giofranchi

Liberty, One last question if I may: earlier in the thread you have said you are holding 0% cash right now. To imagine you holding 100% cash “on a few occasions” during the last 10 years is hard… I mean, you hold cash only if there is no investment that offers good value… And I can hardly think of any time in the last 10 years in which it was as difficult to find attractive bargains as it is today (with the possible exception of 2007)… So, could you please tell me when those “few occasions” have happened? Thank you! Gio

I hope actions speak louder than words! ;) Gio

In my experience those who claim to do so end up being almost always fully invested. Clearly it is not your case! Glad to hear that. :) Gio

Well, I think it was Vinod who asked how my cash reserve would change if FFH, LMCA, and BH were at certain price levels… Anyway, let may ask you a question: how many times in the last 10 years have you held a significant amount of cash for an extended period of time? My point is: the problem is not to hold or not to hold cash, the problem is those who hold cash tend to always hold it, while those who are fully invested tend to always be fully invested. ;) Gio

Anyway, let me explain just a little: Imo Fairfax and Oaktree share this feature: although for different reasons, they both will make money if the current cycle goes on, and they both will make much more money if the current cycle ends and the stock markets start going south. Of course, you never know what happens to stock prices… And in a stock market correction both Fairfax and Oaktree stock prices might get hurt. But, when people realize they are making lots of money, while others don’t, who knows what might actually happen to the price of their stocks? Original mungerville said he thinks about Fairfax as cash… If the same is true for Oaktree, my asset allocation has not changed at all! ;) Gio

I think I have explained why I sold out of Oaktree Capital almost an year ago, and also why I think my reasoning was wrong back then, and why now I have invested again. With the only exception of GLRE and TPRE, which I intend to buy again in the future, OAK is the first company I have bought back once I sold it. I am not invested in GLRE and TPRE right now because through FFH I think I have more than enough exposure to the insurance and reinsurance markets. This also I have already pointed out many times! ;) Gio

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Another change today: 36% Fairfax Financial 17% Liberty Media 17% Biglari Holdings 14% Oaktree Capital 16% Cash Vinod, Liberty, You see what I mean when I say I don’t think investing should be something static? In a matter of just 4 trading days I have practically halved my cash reserve. And now I think I will gradually build it up again! ;) Gio

Yeah! I know the theory… And I also agree with it 100%! ;) Gio

Well, Buffett suggests the following: For an insurance company which is able to increase float for many years into the future underwriting profitably, float is as valuable as equity, if not more. This would put FFH FV at more or less 3 x BV. If you calculate the discounted value of FFH BVPS twenty years from now, assuming a CAGR in BVPS of 15% and a discount rate of 9%, you get 2.92 x BVPS0 (which is BVPS at year 0, or today). Of course, this is not to say the market will ever price FFH at such an high multiple! ;) Gio

In fact, I hope this never happens. ;) Let me explain: I think I am good enough at identifying great entrepreneurs, good businesses, and at taking advantage of low prices… But I know I am not good at all at taking advantage of high prices! I mean, I want to own a business like Fairfax for the next 20 years… While a high stock price might tempt me to do something stupid (or at least that I am not comfortable with). It’s just something I feel to be out of my circle of competence (think of Buffett holding onto KO in 1999-2000…). Gio

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Another (small) change today: 36% Fairfax Financial 17% Liberty Media 17% Biglari Holdings 10% Oaktree Capital 20% Cash :) Gio

Hi Pete, pretty epic good luck!! ;D ;D What am I thinking about Fairfax? Or about other investments of mine? I will try to answer both questions: Fairfax: the multiple expansion is probably over. But I think from now on they might be able to make money both if the cycle goes on and if the cycle folds and starts going the other way. If the cycle goes on, I like their insurance operations, their investments in wholly owned businesses, and I like their bond investments: I mean, just look at 10 years government interest rates, Japan 0.44%, Germany 0.71%, Spain 1.84%, Italy 1.96%, UK 2.02%… US 2.28%?? Doesn’t make any sense to me! If the yield on US 10yrs bonds gets to the level of Italy or Spain, Fairfax’s bonds portfolio will make a lot of money. If the cycle folds, in addition to the list above I also like their deflation and stock market hedges. Other investments of mine: Biglari Holdings at 1.04 x BVPS doesn’t make any sense to me, and I like the fast food industry as somewhat counter cyclical. Oaktree Capital is worth at least $70 if this cycle goes on, much more if this cycle were finally to fold, being at least as counter cyclical as Fairfax. Cheers, Gio

I have just changed the asset allocation of my firm’s portfolio this way: 36% Fairfax Financial 17% Liberty Media 17% Biglari Holdings 8% Oaktree Capital 22% Cash First, I am a moody guy… ;) Second, I think that Packer’s argument makes a lot of sense! Taxes be damned! I remember Buffett saying something like this: if you have a great business, led by a great entrepreneur, and bought at a good price, and you don’t want to hold it for tax reasons… just let me know, I will be very glad to relieve you of such a burden! 12 times earnings imo is a very good price for an high quality business like OAK. You see? How could any statistical analysis take into consideration such a move?! It cannot. Gio

Well, that single time out of 100 ruined Ben Graham’s investment experience for at least 10 years… And he has written very clearly about the anguish he felt… If such a thing happened to the teacher of us all, it might happen to anyone… At least, that’s my thought! ;) Gio

Most of all I think it is a great fallacy to believe good investment results can be achieved only being 100% invested all the time. Icahn has great investment results, while being concerned that a major market correction might soon come our way: http://www.reuters.com/article/2014/11/17/us-investment-yearend-icahn-idUSKCN0J127Y20141117 And cash might be a drag on results 99 times out of 100, but the single instance in which it truly matters might represent the difference between anguish and peace of mind. So, great investment results + peace of mind always, or even better investment results + a very remote probability of anguish? To each one the answer he/she prefers. Gio

Ahahahah!!!!... It is a great business, led by a great entrepreneur!... Much easier than the meaning of life, or the existence of God! ;) Yes! My allocation would change. But I like to read “fantasy” novels… I don’t invest in a “fantasy” world! ;D ;D I am sure my holdings will experience volatility, irrespective of what the general market does. And that’s a big reason why I hold some cash: to take advantage of downside volatility. If FFH were at $380, LMCA at $25 and BH at $250, all the volatility they would experience would be on the upside! ;) Gio

In my opinion SVM is right, but only in theory… In practice different time frames always leave it subject to criticism. I try to explain what I mean: Just as we know that maximization of earnings this year and the next might require actions that won’t necessarily maximize earnings 20 years from now, maximization of earnings 20 years from now might require actions that won’t maximize earnings 50 years from now, and so on… Grantham showed this perfectly in a former letter of his, in which he explains why our use of agricultural land might not be sustainable, and he says SVM cannot explain nor support a sustainable use of agricultural land… Well, I don’t quite agree: SVM might very well explain and support a sustainable use of land… It just requires a time frame of 100 years to do so… Therefore, both us and our children should be willing to accept lower earnings, in order to devise strategies that maximize our grandchildren’s earnings… Strategies that anyway might not be the best ones to maximize their children’s earnings… And so on… Gio

I agree, both with the "always remembering Napoleon!" part, and with the "leaving this milestone in the dust" part. :) Gio

http://www.fairfax.ca/news/press-releases/press-release-details/2014/Fairfax-to-Acquire-Malaysian-General-Insurance-Business/default.aspx Very good! I like it! :) Gio

Well… that’s much easier said than done!! ;) Gio

With this I agree wholeheartedly! :) Gio

Those things might be attractively priced, if everything will be OK with the general market, while they might be expensive, if something rotten is lurking somewhere… Unfortunately, that’s the truth imo… A most uncomfortable truth, but still the truth! Because the companies in my portfolio don’t operate in a vacuum, instead they are deeply affected by what happens to the general environment around them. Ok, thank you! Gio

Why should it be either the “bottoms up” approach, or the “macro” approach? I always make use of a bottoms up approach, and simply let my cash reserve increase when I see a general market behavior that I deem too frothy and sometimes even reckless… Let me ask you, if I may: what’s your cash level right now? Is it at zero? Thank you, Gio