giofranchi

On the contrary: if you read again “Margin of Safety”, you'll find out that to Klarman the true opportunity cost is suffered by those who don’t have buying power when a great investment opportunity comes around. Because, if the market declines, the value of their whole portfolio will most probably follow suit. Instead, the opportunity cost suffered by those who hold cash is there for everyone to see: 9 years of compounding at 16%, instead of 9 years of compounding at 20% (just a numerical example of course!). Gio

Ok... ThenI will warn Klarman that what he has written is meaningless… Though, I think I am already guessing how he might answer: “Lad, the numbers are not all that important… I was just trying to convey an idea through a numerical example!” ;) Cheers, Gio

Liberty, It was just to explain a bit better why I don’t like much The Brooklyn Investor’s posts on the price level of the general market, and the reason I don’t understand why he devotes so much time thinking (and writing!) about it. Cheers, Gio

Sure! But if you consider the 1% currency movement today, I am up 5%! ;D Therefore, 3.7% currency move, 1.3% underlying securities. Gio

Even more plausible imo are the following numbers: Person A: compounds at 20% for 9 years, -30% in year 10 Person B: compounds at 16% for 9 years, -3% in year 10 Again person B will finish the 10 years period with the most money. By the way… The equity of my firm is already up 4% in 2015! It doesn't seem my cash reserve is dampening results too much! ;) Gio

I was only trying to explain why I hold a cash reserve. I was not saying to hold it is the right thing to do. Cheers, Gio

Liberty, I know we think differently about cash, but imo it remains an hedge against uncertainty… We never know what might truly happen to our businesses… let alone the general market and the overall economy!… To hold some cash imo gives us staying power, even when something completely unexpected occurs… And I believe sooner or later it will! Remember what Klarman writes in “Margin of Safety”: who ends up with more money? He who compounds at 20% for 9 years then loses 15% in year 10, or he who compounds at 16% for 10 years? The second one, of course… despite the fact the first one enjoys a better performance 90% of the time! Therefore, imo the question is not whether to hold or not to hold some cash reserve… Instead, it is: how much cash should I hold? And I am not convinced that to answer that question the level of the general market is something I should not pay at least some attention to… After all we do not invest in a vacuum, and the companies we invest in do not operate in a vacuum! On the contrary, if you believe that holding a cash reserve is only a waste of resources, I don’t see what’s the point in spending so much time thinking about the relevance, or the lack thereof, of the level of the general market. Gio

Maybe… nonetheless I much preferred to read his stuff when he concentrated on analyzing owner-managers! ;) Cheers, Gio

10yr US Treasuries Yield down to 1.80%: it looks like FFH's bonds portfolio is making a lot of money in 2015! :) Cheers, Gio

Why should you devote so much time to something you believe to be basically useless? ??? Gio

Hi Sanjeev, Just bought 2 tickets for the dinner + presentation! I hope to spend a wonderful evening with you and other board members, just like I did last year! ;) Cheers, Gio

My pleasure! ;) Cheers, Gio

The Ajit Isaac Lecture Video https://fundooprofessor.wordpress.com/2015/01/12/the-ajit-isaac-lecture-video/ Gio

Ajit Isaac's Lecture in attachment. Cheers, Gio Ajit_Isaac_Lecture.pdf

True. Anyway, the fact still remains Greece needs to lessen its debt burden. If it is successful in doing so, individuals, corporations, and also the government might start borrowing again… and banks might start lending again! That would be a great development for Eurobank and its share price would surely benefit much. Until the overall debt level remains too high, I just don’t see how more borrowing, and therefore more lending, could do any good and be sustainable… Might a country which controls its own currency manage its debt load more easily than a country which doesn’t? Of course I cannot know for sure… But I am inclined to answer Yes! ;) Gio

Well, I guess when you have control over your own currency, you enjoy a freedom that otherwise is precluded to you. In an economic environment of too much debt, at least in Europe, the ability to print money shouldn’t be overlooked! I agree: it is nothing but another way to default on your debt… the difference is that to print money is easy! And Greece has a desperate need to reduce its overall debt somehow… Anyhow! ;) Gio

If so I guess the best thing that could happen is Greece finally leaves the EU, we get another 40% devaluation due to currency adjustment, then the Greece economy will boom and Eurobank’s stock might triple or quadruple! ;) Cheers, Gio

Actually I hadn’t realized FFH’s investment in Eurobank was that large… And of course FFH’s exposure to the energy sector will weight on Q4 2014 results… If they post a loss for Q4 2014, we will probably see a contraction in the multiple they are selling for today… And maybe we will get another chance to buy or to increase our investment in FFH. ;) Gio

--Sanjay Bakshi Find the whole Teaching Note in attachment. Cheers, Gio Teaching-Note-on-Ajit-Isaac.pdf

The fact investment mistakes are often made is just a part of this life… And no one can do anything about that, but accept it as a matter of fact! Probably FFH invested a bit too much in Blackberry… and now all they are doing is trying to defend their investment as best as they can… But I would be very surprised if they deploy new capital that way from now on! Of course, in the end what truly matters are overall results. And until now FFH has proven to be able to achieve very satisfactory overall investment results! ;) Gio

Maybe… But recently they have shifted their attention from the stock market to their insurance & reinsurance underwriting operations and to bonds, significantly shrinking their holdings in stocks and therefore the amount of equity hedges too. I think operating results and the gains from their bonds portfolio might more than offset their losses in equities and equity hedges… But, who knows?! We will see! ;) Cheers, Gio

Ah! That is not an easy question to answer… Because FFH is already my largest investment by far! And there are other investments I like as well, see for instance OAK... Let me try to answer this way: if I weren’t invested in FFH right now, I would be buying it, building at least a 10% position. Having already a large investment, instead, I think a would start adding to it, and gradually averaging down, at any price below 1.15 x BVPS. I understand though this might not be of great help…! ??? Gio

Eurozone CPI negative for first time in 5 years http://www.marketwatch.com/story/eurozone-cpi-negative-for-first-time-in-5-years-2015-01-07?siteid=bnbh Gio

I think no one really knows what might happen to the stock price of FFH (or any other security for that matter!) in the short run… But, if it drops together with the market, rather than being worried, I would be delighted! Because it would represent a great opportunity for buying more of a company that I know is bound to surprise the market with much stronger results than expected! If markets keep falling, and FFH’s stock price follows suit, I will be very glad to use my cash reserve and to buy more… Because I know that Q1 2015 results will be spectacular! All I’d have to do is to keep averaging down, and to wait 2-3 months… Before FFH announces a BVPS that has dramatically increased… What would happen then to its stock price?! As value investors we could hardly ask for more! ;) Gio

I still like it. And it is still my largest investment. If you factor in what have probably been strong results for Q4 2014, FFH is selling for a lower multiple. Furthermore, I think BV might grow very rapidly as long as rates keep coming down: I mean, just look at the yield of Spain 10yr Treasuries 1.611%, U.K. 10yr Treasuries 1.566%, Germany 10yr Treasuries 0.464%, Japan 10yr Treasuries 0.30%… And compare those yields to the one of the U.S. 10yr Treasuries 1.959%… It doesn’t make much sense to me… And, if financial markets truly start cooling down or even getting problematic, U.S. Treasuries still have much room to appreciate in value! I think the probabilities that scenario will play itself out in the next 2 to 3 years are quite high: if so, FFH is among the very few investments which could make you some money… And don’t forget that in such a scenario also its equity hedges and its cash reserve might serve you very well. Not to mention those CPI linked contracts, which could start appreciating unexpectedly and fast. In other words, if financial markets get into trouble, FFH’s BV today means very little. ;) If, instead, financial markets keep going up undisturbed, I like FFH’s strategy to concentrate on purchasing whole insurance businesses, especially in EM where insurance penetration is still very low and therefore margins could be very satisfactory, and on building a truly global insurance/reinsurance enterprise. Gio