Monday, May 26, 2008

Frequently Asked Questions

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As the website has grown in popularity I am getting a lot of individual questions on specifics of the fund, the website, and other associated material. I have addressed most of these over time, but many times in email or as "comments" right on the blog - and since many of you just read through a reader and never come to the actual web site ....and/or many have come to the site in the past few months (missing some of the history), I'll create a post here, and throw it as a permanent fixture on the blog so any new readers can quickly find most of the common questions in 1 spot. If you have a question I did not address just send me an email and/or attach a comment to this blog entry and I'll answer. Transparency is (aside from performance) going to be what sets us apart.

Let me preface these answers by saying this is where I think things will be today - nothing is fixed in stone but I am giving my best answer as conditions stand today. But below are the most commonly asked questions.

Mutual Fund Specific Questions

Q: When will you launch the real fund?
A: That is up to the readers - obviously this site is a vehicle for readers to get a comfort level with my ideas, my investment style, thought process, and performance. My goal is to be able to reach an asset level where I can break even in year 1, i.e. the annual expenses (not including start up costs) pay for itself - I believe that number to be about $7 million in assets (which over time I've lowered from a larger number as I've received more information and pointed to more resources). I also believe it is much easier to invest in something that is live and ready to go, than a "concept" - so I am willing to launch at roughly $4 million in assets "pledged" (Progress Towards Raising $7M), with the belief that asset growth will happen much quicker when there is a vessel ready to go that someone can react to immediately rather than reading along a blog for 12 months. So I believe growth will accelerate once the fund is "live".

We are currently at just under $2 million pledged (EDIT: As of July 2008 we are over $3 million pledged), and if our run rate is somewhere in the $200-$250K/month , we'd reach $4 million by end of 2008. So 90 days in advance of this target I would begin the process of filings, paperwork, lawyers and such. It could be earlier; it could be later - all depends on the flow of monies pledged. The "pledged" run rate has been higher than listed above in the past 45 days, but again I am trying to be conservative.

Q: What will your fees be?
A: We will be a no load fund; for those who do not know a load is a fee paid up from; usually 4-6%. Meaning just for the honor of investing with me, I get 4-6% up front. So we won't be doing that.

As with all funds we will have an annual fee; since we will be small up front to start I will begin at roughly 1.75%; then as (if) fund assets grow to some threshold (I don't have an exact number) my intent is to drop that to 1.50%. My goal is not to be the cheapest fund on the planet - if you are looking for that Vanguard Group has some excellent index funds. But I won't be charging 2.00-2.25%+ like some other funds either.

Further, I think one major problem with the mutual fund industry is there is no incentive for good performance (other than say ego or attracting assets) but a lot of funds sail along with middling performance, acquire assets and if the fund does well or does not do well, the fees are paid. In any business I run, I'd want the people incentivized to outperform - so similar to about 200 mutual funds out there do (including many at Fidelity, Vanguard) there will be some sort of fee for long term out performance versus indexes; I don't know the exact structure but it will mirror what is industry standard. So if the fund does very well, there will be additional benefit - if not, then some penalty to fees. The other carrot is I will have the majority of my own investing funds in this mutual fund, especially at the front end.

Last, I will have one punitive fee and that is on short term trading - essentially investments held by shareholders for a short duration (6 months, 9 months?) will be assessed a fee (2% seems to be industry standard). I've read an article in this month's SmartMoney which staggered me; fully 35% of mutual fund transactions are estimating to be due to investor redemptions (NOT due to strategy), most of the time at the worst time (i.e. during a market downdraft). Further, in our attention deficit society our mutual fund community seems to be turning into a very similar ilk to the stock community - trading in and out of mutual funds. I want to eliminate that as much as possible since it will wreck havoc. (i.e. being forced to sell in large waves during the January 2008 lows) So this does not mean you cannot take your money out at any time, but (for example) when you purchase, unless you hold for 6 months there will be a small fee attached - this should alleviate rapid fire trading. Also my constant communication (which most funds lack) should alleviate this concern / short term redemptions to some degree. I also always hold a lot more cash than the typical mutual fund so I can easily meet redemptions.

Q: I want in, but I don't live in the U.S. Help!
A: You are eligible to invest - you will need to register with a US tax number by filling out this form: W-8, and then you will fund your investment either with a direct bank wire OR if you have access a check funded with US dollars. The wire sounds much easier. Everything else will be the same as the American investors.

Q: My state is not eligible yet per your posting - how will that work?
A: As I wrote in [Fund Launch - State by State], to pay for the fees to register in each state; I need about $40-$45K in investment from that state to break even. So as the "pledges" come in, I am making a list of what states to register at right from the get go - hopefully over the coming 3/4 of a year it broadens out to include more states so more people can participate right off the bat. But just because a state is not eligible today does not mean it won't be in the future. 1 year ago I had zero states eligible since I had zero future investors. Simple enough. So as more interest comes in the future from each state, more states will open with the goal of all states being eligible - but I will just need potential investors to continue to make me aware of their interest. Registering in a new state is literally a 24 hour process, so once a threshold is met, that state can be "opened" for investment, almost immediately.

Q: Will your strategy change?
A: No, my overall strategy will be the same, but my tools at disposal to take advantage of said strategies will broaden. This will be covered in the prospectus, but essentially I want to make the fund as flexible as possible - this would include short positions and some options (mostly long dated calls, LEAPs and the like) in my best ideas. I do believe this will create an even better performance than what I am able to do in a restricted fashion on Marketocracy.com. I've had a lot of great short ideas go by the wayside this past fall, and a lot of my best ideas on the long side - if layered over with some LEAPs or long term call options would of given us some huge returns. But more complexity always adds more potential risk, which will be outlined in the prospectus.

Q: How do I know you won't run off with my money?
A: Well, that would defeat the purpose of this endeavor, but over and above that I won't ever see your money. I will be paying a 3rd party source to handle just about everything outside of making buy and sell decisions. So as with any fund, you're going to be sending money, receiving paperwork, etc from someone not named Rising Tide Growth Fund.

Q: What's the minimum investment?
A: $2500 for initial investment in either regular account or retirement.

Q: Can I do monthly installment investments like other funds?
A: Yes, as with any fund, you will be able to do automatic withdrawals from your bank account to buy shares of the fund on a monthly basis.

Q: Can I buy your fund in an IRA/Roth IRA?
A: Yes, as with any fund, retirement or regular accounts will be available.

Q: Can I buy your fund in my work's 401k?
A: No, you are limited to what options are in your 401k. Unless you asked your workplace to include the fund in the 401k. And then the answer would be yes.

Q: Will you be available in the Fidelity, Charles Schwab, or Ameritrade supermarket of funds?
A: From what I've been told Ameritrade has free registration for funds in their supermarket, so if true, the fund will be made available there. The other two have relatively hefty fees, so not until the asset base reaches a certain level will I register there (the costs need to offsets the benefits)

Q: You have a high turnover and generate short term taxes.
A: Ok, not really a question but a statement. Yes, I have a high turnover. So does Ken Heebner. He makes good returns, and attracts a lot of assets due to his acumen. I make good returns and hope to attract a lot of assets due to my acumen. Will I throw off taxes? Yes. I find it more attractive than the alternative (losing money). Would I like to run a fund that generates 50% annual returns with zero taxes? Wouldn't we all. I will try to marry short term losses with short term gains to neutralize some tax implications, but frankly my #1 goal is to minimize short term losses so that I don't have many to marry to. We will have tax implications; more gains will imply more taxes - no way around it.

Website Questions

Q: What happens to the website when you launch (also written as "Will you keep posting on the site?")
A: This website has one goal and that is to showcase my record, thoughts, themes, and investment style to attract investors. When we launch for real, we'll have a new website - but hopefully archive this site somewhere within the new site. Due to SEC regulations I don't know exactly what the end result of the new site (in terms of blogging) will be but in summary - transparency and investor communication will be something that I think will be a key selling point of this fund versus the industry. So yes, posting will continue although the nature of which might evolve over time. But investors will continue to be let in on the thought process and stock selection. The website (blog) portion will be open to all readers, investors or otherwise.

Q: Will you sell my email?
A: I honestly don't even see most people's emails. All that stuff is handled by the de facto web content (blog) distribution channel - Feedburner.com. And again, selling your email would take away from the main point of my blog - attracting investors.

Q: Your website is ugly / poor / too busy / slow / did I mention ugly? Can you fix that, or move that, or do this or do that to make it easier on me to read it?
A: Sorry. Thankfully my investment acumen is many times better than my website acumen. I use a 3rd party blogging site called blogger.com. It is for newbies like me. When we move to a new website, it should look more typical of other mutual fund family websites; I've had one reader/future investor willing to volunteer help on that end so I hope to make something worthy of my readership. ;)

Why Don't You... Questions

Q: Why Don't you just start an online Newsletter, it would be so much cheaper and easier and you'd make a nice profit?
A: Yes I get this one about twice a week - I do realize that, but my goal is not "future newsletter writer" but running money. That's my passion and focus.

Q: Why Don't you offer individual private accounts?
A: A couple of people have asked this and it sounds interesting. I am not in the industry so I don't have the faintest clue about the mechanics of such things, nor am I set up or licensed to do that. Many investment managers who run small shops also run private accounts, which is something I am open to someday in the future. But I can only do one thing at a time, and this is job #1.

Q: Why Don't you do a hedge fund instead, it is so much easier and cheaper?
A: Yes, it is easier and cheaper. But if you think it's hard finding investors of normal ilk, just try finding a bevy of "qualified" investors. I'm a big proponent to bottom line results. If you put up results, capital will find you in time. I actually run this mutual fund in a way similar to many hedge funds - trying to limit volatility to some degree, and having short versus long exposure, to hopefully benefit from a down or up market to some degree.

Etc Questions

Q: Should I buy ABC stock?
A: I won't answer that for liability reasons nor do I know your specific situation nor am I your investment advisor. Although I could recommend a good mutual fund (ahem) for you.

Q: You've done ok so far, but how do I know you will keep it up?
A: You don't know. I don't know. As every mutual fund advertisement says, past performance is no guarantee of future results. Instead of starting this idea in a much easier time say 2004, 2005, 2006, I began in the birth of the credit crisis late last summer, and it's been one tough environment. But in retrospect it might of been a good thing because in 2004-2006 blind monkey could make money throwing darts as the market generally just went in 1 direction - up. Making money in down markets is much tougher and separates the wheat from the chaff. I hope to continue to be wheat, and not chaff but for all you know I've just had a 9 month streak of luck.

Q: What an idiot, I read your article on Seeking Alpha and you sold ABC stock right before it took off? Loser. You, and your fake fund - suck.
A: Thanks. I can only imagine what Jim Cramer gets in the mail if lowly old me gets this sort of "feedback".

Q: How can I take a guy who has a Kool Aid avatar seriously? (ok I made this question up, but just in case anyone is thinking it)
A: You take those guys on CNBC who spout Kool Aid endlessly seriously, so why not take me seriously? If not for copyright reasons, I'd probably splash Kool Aid man on the cover for the prospectus to represent all that is great in the investing world. ;)

Q: Will you hire me?
A: No, I won't. :) I can't even afford hiring myself at this time. In the long run, it would be sort of a neat thing to run a company with an umbrella of individual unique mutual funds run by individuals of atypical background but with a good track records. Something to mull for the long term future.

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