My resolution for 2010 may just turn out to be launching my own mutual fund.
For the past few months, I have been researching the idea of turning over control of day-to-day operations of my businesses to other people and launching a new registered investment adviser to serve as the portfolio manager of a mutual fund that specializes in global value investing. It would give me a way to actually manage money for the countless people that always seem to want to know what I'm buying or selling, and do it from an easy-to-understand investment vehicle. After all, the fund could be bought through any Roth IRA or comparable retirement account. This would provide a simple, straight-forward solution because I have zero desire to actually setup a wealth management office (I don't want to deal with clients or solve their portfolio issues - that's not my personality. My passion and specialty is selecting value investing stocks from around the world and putting them in a portfolio in which I also invest my own money. For those whom wish to own securities like the ones I chose for the fund, great. For those who don't, that's fine, too).
Right now, I'm not comfortable writing about specific investment ideas because I don't want there to be any conflict of interest. Throughout December, for instance, I found an unbelievably cheap company with a strong balance sheet, 7%+ dividend yield, large insider ownership, and a p/e ratio of under 6. The company was so small, however, that if I had mentioned it, it could have effected trading volume and I'm going to avoid that like the plague. Had I been operating a global value fund, I could have simply put a portion of the fund's assets into it and everyone would have owned the same stock I had been buying for my private accounts.
My only hesitation is my own personality. I know that if I do launch a mutual fund, I'm going to feel the obsessive need to focus on it day and night. My work habits are a bit compulsive. Right now, I show up to my own companies, read when I want, and invest my own family's money. With a publicly traded mutual fund, I could see myself up at six in the morning, working until midnight, pouring through 10K disclosures like I did in college when I began first amassing a decent amount of capital and putting it to work in companies such as Direct General, Yankee Candle, AutoZone, and American Eagle Outfitters, the profits from which helped me fund my own companies later.
I have several meetings scheduled with fund service companies over the next month to examine their solutions. Right now, I don't feel like I have enough information to know whether this is something I want to do or not, but the more I learn, the higher the probability that at some point in the future, there will be a mutual fund with my name on it through which I invest a majority of my personal net worth.
Joshua,
I’ve been reading your articles and blog for about a year. I have been waiting for you IPO so I can invest in your companies! I like the idea of investing in your mutual fund even better!
Thanks for the wealth of financial information.
“but the more I learn, the higher the probability that at some point in the future, there will be a mutual fund with my name on it through which I invest a majority of my personal net worth”.
I think this is a great idea. It would give your readers a chance to invest exactly as you do. And you should put a lot more than just a “majority” of your net worth…you should as much as possible have 100% of your investments in the fund (of course, not including your home and assets that cannot be in a mutual fund), just like the Longleaf Partners managers do in their 3 funds. They are not allowed to invest outside of their funds. And like Warren Buffett does. Buffett says, I believe in his document “Owners Manual”, that when you buy Berkshire, you have your money invested exactly as he has his. Your net worth will rise or fall, in percentage terms, exactly as his. In this document he said something to the effect that he has 99% of his net worth in Berkshire Hathaway stock.
I believe you should make this a complete investment vehicle, so that investors would know that their money and wealth is invested exactly as yours is.
It would set the standard.
All mutual fund managers should have as close to 100% of their net worth in their mutual funds as possible.
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Good luck!
Happy New Year and good luck in whatever you decide to do. I too have been reading your articles for about a year and I must say I like your style. Will be interesting to see how this pans out.
Robert,
You’re absolutely right and I completely agree with that post.
The reason I said “majority” is because most of my money now is in the form of ownership of private operating businesses that can’t be liquidated without selling them off to the highest bidder, which isn’t exactly my style.
Take the e-commerce group, which sells everything from cashmere scarves to varsity jackets throughout the world each year. For every $1 in pre-tax earnings it generates, it’s a fair bet to say that it’s worth at least $10 in private market value because the economics are so attractive (with our growth rate, we’d get far more). So even a small increase in profits of, say, $100,000 per year is going to show my net worth increasing by $1 million that year, less a deferred tax liability for what would be owed if I sold the company. That’s not actually cash sitting somewhere, but rather the estimated private market value of the stock I own in these businesses.
What I would have to do is something along these lines:
1. Commit to investing 90% to 99%+ of my liquid net worth in the fund and sign a contract saying it will be the only vehicle through which I own stocks as long as I’m the portfolio manager. This means that even my operating company’s couldn’t buy stocks – they’d have to put the money into the mutual fund. This includes all of my personal brokerage, IRA, retirement, and other accounts, including any trusts I establish for family members.
2. Require all employees to do the same so that everyone who worked on the fund had the same upside, and downside, as our passive investors.
3. Only provide 401(k) matching to employees in the form of additional shares of the fund.
That way, nearly 100% of my liquid net worth would be in the mutual fund. The only reason it wouldn’t be my “total” net worth would be because of the value of real estate (e.g., primary residence), and shares of those private operating companies.
In summary, if I do this, I have little doubt that I’ll be going “all in” in poker parlance. It’s just how my personality is built.
Wonderful idea! I find your articles to be very helpful and informative. I would be happy to place my money in responsible hands, especially given the assurance that you’d be placing your money in the same place.
Hi Joshua,
I’m warno from indonesia, i’m about 2 years reading your articles, and i’m agree for almost all of your idea.
It’s great idea, if all “Mutual Fund Crew and Passenger” have same direction, and there aren’t “Trader” that will make hole(s) in this ship.
wish you luck and success.
Good luck with it my man. Enjoy the regulatory issues, the capital raising problems, and the 250k annual admin costs.
Its a great idea of launching MF, i am also thinking of same go ahead..
Best of luck!!