Running OPM fundamental value based

J

jj90

I would like to get feedback from those who have gone down the road to setting up a firm in general and/or specifically for LPs that has a primary strategy driven by a Graham early Buffett-esque philosophy.

From my research and talking to others in my city who went this route, I will need roughly 50M AUM before it can be a fund, should I choose the fund route. I'm running the strategy in a personal account for the last 2 years. and 3 years has been said to me to be a long enough track record, from those who are currently running OPM.

Performance has been 11% in 10', 10% in 11', with no more than 10% DD in any year. Small and micro cap only, NA listed equities. Target is 10% annual return in the long run, with max 10% DD peak to trough.

Questions I have: 1)Clarification on whether my personal account can be used to be the audited track record. ET says no, those in the industry say yes.

2)General price quotes for the paperwork to get this off the ground. I'm thinking maybe 10K?

3)Timeframe I'm looking at to launch. I'd like to do it in a year.

4)Am I being fooled by randomness?

Appreciate any thoughts/comments/criticisms.
 
Quote from jj90:

I would like to get feedback from those who have gone down the road to setting up a firm in general and/or specifically for LPs that has a primary strategy driven by a Graham early Buffett-esque philosophy.

From my research and talking to others in my city who went this route, I will need roughly 50M AUM before it can be a fund, should I choose the fund route. I'm running the strategy in a personal account for the last 2 years. and 3 years has been said to me to be a long enough track record, from those who are currently running OPM.

Performance has been 11% in 10', 10% in 11', with no more than 10% DD in any year. Small and micro cap only, NA listed equities. Target is 10% annual return in the long run, with max 10% DD peak to trough.

Questions I have: 1)Clarification on whether my personal account can be used to be the audited track record. ET says no, those in the industry say yes.

2)General price quotes for the paperwork to get this off the ground. I'm thinking maybe 10K?

3)Timeframe I'm looking at to launch. I'd like to do it in a year.

4)Am I being fooled by randomness?

Appreciate any thoughts/comments/criticisms.
More...

Yes you are being fooled by randomness. 10% in two years is the typical return, and after you start netting fees, it'll be around 8%, your drawdown will also increase that much.

The 0.67 calmar ratio 8 to 12 is generically as good as anything will do, and should you continue the next bear market will most likely remove all your gains.
 
Ok bwol, let's have a conversation here. Clarify how you think that once I start netting fees you think the DD will increase? I must be misunderstanding you here.

Also, clarify how 10% per annum is typical. I've seen a wide variety of returns for the SPX depending on the study, most say 7-8% in the LR. Only Ibbotson has given 10% as the norm. You quoted 10%, so provide a link.

I don't disagree that I'm long only, and if the market should fall I'll hit a DD. But explain how you think the next bear will take away all my gains.
 
Quote from jj90:

I would like to get feedback from those who have gone down the road to setting up a firm in general and/or specifically for LPs that has a primary strategy driven by a Graham early Buffett-esque philosophy.

From my research and talking to others in my city who went this route, I will need roughly 50M AUM before it can be a fund, should I choose the fund route. I'm running the strategy in a personal account for the last 2 years. and 3 years has been said to me to be a long enough track record, from those who are currently running OPM.

Performance has been 11% in 10', 10% in 11', with no more than 10% DD in any year. Small and micro cap only, NA listed equities. Target is 10% annual return in the long run, with max 10% DD peak to trough.

Questions I have: 1)Clarification on whether my personal account can be used to be the audited track record. ET says no, those in the industry say yes.

2)General price quotes for the paperwork to get this off the ground. I'm thinking maybe 10K?

3)Timeframe I'm looking at to launch. I'd like to do it in a year.

4)Am I being fooled by randomness?

Appreciate any thoughts/comments/criticisms.
More...
almost every no load mutual fund family has a value fund. Many of them with 30 yr track records. Why would I want to take a chance on you?

If that's what you want to do, best bet (if you have any people skills) is to operate as an RIA and find your clients one at a time.

Now is a good time to approach conservative investors that are heavy in dwindling interest rates.
 
Quote from jj90:

Ok bwol, let's have a conversation here. Clarify how you think that once I start netting fees you think the DD will increase? I must be misunderstanding you here.

Also, clarify how 10% per annum is typical. I've seen a wide variety of returns for the SPX depending on the study, most say 7-8% in the LR. Only Ibbotson has given 10% as the norm. You quoted 10%, so provide a link.

I don't disagree that I'm long only, and if the market should fall I'll hit a DD. But explain how you think the next bear will take away all my gains.
More...

10% a year for 2 years in a bull market is NOT a track record!

If the last 2 years were a bear market your performance would've been -10% in each year, and with that kind of "track record" you wouldn't be thinking about running OPM.
 
@oldtime: institutional funds have a mandate to invest. Correct me here but none of them as I'm aware are trying the Graham early Buffett method. There are firms using this specific method, but most are closed to the public, at least the retail public.

@MTE: to play devil's advocate, define how 11' was a bull year. I'll give you 10' but only certain select areas made it out of 11 with a healthy positive margin. Especially targeting the small/micro caps.

Good stuff, keep it coming.
 
Quote from jj90:

@oldtime: institutional funds have a mandate to invest. Correct me here but none of them as I'm aware are trying the Graham early Buffett method. There are firms using this specific method, but most are closed to the public, at least the retail public.

@MTE: to play devil's advocate, define how 11' was a bull year. I'll give you 10' but only certain select areas made it out of 11 with a healthy positive margin. Especially targeting the small/micro caps.

Good stuff, keep it coming.
More...
yes, that's a good point. It was especially funny in 1999 and 2000 when p/e's were at all time highs and all the value funds were still fully invested. (but I can't remember a time when Warren wasn't also fully invested.)

think about that RIA route. I've seen it work out very well for a former broker. But like I said, she had very good people skills. But she can invest in anything she wants at any time based on the individual needs of her clients. And they never bitch or close out the account if they underperform the S&P.
 
Quote from jj90:

...@MTE: to play devil's advocate, define how 11' was a bull year. I'll give you 10' but only certain select areas made it out of 11 with a healthy positive margin. Especially targeting the small/micro caps....
More...

OK, to be fair my statement was a bit sloppy, 2011 was not a bull year, but it wasn't a bear year either.

In any case, my point is that 2 years for your strategy is too short a time frame to be considered a track record, let alone a good track record.

Also, you say your strategy is based on small/micro cap stocks. Have you considered scalability? Unless you have a multimillion dollar account, which I assume you don't, you haven't experienced liquidity problems. That is, getting in and out of relatively illiquid small/micro cap stocks may be easy when you are trading a couple hundred or thousand dollars, but when you need to establish or get out of a couple hundred thousand or even a million dollar position the liquidity becomes a huge issue and can significantly impact your performance.
 
In Jack Schwager's Stock Market Wizards, Stuart Walton made >100%/year in his personal accounts before founding Reindeer Capital. I think you will need to be able to make at least high double digit returns with low drawdowns in your personal accounts before there is any possibility of managing OPM.
 
@flipside21: as you may be aware Buffett (and Graham I'm sure) has said if he went back to managing a few million he could do 50% per annum fairly consistently. I'll have to look up in my copy exactly what strategy Walton was running, but my quick google search shows me he was trading NOT investing.

@MTE: I was actually surprised when industry people running the same Graham-Buffett LP strategy as I try to, told me a 3 year record was enough. I had always thought the min was 5 years. In regards to scalability, I figure it will hit upper bounds at roughly 35-40M, but there's always the private equity route. Listed ideally, but I don't see a reason to have my hands tied. If I ever do hit a level where AUM forces my hand to go the post Munger Buffett buy forever approach, I will either make the transistion or close the firm.
 
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