giofranchi

I thought it was obvious I was referring to discrepancies between recorded values and true values that sometimes become meaningful… Be sure everything that could be overlooked I overlook! If in your experience discrepancies never get to be meaningful, well then we have different experiences. No. You are implying it. The fact I think rigid accounting rules might lead to meaningful discrepancies between recorded values and true values, does not mean I think buildings are enduring assets. Gio

I have never said it is practical… But when the Balance Sheet doesn’t tell you the true value of what you own, you should take notice. I have never said that buildings are enduring assets. Gio

I have never bought a whole business. Until my two businesses keep giving me free cash that is a meaningful percentage of the capital I manage, I don’t feel the need to add a third business. The capital I manage though is growing faster than how my two businesses are growing their free cash. And if I want to keep new cash coming in as a meaningful percentage of the capital I manage, sooner or later I will have to look around for a third business. My experience with the first two leads me to the following conclusion. I want the third business to be: 1) Very low in capital requirements. It doesn’t necessarily need to possess high margins, but I should be able to take out of the business practically all its earnings. The freedom to reinvest them in the same business, or somewhere else is invaluable. Furthermore, a business that doesn’t require much capital is easier to grow or shrink as necessities require. You never know what might happen, so flexibility is a huge advantage. 2) On “autopilot”, or almost… It is not realistic a business won’t require your continuous attention, but you should be able to confine your duties basically to: a) strategic decisions (which goals to pursue, and how to evolve), b) watchful control. Your second duty should help mitigate what has been called the “key man” risk… But whever you hire someone, that risk cannot be eliminated! Therefore, first of all you must choose who will be in charge of operations, and you must choose wisely! ;) Gio

Maybe… But let me give you an example: let’s suppose you own an office building, and after 10 years by a stroke of good luck you get the chance to change its use into a residential property… wouldn’t you say the value of your building is higher now than it was 10 years before? What I mean is that during the life of a building many things might happen that are not strictly related to depreciation nor maintenance capex, things that might affect its value very much. Imo whenever those things are not reflected on the Balance Sheet, and therefore the value recorded differs significantly from the value given by the market, an opportunity arises. Gio

Because the Balance Sheet should be a picture at any given time of what we use (assets), of what we owe (liabilities), and of what we own (equity). This is the reason why IFRS require securities to be marked to market. Instead, land, buildings and equipment should be recorded at… what?? If my apartment were on the Balance Sheet of my company as an asset, initially recorded at cost, later depreciated over the course of 40 years, adding back all the maintenance capex required, it would still be recorded at a value little changed from its initial cost… At best its recorded value would have kept up with inflation, if maintenance capex were higher than depreciation charges. But what about the true economics of the city, the neighborhood, even the street where my apartment is located? What if Milan’s economy booms, what if a new subway is built not far from where I live, what if some very fashionable cafes are opened nearby? I am positive during the last 30 years the value of my apartment has appreciated much faster than inflation. If such an appreciation in value is not reflected on the Balance Sheet, that document ceases to be a reliable picture of what I truly own today. Gio

What I meant is I see no reason why buildings, land, and also equipments shouldn't be recorded on the Balance Sheet at the value they could be sold in the market today. I don't understand why the value recorded on the Balance Sheet should be different from market value. So, is the value of buildings, land, and equipments on the Balance Sheet always the same as market value? If the answer is yes, then this ends the discussion as far as I am concerned! ;) Gio

Maybe... But, if I decide to sell my apartment, I will find someone tomorrow morning willing to give 10 times the cost of the underlying land... Because I would not be selling square meters of land, but square meters of an apartment... An apartment in a building that, if depreciated over a 40 years time horizon, would be worth less than zero today! Cheers, Gio

Of course depreciation schedules for buildings are longer than for equipments... This doesn't mean they make sense. I live in an apartment of a condominuim built in the early '60s. And I have always seen its price go up. And it will continue going up for many years to come! ;) Gio

I really don’t see why buildings need to be depreciated… Each year you have capital expenditures to maintain their status quo, don’t you? Those capital expenditures reduce your cash flow, which in turn reduces the amount of cash on your balance sheet. Why should you also reduce the value of your buildings on the balance sheet? Moreover, we know that generally the value of buildings (if properly cared for through the years) at least keeps pace with inflation (therefore, it generally increases). Gio

+1!! :) Gio

Charles Gave and "The Cantillon Effect" Gio The-Cantillon-Effect.pdf

I have macro ideas, which are much like Parsad’s. Anyway, my way of investing is little affected by them. I always have some ready cash at hand. Period. Either it is a cash reserve, or it is new free cash generated by my businesses. In my experience, when I have under performed, it was never due to cash, and always due to the fact my investments did poorly. Instead, ready cash at hand has been useful many times, even in the midst of a bull market, because I run a relatively concentrated portfolio (5 to 10 positions), and opportunities might present themselves when none of my other investments is overvalued nor even fully priced. Probably, my macro ideas make me hold a little bit more cash today, than it would be the case if dark clouds weren’t on the horizon… Gio

Good piece by David Hay & Charles Gave on "ETFization" Gio EVA+7.25.2014+NA.pdf

[amazonsearch]I, Claudius[/amazonsearch] [amazonsearch]Claudius The God[/amazonsearch] Not only the biography of a great man and one of the best pieces of historic literature, but also as fine and compelling and ironic an account of human nature as you are likely to come across ever. Cannot recommend them both highly enough! Cheers, Gio

How And When To Short French Bonds by Charles Gave Gio How_And_When_To_Short_French_Bonds.pdf

They can panic the other way. That's what people did in the late 90s. "Gotta buy now before it goes up more!" The economy has also already adjusted to their cash-hoarding ways. As you suggest, they can spend their cash on things/assets. It's a better problem than worrying about them selling things/assets in order to have cash. I don't think this is meaningful. As you have read on Hoisington Q2 2014 commentary, debts are at all-time high precisely because the PSR is at all-time low. And prices are very high because of monetary policy. In a panic selling will be violent… I am not saying it will happen… far from me! But to say there won’t be indiscriminate selling in a panic is imo a bit delusional… Gio

Maybe… But short/medium term that would only imply low prices are to be expected in the future… because certainly I don’t see low prices anywhere today… Sounds bearish… not bullish… Moreover it implies: 1) They are ignorant to the point of being unaware that cash doesn’t produce anything… Keeping cash idle is like having skills without making the effort of using nor developing them. 2) Trust is broken… We have failed to communicate them the trust needed to do business. Long term both 1) and 2) are imo bearish… not bullish… Gio

Why do see this one as a positive? Gio

Italy??? What is Fairfax going to do in Italy? Dear Mr. Watsa, if I can be of any help, please don’t hesitate to let me know! Sincerely, Gio

From the Introduction: The Introduction alone imo is worth the cost of the book! ;) Gio

Hoisington Investment Management – Quarterly Review and Outlook, Second Quarter 2014 http://d21uq3hx4esec9.cloudfront.net/uploads/pdf/OTB_Jul_15_2014.pdf Gio

Maybe… It doesn’t change the fact I think we should be doing what these “statistics” seem to suggest! Even if we won't get rich! ;) Cheers, Gio

Just the billionaires. ;) ;) Gio

http://www.visualcapitalist.com/habits-wealthiest-people/ Gio

Of course that's the case. I figured there was some connection and saw that too. It's interesting how Buffett's favorite business book of all time is one he's never mentioned before. It's not like he's never mentioned favorite books before or isn't talking non-stop. My guess is the book is coming out, someone somehow reached out to Buffett (and Gates through him) and said "Warren, remember John Brooks? He always loved you. Really loved you. No, it's not the John Brooks who runs the deli you like. Yeah, it's the John Brooks who was a writer. Well, we're re-releasing one of his old books and a blurb from you would really have made him feel good. He always spoke and wrote highly of you. If you could say something nice about this book that you read once over 40 years ago that would be appreciated." I have bought it nonetheless… Just like Mr. Buffett joked one time: “there might be some truth about that rumor after all!” ;D ;D ;D Gio