giofranchi

Two things I don’t understand: 1) Why do Cooperman and Tepper continue focusing on the P/E ratio of the S&P500, when there is clear evidence that metric has no predictive attribute? I mean, if you are interested to understand how the markets in general are priced, and therefore what they could return during the next 7-10 years, the P/E ratio is practically meaningless… 2) They go on repeating the P/E ratio is around 16.5. The link below instead shows 19.3… Which is the correct number? Because there is a big difference between the two! http://www.multpl.com/ Gio

+1! :) Absolutely! ;) Gio

[amazonsearch]Buffett Beyond Value: Why Warren Buffett Looks to Growth and Management When Investing[/amazonsearch] I am reading Buffett Beyond Value. Though surely nothing new to the people on this board, I think it is among the best books on WB’s investment ideas and practices. Cheers, Gio

Great! Thank you! :) I am curiuos and I will surely read it. Gio

Any good investment idea belongs on this board! :) So, please, just start a ZIV thread and tell us about the company! ;) Cheers, Gio

http://www.marketwatch.com/story/blackberrys-square-screen-passport-arrives-to-take-on-iphone-6-2014-09-24 Cheers, Gio

I haven't said 'prolonged periods of 0%'. Actually, the years in which returns were negative are only 3 in their whole history. 15% is the favorable outcome I might expect... favorable but not impossible. The average insurance company is the negative outcome I might expect. Call whatever is in between the most probable outcome I might expect. But let me ask you: do you know many companies with at least the possibility to compound at 15%, and led by trustworthy people like PW, Bradstreet, Barnard, etc., in a business you understand and which is practically not subject to structural changes? If yes, I am all ears... Try to convince me! I would be very glad if you'd succeed! ;) Gio

http://www.thedailybeast.com/articles/2014/09/24/excuse-me-for-not-dying-leonard-cohen-at-80.html --Lou Reed Cheers, Gio

I agree. It is already 4 years now their return on investments has been much lower than 6%. In 2014 it was… negative! But I guess that’s just how they structure their portfolio: periods of returns way below average have always been followed by periods of returns way above average. I can count only 5 years of average returns in their whole history. The fact we will see many distressed debt opportunities in the future, given the unprecedented levels of indebtedness the whole developed economies find themselves right now, is imo a very probable scenario… And Howard Marks seems to agree. The fact FFH might be able to take advantage of those opportunities when they arise is another matter… But they have already done so in California 6 years ago… Why shouldn’t they be able to replicate? Gio

As I have said, I think other distressed debt opportunities might present themselves, and FFH might shift their bonds portfolio from plain vanilla government bonds to distressed debt opportunities. As I have said, at least in part it already happened in 2009 with a large purchase of municipal bonds in California. And look at what Dan Loeb has done with Greek and Portuguese government bonds. And Howard Marks is raising a huge sum of money to take advantage of distressed debt opportunities he sees coming. As I have said, when distressed debt opportunities arise again, I think many will seek the (relative) safety of US government bonds, pushing their yields down (like Japan, like Germany… like even France!!). Then, FFH might sell their US government bonds and redeploy their proceedings in newly formed distressed debt opportunities. Not saying it will happen… but I don’t think it is so far-fetched either! Gio

Obviously, the asset mix is not a static thing. It will change. With regard to bonds yield is not all that matters, there is also capital appreciation. What would happen if the yield on 10-years US government bonds goes from 2.6% today to 1% like in Germany? Gio

Except that superstar status was attached to FFH merely 5 years ago… not 30 years ago! 5 years in the record biz might look like eternity… In business and investments they look like the blink of an eye… ;) Gio PS Of course, as I have explained, I don’t attach to them any superstar or ‘seer’ status.

I have sobered up the discussion shifting from the end of days to only 25-30 years… ;D ;D ;D Cheers, Gio

Anyway, Pete, I have understood what you mean. And imo your analysis is correct. :) Gio

The beauty, which is also the true value of float, is that you don’t need a ‘seer’ return on investments (6% is far from being a ‘seer’ return) to get a ‘seer’ compound of capital (15% sustained for 25-30 years is a ‘seer’ compound of capital). ;) Gio

Mr. Cohen has done it again! His new work “Popular Problems” is filled with great poetry and music. A true artist still at the top of his game. Highly recommended! Gio

Well, sincerely I don’t think you can assign a probability to the fact a 25-30 years journey will turn-out as expected. I never try to. What I can say is that I think there is a substantial margin of safety. Let me explain: The average annual return FFH achieved on its portfolio of investments from inception is 8.9%. This already taking into consideration the last 4 years which were way below average (2013 was even negative!). Now, if some profitability will be achieved from insurance underwriting, as I expect under the supervision of Barnard, the annual return on their portfolio of investments, needed in order to compound BV at 15% each year, is around 6%. Barnard is surely the first reason I think insurance operations might become profitable. The second reason is FFH strategy to purchase insurance companies worldwide, especially in developing countries. In a competitive business, like insurance underwriting undoubtedly is, to be the first entrant is a huge advantage. We know how little penetration insurance still has in developing countries, therefore I think FFH is doing the right thing betting on their markets. In other words, less competition now than in developed countries, and the opportunity to keep competition at bay in the future. In fact Fairfax Asia is always very profitable! Still small, but growing! People generally think because the great secular bull market in bonds is over, it will not be easy for FFH to replicate past investment success… But I asked this exact question to PW at the 2014 AGM, and he answered saying he doesn’t think they were disproportionately helped by the bond bull market in achieving their investment track record. He said he thinks they will go on finding pockets of value. If US government bonds won’t be good value anymore, they will find something else. And thinking about it, I have come to agree with him once more: I mean, in a world so much loaded with debt there most probably will be distressed debt opportunities… They took advantage of a distressed debt opportunity in 2009, when they purchased municipal bonds in California, a large investment that has turned-out very fine!… And look at what Howard Marks is doing: he is raising funds for distressed debt opportunities… And look at what Dan Loeb has done with Greek and Portuguese government bonds… As other distressed debt opportunities present themselves, the yields on US 10-years and 30-years government bonds will most probably hit new bottoms, following what has already happened in Japan and Germany. It is only logical that in a distressed environment money flows to the (relative) safety of US government bonds. Then, they might sell those bonds and redeploy their proceedings in some distressed debt situations. In this scenario, and to me it seems a very probable scenario, FFH has the possibility to go on achieving investment returns in line with their track record. 6%, instead of 9%, is a margin of safety of more than 30%. Gio

Yes! I understand. Thank you :) Gio

- A mediocre business (insurance underwriting), useful only to generate float at no cost, or even better with a small profit, coupled with a careful investor with a proven track record and a process I understand and like… that, taken as a whole, becomes a good business. - PW and his team are good people. - 1.15 x BV or 1.3 x BV less goodwill and intangibles is a good price, because probably not subject to much more multiple contraction. At least, this is how I see it. Gio PS Of course 1 and 2 are mixed... But I guess that's just the way it is with insurance underwriting and money management, right?

Exactly! We have spent two days on something we simply disagree… People disagree on a whole range of topics every day… Without necessarily making all this fuss… Right?! ;) Gio

I am not talking about repricing FFH!!! How can I explain this??? I am only talking about what I think they could achieve during the next 2-3 decades. You don't believe they could? Fine! We simply disagree. Gio

Eric, if I had said that, I would have predicted an expansion in the multiple FFH will be priced tomorrow. Have I said that? No! Only thing I have said is: if at the end of the 25-30 years period PW is working for he turns out to be very successful, then and only then the market might reward FFH with an higher multiple. What’s wrong with that? Gio

But he also has repeated many times how results of the insurance business in particular depend on good management! Hasn't he? Gio

I would suggest never to chase track records out of this world. Save as much as you can, and invest with good people, in good businesses, at good prices. Gio

No, I do not compare Fairfax to BAC. I only say that in any investment I always look for good people, a good business, and a good price. If you are fine with BAC being led by a mediocre team, well then ok! Maybe the price is wonderful enough to justify that… I am more comfortable with a good price and a good management, rather than a wonderful price and a mediocre management. Gio