Thursday, July 31, 2008

How to Start Your Own Investment Fund

Cayman Islands are probably where to start. It’s about $2,300 to get set up with the proper paperwork. About 8000 of the world’s hedge funds and about 5,000 mutual funds work off of that island. Here is a how to link for the really serious at heart. This is kind of boggles the mind. The islands cover an area about 1 ½ times the size of Washington DC with a population of 50,000 people and has 500 billion in the bank. The thing I really like about this is that it doesn't involve duct tape or a handgun, and there is no jail time, it's all above board.

The total cost is under $3,000 in fees and that includes the cost of a post office box, such a deal! Advertising for clients will be your biggest expense. A printing of 1,000 to 2,000 prospectuses might cost around $10,000. Figure about 5 bucks apiece (copy someone else's that looks slick). The lead pipe cinch rule gives you an automatic 3% return on the mail out. So that would be about 30 to 60 new clients. Then as fund manager, you would mail out monthly statement telling everyone how much money they made. [Hint: pick investments for the news letter that went up for the month, a subscription to the WSJ wouldn’t be a bad idea.] The more earnings the client sees in their monthly statement, the eagerer they are to invest more ( tell your friends, we can all get rich). All that is needed is some decent software and a high end color printer, you can retire tomorrow. Balance the redemptions against new subscriptions. Gold, Silver, oil, and market shorting seem to be good areas of concentration lately. This isn’t a Ponzi scheme, because you can close up the post office box at any time and move away. Here is a more serious link about the mess if you are interested.

You can pretty well guess how this will all end up. The hedge funds will fade away worthless and the mutual funds could drop to 10% of their value like they did in 1930’s. Are you feeling lucky? Give it a try. It feels better when the money you lose belongs to someone else. Believe it or not investors are waiting in line to send you their cash so they can avoid paying taxes. Just maybe there is some poetic justice here.



Many a truth is spoken in jest. Since you and I have both correctly (and well in advance) foreseen the market turmoil, why not start up our own hedge funds? Of course, I'd have to begin by putting it all in cash for a year or two - any favoured currencies?

Anonymous said...

*cough* EURO *cough*

Paco Bell said...

*ahem* CHF

Top tips Jim, if only I had the cojones, and possessed the necessary amount of moral ambiguity.

Jim in San Marcos said...

Hi Sack

Anon 9:28 probably has the right idea. They are not printing more Euros. I just don't think that the Euro's Union can hold together under this mess. There could be a break up.

As for starting a hedge fund to help myself get rich, it's counter productive to the way I was brought up. Paco Bell hit the nail on the head. We know better.

The thing I was pointing out, is that with these hedge funds, we are only numbered accounts to them. How they influence our personal lives doesn't even come into the picture. These funds are feeding their familys and kids and that's all that counts.

The investor has to take the final responsibility for the way his money is invested, caveat emptor.

Thank you both for you your comments

Anonymous said...

I am reading and learning a lot but I want it to get better... I am tired of all this mess... I am tired of losing money... I am self centered for sure... but I can't help it... I don't want the depression of 2006 2007 or 2008- I want the recovery of 2009... gosh darn it I stocked up on staples the other day... and crowded my cupboards... and I don't even cook... we go out most nights... I don't like feeling insecure... yes, I am happier in a bubble! Tell me it is going to get better... because my husband is tired of me hauling in rice and brown sugar bags just because I am scared! He brings home a pretty good salary- and I keep telling him we're all going to starve:) I NEED depression therapy!!!
Do you think there is a government program for that?
Catholic girl

Jim in San Marcos said...

Hi Catholic Girl

I don't think that there is too much to fear, knowing what will happen keeps one prepared. It's only going to be real bad for those who commute 100 miles in an Hummer that recently bought a new home.

The only reason that they will suffer and we won't is that they are holding on waiting for things to get better.

A better reason for stocking up on food,water, a Coleman lantern and stove would be to be prepared for an earthquake (if you live out here in California).

In the 1930's farm machinery reduced the farmers from 80% of the population down to 20%. Computers seem to be doing the same thing to industry today.

As for a government program (I'm assuming that that was tongue in cheek), California's Workman's Compensation Program pays on just about anything, you might even qualify for a benefit check.

Good luck and don't stack the rice bags too high.

I'm Not POTUS said...

To keep this tongue and check. I would pick another local for the fun. Me thinks “someone” will find an immanent threat of terrorist funding that will require an immediate physical seizure (aka invasion) of the bank havens in the Caribbean to prevent a credible attack.
And all of a sudden the plunge protection team will have a lot more “bazookas” to play with.

I vote we start a setup in CH. Because I favor the CHF as the fiat of last resort.

Jim in San Marcos said...

Hi Im not Potus

If CH= Switzerland and CHF =the Swisss Franc, it might not work like you think it would.

Back in the 1970's I used a Swiss bank account to speculate in currencies. So many investors were putting their money in the Swiss Franc that the banks started charging the customers interest on their savings accounts held in Swiss Francs. The increased deposits were causing inflation inside the country.

The financial world is like a floating boat. If everyone decides to move to starboard at the same time; you solve one problem and create another.

It's going to be interesting to see how this all plays out.

Your right about one thing, you'll need a sense of humor, to get through this mess.

watchtower said...

Please forgive me for beating a dead horse but "you da man", oil continues it's trek down.

Jim in San Marcos said...

Hi Watchtower

The drop in the price of oil could be an indicator of world economic conditions. Things are getting worse as people are being laid off.

Speculation is still the name of the game. T. Boone Pickens is no dummy. I just can't picture him saying oil will reach $150 a barrel with a straight face. There is more to what's going on than meets the eye and it's probably all above board and legal.

Right now there are hints that a big hedgie or two heavy in commodities might bite the dust real soon, could prove to be an interesting week.

Thank you for the ata boy.

Anonymous said...

Last month Chrysler was offering 50% off on their pickup trucks. One of my coworkers bought one. We figured that, even with expensive gas, he'd beat the total ownership cost of a Prius for at least 6 years.

I tried to tell him that a car company that is selling vehicles for 50% off is obviously scrambling for cash. Desperate.

My own bank, WaMu, is suddenly offering killer rates after a year of crappy rates. I've shifted all my savings there. A bank offering killer rates right now must be despearate for cash. However, I can't help myself! I'm drawn to it like flies on dog poop.

Anonymous said...

anonymous said ...

Careful of shaky WA Mu. The Federal Deposit Insurance is only $100,000 per person per bank. Retirement accounts can be insured to $250,000. Please check it out with care that you are not over the federal insurance limit. Sometimes those bank rates are to good to be true.

Jim in San Marcos said...

Hi Anon 5:14

Most of the people I know don't even have 10k in the bank. But if you have a lot of cash, you don't have to worry about bank maximum amounts if you bank with the U. S Treasury. Here is a Link You can have a Gazillion dollars in the account and it is all insured.

I've heard that all of the Colombian drug dealers swear by this program (my wife and I use it and we're not from Colombia).

Thank you for the heads up. We help ourselves by helping others.

Jim in San Marcos said...

Hi Anon 11:00

There are some deals out there on vehicles. If you can get 50% off on the price and have to finance it, you will save enough to pay the extra at the pump.

Even though your money might be insured by FDIC, the one thing not mentioned much, is that they have some time before you have to be paid. It looks like they have years to pay you off, which doesn't sound good.

Jamey said...

Any words of wisdom for a rookie wanting to start a private investment fund with a focus on Brazil Real Estate?

Jim in San Marcos said...

Hi Jamie

No words of wisdom, I haven't messed with that endeavor, so I can't really help you.

I can tell you if you stay clear of Federal laws, you probably won't spend more than 3 years in jail if you get caught spending it on yourself.

Anonymous said... seems to be a scam site. Have you had successful dealings with them?

Jim in San Marcos said...

Hi Anon 6:52

I haven't had any sort of dealings with them. You could be right. It was one of many, offering services on the web.

I guess it reaffirms the idea that there is no honor among thieves.

Charles said...

Comments invited from those of sound mind:

6 months from now, will I look like a genius if tomorrow morning I cash in my 401K early, take the hit and the cash and pay off my mortgage with? I haven't lost anything in the last year, my money has been in the money market. So I am not cementing any losses here, other than the early cashout.

Anonymous said...

Hello Jim.

Let me start by saying the website rocks, as does your input. It is very cool that you take the time to get back to everybody in their questions/comments.

I have been practicing and always further studying residential real estate for a while and am currently putting together a proposal for a RE investment fund. I am mere 25 years of age, and technically have no experience in managing investment funds, though this I am doing because I have a good knowledge of a specific area that has REO's in heavy development neighborhoods. I was told to put this together by one of my investment sources after a conversation that we had on the opportunity involved in working with smaller lofts at 200-300k a piece. Due to the size of the properties and my experience (or lack there of), I am only putting together a proposal for a 2-3 million dollar fund. I am currently researching any info/ flags I should look for (such as the llc/corp requirements, taxes, SEC restrictions, etc..) although I still feel like I could be more lost than I realize.

I know this is something I am fully capable of handling, although it is only a wise move to go to those who are wiser.. so ANY suggestions and/or recommendations you may have for resources and such would be greatly appreciated. Thank you again, on everyone's behalf, for this awesome site.

Best wishes,

Jim in San Marcos said...

Hi Dan

Thanks for the complements. If you do anything I would try to form a corporation or LLC outside of the US. My thinking on this is that it is very uncertain what our government is going to do next. Plus some of the paperwork you have to figure out quarterly is almost impossible to understand let alone fill out.

I can't give you much help on some of this real estate paper floating about. Some of it is pretty abstract stuff.

I think that it is still way too early to dive into the Real Estate market. The bottom of most down real estate markets lasts at least 6 years. 2009 is the beginning of the resets for interest only loans.

The other hand interest rates are so artificially low that you still might do OK buying the present market, rates could rocket up to about 15%.

An LLC would be the best way to go. As the general partner, you get to keep half the profits and the investors put up the funds. The WSJ had a good article today on Hock Shops--that might be a better way to get a bang for your buck.

Take care

bathmate said...

I liked it.

Anonymous said...

How about we get this website rolling again?