Buying 50 cent dollars or earning 50 cents

[collegeinvestor]

Hello this might sound dumb but I was wondering If any asset managers/investors have ever thought about applying value investing towards starting a business of their own? Where they control incremental cash flows and wages to themselves. This is a powerful force--look at berkshire! We have seen Warren buffett over the last few years ramp up his investments in private companies. I am sure we have all come across a business, and after reading the 10k, wish we owned the whole thing privately.  I feel like Warren Buffett had a huge edge at Berkshire through control.

 

I also understand that the economics of owning a hedge fund are pretty amazing too. How hard was it to grow Aum--to the point of a living wage--without being a pompus person, participating in the media, or being extroverted?

[twacowfca]

Hello this might sound dumb but I was wondering If any asset managers/investors have ever thought about applying value investing towards starting a business of their own? Where they control incremental cash flows and wages to themselves. This is a powerful force--look at berkshire! We have seen Warren buffett over the last few years ramp up his investments in private companies. I am sure we have all come across a business, and after reading the 10k, wish we owned the whole thing privately.  I feel like Warren Buffett had a huge edge at Berkshire through control.

 

I also understand that the economics of owning a hedge fund are pretty amazing too. How hard was it to grow Aum--to the point of a living wage--without being a pompus person, participating in the media, or being extroverted?

 

Not very difficult to grow AUM when the best fund manager in the world upon retiring suggests that his investors place their funds with the best student he ever had.  ;)

[oddballstocks]

I think you'll find a lot more wealth created by people who started and owned businesses rather than people who invested their way to riches.  Even the well known "hero" investors aren't rich because of their investments, they're rich because they're in the investment business.  Their results have driven their success, but if they were sitting at home with their own capital they wouldn't have anywhere close to what they have now.

 

I'd actually be curious for anyone on the board, any names of investors who are completely self made?  I mean they started with a nominal savings, never managed any money and invested their way to multi-millionare status?

 

 

[alwaysinvert]

I think you'll find a lot more wealth created by people who started and owned businesses rather than people who invested their way to riches.  Even the well known "hero" investors aren't rich because of their investments, they're rich because they're in the investment business.  Their results have driven their success, but if they were sitting at home with their own capital they wouldn't have anywhere close to what they have now.

 

I'd actually be curious for anyone on the board, any names of investors who are completely self made?  I mean they started with a nominal savings, never managed any money and invested their way to multi-millionare status?

There is a man in Sweden called The Stock Station Master ('aktiestinsen', a bit difficult to translate his nick name directly, but the gist of it is he was a station master all his working life and bought stocks). The guy is 95 years old and has managed to get a portfolio worth 100s om millions (Swedish kronor) in stocks from a pretty paltry wage. Bought his first stock in 1946 for 600 sek, about $90. At that time it was 4 monthly wages for him.

 

But to be fair, he hardly is a Buffett or anything of the sorts and doesn't seem to have made any deep fundamental analysis. He bought low p/e, low p/b and low nominal price (!) stocks and held basically forever, or at least was always invested in stocks even if he changed around a bit, and that's pretty much it, as far as strategy goes.

 

He also used some margin in the very beginning of his career. But investing for a whole (long) lifetime in a market which rose more than 10% per year will get you quite far, even more so if you get a bit lucky. Hardly an economist, he often quips "I like inflation, it gets me a couple of percent richer every year" and "The stock market goes up for two years and then down for one year".  But he also uses the old "Be greedy when others are fearful and fearful when others are greedy", and it's unclear if he ever read Buffett or Graham. I don't think he knows English and none of that literature has been translated into Swedish.

 

Now he is giving most of it away, so atleast there is something very Buffett-esque about him :)

[biaggio]

I think WEB was asked what he would do differently if he was 20 something today.

 

He said that he would do exactly what he did except he would do more promotion and marketing so that he could accumulate AUM faster, so that the more satisfying part of his life -investing + acquiring business in total- would come sooner.

 

For the rest of us it is hard to invest + live well if you don t have the capital---the average person has to do some kind of regular job, work your but off, save, at least at the beginning.

 

I think buying a private business at a discount but on a very small scale because you don t have a lot of capital (+ a lot of experience) is a great thing to do for a young person at the beginning of their career. At the minimum a lot will be learned. I think this would be more realistic as well for most.

[ERICOPOLY]

I'd actually be curious for anyone on the board, any names of investors who are completely self made?  I mean they started with a nominal savings, never managed any money and invested their way to multi-millionare status?

 

My RothIRA  (as of March 31st 2012) was up roughly 185x "since inception", which was in January 2003 (+18,473%).

 

$10,818 is the start balance necessary for it to be "multi-million" on March 31 (however you probably had more than 2 million in mind).

 

Of course, I'm not sure this qualifies under "investor" -- could just as easily file it under "speculator".

[king888]

This Japanese speculator has done quite well. Turning 1.6 Million Yen to 18 Billion Yen within 8 years

http://caps.fool.com/blogs/check-out-this-japanese/129372

 

Not sure how he is doing after 2008. But the wealth created is by far less than managing OPM or start a very successful business.

[racemize]

I'd actually be curious for anyone on the board, any names of investors who are completely self made?  I mean they started with a nominal savings, never managed any money and invested their way to multi-millionare status?

 

My RothIRA  (as of March 31st 2012) was up roughly 185x "since inception", which was in January 2003 (+18,473%).

 

$10,818 is the start balance necessary for it to be "multi-million" on March 31 (however you probably had more than 2 million in mind).

 

Of course, I'm not sure this qualifies under "investor" -- could just as easily file it under "speculator".

 

Since I'm a little late to the board--was that essentially from the FFH LEAPS during the short attack?  (+BAC wins this year?)

[oddballstocks]

I'd actually be curious for anyone on the board, any names of investors who are completely self made?  I mean they started with a nominal savings, never managed any money and invested their way to multi-millionare status?

 

My RothIRA  (as of March 31st 2012) was up roughly 185x "since inception", which was in January 2003 (+18,473%).

 

$10,818 is the start balance necessary for it to be "multi-million" on March 31 (however you probably had more than 2 million in mind).

 

Of course, I'm not sure this qualifies under "investor" -- could just as easily file it under "speculator".

 

Investor/Speculator either way it worked for you, congrats.  I'm curious, how'd you do it, just options trading? 

[ERICOPOLY]

I'd actually be curious for anyone on the board, any names of investors who are completely self made?  I mean they started with a nominal savings, never managed any money and invested their way to multi-millionare status?

 

My RothIRA  (as of March 31st 2012) was up roughly 185x "since inception", which was in January 2003 (+18,473%).

 

$10,818 is the start balance necessary for it to be "multi-million" on March 31 (however you probably had more than 2 million in mind).

 

Of course, I'm not sure this qualifies under "investor" -- could just as easily file it under "speculator".

 

Since I'm a little late to the board--was that essentially from the FFH LEAPS during the short attack?  (+BAC wins this year?)

 

That was a terrific year (2006), but a lot has gone well since then:

 

YTD:  +136.25%

1 yr:  +26.57%

3 yr:  +83.94%

5 yr:  +80.68%

since inception 1/31/2003:  +76.87%

 

These numbers are as of 3/31/2012.  Account has declined 17.5% since then (because of the BAC pullback).

 

[Uccmal]

I think WEB was asked what he would do differently if he was 20 something today.

 

He said that he would do exactly what he did except he would do more promotion and marketing so that he could accumulate AUM faster, so that the more satisfying part of his life -investing + acquiring business in total- would come

 

I seriously doubt that WEB could raise a fraction of the money he got being Ben Graham's smartest disciple in today's environment.  Massively more competition, and people that are as smart as him to compete against, makes today's situation far more difficult.  Just ask any portfolio managers who operate on this board.  He had the benefit of being in the right situation at the right time in history. 

[Tim Eriksen]

I think WEB was asked what he would do differently if he was 20 something today.

 

He said that he would do exactly what he did except he would do more promotion and marketing so that he could accumulate AUM faster, so that the more satisfying part of his life -investing + acquiring business in total- would come

 

I seriously doubt that WEB could raise a fraction of the money he got being Ben Graham's smartest disciple in today's environment.  Massively more competition, and people that are as smart as him to compete against, makes today's situation far more difficult.  Just ask any portfolio managers who operate on this board.  He had the benefit of being in the right situation at the right time in history.

 

I agree. The early years would have been more difficult.  Especially if he tried the same approach of heavy concentration, illiquid stocks, yearly reporting of results, and no disclosure of holdings.  Current auditors may have pushed for illiquidity mark downs too.  He also had many investors that today would be deemed non-accredited.  I also think that by the late 1960s he probably could have raised immense amounts of money.

[Kraven]

I think WEB was asked what he would do differently if he was 20 something today.

 

He said that he would do exactly what he did except he would do more promotion and marketing so that he could accumulate AUM faster, so that the more satisfying part of his life -investing + acquiring business in total- would come

 

I seriously doubt that WEB could raise a fraction of the money he got being Ben Graham's smartest disciple in today's environment.  Massively more competition, and people that are as smart as him to compete against, makes today's situation far more difficult.  Just ask any portfolio managers who operate on this board.  He had the benefit of being in the right situation at the right time in history.

 

I agree. The early years would have been more difficult.  Especially if he tried the same approach of heavy concentration, illiquid stocks, yearly reporting of results, and no disclosure of holdings.  Current auditors may have pushed for illiquidity mark downs too.  He also had many investors that today would be deemed non-accredited.  I also think that by the late 1960s he probably could have raised immense amounts of money.

 

It's very hard to compare the two times.  The environment is so incredibly different that it really isn't an apples to apples comparison.  Graham was viewed in his day as being supremely knowledgeable about investing, just like Buffett is today.  While it would be hard for a Buffett today recommended by some random person to get going, no matter how smart and good he was, I imagine that if Buffett retired and told people that if they didn't feel comfortable leaving their money in BRK to put it with [insert no name smart young investor] that that person could raise hundreds of millions if not billions in fairly short order. 

[bmichaud]

For the most part it's correct to say most rich people in the investment world are rich because they're in the investment business, but...

 

Buffett currently has what a $500mm personal portfolio? That was started from literally $0. Probably one of the greatest investment feats of all time, IMO. Though Ericopoly is gaining :)

[ERICOPOLY]

Buffett currently has what a $500mm personal portfolio? That was started from literally $0. Probably one of the greatest investment feats of all time, IMO. Though Ericopoly is gaining :)

 

That would be difficult to replicate.

 

However I only need 9% annualized gains in that account for the next 38 years to match Berkshire's record of 513,055% (which took him 47 years).  I have a huge advantage as well -- absolutely zero tax.

 

[PlanMaestro]

have a huge advantage as well -- absolutely zero tax.

 

How?

[racemize]

IRA has no tax, at least while in the account.

[alpha231616967560]

IRA has no tax, at least while in the account.

 

Roth 401K is not taxed later either (provided that it is withdrawn after age 65). Contribution limit is $16,500/ yr., so that can add up to a big tax advantage over a few decades.

[ERICOPOLY]

have a huge advantage as well -- absolutely zero tax.

 

How?

 

I do have to keep the gains in there until I'm 59 or something -- after that, no tax on the withdrawal of gains.

 

My kids are allowed to inherit the account and (under the current tax laws) can keep the ball rolling completely tax free for their entire lives.  The only hangup will be the inheritance tax on the transfer.

 

I'll bet at some point in my life the inheritance transfer thing is eliminated, and they'll probably put a lifetime cap on how much gains can be withdrawn tax-free.  There won't be much outcry, because if the cap is $20m or so there won't be very many people hit by it -- or even if it's $2m.

[bookie71]

Don't you wish it weerre in a Roth?  Isn't 20/20 hindsight great.

[twacowfca]

Don't you wish it weerre in a Roth?  Isn't 20/20 hindsight great.

 

I think Eric said he was or had been working for Microsoft before he got control of his 401K.  If so, he may not have met the income requirements for contributing to a Roth then.  It is amazing what can happen when there is no tax on compounding returns. 

 

In late 2001, I was able to self direct a close relative's 401K.  At that time the funds were in a money market account with a balance of about $250 plus some zeros. That year ended with a gain of less than 10%. The following February, there was a contribution to the 401K of about six percent of the balance, and the year end balance again rose about an additional 10% by the end of 2002. After that, it was off to the races with mostly mid double digit returns plus one triple digit return, except for 2008 which was about flat in that account.  Since 2008, the balance in that account has about tripled.

The current balance is about 38 times the balance around the end of Q3 of 2001 when active management began. 

 

These returns have been generally unlevered.  For instance, this account did not purchase any of the FFH calls in 2006 that were such a coup in most of the other accounts.  This account held long positions in common stocks generally for a few years until sold as full value was approached.  One to three stocks have accounted for most of the balance in this account during most years.

 

The contributions to the 401K did significantly increase the returns in the early years of active management, but added only a fraction of one percent to the returns in recent years.  This account was recently converted to a Roth account.  It now can compound tax free through the next generation.  :)

[ERICOPOLY]

Don't you wish it weerre in a Roth?  Isn't 20/20 hindsight great.

 

It's my Roth account that I have been talking about with regards to the roughly 180x return in 9 years.

 

Unfortunately, it went down in value between 2003 and 2006.  So there wasn't much there.  The bulk of my retirement savings in early 2006 was in my Microsoft 401k plan.  Even at the end of 2006, my Microsoft 401k plan was still the larger of the two.

 

My last year of Microsoft they brought in the "Roth 401k" and I made all of my contributions to that one.  Then I quit in January 2008 and as it stands today 100% of my "retirement" accounts have been converted to RothIRA.

 

The really good news is that I remember how much these combined retirement accounts were worth in January 2008, and as of March 31st they were worth 10x that figure.  So that's 900% return since I quit in January 2008!  Quitting was an extremely good maneuver, because there's no way my Microsoft 401k would have gone anywhere at all during that time frame.  On the day I quit the 401k was about 2x the size of the Roth IRA.  So my retirement savings would be nearly 2/3 smaller today had I kept on working with that money languishing in the 401k.

 

I paid the tax on the Roth conversion while a resident in Washington state (no state income tax) -- and that was smart because now we are moving to California on June 20th, a state where people regularly moan about the state income tax.

 

 

 

 

 

 

[oddballstocks]

Don't you wish it weerre in a Roth?  Isn't 20/20 hindsight great.

 

I think Eric said he was or had been working for Microsoft before he got control of his 401K.  If so, he may not have met the income requirements for contributing to a Roth then.  It is amazing what can happen when there is no tax on compounding returns. 

 

In late 2001, I was able to self direct a close relative's 401K.  At that time the funds were in a money market account with a balance of about $250 plus some zeros. That year ended with a gain of less than 10%. The following February, there was a contribution to the 401K of about six percent of the balance, and the year end balance again rose about an additional 10% by the end of 2002. After that, it was off to the races with mostly mid double digit returns plus one triple digit return, except for 2008 which was about flat in that account.  Since 2008, the balance in that account has about tripled.

The current balance is about 38 times the balance around the end of Q3 of 2001 when active management began. 

 

These returns have been generally unlevered.  For instance, this account did not purchase any of the FFH calls in 2006 that were such a coup in most of the other accounts.  This account held long positions in common stocks generally for a few years until sold as full value was approached.  One to three stocks have accounted for most of the balance in this account during most years.

 

The contributions to the 401K did significantly increase the returns in the early years of active management, but added only a fraction of one percent to the returns in recent years.  This account was recently converted to a Roth account.  It now can compound tax free through the next generation.  :)

 

So you turned $250,000 into $9.5 million in 10 years, compounding the account at 44% annually, all I can say is wow.  I'd be curious to know your strategy.  Considering that only about $300k was ever contributed that would have been one heck of a tax bill at conversion, writing a check to the Gov for $2.7m would be killer, I guess it wasn't your money so it's not as bad.

 

Here I am thinking if I follow the Graham & Dodd stuff I might have the chance to compound my money at 15% annually, and then I come on this board and it's as if everyone has these 20-40% annual returns for decades, it's very strange.  I understand now why a lot of people around here are private investors, why work for someone else when you can double your money every other year.

 

This thread has been eye-opening..I'd love to hear other people's experiences.

[racemize]

I'm still targeting 15% despite all of this--it is impressive though.

[ERICOPOLY]

I'm still targeting 15% despite all of this--it is impressive though.

 

I used to beg and pray that I could make 10% annualized.  Targets don't have much impact on what really happens.