Ro Ro Farm Investment Partnership Co.
To the partners of Ro Ro Farm Investment Partnership Co.:
Hope all is well with you and your family members. Happy holidays! Sending blessings your way.
After reading and analyzing about 2,000 pages this month, below is the summary of what may be important to you. Note, that credit goes to my smart friends and Warren E. Buffett in advance, who gave me ideas, quotes, and resources.
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OUR MAIN GOAL IS TO - AVOID THE BIG MISTAKES!
In Genesis 41, the Bible talks about how the world goes through seven years of great prosperity, followed by seven years of great famine and agony worldwide. Only Egypt is prepared because Joseph advises the Pharaoh by interpreting his dream. Thus, preparing Egypt for the famine seven years. Likewise, the markets will go through tough times. "Anything can happen in this world, it's instructive art" (Warren E. Buffett). During the good times, even an idiot looks like a genius. "After all, you only find out who is swimming naked when the tide goes out" (Warren E. Buffett).
It’s not that I’m so smart it’s just people (smart people) do dumb things, and they make me look better.
FUTURE OF RO RO FARM CO.
We don’t know if we will ever reach the butterfly stage. However, it’s very important to note that it doesn’t matter. We were very happy when we managed $4,000. That is even before the inception of Ro Ro Farm. Our utility - happiness - has not changed with the increase in the size of the fund. We just enjoy the process. We were having fun when we were managing small amounts of capital, and we are having fun now.
COMPOUNDING
"Compound interest is the eighth wonder of the world. He who understands it, earns it...he who doesn't...pays it" (Albert Einstein). Essentially, we are in the game of long-term compounding.
U.S. ECONOMY & MARKETS
We feel - not all - but part of the market is in bubble territory. Meaning, the markets are at dangerous levels. Further, the important thing to note about market bubbles is that they can go on for many years before they burst.
The market always operates in the future. Since President Donald Trump won the 2024 election, the markets have boomed. Sometimes markets underestimate and sometimes overestimates. “In the short run, the market is a voting machine. In the long run, the market is a weighting machine” (Ben Graham).
Note, that the higher the market price diverges upward from intrinsic value, the higher the risks (vice-versa).
REAL ESTATE VS STOCK MARKET
We like the equity markets better than real estate. The main reason is that you can find better bargains in the stock market.
Three things to note about real estate:
1) LEVERAGE: People mostly use leverage (mortgage), thus, the returns can be attractive “if you do it right.” You can make higher returns if more leverage is introduced. However, leverage regardless of the situation can be dangerous. One day you have a lot and the next day poof gone. Most real estate companies are in a crap load of debt.
2) MANAGEMENT: Real estate causes headaches with regard to physical property, insurance, and tenant management. But it’s simple to understand.
3) RETURNS: Real estate is too competitive (Jews, Patels, Asians, PE firms…all love real estate). Thus, the returns are not that good over time (+5%/year generally).
We just like the power of the equity markets (Stock Market) a lot better. You can buy real estate companies in the markets as well, but the returns are generally not good – not always. The margin of safety is generally lower with real estate.
An exception, we do own one real estate company, where we found a bargain (special situation case).
Also, real estate investment is good if you can buy it at 50% of its intrinsic value. If you buy a house with an intrinsic value of $300,000 for $150,000, that gives you a 50% margin of safety (because you could be wrong). However, the market is too competitive, so you generally buy it above its value.
Buying undervalued assets is what I do! I must be able to value assets (if I can’t value them, I just move on to something I can value). Then I buy it with a minimum of 50% Margin of Safety.
Real estate is appealing to the eye because the property is there, and you ‘feel’ you have something even when banks own the majority of it. Stocks you don’t see it. It’s not appealing to the eye. You feel nothing is happening. However, in the long run, stock indexes perform around 10%+/year. Plus, we are doing a lot better than that.
Ask yourself, how hard did I work to double my return with stocks? Can I get that kind of return in Real Estate? I know lots of people who lived a humble life and when they retired, they had $50 million plus pure cash because they invested that way I invest! Further, they carry no debt! You will be one of them if you don’t touch your equity (stocks) investments.
Real estate, sure, you can be rich. However, with stocks, you can be one of the wealthiest in America. I mean the goal is to simply life. Plus, we like to think we are logical, but we humans are emotional and overcomplicate everything.
I’m trying to make you cash-rich. Too many times, I see people with nice cars and houses, but they usually are drowning in debt. I can’t sleep tight like that. Life is too short for that. To be cash-rich you must be patient, and it does not happen overnight. Most people want to feel rich but maybe don't always know what it really means to be rich.
Sometimes I get a gut feeling we are going to be very wealthy. Chinese people will love us (old and rich people are who they admire). Plus, I love the ethos of Chinese people, especially, Confucius.
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RO RO FARM CO.’S PERFORMANCE
Below is our return profile compared to the market since inception (2018).
November 29th, 2024 Rojan K. Shrestha
General Managing Partner
