Category Archives: Investment lessons

Learning to Love Short Sellers and “The China Hustle”

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Over the weekend, I got the chance to watch “The China Hustle”, a financial documentary by Jed Rothstein. The documentary explores the sinister nature of Chinese companies reverse takeover into US stock exchanges.

The “Hustle” part of the title refers to the fraudulent nature of many of the listings. It explored patterns of faked numbers, technologies and facilities. The documentary shows the journey of sceptical short sellers to uncovering the misconduct and profit from them.

Continue reading →

Back to the Future- Howard Marks on Cycles

Howard Marks’ latest memo came out yesterday. It was insightful and objective.

The usual stuff.

In the memo, he mentioned that he was writing a book about cycles. I am eagerly waiting for that book to come out.

There was another Howard Marks’ memo that I re-read from time to time, which was also about cycles. It is titled “You Can’t Predict. You Can Prepare.” It was written in Nov 2001, when the US experienced its first recession since 1991.

In this post I will liberally take excerpts from the 2001 memo.

It’s mostly a reminder for myself the inevitability of cycles amidst the current environment. Continue reading →

A dozen lessons from reading Buffett’s early partnership letters (2/2)

….Continued

“A division of profits between the limited partners and general partner, with the first 6% per year to partners based upon beginning capital at market, and any excess divided one-fourth to the general partner and three-fourths to all partners proportional to their capital. Any deficiencies in earnings below the 6% would be carried forward against future earnings, but would not be carried back.” (1961)
The Buffett Partnership fee structure is a thing of wonder (albeit only for superior investors). The structure was: zero management fees with a 25% performance fee above a 6% hurdle. This allowed a real partnership to form with a sticky capital base as Warren wouldn’t get paid if he didn’t produce above 6% return. He structured the fees so that he would be under less pressure during the down years- the riskiest time for the limited partners to liquidate their partnership, allowing him to stay invested during lean times and even deploying more capital at the more attractive market prices. Note that this fee structure is gaining more popularity with boutique funds (Mohnish Pabrai, Li Lu) as it truly aligned all parties’ interest. Personally, I use this structure when managing my family’s capital with a high watermark structure. Continue reading →

A dozen lessons from reading Buffett’s early partnership letters (1/2)

I recently read Buffett’s early partnership letters from 1957-1970. It’s an amazing collection of letters that dispense wisdom in his typical folksy charm. His investment record was leaps and bounds better than the Dow Jones Index by the time he liquidated the partnership. When he started in 1957, his partnership began with capital of $105,100 (adjusted for inflation, it would amount to ~$900k). In 1969, the partnership had a net asset of ~$100m (~$700m in today’s dollar).

To show you how special he was even at this young phase:

Compounded results of 25.3% after management fees for 12 years
Operated predominantly by himself with no other investment team
He has said that in the early years, he had investment ideas “anywhere from 110% to 1000%” of the partnership’s capital.

I don’t think there will be another one like him.

However, we can all still learn something from him. Continue reading →

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