The best way to build an investment partnership

It seems the best way to build an investment partnership is to attract the right people and do it with the way Buffett did it.

Getting Innoculated through Berkshire's Annual Meeting

The meetings with Buffett's Berkshire Hathaway Annual Meetings truly turned me into a self-actualizing, value investor. Now, I can honestly say I am innoculated. I can say "no" to all investment ideas, if I have to. I don't feel I miss out on a winner. My mistakes will be mistakes of ommission, not commission. "When I read, I know. When I study, I remember. When I do, I understand. When I went to Buffett's Meetings, I self-actualized."

Incentive Structure

I still think the management fee of a hedge fund should not be a profit center. I know a lot of funds that have billions of dollars under management and they won't put it to work so they don't risk any money and they just live off the management fees.

Rogue Traders

The Trader in somebody's fund just lost 2% for the fund in one day! Geez, nice! It makes me think that Buffett is right. You only need one person to run money. If you have somebody who is not value inoculated, watch out!

Pabrai's 2 year holding rule ... helpful or fatal?

Mohnish Pabrai stated that one of his rules is to never take a loss if the position is held within two years. Most behavioral investing finance books say that never taking a loss is the path to investing destruction. Could this be fatal? Or could this be helpful?

If a person has a longer-term holding period, it makes sense to ignore the stock price movement for the next couple of years because value investing ideas, being contrarian that they are, share near-term outlook that that sucks anyway. In this case, this rule is helpful.

On the other hand, if a person is too stubborn to admit a mistake within a two year period, this could be a fatal flaw.

What do you think?

Trading Vs. Investing

With trading, you monitor stock quotes frequently. You do not build insights and cumulative knowledge about business. I have a passion for understanding economics and businesses. To me, it is a lot more fun to know that beer consumption is at the lowest in 20 years rather than knowing if a stock is breaking out of a base.

I do believe that for account sizes of under 1 Million dollars, you can do very well with a proven trading system, provided you are psychologically wired to be able to cut losses automatically and avoid many of the behavioral mistakes that affect 99% of the human population. When your account size goes above $5 Million, the after-tax returns between trading and investing favor the disciplined investor.