Above Average Odds Investing is dedicated to the premise that there is a “better way” for the average investor to protect and grow their wealth over time. Hopefully, AAOI – through real time investment analysis and commentary, as well as a variety of helpful resources – will act as a “catalyst” for those investors who for far to long have invested in a manner contrary to their best interest (i.e., where the odds are significantly stacked against them).
About the Author – Ryan O’Connor
I’m a co-managing partner and portfolio manager at Cush Capital Management. Cush is a Kansas City based, value-centric investment management firm that provides portfolio management services to like-minded individual investors and institutions through separately managed accounts, a private investment partnership, and the AAOI Partners Fund.
AAOI Real Money Portfolio
Modeled on Warren Buffett’s original partnership from the 1950’s, the AAOI Partners Fund is a focused, long/short (long biased) Spoke Fund that utilizes a research intensive, value-orientated, and often event-driven investment approach. Our goal is to acquire securities trading at deep discounts to their intrinsic value, which generally entails purchasing them at very low multiples of normalized free cash flow and/or tangible assets. The portfolio’s investment objective is long-term capital appreciation. Our performance, current holdings, and a more in depth breakdown of the funds investment framework, philosophy, etc. can be found here.
As of 9/8/2010 (since inception on 10/9/2009), the AAOI Partners fund has returned 26.96% vs. 4.97% for the S&P 500 and 4.41% for the Russell 3000, outperforming by 21.99% and 22.55% respectively.
The fund mirrors our private partnership less our debt and options positions (additionally, some of our small and micro cap positions aren’t allowed due to liquidity, share price, and other restrictions. Our equity positions that aren’t allowed on the platform currently are Yukon-Nevada Gold (YNGFF.PK), Sprott Resources (SCPZF.PK), and GSI Group, Inc. (LASR.PK) – notably, our custodian Wealthfront is working on fixing this issue). Full disclaimer found here
A Word on Spoke Funds – “A truly Better Way for Investors to Protect and Grow Their Wealth”
The AAOI partners fund is a recently launched Spoke Fund, an innovative new investment vehicle that (like all of Cush Capital’s managed funds) was designed with the golden rule in mind and aimed at addressing the flaws of the traditional wealth management industry (it may not make money management noble again overnight, but its a start!). In other words, our spoke fund is set up exactly as it would be if our roles were reversed. A quick primer on spoke funds is found below…
Per Spokefunds.com, “a “Spoke fund” is short for “hub and spoke.” With a spoke fund, the portfolio managers own money is the hub and spokes lead to each investor account. Any changes in the hub are simultaneously made in the spoke accounts. Thanks to technology, this can all be done pretty easily. And portfolio managers are truly in it together with their investors.” So a Spoke fund is essentially a group of separate investor accounts linked to a portfolio containing most of the liquid net worth of that fund’s manager, also happens to combine the best parts of a mutual fund and a separately managed account, while leaving out the worst. What makes it better? Let us count the ways…
- Complete transparency – we realize how important it is for investors to know where their money is as well as how its invested. Unlike with mutual funds, our investors have online access to view the funds holdings, and better yet, our actual rationale for why we own it (talk about full transparency). Investors can also access their statements 24 hours a day and deposit and/or withdraw their money as needed.
- Lower fee’s – the AAOI Partners fund will have relatively low turnover, low cost commissions, and a tax-friendly structure. There are no loads or 12b-1 fees or other hidden expenses that mutual fund’s charge to pay their salespeople. Fee’s are 1% of assets on an annual basis, and are assessed quarterly.
- A flexible mandate/focused portfolio of high conviction ideas – Unlike the typical mutual fund manager who by law must de-worsify and hence usually owns hundreds of stocks, we have the ability to take concentrated positions in only our best ideas (or sit in cash if we can’t find any). This gives us the freedom to only invest in uniquely attractive opportunities that possess both a highly favorable risk/reward profile and the requisite margin of safety. Not being forced to own mediocre and/or bad investments due to misguided and arbitrary rules is a powerful thing. Paraphrasing Buffett, we can’t understand why anyone would pay a professional money manager to invest in their 74th best idea. We are also thankful to have a flexible mandate, which allows the fund to allocate capital towards only the most promising opportunity sets by providing us with the freedom to exploit investment opportunity across the investment spectrum. The ability to search across geographies, industries and market caps in search of only those areas that are the most inefficiently priced, and therefore offer the best risk-adjusted returns, is a significant competitive advantage.
- Separate accounts – accounts in a spoke fund aren’t pooled like a mutual fund. They are individual, separate accounts linked to a model portfolio. In a mutual fund, if another person withdraws their money, the fund manager is forced to liquidate shares to pay out cash, potentially hurting the funds other investors. Mutual funds also often times have embedded gains when purchased by investors, which subjects those investors to tax liabilities regardless of whether they have gains or losses. In a spoke fund neither is an issue, as our investors own the shares individually and therefore what happens in other accounts has no effect on them.
- Trust/Accountability – unlike the manager of your typical actively managed mutual fund, as a Registered Investment Advisor, we have a fiduciary duty to put your interests ahead of our own. We also have the vast majority of our net worth’s invested right alongside our clients. In other words, our clients can rest assured that we (1) own the same securities at similar prices that they do, which ensures that our financial fortunes will move in lockstep (this is especially true as not only does our net worth decline, so does our income) and (2) that we are legally required by both federal and state law to put our clients interests first.
- Access to your portfolio manager – again, unlike mutual funds and/or nearly any other professionally managed investment vehicle for that matter, our clients have direct access to yours truly and/or my co-portfolio manager if they have any questions or concerns about their investments. Granted, the initial rationale for why we own a particular security will usually already have been posted for our clients viewing pleasure on our site (or discussed in our quarterly letter), but assuming they would like to discuss a particular holding on a more granular level (for whatever reason) we will be glad to do so (assuming the calls are scheduled in advance). Remember, our goal is always to ensure our clients understand both what we own and why we own it, in hopes that they will be as comfortable with their investments as we are in choosing them for the both of us.
Our Custodian – Wealthfront
With a mission that revolves around bringing both a superior actively managed investment vehicle and top investing talent to ordinary investors, its easy to see why we believe Wealthfront is a natural partner and our custodian of choice for the AAOI Partners fund. After all, “helping other investors invest well” is our mission as well.
Per their site, “Wealthfront’s mission is to make it easy to invest well by recommending outstanding professionals to manage your money. An SEC registered investment advisor, Wealthfront makes it possible for average investors to access outstanding registered money managers who otherwise might require a minimum investment of $1,000,000 or more; it also enables quality money managers with less than $1 billion under management to easily access new potential customers.
As a leading online destination for quality investing, Wealthfront has developed a robust and easy-to-use platform so individual investors can access previously unavailable money managers, open and fund accounts, invest in the most appropriate recommended money managers and track their long-term investments.
Wealthfront was founded in 2007. The company’s management team includes veterans from the eCommerce, investment and university endowment worlds. Wealthfront has raised more than $10 million in venture capital from DAG Ventures, as well as a number of individuals including Marc Andreessen, Jeff Jordan, CEO of Open Table and former president of PayPal, and partners from Benchmark Capital, Index Ventures and Kleiner Perkins Caufield & Byers.
Its innovative business model has been featured in articles in leading publications and media outlets such as The Wall Street Journal, CNBC, Bloomberg Business Week, MarketWatch, Barron’s, Fast Company and The Huffington Post.”
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