Tag Archives: Lessons

The hazard of sub-scale companies

Scale. It’s a fickle thing. All companies want to harness its absolute potential, yet only a few really are able to fully utilise it. Every company who made the jump from a microcap used it. It is one of the oldest theory in economics, yet many microcap investors overlooks it. One aspect particularly overlooked is when a company is sub-scale. Continue reading

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


  1. “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

In investing, thinking in probabilities is probably better than thinking in absolutes

“Risk means more things can happen than will happen.” Elroy Dimson

One of the most important lessons that I had early on in my investing experience is that it is more productive and profitable to think in probabilities, rather than absolutes. Unfortunately, it is a lesson that I sometimes need to re-learn. What I mean by that is thinking through the buying decision not as “is this stock definitely undervalued?” or “is this stock going to double?”, but rather as “is it more likely than not to be undervalued?” or “is the business more likely to be better in the future than it is now?” It is a subtle difference, but it re-focused my emphasis on not just the upside potential, but on the downside risk. Continue reading

20 Ticket Punch Card investing and why it is so important for me in micro-cap investing

“An investor should act as though he had a lifetime decision card with just twenty punches on it.” Warren Buffett.

“The success of Berkshire [Hathaway] came from two decisions a year over 50 years.” Charlie Munger.

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Not a Bulletproof moat

Bulletproof (ASX: BPF) is a cloud services provider in Australia and New Zealand. It has 3 main businesses: private cloud, public cloud and professional services. In a nutshell, the company has previously been growing revenue and Earnings before Interest Taxes, Depreciation and Amortisation (EBITDA) significantly through organic and inorganic growth. However, things have taken a turn for the worse.

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