Parsad

Not overpromising, but overleveraging! I'm finally intrigued by this story after all these years. Everything hinges on DP prices over the next 3 years. I'm contemplating this one...very intrigued though. Very asymmetric, but only if the thesis on DP prices works out. What catalysts are there to drive DP prices...tariffs, demand, etc...but what could counter those catalysts...slowing economies, demand, increase in cotton supplies globally? Cheers!

No friends and family other than a couple in the Canadian Fund. Almost all of our partners came through referrals. I've found that many friends and family tend to treat the fund as a personal piggy bank..."Oh, I need money to start a new business", "Oh, I'm going to buy a new car", "Oh, I'm thinking of buying another investment property", etc. Once we cut back on the friends and family, we found the fund grew much better. All of our partners are individuals, families, family trusts or personal corporations. No fund of funds, no endowments, etc. We are also terrible at marketing, thus the small size of our funds. Fortunately, I don't have to live off the incentive fees in our funds, so I can do this forever. Instead, they get reinvested back into the funds and our investment gets bigger. I think I'm going to be like Francis...grow slowly for 20 years and just blow up to $1.2B after! ;D Cheers!

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. It's both Oddball...performance and marketing. But marketing can sure hide a lot of underperformance, as you can see it through the industry! Whereas if you underperform, and are not good at marketing, then you may be done. Cheers!

Thanks Nate! You know, if I only knew how hard it was going to be, and not what the final outcome is like now...I might not have done it back then! ;D It's only worth it once you've actually gone through it and come out the other end. I can't imagine doing anything else now. Cheers!

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 see, that makes sense. Cheers!

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!

Yes, and doing part-time contract work for Alnesh's accounting firm. It was hard, but I wouldn't change anything and well worth it at the end. I built it from scratch, making a ton of personal sacrifices, and fortunately with very good results over 7 years and now on our 8th! Would have been very hard if I had a spouse and children. Cheers!

The $25K was just to start Corner Market Capital and fund the original financing of the U.S. fund...we gave our family and friends 5% of the company for that! The total set up costs for the U.S. fund were actually quite reasonable for the time...about $12.5K...and it was amortized back to partners over five years. All three of our funds have been set up that way...the costs are amortized back to the partnership over 5 years. So essentially, we had about $12,500 left in Corner Market Capital when we launched that had to pay for all of our operating costs not paid by the actual funds. I also had a couple of good years with that $12,500, so essentially I grew it to about $20K in two years, while still using about $5K a year for operating costs. Now we have more than enough in investments and incentive fees in just the Canadian fund, where we can operate for the next ten years...and that's without bringing up any money from the U.S. general partner. So when these large hedge funds go out of business, I haven't got the foggiest clue where exactly they spent their money...must be on lavish parties, travel, office space and excessive staffing. Corner Market Capital and the MPIC Funds will not go out of business unless we choose to close and liquidate the funds...it certainly won't be because we can't afford the costs! Cheers!

Valuesource, With insurance going out the window, what is the main strategy for YAK? Ownership of rental and commercial properties? Do you see operating costs decreasing over time as rental income increases...is that sort of the expectation? Thanks and cheers!

I like the idea of a manager who is already financially independent. Because if he has a track record that is worthwile, he'll be already a long way towards financial independance. Secondly, as a partner, you don't want your manager to be pressured to take unnecessary risks because he needs the fee money to survive. For an investor, patience is no luxury, it is a neccessity, and if your manager is being pressured by debt or by income problems, the first thing to go is the patience, and with it the rationality and prudence. This is the current reality, the only people who can get into investment management either are young and have no expenses, or those who are older and already made enough money that day to day expenses aren't an issue. This eliminates anyone who decides they'd like to have a family, which is probably why working all of the time is lauded for investment managers, they're either young or beyond kids. Why would someone who's financially independent take on someone else's money to manage? Managing money for someone else is not the same as managing your own money, it's much more stressful, with more responsibility. If you are well off why add that to your life. If I were financially independent I would not be managing outside money as something fun, I would probably manage my own money and spend time on things I wanted to do like skiing, biking etc. The way for someone to manage money who has a family on their own appears to be as a RIA who builds a considerable book of business and earnings a straight fee, or for someone who's wealthy parents/relatives bankroll their living expenses while they build up AUM. The second route is all about connections, if you come from a wealthy family I'd imagine it would be easy to collect assets which means you wouldn't need to live on your parents money for long. There is actually a third way, as suggested by Pabrai : you can combine a day time job with investing for some years until you have the needed funds. That's the way we did it. We are not from wealthy families, haven't been supported, didn't have a financial background, we never inherited anything and we now have 4 children to support. But after some 10 years of combining a day time job with investing, we could choose to do whatever we wanted. I agree with you however that it wouldn't be as easy to replicate this if you already have the kids. We could combine my day time job with managing the partnership and my wife's job until the 4th child came. Then I had to choose and give up my day time job. Same thing! No family money...no inheritance. I used the investments I had saved up over the years as the backup support, and I did work on the side for Alnesh's accounting firm while launching and running the funds. We launched Corner Market Capital with $25K raised from family and friends, and Alnesh and I initially only put $100 into the U.S. fund...just like Buffett did with his original partnerships. I also lead a very lean and frugal life for the first five years...even got rid of my beloved Mini! Brown bagged it or ate very cheaply almost every day, public transport, office was at no or low-cost as I was doing some work for Alnesh, no fancy trips other than the usual Pabrai Funds/Fairfax Financial AGM's, no administrative assistants, and worked very hard to build a great track record. We also had some great service providers that made our life easier! Now we are the largest investors in the U.S. fund, and one of the largest in the Canadian fund. We generated incentive fees pretty consistently this year in both funds. I don't brown bag it anymore, but I still live a frugal life, including still taking public transport to the office...no stress, I can answer emails or read. I only do occasional work for Alnesh's firm and run the funds from my terrific home office 2-3 days a week. It's almost the perfect life for me now...just need to double our assets under management in the next couple of years and life could not be better! Cheers!

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. True, but like any real entrepreneurial endeavour, risk and sacrifice play a very significant part. We run our business very lean, because if we didn't, we would have been out of business by now. I think those habits are learned very quickly when everything is at risk. A fixed expense ratio of any sort to cover the manager's office and living expenses somehow strikes me as a less efficient way to learn that experience. And if you somehow manage to get through the first few years, especially when they came during the worst crisis in 70 years, you know you can probably get through anything going forward. There's some definite value in that. Cheers!

LOL! Don't forget the Teuscher Chocolates in William Ashley and East Side Marios. Cheers!

Nice! Great company with excellent recurring cash flows. They didn't get it cheap I bet you...but probably a better investment than the alternatives at the moment. For those complaining about Fairfax buying garbage restaurant companies...well they listened. Aisenstat also owns the Hy's Steak Houses, which I doubt were part of the deal..as well as Vancouver's Gotham Steakhouse (overrated). But the Keg is a great chain...my whole family are regulars! Prem, you better have a $25 Keg gift card for shareholder's this year. My whole family is coming for this AGM! ;D Cheers!

In our Canadian Fund, we did not receive an incentive fee for the first five years. Not many managers could survive that long without some form of payment. But I think that type of survivorship is good for the industry. There are way too many, in fact the vast majority of investment managers, making a paycheck while adding zero value for their investors that could not be achieved through passive ETF's. These are good points. I've never understood high water marks except as a matter of marketing and asset gathering. From the standpoint of managing money though why should someone have to make an investor whole before they get paid? They did the work and oftentimes a loss is due at least in part to just overall market performance. My feeling is that unless lookups are unreasonable if someone isn't happy with performance take your money out and fire the guy. If an investment manager does a good job, at some point in time they would receive incentive fees, and generally the better the job, the greater the compensation. So the high watermark is irrelevant in terms of the manager getting paid. The truth is, that most managers want to manage money, but not take the risk and costs associated with an incentive fee structure without any fixed management expense ratio. It's nice if you have $50M under management and get "1 & 15", because you are guaranteed $500K a year...whether you do well or not. Even if you manage $10M, that's a decent $100K a year...which manager is going to sweat making $100K a year for doing nothing? And that is where the high watermark becomes incredibly important for incentivizing the manager. You lose money, and it may be years before you get paid again. Thus, you better be making good decisions short-term and long-term regardless of where the market goes! Cheers!

I believe that section indicates that the previous structures were 1, 2, or 3, and that he was consolidating into the 6%/25% structure. Yes, I think you're correct. I was to fast with my conclusion. But is profit participation then calculated individually or not? Because differences between partners can be quite substantial after years as 2008, 2009, depending on their follow up investments. Yes, profit participation is calculated individually, as income, dividends, gains, losses have to allocated every time capital comes in or out. So if you are accepting capital monthly, then you have to allocate income/losses monthly and set the new high watermark. It is definitely the most equitable way to pay a manager and also incentivize them. You lose money for partners, it takes longer and longer to get paid. You make money, you get paid. You make a lot of money for partners, you get paid very well! But, I believe that level of compensation works best in a system where capital can be taken away from the manager, not one where they have permanent access to it. The more permanent the capital, the lower the incentive fee should be, as the amount of risk to the manager reduces over time. Just my opinion! Cheers!

Is the business profitable yet? Even if you look at only the rental business, minus operating expenses unrelated to insurance, stock option compensation, etc...the enterprise is still not making money. Cheers!

Nice job Nate! Looks fantastic. Cheers!

All I know is that Archie Bunker would be backing Ford! Cheers!

Actually, one of Mohnish's best presentations I've ever heard...very different than his other investing presentations. Highly encourage you to listen! Cheers!

Cheers! http://cbs360.gsb.columbia.edu:8080/ess/echo/presentation/6ca9b1a5-2935-4e5d-9a28-3ccab52fa454

At the end of the day, results are all that matter. Whether you have a checklist, no checklist, internal checklist or any other tool. Cheers!

Well, they may be profitable or potentially profitable stores, but the sheer value of the properties made sense to take the cash and run. Cheers!

70% sold! Get yer tickets...only 140 seats and 70% gone. Cheers!

Now what I would like to see, and there has to be a tape of it somewhere, but Ford and Steve Ballmer doing the "monkey dance" together! That must have happened. I can see these two hanging out. By the way, I bet there is some sort of comment or sketch on Saturday Night Live tonight about Ford. Cheers!

Relative to their assets? Not likely. I'm guessing Fairfax wanted to close this thing and with close friends. Looks like Markel and BAM made room for others who wanted to join the party late. Interestingly enough, Lawrence Chin who went to high school with me and worked at Cundill, is now Senior VP at Mackenzie. I didn't now him very well, but I've followed his career over the last ten years. Good for him! I know Tim's always had nice things to say about him. Cheers!