giofranchi

Packer, I know what you mean. But I don’t really think Mr. Hussman is macro forecasting… He is just working with valuations and comparing them to where they have been throughout history. If it is possible to rely on valuation, assessing the future performance of a single company share price, why should it be impossible to do so for 500 companies? Imho, that’s the most important part of Mr. Hussman’s work. Macro forecasting comes way behind! And I don’t find it neither particular interesting nor useful. giofranchi

twacowfca, If I want to write put options on something I would like to own at a lower price, and use the proceedings to invest somewhere else – for instance in something that I like as much, but I consider to be already at a price undervalued enough –, do you know a broker that works also in Italy and that will allow me to do so? I tried with both Banca Intesa and Unicredit, but I failed… They don’t let me do that on companies listed in stock exchanges outside Italy… Maybe it’s a silly question, because you don’t know anything about Italy, but you seem a master of the trade, so I try to ask you anyway. ;) It would surely be very nice to have some float I could work with! Thank you very much, giofranchi giofranchi,... you will definitely be able to write put options in real time with "Interactive Brokers" http://www.interactivebrokers.com/ibg/main.php http://www.interactivebrokers.com/en/ibglobal_sites.php They also have a multi-currency platform, thus... USD, EUR, CAD... you can have integrated sub-accounts in any currency with your main account. Interactive Brokers are worldwide leaders for option trading. And some board members mentioned that they are also customers. Hope this helps. Cheers! Thank you very much berkshiremystery! You are always very helpful! And I will check them out asap. Just one more question: Do you think they will let me write naked put options, or that they will ask me to cover them with cash? My idea of getting some float to invest doesn’t work, if I must put aside the cash to eventually buy shares at the strike price. Right? giofranchi Gio,... I just asked this question Eric,... because he seems to be with IB,... ::) so let's wait for his answer,... I'm as curious as you to know this.... ;) I know I am not Eric, and I dont deal with IB - TDwaterhouse. Writing Naked puts requires you to put up collateral. Say you write puts on a $30 stock for $3 and the puts exercise at $25.00. You get $3 up front. If the stock drops you keep using margin, or your cash balance up, ultimately to the price of the underlying stock. You can start with a net cash position and end up with a margin call very quickly. The only times I have ever had margin calls is when I have written puts. I gave up this practice. There are other ways to earn income. I understand what Eric does and it works for him. I have no opinion on anything else about the strategy. Collaterl must be cash? Why can it not be shares of other companies you own? If the strike price is low enough and the company is one I would like to own for a long time, I would be glad to sell some shares in other investments, to buy a stake in the company I sold naked puts on. I know it is not without risk, but, if thought out conservately, I believe it could work. giofranchi

twacowfca, If I want to write put options on something I would like to own at a lower price, and use the proceedings to invest somewhere else – for instance in something that I like as much, but I consider to be already at a price undervalued enough –, do you know a broker that works also in Italy and that will allow me to do so? I tried with both Banca Intesa and Unicredit, but I failed… They don’t let me do that on companies listed in stock exchanges outside Italy… Maybe it’s a silly question, because you don’t know anything about Italy, but you seem a master of the trade, so I try to ask you anyway. ;) It would surely be very nice to have some float I could work with! Thank you very much, giofranchi giofranchi,... you will definitely be able to write put options in real time with "Interactive Brokers" http://www.interactivebrokers.com/ibg/main.php http://www.interactivebrokers.com/en/ibglobal_sites.php They also have a multi-currency platform, thus... USD, EUR, CAD... you can have integrated sub-accounts in any currency with your main account. Interactive Brokers are worldwide leaders for option trading. And some board members mentioned that they are also customers. Hope this helps. Cheers! Thank you very much berkshiremystery! You are always very helpful! And I will check them out asap. Just one more question: Do you think they will let me write naked put options, or that they will ask me to cover them with cash? My idea of getting some float to invest doesn’t work, if I must put aside the cash to eventually buy shares at the strike price. Right? giofranchi Gio,... I just asked this question Eric,... because he seems to be with IB,... ::) so let's wait for his answer,... I'm as curious as you to know this.... ;) Thank you, berkshiremystery! It is really a pleasure to know people as thouthful, competent, and kind as you are. giofranchi

twacowfca, If I want to write put options on something I would like to own at a lower price, and use the proceedings to invest somewhere else – for instance in something that I like as much, but I consider to be already at a price undervalued enough –, do you know a broker that works also in Italy and that will allow me to do so? I tried with both Banca Intesa and Unicredit, but I failed… They don’t let me do that on companies listed in stock exchanges outside Italy… Maybe it’s a silly question, because you don’t know anything about Italy, but you seem a master of the trade, so I try to ask you anyway. ;) It would surely be very nice to have some float I could work with! Thank you very much, giofranchi giofranchi,... you will definitely be able to write put options in real time with "Interactive Brokers" http://www.interactivebrokers.com/ibg/main.php http://www.interactivebrokers.com/en/ibglobal_sites.php They also have a multi-currency platform, thus... USD, EUR, CAD... you can have integrated sub-accounts in any currency with your main account. Interactive Brokers are worldwide leaders for option trading. And some board members mentioned that they are also customers. Hope this helps. Cheers! Thank you very much berkshiremystery! You are always very helpful! And I will check them out asap. Just one more question: Do you think they will let me write naked put options, or that they will ask me to cover them with cash? My idea of getting some float to invest doesn’t work, if I must put aside the cash to eventually buy shares at the strike price. Right? giofranchi

twacowfca, If I want to write put options on something I would like to own at a lower price, and use the proceedings to invest somewhere else – for instance in something that I like as much, but I consider to be already at a price undervalued enough –, do you know a broker that works also in Italy and that will allow me to do so? I tried with both Banca Intesa and Unicredit, but I failed… They don’t let me do that on companies listed in stock exchanges outside Italy… Maybe it’s a silly question, because you don’t know anything about Italy, but you seem a master of the trade, so I try to ask you anyway. ;) It would surely be very nice to have some float I could work with! Thank you very much, giofranchi

I have nothing but the utmost respect for Mr. Marks, and OAK is my firm’s fourth largest investment. But I invested with him, because I believe he is one of the shrewdest distressed debt opportunity seekers I know of. On the other hand, when it comes to equities investing, it seems to me that his judgment becomes a little less clear and reliable. Take, for instance, the following opinion from his latest memo: In 1999, when everyone was unworried, the S&P500 traded at more than 30 times earnings. Today the p/e ratio has more than halved, and it is well below the post-World War II average. In addition, dividend and earnings yields on equities are unusually favorable relative to the yields on bonds. There’s no doubt that stocks have cheapened relative to historic parameters – although the case can also be made that they aren’t cheap enough, since future growth is unlikely to be at the historic rate. Now compare that with Mr. John Hussman’s writings of last Monday: There are few times in history when the S&P 500 has been within 1% or less of its upper Bollinger band (two standard deviations above the 20-period moving average) on daily, weekly and monthly resolutions; coupled with a Shiller P/E in excess of 18 – the present multiple is actually 22.3; coupled with advisory bullishness above 47% and bearishness below 27% - the actual figures are 51% and 24.5% respectively; with the S&P 500 at a 4-year high and more than 8% above its 52-week moving average; and coupled, for good measure, with decelerating market internals, so that the advance-decline line at least deteriorated relative to its 13-week moving average compared with 6-months prior, or actually broke that average during the preceding month. This set of conditions is observationally equivalent to a variety of other extreme syndromes of overvalued, overbought, overbullish conditions that we've reported over time. Once that syndrome becomes extreme - as it has here - and you get any sort of meaningful "divergence" (rising interest rates, deteriorating internals, etc.), the result is a virtual Who's Who of awful times to invest. … Based on ensemble methods that capture a century of evidence – from Depression-era data, through the New Deal, World War, the Great Society, the electronics boom, the energy crisis, stagflation, the great moderation, the dot-com bubble, the tech crash, the housing bubble, the credit crisis, and even the more recent period of massive central bank interventions – our estimates of prospective market return/risk have been negative since April 2010 and have remained negative even as new data has arrived. Since early March, those estimates have plunged into the most negative 0.5% of historical instances. I tend to agree with Mr. Hussman’s opinion, as far as equities are concerned. What I really like is Mr. Mark’s view on corporate investing: An obscure 1958 book, Corporate Bond Quality and Investor Experience by W. Braddock Hickman, is said to have given Michael Milken a lot of his inspiration to popularize high yield bonds and foster new issue and secondary markets for them in the 1970s. In his book, Hickman reports on the performance of corporate bonds between 1900 and 1943. He shows that the lower a bond’s quality and rating, the higher the return from holding it. This is a very important conclusion. Aside from arguing for high yield bond investing, it shows that even in this period, which included the Great Depression, corporate bond investing was quite successful. What that tells me is that despite the extremely tough economic climate, many corporations were able to make money and service their debt. This supports my belief that corporate investing represents an attractive strategy for uncertain times. giofranchi

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/lre-l-lancashire-holdings-ltd/ Thank you very much, abcd! giofranchi

OK!!!!! I am definitely jealous!!!!! ;D ;D ;D giofranchi

Hey guys! You have all the right reasons to succeed in making me jealous… but you won’t!! ;D ;D ;D Anyway, congratulations to all! You are incredibly shrewd and talented! giofranchi

Unbelievable! Completely out of my league! I bow to you, racemize. Keep on doing your wonderful job! giofranchi I'm fairly certain it will never happen again (assuming it even holds!). I'm hoping to modestly outperform the S&P going forward. You are humble, just like any person who is sure of his means. I am positive you will go on outperforming the S&P500 by a very wide margin! giofranchi

Unbelievable! Completely out of my league! I bow to you, racemize. Keep on doing your wonderful job! giofranchi

Of course, you might be right. And a new secular bull market may be starting now. If that is the case, any long/short strategy will lag behind a long only strategy. It is just that I have yet to find an historically convincing analysis to justify the beginning of a new secular bull market in equities. Secular bear market of the past tended to last 17-20 years, so tended to be longer than the one we are living through. Financials in secular bear markets of the past rallied many times, before always coming down again. And the general price level at the end of any secular bear markets of the past had always been lower than the general price level we witnessed in march 2009. The fact that the general price level in equities is historically very low is the most significant reason why secular bull markets begin. I believe we need one more shoe to drop, before a new secular bull might start. I am not saying: “don’t buy BAC”. If BAC is a good investment, I am saying: “Buy BAC and buy some protection”. Just in case the last shoe finally drops, and everything (yes, even BAC!) comes down with the market. giofranchi

:D The same happened in 2011.. FFH is starting to look better imo. Hedges will have lowered BV temporarly but I doubt that is going to last. I dunno. We're still about 145% long and LRE and BRK are about 135% of that and they continue to trade within 1%-2% of their highs. We lost about 80% on our first tranch of OTM S&P 500 puts,made about 300% on the next batch of those, and then lost 100% onthe final batch. Net result: a loss of about. 0.3% of the net portfolio value. I'll rationalize that loss by telling myself that the hedge kept me from paring down our core net long position. twacowfca, my results are pretty similar to yours. But I rationalize them differently: you once wrote that in recent years long/short strategies have returned just 6% annualized. And you most surely are right. The fact is: I am really happy with a 6% return in a secular bear market, when stock prices are high. And I am content to accept a 6% return for the next 5 years, if it needs to be so. YTD my return is almost 0, while last year it was 10%. In a 5 years period I believe the chances are quite high to achieve a 6% annualized. On the contrary, in any single year it is impossible to predict what could happen. Why am I happy with a 6% return? Because in a secular bear market, when stock prices are high, that is all you can hope for! At least, if I am not talking to the next Warren Buffett! If you are simply a good businessman and a good investor, and if you find yourself in a secular bear market and stock prices are high, you should be happy to lock in a 6% annualized return. And wait for better times. I don’t know about LRE, but I am extremely curious. Can you write something about them? I would really appreciate it very much! And, if I like what I see, I will surely consider an investment with them. Thank you! giofranchi

berkshiremystery, the link you posted is dated June 30, 2012. During the months of July and August Mr. Loeb must have increased TPOU's stake in AIG substantially. As of August 31, 2012, AIG is TPOU’s fourth largest position, after Yahoo!, Gold, and Apple. Certainly, my firm’s stake in AIG is still tiny, but a little less so than it was last June! ;) giofranchi

I agree. And I strongly recommend reading “American Gridlock” by Mr. Woody Brock. Especially Chapter 1 “Dialogue of the Deaf”. “All this leads to an amplification of today’s Dialogue of the Deaf, in which there is neither an interest in truth nor a logical method for discovering it, if and when it is sought. But this is precisely where the opportunity lies. For the use of deductive logic leads to better and more compelling policy solutions than does today’s bastardized logic of induction. In particular, it leads to win-win solutions that have a much greater chance of gaining bipartisan support than the win-lose policies that dot newspaper headlines. But why is this the case? The answer is seductively simple. In applying deduction to topics ranging from public policy analysis to pure mathematics, the same two-step process takes place. First, it is necessary to specify a set of Basic Assumptions that, by their very nature, should be “transparently true.” In number theory, we must accept: “For any integer n, there is always a next bigger integer, n + 1.” Seems reasonable to me. Or in plane geometry: “Between any two points on a plane, there will exist one and only one straight line connecting them.” Seems reasonable. Or in health-care reform, “A satisfactory health-care system must first provide universal coverage, and second cause total health-care spending eventually to shrink as a share of GDP.” Don’t these two assumptions seem as desirable as apple pie and motherhood? Second, solutions to problems can often be deduced from simple axioms of this kind, and when this is the case, disagreement can be quelled. For if simple and compelling axioms logically imply a set of policies consistent with them, then who can disagree with such policies? If there is health-care system satisfying these two appealing axioms, who would reject it? What remains for the Right and the Left to bicker about? In accepting the axioms, you accept the conclusions. The Dialogue of the Deaf thus can be dampened. Indeed, the conclusions arrived at what seem like lessons from the syllabus of Common Sense 101. Whether mathematics is needed to proceed from axioms to conclusion, or not, makes little difference. What matters is the quality of reasoning involved, and whether the axioms are compelling to any reasonable person, regardless of his or her political leanings. Can this elegant approach work in the case of the real-world challenges identified previously? Yes – much more so than you might imagine.” Can this elegant approach work in the case of the stock market? Axiom 1: “Secular bull and bear markets happened in the past: during secular bull markets stock prices appreciated much, during secular bear markets stock prices fluctuated, but did not appreciate much.” Axiom 2: “Secular bear markets of the past always ended at historically very low stock valuations.” Axiom 3: “Today stock valuations are not historically very low.” Can those three “Axioms” be agreed upon? I don’t mean that they are useful for investing. Or that what happened in the past is relevant today. I just would like to ask you, very knowledgeable and thoughtful investors, if it is possible to agree on those three “Axioms”, as I tried to formulate them. giofranchi

I like Event-Driven, Value Investing. In what I regard as an overheated stock market, mostly due to the monetary policies of central banks around the world, that suppressed yield on so-called “safe-heaven” and prompted investors into riskier assets (the stock market), I like to go long something that has historically showed a low correlation to the stock market (S&P500). Third Point Offshore (TPOU) is my firm’s third largest investment, yesterday it closed at $10,23, while NAV as at the close of business on the 5th of September 2012 was $12,70. TPOU is trading at a discount of 20% to NAV. Which doesn’t make sense for a company that can boast a 17% annualized return since inception in 1996. I know that a “long/short equity + credit + macro + risk arbitrage” strategy won’t keep up with an euphoric stock market, and actually YTD TPOU is up only 7,3%, while the S&P500 is up 13,5%, but right now I am confident and willing to accept a lower return, in order to decrease stock market exposure. Obviously, far from me equating stock market exposure with risk: I equate stock market exposure with risk, only in what I still consider a secular bear for stocks and when stock market prices are high (at least, as far as can be inferred from historical observations). I also know that Yahoo! is a big bet, but I have read anything Mr. Loeb has written about it, and I agree with his thesis. Yahoo! is Event-Driven, Value Investing: if Mr. Loeb’s vision proves to be successful (which I believe is the case), Yahoo! has great upside potential, otherwise it will continue to go nowhere or will go down. Anyway, at this point I don’t see Yahoo! stock price to be greatly affected by the general market behavior. Finally, I also like the fact that AIG is now among TPOU’s top long positions: with all the good things I have read on this board about AIG, how could it be different? giofranchi 2012-08-August-Monthly-Report-TPOU.pdf 2012-9-07-Estimated_NAV_Announcement.pdf

I don’t think it is only fear. I also think there is a lack of 15%+ investment opportunities. Quoting Mr. Cumming and Mr. Steinberg: "We continue with the same lamentation as in previous years. There are hordes of private equity and hedge funds chasing low returns. While short term rates are very low, long term rates for non-investment grade borrowers such as Leucadia are quite high relative to expected returns. As a result, opportunities meeting our investment criteria are few and far between. We would prefer higher interest rates and less availability of money, making acquisitions more attractive. We employ leverage in a careful way and do not intend to fall into the traps of employing too much leverage or borrowing short term and investing long. We will leave that silliness to the hedge funds. Given the above, we have reduced Leucadia’s leverage by calling $511.3 million of long term debt in 2012 and retiring other debt during the last three years in market transactions. With those steps, we have cut Leucadia’s leverage by over 40%. Borrowing money at 7% without a clear path to make 15%+ is not attractive and we don’t see many opportunities to make at least that return. This cautious approach was evident in the purchase of National Beef; although banks were beating down our door to lend us more money, we paid cash. A world-wide recovery in the near future is not a foregone conclusion. Europe and the future of the Euro are far from settled. Growth in China is slowing and the risk of a “Chinese Spring” cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a dysfunctional government, we believe that less financial leverage is better. We expect many other companies and investors share this view. We emphasize that we are not pessimistic, just cautious. We are enthusiastic about the future of our broad array of operating businesses and investments and have our eyes open for additional acquisitions. Never fear, if a good deal comes along we will find a way." When 15%+ investment opportunities are "few and far between", prices must come down… When prices come down, the economy inevitably slows… I don’t think it is only psychology, I don’t think it is only fear. Now, I know, many of you hate me!! There is a lot of optimism on this board and you must think of me as a joy killer… but, paraphrasing Mr. Cumming and Mr. Steinberg, I am not pessimistic, just cautious. giofranchi "If the dancing has slowed down, then the reason is not just an overweight partner. It’s that the price of money (be it in the form of a real interest rate, a quality risk spread, or both) is too low. Our entire finance-based monetary system – led by banks but typified by insurance companies, investment management firms and hedge funds as well – is based on an acceptable level of carry and the expectation of earning it. When credit is priced such that carry is no longer as profitable at a customary amount of leverage/risk, then the system will stall, list, or perhaps even tip over." Also Mr. Gross is worried about too little return. Mr. Cumming and Mr. Steinberg may be complaining about too little return on equity, while Mr. Gross may be complaining about too little return on credit (a level of carry that is too low), but the result is the same: they all seem to be very cautious right now. giofranchi IO_Sept_2012.pdf

Very good question! If you haven't already done so, please find The Absolute Return Letter September 2012 in attachment. Discussing Policy Mistake n.3 and n.6, Mr Jensen writes about "The Lords of Finance". giofranchi The_Absolute_Return_Letter_0912.pdf

The leatest from ecr research, for anyone who might be interested. giofranchi ecr_06September2012.pdf

The leatest from Michael E. Lewitt, for anyone who might be interested. giofranchi 9-1-12_TCS_Ponzi_Games.pdf

Beerbaron, I think your logic is perfect. Imho, delaying the day of reckoning might be useful, only if in the meantime the trade imbalance disappears and the threat of redistribution subsides. To achieve that with a currency that cannot fluctuate, the spending country must increase its revenues (taxes), cut its expenditures, hope that higher taxes and less spending don’t prolong the unfolding recession, and slash its labor cost. Now, the question is: will the turnaround of the spending country be successful? I think nobody knows the answer for sure… giofranchi

If someone is interested, I think the new Gary Shilling Insight is an informative look at deflation. giofranchi insight-0912b.pdf

Very true oddballstocks, I work every day with a lot of real estate developers and most of them are as ignorant as it gets! Though, it is much harder to find a true bargain in the real estate market than in the stock market. I think the answer lies in how the stock market is conceived and organized: the stock market enables anyone who cares to express his judgment about the worth of a company to do so, every second of the trading day. A lot of different opinions, many times ill-informed opinions, are freely expressed without running too much risk. The result is that the worth of a business seems to vary many times during a single trading session… and the stock market can be psychologically very tiring! If restricted to only those endowed with the right temperament, the stock market would be as efficient as the private market or the real estate market. Instead, being open to anyone, mispricings happen quite often. Of course, this is obvious, but it is also the reason that enables experienced money managers to keep rotating their funds from one undervalued stock to the other. giofranchi

Tom, you are very young, and I don’t have any doubt that by the age of 50 you will have accumulated an incredible amount of knowledge! Of course, I read everything I can find about the companies I am interested in. I read commentaries by money managers I admire. I read a lot of history and biographies, I think it was Howard Marks who said: At the beginning of my career I had the chance to ask Mr. Munger three things that would help me improve my investment skills, and he answered: “read history, read history, read history”. I also read about economics in general, both micro and macro. Finally, I really love to read about psychology. Something I would suggest is to use audiobooks extensively: it is an incredible “competitive advantage” over Mr. Buffett! Thanks to the audiobook format, now I can read in just a few days books that once took me weeks to finish. And I can do that in parts of the day I couldn’t devote to reading before! giofranchi

twacowcfa, if you were a German tax-payer, would you bet on the fact that Italy will behave itself like California did? Northern Italy is making the bet that southern Italy will behave itself ever since 1861… Until now it has always been a losing bet… I don’t think Italy is California. California has an entrepreneurship culture that Italy completely lacks: California exports technology all over the world, Italy exports pasta and garments… I believe that northern Italy has great strengths, but, southern Italy has always been and will most probably continue to be a serious drag. Even the fittest of the swimmers runs the risk of drowning, if an heavy stone is tied to his feet… I really hope that everything could end up well. But I am not betting on hope: for now, my firm’s investments stay in America. giofranchi