Update No. 136 – 03/11/13

Selling I have said many times is easily the hardest part about investing. I mentioned that I had disposed of our TPI holding a few weeks ago, because the level of commitment to debt elimination displayed was not what I had hoped it would be, and it was the one holding I spent the most time thinking about what could go wrong. At the time I said it was ‘probable’ that I was selling too soon. The share-price has moved over 20% since then, indicating the market certainly thinks so. Had I not sold, our results would be nearly 0.3% better than they are today. I can live with the decision, because I am comfortable in why I made it.

The website was linked this week here, in relation to fund manager selection. It was very flattering to be thrown up as someone the person interested in investing/saving, but not willing to do it themselves could consider to manage their money. This is something I think about a lot.

My Wife and I carry pretty close to 80% of our net-worth in the fund (our children have pretty much 100% of their limited net worths therein). I believe the best capital allocation advice was Andrew Carnegie’s:

“The way to become rich is to put all your eggs in one basket and then watch that basket.”

However, were I not running my own fund and was asked by a friend how to allocate their assets to professional managers, my advice would be to pick 3 or 4 managers you’ve good reason to believe will exceed the market and invest an equal amount with each the one with the best results will naturally end up with the largest share of your business (via growth).

It may seem foolish to direct readers to other money managers, but I am going to do it anyway for two reasons. Firstly, I fully expect to attain a level of capital whereby I will close the fund within 5 or 10 years whereupon I'll try to work it hard for the ensuing 35 or so years (so I’m not in a hurry) – my interest is results for my investors, not building the biggest fund management company. Secondly, if my own investors are considering looking around, I want them looking in the right places. So whilst at least ¼ of your equities exposure should be in EGP (in my biased view), if you were looking at 3 other options, I would look closely at these:

My first recommendation is for a completely new fund called Castlereagh Equity. It was established this week by my friend Peter Phan. Whilst the fund is new, I’m quite aware of what his results have been over the last couple of years (hint: very impressive…), although we talk about ideas regularly, there has been minimal crossover in our holdings, but as I say, his results have been excellent and he thinks very clearly in terms of risk. I expect the returns will continue to beat the market. Importantly, his fee structure will mimic the Buffett partnership, which means you will only pay if there are good results.

Secondly, I would look at Pie Funds, a New Zealand based Fund Manager that has had peerless performance since inception. In particular I refer to the ‘Australasian Growth Fund’. When you consider the inception date was late 2007, right as the GFC unfolded, the subsequent results are all the more exceptional (exceeding 20% p.a. after fees). Mike Taylor is the founder and although he charges a more traditional fee structure (1.5% on Assets & 15% of outperformance) sometimes you get what you pay for! The fund I mentioned is closed, but I would pester the Pie team relentlessly until they let me in…

Finally to get global & long/short exposure, I would direct a portion to Bronte Capital. John Hempton is a very talented exponent of short-selling. Again, a more traditional fee structure (the EGP fee structure is truly unique) but like Pie, the historic results justify the fees.

If it’s ‘diversification’ you seek, it makes sense to have a mixture of different investment styles, the group set out above I expect will in the longer term all exceed the performance of their peer group – Tony Hansen 03/11/13

EGP Fund No. 1 Pty Ltd. Up by 18.38%, leading the benchmark by 4.10% since July 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 61.68%, leading the benchmark by 36.08% all-time (April 1^st 2011).

^{*1 after 31May 2013 dividend of 2.333 cents per share plus 1 cent per share Franking Credit}

^{*2 calculated based on dividends reinvested}