if that works for her. I didn't even get my business started till I was 35, so her advice would have been of zero help to me. But I directly and indirectly employ over 30 people and I essentially feel like I'm retired every day I go to work...so maybe both parties won! You'd be better off not wasting time trying to defend something that doesn't need to be defended, and more of that time enjoying your life and building whatever the heck you want out of it...however you might get there! Cheers!

Hi Flesh, That has nothing to do with the ads. Are you using a new mouse? You may be clicking on the scroll wheel on the mouse when moving up and down, and it will lock in the direction you clicked it. Would love to hear if anyone else had this issue, as this is the first time I've heard of it...if related to ads. Cheers!

For me, I didn't get it early on simply because I believe I had a natural bias against commodity businesses with strong union lobbies and pension plans...automobiles, airlines, pseudo-government entities, etc. So the auto industry was a very poor business for 50 years, and would remain so...not true! Everything at the right valuation starts to become intriguing. So because of my bias, I missed the early days of the Ferrari spin-off, etc. By the time I understood, which was mid-2016, it was still cheap and we bought a fair amount. Up 115% since! Surprisingly, it's still not expensive...not close to fair value yet. So to those that understood the business before the Ferrari spin-off, kudos! You guys must be up 300%+ since then. Cheers!

Good post Txvestor! If I were Fairfax, I wouldn't get antsy buying back shares or deploying that money. We've learned from history that cash is king at certain times, and Fairfax is in the rare position of holding a boatload of it. Have we solved all of the problems that existed for them to hedge markets and hold deflation hedges? Not even close! Governments are just beginning to unwind their bond positions...Europe is still at very real risk of falling apart...sovereign debt loads have rarely been higher on a global basis. Notice the things that are occurring...Germany repatriating gold...China forcing changes to how state-run sovereign funds are deploying assets...increasing global tension...huge increases in ETF investments...massive algorithmic trading...still historically low global interest rates...consumer leverage still very high...margin of safety in assets prices is quite low...you can go on and on. The markets are ripe for a correction...it will only take one single event to make things unravel! My opinion...Fairfax just sit on the damn cash and wait for the fat-pitch! Cheers!

Parsad, could you elaborate? They've sold one of the absolute crown jewels. Yes, they got a high price. And yes, they surfaced some hidden value, and yes, they can de-lever a bit. Good for the short term. But long term the success of this will hinge on how much value the Mitsui partnership delivers, and that seems very vague. Yes, a crown jewel, but they received a stupid price for it...over 3 times book! What I can't believe is that they get to underwrite 25% of MSI's insurance book. The $1.6B was indecent enough, but that 25% is simply criminal! Take a look at slide 3. You notice three significant regions where Fairfax does not do as much business as MSI: Russia, Japan and South America. FC does about $400M in GPW...MSI does $25B GPW in Japan alone in non-life business. Then add the Russian market and parts of South America that Fairfax wasn't heavily involved with. Just think it was a really one-sided deal...and fortunately Fairfax is on the right side of it! Cheers!

Incidentally, alot of this success should rightfully be attributed to the Athappan's...both father and son! They've essentially built much of our Fairfax Asia business from scratch. And Sam Chan who has overseen Fairfax Asia since the beginning! Cheers!

Just a great deal for Fairfax in every way! Cheers!

Hi Folks, I don't want the investment boards and general discussion being cluttered with political posts and discussion, so I have set up a new "Politics" board where these discussions can continue. Unlike some, I believe that political discussion is important, but I also understand that many do not want to see continual infighting and members insulting one another. So, feel free to use the "Politics" board, but refrain from bad behavior. Thanks very much! Sanjeev

Hi Folks, Some of you may see a SEDI filing that shows MPIC Canadian LP selling some PDH shares. That is because we are closing the Canadian Fund and liquidating some of the PDH shares over time. Let me make something clear...Alnesh and I are not selling any PDH shares! We will be taking at least 80% of our investments in the Canadian fund as PDH shares, and a few other partners are taking significant PDH shares. But we are liquidating some of the shares for the remaining partners. Here is also an excerpt from the annual report for the Canadian fund, sent to our partners a couple of months ago, that discusses why we are closing that fund: Over the last 9.5 years since we launched the Canadian fund, through bull market, financial crisis, sideways market, fluctuating currencies and political turmoil, we have managed only half of our mandate…to avoid permanent loss of capital. We have failed in the other half of our mandate…to grow investment capital at an above average rate. Essentially, our partners have done marginally better than a 1-year GIC over 9.5 years…not acceptable! We as investment managers, have added no value to performance, that our partners could have easily surpassed by simply investing in an index fund. We are not alone in this, but almost 90% of investment managers have not surpassed their respective index over the last decade, as we have seen an enormous bull-market since the end of the financial crisis. But if that were the only reason, then why has the performance between our Canadian and U.S. Fund been so glaringly disparate? We believe there are some fundamental flaws in the Canadian Fund that do not exist in the U.S. Fund. These include: - Assets Under Management - It has been excruciatingly difficult for us to raise non-RRSP/TFSA capital in Canada. - Operational Expenses - Our audit, legal, tax, filing costs are the same in Canada and the U.S., but the asset base is over 10 times smaller in Canada…thus a disproportionate amount of costs are being carried by partners. - Inability to Use Options – A large part of our U.S. Fund strategy is the occasional use of call options, which have made a significant impact on our results…we cannot buy call options in Canada without using a margin account. - Turnover of Partners – Our US Fund partners seem to remain partners significantly longer than our Canadian Fund partners. - Liquidity – It was the departure of our largest partner in 2015 that impacted results so severely, as liquidity in the fund dried up rapidly…we were stuck with very large positions in Premier Diversified Holdings, Russell Breweries, Rainmaker and SED International. We spent the better part of 2016 eliminating Rainmaker after it converted to WOW! Media, as well as other assets to restore some liquidity to the fund…that has at least put the fund in a much better position. But ultimately, assets under management, operating expenses and the inability to use options are inherent flaws that we cannot change. As such, we have made the necessary, but uncomfortable decision of closing the Canadian Fund and liquidating the assets over the next few months. We did not come to this decision lightly…we would be doing a disservice to our partners to try and muddle through a structure that is not in their best long-term interests…and is clearly evident from nearly 10 years of data. Fortunately, all of our partners except one recent addition are above water. Alnesh and I will make that one partner whole with our own capital. Also, Corner Market Management will take almost all of its capital in Premier Diversified Holdings (PDH) shares. The U.S. Fund is over 15 times bigger and we have no plans on ever closing it. Cheers!