Yet another letter from a reader:

Hi David –

Thank you for your commitment to sharing your wisdom, ideas, and experience.? I aspire to one day enjoy the success and happiness that you have in your life and career as an investor.

My question may be a bit more tactical than others that you have profiled: In our current world of 2% & 20% fee structures and where in past eras Buffett promoted a 25% performance fee above a 6% threshold (with the objective of aligning partners’ wealth creation incentives), why do investment managers choose to promote % of AUM only fee structures?? I believe you also promote a similar fee only structure??

I’m curious about your insights on the rationale for fee only versus performance only structures.? Does your philosophy have anything to with your faith or past experience working at a hedge fund??

Many thanks and much continued success to you!!

Personally, I like the flat 1% of assets?fee (0.3% for bonds), because it does not make me swing for the fences. ?I don’t take extra risks or chances with client assets because of a performance fee. ?The main goal of investing is to avoid losing money. ?That is what I aim to do over a full market cycle, and I have been successful at it over the last 20+ years.

I respect those who do performance only, like Buffett’s formula, but?my value proposition is that those who invest alongside me get what I get, less the small fee. ?If I underperform in the future, I will be dejected, and it will hurt me far more, than any money I receive in fees. ?I aim to do as well as Buffett, but charge less. ?I am not driven by profits, but by service to clients.

Another way to say it is to hire guys who will do this business even if they weren’t paid. ?That is the way I feel about investing.

I am out to do well, and?not to give my clients a bad deal.