Owner's Manual

OVERVIEW

Ro Ro Farm Co. is a commingled fund established in Boulder, Colorado, United States. A commingled fund that invests in income-producing assets. Ro Ro Farm Co. is a Limited Liability Limited Partnership (LLLP).

The purpose of the manual is to explain Ro Ro Farm Co.’s broad economic principle of operations. We set down some ground rules and principles – although the principles are quotes, we take the quotes very seriously – that we thought would help new partners understand our investing approach. Most of the materials and concept that you are about to read is modeled after Berkshire Hathaway Inc. However, it’s not a replication; there are significant modifications. The things that we takeaway is not what to think, but it is how to think. Our goal as your partner is “not to hold a rock concert and advertise it as a ballet” (Warren E. Buffett).”

GROUND-RULES

Culture – The Roseto Mystery

In the 1900s, there was one very unique town called Roseto in Pennsylvania, which was formed by Italian immigrants the Rosetans. Roseto was a “self-sufficient world – all but unknown by the society around it.”

In the 1950s, a physician named Wolf Stewart stumbled into Roseto and heard from a local doctor that he got patients from all over, but rarely any patients form “Roseto under the age of 65 years old.” Listening to the doctor, Wolf was blown away because “this was the 1950s, years before the advent of cholesterol-lowering drugs and aggressive measures to prevent heart disease,” where heart attacks “were an epidemic in the United States.” Therefore, Wolf went on an investigation.

Wolf did everything that a curious doctor could find the answers. He collected “death certificates, physician’s records, and other information to constructed family genealogies” only to come to a dead end. Then for four weeks, he collected “blood samples… from the entire population of Roseto to be tested,” only to find that “no one under fifty-five had died of a heart attack or showed sign of heart disease.” Wolf then, with the help of his friend John Brauhn, a sociologist, got medical students and sociology grad students to interview everyone over the age of 21. They found there was “no suicide, no alcoholism, no drug addiction, and very little crime. They didn’t have anyone on “welfare” or “peptic ulcers,” either.

Further, the wolf found that Rosetans “smoked heavily and were struggling with obesity.” They ate greasy food and sweets year around. “Nor was this a town where people got up at dawn to do yoga and run a brisk six miles,” and it also had nothing to do with their genetics or the location of the city. “These people were dying of old age. That’s it.”

Roseto was an “outlier.” Wolf began to realize that the answer was the unique culture of Roseto. Rosetans “visited each other, stopping…to chat...in the street, or cooking for one another in their backyards.” Three generations of a family would live under the same roof, where a young age had great respect for the older generations. Roseto operated along with egalitarian – principle that all people are equal and deserve equal rights and opportunities – ethos, where the wealthy didn’t “flaunt their success and helped the unsuccessful obscure their failures.”

Rosetans were healthy because of their culture. Their culture was strong enough to protect them from any silver bullets of external forces. For Ro Ro Farm Co., the culture of Roseto stands as a model that is to be built and preserved for the greater good. Now, it doesn't mean that we will go out and start smoking and have barbeques. Instead, we take the Roseto mystery as a lesson to become an outlier in the investment community, which is the bedrock for “The Family.” Much credit goes to Malcolm Gladwell.

Ro Ro Farm is a Family

In Ro Ro Farm Co. every partner is a family member. We eat, breathe, and sleep the tradition known as “The Family.” Ro Ro Farm Co. is a commingled fund for friends and family. It serves as a long-term investment vehicle, where friends and family have placed aside a large portion of their wealth in Ro Ro Farm Co. for their retirement. We are also open to partner with private investment funds. Our portfolio consists of a diversity of contingencies that are adequately diversified.

Every decade or so, the market will behave irrationally, mainly because of envy, greed, and fear. During those moments, jealousy, greed, and panic spread like you cannot believe, where destruction of a lifetime will occur in a couple of snap of fingers. Even Wall Street professionals and the algorithms of Standard & Poor’s 500 index – S&P 500 – are not immune to the irrational behavior of the market. Therefore, it is reasonable to say that an “average investor” won’t have the faintest idea of what is going on. Even Wall Street professionals and the algorithms of the S&P 500 index are not immune to speculation. Therefore, it is more than reasonable to say that an “average investor” will not have the faintest idea that he or she who thinks is investing is instead actually speculating. Ro Ro Farm Co. is not a speculating vehicle. Ro Ro Farm Co. is a disciplined investing vehicle. Ro Ro Farm Co. is not influenced by the irrational behavior of the market or any external forces. Irrational market instead gives Ro Ro Farm Co. advantages in the long-term. “Markets can stay irrational longer than you can stay solvent,” however, that is not the case for Ro Ro Farm Co. – John Maynard Keynes. Ro Ro Farm Co. also has the additional advantage of being patient. Ro Ro Farm Co.’s disciplined and sound investment philosophy adheres to the safety of principal and adequate return in all market conditions. This doesn’t mean that things can only be always excellent. Family and friends’ capital may be lost. However, Ro Ro Farm Co.’s disciplined approach is to focus heavily on the downside to minimize the permanent loss of capital and maximize return by trying to achieve realistic returns. Lastly and most importantly, the general partner of Ro Ro Farm Co. is always continuously learning. The investment approach of Ro Ro Farm Co. is better than it was a year ago, and it is likely to be better in the future.

Ro Ro Farm Co. is a super-low cost operator. We don’t have a fancy office, beautiful secretary, marketing team or other unneeded parts of the operation that increases the cost. Instead, you will find extremely passionate general partners who just sit in their office and reads, learns, and analyzes securities all day. A two-partner band analytically and operationally.

Roughly about 95% of fund managers, consultants, and financial planners that you will meet don’t have the competency to deal with the investing public. They are most likely there due to their superior skills in sales and persuasion. You would be better of burning that money for some sweet campfire heat and buying a low-cost S&P 500 index rather than wasting your money with a so-called financial professional. Ro Ro Farm Co. exists to also protect family and friends’ capital from so-called “professionals,” who legally steal money in daylight and night.

Limited partners of Ro Ro Farm Co. are and will be treated as a family member. Lastly, general partners have almost all of their net worth in Ro Ro Farm Co. You would be amazed how investment professionals have little or none of their capital invested along-side with their clients. A general partner in Ro Ro Farm Co. is incentivized, where they have skin in the game, and their wealth grows in a lock-step fashion with limited partners.

Reputation

The most important thing for Ro Ro Farm Co. is reputation. Although Ro Ro Farm Co. doesn't have all the money that we need, we can’t afford to lose a shred of reputation. We, as your general partner vow to act with full integrity in managing the hard-earned capital that you have handed to Ro Ro Farm Co. with great trust. We will only report to you the facts and further, make a solemn commitment to say to you anything that may be of concern to you. The integrity and reputation of Ro Ro Farm Co. must stay intact at all times. There is no exception around it. Integrity may be seen as a common-sense belief, but it’s not the belief that counts, its practice that counts.

General Partner & Limited Partner

General partners and limited partners are in a co-venture to own business. However, general partners are allowed to make management decisions where limited partners aren’t. In a sense, general partners are managers and partners, and limited partner is owners who just sits there and enjoys the fruits. It's equivalent to co-venturing into a farming business with a farmer.

In terms of liability, the limited partner is only liable up to the point of capital invested where a general partner’s debt can extend beyond the money spent.

General Concern & Clarification

Charlie Munger once said, “the human brain is like a human egg, and once the egg accepts a sperm, it will reject other sperms. The brain acts in the same manner in that it will reject ideas if it already has taken in an idea.” Hopefully, you won’t mix us up with the movie Wolf of Wall Street. We are very different. They are in sales – marketing – and broker business. Our job is to invest, through knowledge and due diligence. We do a lot of work before we invest. If our partnership were in the movie, we would most likely be clients of “Jordan Belfort,” but knowing the financial industry and markets and the way we invest, “Jordan” would not prefer us as clients. Our business isn’t as glamorous as “Jordan’s,” where we are nerds sitting on our butt and conducting research 99% of the time. We despise all the activities that “Jordan” engages in. It's irrational, immoral, and illegal. The financial industry attracts many individuals with greed and envy, which can cause brilliant individuals to make poor choices. Most importantly, deterring one from their passion. We apologize for the whole tantrum, but we want you to know who we truly are.

We are also not a stock project or a lottery ticket. We are a legitimate long-term investing vehicle. Ro Ro Farm Co. is “very incorporate for short-term investors and hopefully, very appropriate for long-term investors.” We also want to be in a partnership with someone who is in it for the long run (5-years minimum). It’s a marriage. Hopefully, you view marriage as a lifelong commitment. When you become a partner of Ro Ro Farm Co. you become a part-owner, and through Ro Ro Farm Co. you have a variety of ownership stake in different businesses; thus, you get to accumulate and preserve wealth over time and hopefully gain awareness and knowledge.

Holding Period

While we much prefer a five-year test, we feel three years is an absolute minimum for judging performance. It is a certainty that we will have years when the partnership performance is weaker, perhaps substantially so, than the S&P 500 index. If any three-year or more extended period produces unsatisfactory results, we all should start looking around for other places to have our money. An exception to that latter statement would be where years are covering a speculative explosion in a bull market.

Partnership Letter & Holding Disclosure:

From a psychological and competitive perspective, Ro Ro Farm Co.’s investment holdings will not be disclosed. However, there may be an exception from time to time. We do plan to send one letter per year with information regarding summary, performance, concerns, updates, and so on. The money that you have given to Ro Ro Farm Co. with great trust will be managed with great responsibility. We have no desire to take your money and run off to Brazil.

Risk

"Risk comes from not knowing what you're doing" (Warren E. Buffett). Ro Ro Farm Co.’s partners should consider that there are risks associated with investing. Capital invested may be lost. However, we do our best to minimize risk and maximize return by doing our best to stay within our circle of competence and thorough due diligence. Further, our investment consists of the following characteristics: low debt, a wide margin of safety, management with integrity and talent, competitive advantage, long-term prospect, and an industry that is not subject to rapid change. We like simple and “no-brainer” investments.

You should also take into consideration that the chances of Ro Ro Farm Co. making investments in retail, commodity, pharmaceutical, and biotechnology industries are very low. Further, in Ro Ro Farm Co.’s investments in most cases are heavily concentrated, where we will put all of our eggs in few baskets and oversee the baskets. Further, we won’t make investments in tobacco businesses for ethical reasons. We are also sacred to leverage.

Liquidity Provision

Additions and redemption can be made once a year, which must be at the end of each year. The rationale behind it is that we want our investors to look at their performance from a long-term perspective.

If you plan to invest in Ro Ro Farm Co. for less then five years or need the capital within the next five years, then you should not be in the partnership. Ro Ro Farm Co. is not a lottery ticket, and it holds the characteristics of a long-term investment vehicle. We love to watch paint dry, although it dries up too fast.

Note, we will have no more than 10 partners (unless compromised).
The minimum capital initially must be invested is $1,000,000 (unless compromised).
No management fee, and 25% of profit over 6% per annum (0/6/25).

Speculation, Investing, and Arbitrage

Speculation isn’t “illegal, immoral, and – in our view – financially fattening,” however, we prefer the alternative, which is investing (Benjamin Graham). Speculation can occur not only on the upside but also on the downside of price movement. We buy income-producing assets for a lot less than they are worth and only sell them if the price exceeds the (future) value or if we find an alternative that we like better. Further, if we see an arbitrage opportunity that is rational for us to exploit, then we won’t hesitate to do so. There is a saying in the arbitrage community that states, “Give a man a fish and you feed him for a day. Teach him how to arbitrage, and you feed him for a lifetime.”

Benchmark

The way to measure our performance is measuring our returns to the S&P 500 index. If our returns are better than the SP 500 index (even in a down year), then we had a good year. Otherwise, we deserve the tomatoes. Further, after-tax returns are essential.

Market Prediction

Although one of our backgrounds is heavily tied to economics, and we love learning about the macro-economy, we are not in the business of predicting the general stock market or business fluctuations. If you think we can make a macro-economic forecast, or believe it is essential to invest, you should not be in the partnership. However, we do apply macro-economics in business assessment at the micro-level. Further, we pay attention to the temperature of the market.

Unforeseen Events

In this case, something happens to us, where we are unable to manage Ro Ro Farm Co.’s investments actively. Then all investment in Ro Ro Farm Co. will be liquidated, and capital will be returned to partners relative to the amount invested on a percentage basis. The backup plan has already been set through a trustee, Rojesh Shrestha. He doesn’t engage in the daily operation of investment but is there to protect partners.

Promises

We cannot promise results to partners. However, what we can promise is that:

Our investment will be chosen on the basis of valuation, not popularity;
that we will attempt to bring the risk of permanent capital loss – not a short-term loss – to an absolute minimum by obtaining a wide margin of safety in each commitment and diversity of commitments; and
to never intake any substance that may impair my ability to think;
to conduct in-depth research with regards to each holding;
we will only look at facts to form our own qualitative and quantitative decisions; and
our family, and we have virtually our entire net worth invested in the partnership.

OWNER-RELATED BUSINESS PRINCIPLES

1. “It takes 20 years to build a reputation and five minutes to ruin it.”

– Warren E. Buffett

2. “Everybody in Wall Street is so smart that their brilliance offsets each other.”

– Benjamin Graham

3. “When things are going well, people assume that risk has gone away.”

– Dr. Bruce Greenwald

4. “There’s been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities.”

– Warren E. Buffett

5. “Most of the time common stocks are subject to irrational, excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble…to give way to hope, fear and greed.”

– Benjamin Graham

6. “When you buy a share, you are buying a piece of a company, and investors often forget that they are also buying all the company’s’ obligations.”

– Rojan Shrestha

7. “Be fearful when others are greedy and greedy when others are fearful.”

– Warren E. Buffett

8. “The individual investor should act consistently as an investor and not as a speculator.”

– Benjamin Graham

9. “You have to be always leaning against the future. If you are leaning away from the future, then the future is going to win every time.”

– Jeff Bezos

10. “Without passion, you don’t have energy. Without energy, you have nothing.”

– Warren E. Buffett

11. “Wall Street people learn nothing and forget everything.”

– Benjamin Graham

12. “A young man comes to Mozart and says, “With your help, I want to compose symphonies.” Mozart looks at him. A bit perplexed and says. “You’re too young to be composing symphonies.” The young man suddenly feels thrown off. Too young? He quickly replies. “Look, you were doing symphonies when you were 10 years of age. Well, I’m 21!” Mozart grins politely. “Yes, but I wasn’t running around asking other people how to do it.”

– Charles T. Munger

13. “Honesty is a very expensive gift. Don’t expect it from cheap people.”

– Warren E. Buffett

14. “Do not take yearly results too seriously. Instead, focus on four or five-year averages.”

– Benjamin Graham

15. “Assume life will be really tough, and then ask if you can handle it. If the answer is yes, you’ve won.”

– Charles T. Munger

16. “Price is what you pay. Value is what you get.”

– Warren E. Buffett

17. “You do not have to trade with him (Mr. Market) just because he constantly begs you to.”

– Benjamin Graham

18. “Don’t just do something, stand there.”

– Charles T. Munger

19. “It’s not greed that drives the world, but envy.”

– Warren E. Buffett

20. “A great company is not a great investment if you pay too much for the stock.”

– Benjamin Graham

21. “Without numerical fluency, in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest.”

– Charles T. Munger

22. “Rule No. 1: Never lose money. Rule No. 2: Never Forget Rule No. 1.”

– Warren E. Buffett

23. “Successful investing professionals are disciplined and consistent, and they think a great deal about what they do and how they do it.”

– Benjamin Graham

24. “All I want to know is where I’m going to die, so I’ll never go there.”

. – Charles T. Munger

25. “If I subscribed to the efficient market theory, I would still be delivering papers.”

– Warren E. Buffett

26. “The explanation cannot be found in any mathematics, but it has to be found in the investor’s psychology. You can have an extraordinary difference in the level of prices merely because not only speculators but investors themselves are looking at the situation through rose-colored glasses rather than dark blue glasses. It may well be true that the underlying psychology of the American people has not changed so much and that what the American people have been waiting for has been an excuse for going back to the speculative attitudes, which use to characterize them from time to time. If history counts for anything, then the stock market is much more likely than not to advance to a point where of real danger.”

– Benjamin Graham

27. “The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.”

– Charles T. Munger

28. “I think the president's action on steel had to do with the timing of the decline, but I don’t think it was the factor, which determined the amount of the decline. For some time, stocks have been rising at a rather rapid rate, corporate earnings have not been rising, dividends have not been increasing, and it’s not to be unexpected that perhaps a correction of some of that unusual factor on the upside might occur on the downside. The stock market has been a good forecaster from time to time in the past, and it also has been a poor forecaster occasionally. For example, the last four or five years the stock market has been booming along and presumably forecasting better business, which has not materialized, corporate profits are not any better than they were five years ago, but stock prices are 50% higher thereabout so maybe the stock market is correcting a previously incorrect forecast this time rather than making a new correct one. There was an un-doughtily some forces selling the week when the stock market hit the news. The previous week's prices had declined six percent for the week on average, and there was some stock that was forced upon the market both by margin calls from brokers. There was some forced up by improperly secured bank loans, and this, in turn, set up a self-generating mechanism on the downside for a while, which we may have seen the last of which we may not have seen the last of.”

– Warren E. Buffett

29. “Our studies indicate that you have your choices between tossing coins and taking the consensus of expert opinion, and the result is just about the same in each case. Your question is to why they are not dependable is a very good one and an interesting one. My own explanation for that one is this that everybody in wall street is so smart that their brilliance offsets each other and that whatever they know is already reflected on the level of stock prices pretty much and consequently what happens in the future represents what they don’t know.”

– Benjamin Graham

30. “Everyone is wrong, but Charlie.”

– Charles T. Munger

31. “If you don’t find a way to make money while you sleep, you will work until you die.”

– Warren E. Buffett

32. “Without a saving faith in the future, no one would ever invest at all. To be an investor, you must be a believer in a better tomorrow.”

– Benjamin Graham

33. “Compounding is the eighth wonder of the world.”

– Albert Einstein

34. “We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

– Warren E. Buffett

35. “An investor’s chief problem and even his worst enemy is likely to be himself.”

– Benjamin Graham

36. “The human brain is like a human egg; once a sperm gets in, it rejects other ideas.”

– Charles T. Munger

37. “A stock doesn't know that you own it.”

– Warren E. Buffett

38. “In the short run, a market is a voting machine, but in the long run - it’s a weighing machine.”

– Benjamin Graham

39. “Take a simple idea and take it seriously.”

– Charles T. Munger

40. “No Matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant. “

– Warren E, Buffett

41. “If you are shopping for common stocks, choose them the way you would buy groceries. Not the way you would buy perfume.”

– Benjamin Graham

42. “I think it is undeniably true that a human brain must work in models. The trick is to have your brain work better than the other person’s brain because it understands the most fundamental models – ones that will do most work per unit.”

– Charles T. Munger

43. “Every penny is a valuable seed, waiting to grow into a tree that produces fruits called financial freedom.”

– Rojan Shrestha

Rojan K. Shrestha

General Partner