Blog News – Page 9 – The Aleph Blog

The Road Ahead

Posted on 7 December 20107 December 2010 by David Merkel

I get e-mails from those that want to invest with me, and those that want to work for me.? My, but I am humbled.? I never thought that this blog might produce a business; I only started it to give back to the general public.

But as I get more of a response, I begin to think, “Okay, what if I succeed? What would I do?”

Here is my short outline: At AUM of $10 million, I am viable.

At AUM of $20 million, I would do the following:

Hire an assistant
Get a Bloomberg terminal.
Hire a permanent legal counsel.
Plan on starting a bond fund.
Engage those that invest in emerging managers.
Pay to get a failed mutual fund to hand the fund management contract over to me.? After that, my investors could have tax benefits for a time, and I would reduce fees to reasonable levels.

At AUM of $50 million, I would do the following:

Hire someone who could replace me if I died.? There are a number of people offering this to me now, and they aren’t low-quality.? But I am not there yet; I look forward to getting there.
Get office space near where I live.
Consider inviting “dirty money” to invest with me from the wirehouses.
Submit my performance to databases.

Beyond that, I am not sure… if I get that far, there may be other opportunities that I have no concept of now.? I know that I will outsource more the larger that I get.? That said, I think that I may have the acumen to take advantage of the situation.

Changes for David — IV

Posted on 3 December 2010 by David Merkel

My goal is to open for business at the beginning of January 2011.? I could have started earlier, but I didn’t feel that giving clients an additional bit of tax data was worth the early start.? In general, I have spent the extra time trying to make sure that I get things right at the start.

Here is my remaining to do list:

Decide on Custodian/Clearing Broker ? Any thoughts from Dailey?
Compliance Strategy, Including Web Compliance Strategy, CFA Document Retention
Procedures for suitability ? CFA notes, Investment Policy Statement
E&O Insurance
Marketing ? and deal w/e-mail, Linked-in day, other contacts, Press Release
Strategy for Illiquid names ? DIIBF, PCCC, IBA, NWLI

Deciding on the custodian/clearing broker is the biggest item, and affects #4 as well.? I am leaning toward Interactive Brokers, because I like their cost structure for small accounts, and they offer a lot of tools to be able to trade cleverly, particularly in an era of high frequency traders.

The downside is that they aren’t good on the service side, which means that I will have to compensate, and be the friendly front end for my clients.

Proxy Voting Policy

I modified the proxy voting policy of one of my readers, and I thank him for his help.? I disagree with him on a few issues, so I don’t want to name him or explain where we differ.? Instead, here is my proxy voting policy, and I solicit your comments.

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Aleph Investments, LLC Proxy Voting Procedures

The Chief Investment Officer shall responsible for voting all shareholder proxies. It will be the Chief Investment Officer?s responsibility to ensure that all proxies are voted in a timely manner. Proxies shall be voted in the best interests of shareholders, with an emphasis on voting against any management proposals that act in general to insulate companies from the discipline of the market or accountability to shareholders.

Specific Policies:

A. Corporate Governance

1. Unless exceptional circumstances exist Aleph Investments will vote against proposals that make it more difficult to replace Board members, including proposals to:

a. Stagger the Board;
b. Overweight management on Board;
c. Introduce cumulative voting;
d. Introduce unequal voting rights;
e. Create supermajority voting;
f. Establish pre-emptive rights.

Aleph Investments will vote in favor of any proposals to reverse the above.

Generally, Aleph Investments will withhold its vote for directors who hold little or no stock in the company and have been on the Board for three years or longer, or for new directors who appear to be primarily political or show appointments who do not appear to possess skills or knowledge that is relevant to the company’s business.? Aleph Investments also favors separating the roles of Chairman and CEO, and not having the CEO on the nominating committee.

For companies that have not given us an adequate rate of return (subjectively determined), we will vote down all questions and positions proposed by management, including the auditor.

B. Takeover Defense and Related Actions.

Aleph Investments generally will vote against proposals that make it more difficult for a Company to be taken over by outsiders, and in favor of proposals to do the opposite. The reason for this is that we believe that corporate management should be subject at all times to the incentives and punishments of the market, not insulated from them.

C. Compensation Plans.

Aleph Investments generally will vote against most large incentive pay proposals, with the exception of those that are meant to apply to ordinary employees.? Most of the time, management teams are paid well enough; it should be enough incentive for to have moderate incentives, and know that if you can?t deliver, you will be replaced, just like the rest of us.? Once management teams get too well off, they tend to underperform.? Also, we prefer management compensation to be tied to things management/workers can work on, like net operating income or change in book value, rather than stock valuations, which they can?t affect much.

In addition, Aleph Investments will vote against any compensation that would act to reward management as a result of a takeover attempt, whether successful or not, such as revaluing purchase price of stock options, golden parachutes or handcuffs, etc.

D. Capital Structure.

Aleph Investments generally will vote against proposals to move the company to another state less favorable to shareholders interests, or to restructure classes of stock in such a way as to benefit one class of shareholders at the expense of another, such as dual classes (A and B shares) of stock.

E. Noneconomic Proposals

Aleph investments will generally vote against noneconomic proposals.? We expect firms to follow the law in the places in which they operate, and to observe general ethics beyond that.? We don?t want firms to follow the ethics of tiny minorities who submit proxy proposals.

F. Size of Board

Aleph Investments will vote against any proposals that act to increase the size of the board beyond
12 – 15 members. We believe generally that large boards have a more difficult time with major changes and other important decisions, and that responsibility is more easily avoided and diffused among too many members.

G. Appointment of Outside Directors.

Aleph Investments will vote against any proposal to allow the CEO to appoint outside directors, and in favor of any proposal to eliminate this ability. The Board’s outside directors should not owe their position or allegiance to a member of management, but to the shareholders and/or independent board members alone. For the same reason, we may vote against any outside Board member who has business dealings with a company on whose Board he sits. Allowable exceptions may be venture capitalists who helped bring a company public, and have a great deal of industry knowledge; senior management of companies in industry sectors served by the company, and who may have valuable insight to contribute regarding industry competitive and business factors; and similar factors that may contribute to the knowledge level of the board members.

H. Multiple Director Positions

Aleph Investments will generally vote against any Board member who is also a Director of four or more different companies. Multiple directorships are time-consuming, especially for senior management of other businesses who have other full-time jobs. We find it difficult to believe that in such cases the Director can adequately fulfill his or her responsibilities to the shareholders.

I. Incentive Stock Award Programs:

Aleph Investments will vote against incentive stock awards that act to concentrate significant amounts of stock in the hands of upper management. While we understand the need to incentivize management by placing a significant amount of upper management and director compensation and net worth at risk in the stock market, this needs to be meaningful only at a personal level. It should not necessary to set aside a significant proportion of shareholder capital for a limited number of upper management personnel in order to incentivize them.

Aleph Investments will support proposals that force executives to put their own money on the line in company stock in exchange for other incentives.? We are putting our money on the line, so should managers.

J. Conflicts of Interest.

Due to the nature of our business and its small size, it is unlikely that conflicts of interest will arise in voting the proxies of public companies, because Aleph Investments, LLC does not do investment banking, or manage or advise public companies.

Full disclosure: long DIIBF, PCCC, IBA, NWLI

Thanksgiving Thoughts

Posted on 27 November 2010 by David Merkel

My main reason for blogging is not to develop a business, make political points, or earn money off of book reviews, advertising, or anything else, but to give something back.? I have a gift of sorts, which means that I should do some “pro bono” work for the good of all.

My work is an expression of me, with all of my idiosyncracies, biases, contrarian views, and as my wife would say, “Merk Quirks.”? I love my wife.? We just celebrated our 24th anniversary.? She doesn’t understand much about money and finance, but she supports me in all that I do — as I support her in our efforts in homeschooling our children.? She works as hard as I do; we both work 12-16 hours/day, 6 days per week, and we love it.

What I write here is an expression of who I am, and how I interpret the world.? My experience has shown me that so far I do better than most at anticipating future problems.? That said, I usually can’t get timing or severity right.? But if I make things easier for people to understand, I consider that a victory.

I am healthy, but I don’t know how long I will live.? True for most of us.? While I have the chance, I try to write articles that will have longer validity than most.? I view my role as not telling you what to do, but trying to teach you how to think, so that you will do better.? I don’t want to die without recording what I think are my best thoughts.? I think I have done most of that, but there is more to do before I am done.

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With that, I want to comment briefly on Thanksgiving.? To me, it is more than family around a meal, though I cooked an excellent spread for my family and in-laws.

The next time I visit my in-laws house, I need to get the title of a book that I read there, which purports that the Pilgrims worked exceptionally hard to pay off their debts to the merchant adventurers who funded them.? The Pilgrims were idealists who risked life and limb for religious liberty.? I have no Pilgrim blood in me, but my kids have ~10% of their ancestry there through their Mom.

How hard did the Pilgrims work?? Consider this piece from my friend Caroline Baum, which she publishes annually, with small changes each year.? The Pilgrims, who suffered huge losses in their first year, would not have survived as a colony if they had not privatized agriculture.? Once they did that, they had plenty to eat and to trade for other goods.

Caroline comments, “Their good fortune had little to do with God.”? I would disagree. The Bible commends personal property rights and diligent labor through the eighth commandment.? Obedience to what God commanded brought blessing.

But to take another angle on this, the Pilgrims had quite a debt to pay off, and their agents in London did not negotiate well for them.? It took them ~20 years to pay off the merchant adventurers, who earned a return of ~40%/year off of the idealists who could not do the math, but who did love God.

Considering how well the merchant adventurers did, I would still say the Pilgrims were the victors.? They flourished in their faith, and having more wealth would not have brought them much in the new world.

Bradford, on the other hand, was not as pleased by the end of his life.? In a pattern that would repeat in US history, by the end of his life, Plymouth was almost deserted, because the descendants of the settlers had moved further west, seeking earthly prosperity.? Did they put the ideals of the original Pilgrims first?? No.

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In my own life, I could have earned a lot more money had I sacrificed my family and church.? There are tradeoffs in this life, and often the better things get sacrificed for monetary goals.? But to what end?

As for me, I am grateful for my family, my congregation, my church, my nation, and all the blessings that come from God to support them.? May God bless you, my readers, richly as well.

Notes

Posted on 12 November 201013 November 2010 by David Merkel

I’m on the road in Denver, and tomorrow I deliver this talk Efficient Markets versus Adaptive Markets.? It is similar to the talk I gave to the Society of Actuaries, but has less background data, and focuses on how markets are adaptive, how multiple strategies compete for scarce excess returns.

Away from that, for those that care about the forced place mortgage jive, review this piece from AIZ? Sterne Agee and Assurant.? The issue is not as cut and dried as others would say.

Full disclosure: long AIZ

On Long Blog Comments

Posted on 2 November 2010 by David Merkel

I appreciate those who comment at my blog, even those who run on and on.? I will go further: you have a talent, and why waste it at my blog?

You have ideas and energy.? Build your brand.? Why waste your wisdom on the paltry few that read blog comments?? Start your own blog.? Write positively, proclaiming your own ideas.? Send me a link, so that I can read it.? If I like it, I will promote it, as I have done with many other blogs in the past.? Or, link to a post of mine, whether positively or negatively, and I will see it — my googlebots will send me a note.

I do not write this with respect to any single writer of comments at my blog.? Indeed I have had many that have written a lot there, and I thank them for it.? Thanks for your interest in me.

But you could do better.? I try to write six decent articles per week, and it is an effort.? It is always more difficult to put forth content positively than to respond to it.? I challenge you — start your own blog.? I will support you in it, if you write good stuff,? and you send me a link to review.

That’s all.? Phrased another way, if you are willing to write blog-length posts at my blog, you should be writing your own blog, and telling your readers what a dope/hero I am.

The Custodial Cost/Service Tradeoff

Posted on 27 October 2010 by David Merkel

Well, I got a surprise today.? No, it wasn’t that my favorite life reinsurer, RGA, beat the earnings estimate handily.? Rather, it was that the Securities Division of the Attorney General?s office of the State of Maryland made my filing effective to be registered as an investment advisor in the state of Maryland.? What I expected to take six weeks, or even two months, ended up taking seven days.? (That said, I had to go back and forth with Maryland three times, but each time I responded to them in less than 90 minutes.? All my preparation made me ready for the challenge.)

That left me shocked, happy, and then saying, ?Wait, I could get started sooner if I had a custodian chosen.?? But patience is needed here.? I face an interesting choice in who to use.? I have five candidates, and from a birds-eye view, they divide into three groups.? Two are inexpensive, two are expensive, and one is so complex that I can?t figure out what it is.

Now, naturally, the expensive ones offer more services, but I can?t tell how valuable they are.? The one I can?t figure out claims their automated trading algorithms more than pay for themselves.? I?m leaning toward the cheap ones because I am good with math, and until I get so many clients that I am going nuts, that would be best for my clients. ?(I?ve created far more complex systems while programming as an actuary.? This stuff is trivial.? Why not save money for my clients?? After all, I?m here to serve them, right?)

But that is my challenge at present.? What I am going to do is ask each firm to give me a ?demo? of their services, and try to get the odd one to clarify their pricing.? I will choose the one that will allow me to give the best service to my investors.

One intangible asset that I prize is my readers, and I thank them for their many comments and e-mails, even though I can?t respond to all of them.? With that, I pose the question to my readers who have faced the decision that I am making: Is it worth paying more in commissions to get higher services that might benefit your clients?? My guess is no, but I am open to being educated.

If inclined, e-mail me and let me know.

Full disclosure: Long RGA

Multiple Account Management

Posted on 21 October 2010 by David Merkel

I’m enjoying the preparations more as I make steps toward opening my business.? Today’s actions were ordering business cards, and sending out an RFP to firms that could be custodians/clearing brokers.? The latter of those two actions will prove to be important.

It is difficult to be a start up RIA.? Most custodians don’t want to deal with you unless you have something above $8 million, or even $35 million.? Yet, they are crucial to managing assets, because they provide security to investors, so that the investment advisors cannot misappropriate funds.? If Bernard Madoff had had a third party custodian, he would never have been able to defraud investors.

Now, my objective is to manage a large number of accounts such that they are broadly similar to the model account, which is my account.? I eat my own cooking.? Anyone investing alongside me should know four things:

I have made a commitment to investors to keep at least 50% of my liquid net worth in my strategies.? For me that should be easy, at present, that amount is over 80%.
I want all accounts, leaving aside differences for reasons of tax and ethical constraints, to get the same performance.? On any given day, when I trade for multiple accounts, all of my clients, including me, will get the exact same price.? It’s only fair.
I am trying to minimize net cost for my clients; services that have no value for them I eliminate.? I aim for clarity in pricing, and so I plan to avoid soft dollars.? If I need resources, I will buy them myself.
This also offers the possibility for small accounts (my minimum is $100,000) to get good execution and the equity markets.? But that brings up another issue: when talking about this to a friend of mine who wants to invest with me, he said, “But what if someone gives you a small amount of money?? Will you go out and buy a share here and share their in order to match your portfolio in percentage terms?”

That last one made me think.? In the short run, my solution would be to buy Spyders, and wait until I have enough critical mass from another capital contributor to do another group trade.? That might worsen the dispersion performance somewhat, but I don’t want my clients to be hurt by high commissions in order to enforce low dispersion.? The same issue would appear if someone wanted to withdraw a small amount of money.

I looked down on a lot of ideas that would allow me to run portfolios in such a way that I would have discretion in allocating trades.? Fairness is paramount.? Unless you can assure people that no one is getting an unfair advantage or disadvantage for your management, you’ll not be able to last as a manager in the long run.

Audits and Pseudo-Audits

I’m currently reading a book called, The Last of the Imperious Rich. Sometime in the next few months, you should see a review of it here.? But as I was on the train to New York, as I read about the part where one of the Lehmans met Goldman and Sachs, I commented, ?So that?s who Goldman and Sachs were.?

That started a conversation with the fellow sitting next to me.? It turned out that he was an accountant who dealt with registered investment advisors.? He told me that he was doing attestations for a number of his registered investment advisor clients.? I asked him what an attestation was, and he told me that it was verifying the accuracy of the performance figures of an RIA, but not to the level of GIPS level two, and certainly not level of a full forensic audit.

So I asked him how much the attestation cost, and it was remarkably reasonable.? So, my question to readers is this: how much credibility would you put into an accountant attesting to the accuracy of the performance figures that I have put forth, but not to the degree of a full audit?

Another way to think of it is this: clients have access to all my brokerage statements, together with a file that I have put together that reconciles all of them.? Personally, I think having the third-party look over my shoulder is valuable.? Even if you think I am an honest man, having someone else look over the figures, even if they are just comparing my brokerage statements and the Excel file that I produce is still valuable because it is another set of eyes looking at it.

One more question to all of my readers: are there other areas in separate account management where you think that if investment advisors might be unfair?? If so, please list them in the comments, because I am interested in knowing about that.

Again, thanks to my readers, who have been very helpful to me in the past.

I Have Been a Busy Bee

Posted on 20 October 2010 by David Merkel

Sorry for not blogging much lately, I’ve been busy with two things:

Completing and filing my paperwork for registering my investment advisory in the State of Maryland.? My electronic and paper filings are in the hands of the good people at the Maryland Division of Securities, who have been prompt and unfailingly polite?
Preparing for my talk to the Society of Actuaries on 10-20-2010. The date is a palindrome if taken two digits at a time.? If you want to read my slides in PDF, they are here.? Powerpoint: they are here.? I give the talk somewhere around 11:15.? Gate crashers can look here. And here.

Just a few notes before I go to sleep:

1) When problems are systemic and large, as they are with foreclosure fraud, and securitization fraud, solutions tend to appear in order to avoid chaos.? This is an awkward time, being before an election, so solutions are hard to arrive at.? But my belief is that given a little time, Congress and the courts will come to a solution that forces the banks to come up with the note, or a close substitute.? The same will happen for securitization certificateholders: since their economic losses on a held to maturity basis are not that great, they will get some small settlement to go away.

2) Insider Monkey’s post on Buffett drew a lot of attention, but there needs to be more critical thinking here.? IM is using Carhart’s four-factor model, and says the recent decade’s alpha is near zero.? Well, Buffett beat the S&P 500 by 6.7%/year over that stretch, which is a hefty margin, beaten by few.? And more remarkable, because he is managing so much money, the dollar amount of true alpha is huge.

But the hidden assumption in the use of the Carhart factors is the idea that no one can use them to make money over time on average.? As a value investor who does try to adjust to when those factors are cheap or dear, I find that assumption ridiculous.? Buffett is always looking for companies that are relatively out-of-favor relative to their prospects.? Even if it is not showing up in the alpha, he still prospers by buying the out-of-favor betas/factors.

3) The US is leading the “race to the bottom” on currencies. Emerging markets are generally holding to tight monetary policy, and their currencies are appreciating versus the lax developed countries who don’t have much mineral wealth.

All for now.? Have to get some sleep, or I will be no good in NYC tomorrow (today).

Portfolio Rule Four

Posted on 9 October 201010 October 2010 by David Merkel

I find myself in a different mindset, as I labor to start Aleph Investments, LLC.? I find myself both optimistic and fearful.? Optimistic, because this is what I’ve wanted to do for a long time, and I see the pieces coming together.? Fearful, well? I’m intellectually honest enough to know that even though I’ve done well over the last 10 years that may have no bearing over the next 10 years.? My greatest fear is that I start this business and I don’t do well for those who invest with me.

In the last week I’ve received confirmation from the state of Maryland that my LLC has been approved.? I have gotten my employer identification number from the IRS, and filed form 2553 to elect taxation as an S Corporation.? I have also begun filing with the state of Maryland and FINRA to register my investment advisory.

My next main task, while I am waiting for the state of Maryland to approve my filing, is to choose a clearing broker will be the custodian of funds for my clients.? I have five possible custodians that are willing to work with startup registered investment advisors.? This week I will send out some sort of RFQ to the five.

Beyond that, it’s time to get accounting and tax software for my firm, business cards, and help from someone who can help me in compliance matters, given that I would like to keep this blog not shut it down.? This blog is my greatest marketing asset, and yet my greatest compliance challenge.? Almost anything that an investment advisor might write on the web is regarded as advertising, even comments at someone else’s blog.? Part of the problem is that the rules regarding communications on the Internet for investment advisors are fuzzy to nonexistent.? If yhou have ideas, e-mail me.

To my readers: I want to keep this blog going.? Writing this blog allows me to do several things:

My first purpose was to give back to the general community.? If you have been given a gift, you should do some pro bono work.
Yes, to some degree, it does make me better known.? That is a help in attracting clients, but that wasn’t my first goal in starting this blog.
I like writing.? I like writing about economics, business and investments.? I enjoy being a bit of an iconoclast on economics.? I think business and investments are one of the greatest games in the world, and I like writing about it.? Even more, I enjoy playing the game.

So, I don’t want to lose the blog.? That said, if I can’t find a good compliance solution, I will sacrifice the blog for the good of the business.? My guess is that the odds are low that I will have to sacrifice the blog, so don’t worry.

Anyway, that’s what I’m up to.? If you want to talk to me about any of this, just e-mail me.

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With that, here’s portfolio rule number four:

Purchase companies appropriately sized to serve their market niches.

A short rule, a simple rule ? what could be better?? The basic idea here is to purchase companies that have room to grow, or have some sustainable competitive advantage that allows them to prosper in the market niche that they occupy.

Sustainable competitive advantage is an important concept.? If you read the works of Warren Buffett, he talks about a concept that he calls “a moat.”? The idea is, what does a company uniquely have that would be difficult for competitors to reverse engineer?? Granted, almost anything can be reverse engineered with enough money to do so, but that’s the game.? Is it worth a competitor?s time to spend that much money?? Will the business still be as profitable even if they do reverse engineer you?

Let me give you a more plebeian example.? The restaurant chain Applebee’s had a strategy of setting up restaurants in small towns.? They looked for places that did not have a dominant restaurant, and where the town was big enough to support one restaurant, but not two.? The size of the town was Applebee’s “moat.”

In investing, what you don’t want is a company so big in its niche that it cannot grow, unless the pricing of the equity is such that it resembles a junk-bond yield.? Also, you don’t want a small company that can’t compete against larger rivals.

Ideally, you want to find a management team that understands its competitive advantage and maximizes it.? I have found that many times in the last 20 years, and when that happens, it is a thing of beauty.

This rule is a little more squishy than the others.? There is a decent amount of qualitative judgment that must go into analyzing the competitive structure of the industry the company is in.? That doesn’t make the rule invalid.? Rather, I think that the average investor, unlike Peter Lynch, has the capacity to analyze industry trends and come to a correct decision on trends in pricing power.

Anyway, that’s rule number four, which can be otherwise summarized as pay attention to sustainable competitive advantage.

PS — for a set of articles I wrote three years ago on this topic that were a hit, please visit this page.

Post 1300 — Changes for David ? III

Posted on 14 September 201014 September 2010 by David Merkel

Every 100 posts or so I try to look back and think about where we have been.? At the last century mark, things were very different.? I was employed, though I wondered about the staying power of my firm.

Since then, I have spent time with the staff of the Congressional Oversight Panel regarding AIG.? They used a decent amount of my work in their report.? I have also spent some time talking with regulators, congressional staff, over a variety of things that I write about.? Proximity to DC helps.

Proximity to DC also allowed me to attend events at the Cato Institute, American Enterprise Institute, and Heritage Foundation.? I must admit that I was generally disappointed by what I saw there.? I am basically a libertarian, but one that appreciates that there are some areas that is impossible to be “hands off,” places where average people can’t accurately estimate the deal that they are entering into.? Also, many of the problems of our society are more complex than dealing with tax, spending, and regulatory policy.? In many cases social issues would have to be solved for the economic issues to be solved.? But politicians tiptoe around such matters, because they are not willing to risk their careers without any significant chance of reward.

Since the last century mark, I wrote the “Education of a Corporate Bond Manager” series, and added to my “The Rules” series.? I also appeared on StockTwits TV, interviewed by the estimable Tadas Viskanta.? A half hour never moved so fast.

One more change for? me.? Though I still work from home, I now have an office in my home.? Two of my children moved out, and after shuffling around the remaining five children as they would like it, I ended up with the small room that allows me to concentrate better while my wife homeschools.? I like it a lot, but I miss being able to comment on history, science, and math.? That said, I am guiding the oldest remaining through Calculus.

In terms of new things for the blog, I was sad when my old WordPress format broke and I could not fix it.? I like the new format, and that it loads fast.? I will be doing a lot of book reviews in the near term, and I will be adding a new page to summarize my book reviews by category.? Let me know if you like it, of if it is wasted effort.

I am also looking to do a few small blog fixes to increase contrast, type size, and add a print article option.? I am open to other ideas for improvement, so please comment, and I will consider it.

Changes for David

I have settled on setting up my own asset management shop.? I will manage separate accounts, including services to help minimize taxation.? I will only be managing equities, though I will offer the equities two ways: long only and fully hedged, where I sell futures contracts against the equities, to eliminate market exposure.? My next steps are:

Incorporate as an LLC in Maryland.
Set up my RIA.
Set up an arrangement with a clearing broker, who will provide brokerage, custodial and client communications services.
As things get close to being set up, I will talk with those who have expressed interest in the past.

A question to readers already providing separate account management services.? Is there anything material that I have left out here?? If so, would you e-mail me?

My initial minimum is likely going to be $100,000.? Fees will be 1%/year for accounts below $1 million, and slide down from there.? I have some preliminary marketing documents available for discussion purposes only.? E-mail me if you might have interest.? Please understand that all figures in the documents have not been audited.? That said, those that evidence serious interest can look at all of my account statements over the last 10 years, and receive an Excel file that reconciles all of the results to the penny.

Now I may get my track record audited when I get big enough, or if enough people tell me that I have to do it.? I am reluctant to do it before I know that I have a sustainable business.? The auditors charge a lot for what they do, and personally, I’m not sure I would trust the non-forensic audits that they do.? So you tell me, do I need the audit?

Later, once I get going, I would look to set up a mutual fund for smaller accounts, perhaps by buying up the management contract for a failed mutual fund, and using the tax losses to shield initial income for my shareholders.? There are also cheapish ways to set up a series trust for those that want to start a new mutual fund.? I would try those if I can’t recycle an old mutual fund.

So if you have interest in learning about what I am up to, you can e-mail me here.? Beyond that, I live near Baltimore and DC.? If you have a significant interest we can meet.? I will also be in NYC the third week of October, and am available to meet people then, and in Denver the second week of November? for similar meetings.

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Finally, as I always do, I want to thank my readers and commenters, even those that disagree with me.? You make my blog a richer place, and I am grateful that you take time to consider what I think.? I write my blog primarily as a means of giving back for all of the good that I have received in society; I hope and pray that it benefits you a lot, and that God would bless you in all matters.

Sincerely,

David

PS — By the way, do I need to take the series 65 exam?