giofranchi

Second half of 2010. 2009 has been a great year for FFH. OdysseyRe has been posting great underwriting results for years now. Under the leadership of Mr. Barnard, who made OdysseyRe so much profitable, let’s hope underwriting results for the whole FFH’s family of insurance companies will become satisfactory year after year, with a comfortable enough degree of predictability. Even if I agree 2013 underwriting results will be difficult to exceed or even match in the future. It seems we have studied different histories… All I have studied about great capital allocators and entrepreneurs of the past suggests they always had the cash to take advantage of great opportunities, the few precious times those opportunities had presented themselves. Mr. Buffett, the greatest advocate of stocks among them all, has shown to always have ready cash at hand: just look at the billions he was able to invest in 2008/2009. Imo a cash reserve is one thing, hedges are another. Gio

Felix Zulauf Warns Of "Another Deflationary Episode" Gio Felix-Zulauf-Another-Deflationary-Episode-15Feb2014.pdf

--Didier Sornette, world renowned mathematician. Kraven, I think that, should the markets march on for 3 more years like they have done in 2012 and 2013, we would have created the most “fragile” environment in history. And I think FFH is “anti-fragile”, meaning it will benefit from whatever bad outcome awaits a fragile system. You might call this speculation, I like to call it business judgment. Anyway, in investing we are always dealing with the future… therefore, no certainties here! My answer to your question was simply meant to tell you I think you are right, and I definitely have a time horizon over which I judge FFH results: I look at 2000 – 2009 as one cycle for FFH, and I look at 2010 – 2019 as another cycle for FFH. Therefore, I think more patience is required before we could label FFH a mediocre, a good, or a great business. Gio PS And you know very well I am not smarter than you… the opposite is most surely true!

writser, of course this is my worst case scenario for FFH... I do not really expect FFH to make no money for the next 3 years… No money 4 years in a row? Really?! ???... As I do not really expect the markets to march on perfectly undisturbed, like they did in 2012 and 2013, for the next 3 years… Gio

What I do believe is this: if the markets keep rising like they did in 2012 and 2013 for 3 more years, FFH will make no money for 3 more years, then it will make 35% compounded annual for the following 3 years. Gio

Hi Kraven, yes, I agree! And I repeat my “7 lean years + 3 boom years” model for FFH: 7 years of no return, followed by 3 years of 35% cagr… therefore, 3 more years of no return to go! ;) Cheers, Gio I thought you said you don't know when the boom years are. So how do you know there are three more years of no returns ? In fact! I don't know and I don't really care! ;) Gio

Hi Kraven, yes, I agree! And I repeat my “7 lean years + 3 boom years” model for FFH: 7 years of no return, followed by 3 years of 35% cagr… therefore, 3 more years of no return to go! ;) Cheers, Gio

I guess it is just an example… One of the most difficult thing to do for investors, according to Mr. Ray Dalio, is to think that what has gone on for some time might change in the future and even revert. You get the same idea in the chapter about “mean reversion” in “Thinking Fast and Slow” by Mr. Daniel Kahneman… When Mr. Watsa keeps repeating that things might be reversed, he simply is not believed and summarily dismissed by… well, almost anybody! If instead he provides evidence that things might actually reverse, maybe people will think twice before judging. Gio

Here we go again... Poor Italy... :( I have just renewed my Canadian Passport, and I am glad it won't expire until 2024! ;) Gio stratfor-italy-another-political-crisis-another-prime-minister.pdf

I don’t think it works exactly that way... Let me explain: I see insurance as a “relative” game, meaning that, to make money from insurance operations, all you must be able to do is to assess risk better than your competitors. That’s it! However the rules of the game might change, as long as someone is a better judge of risk and probabilities, he or she might go on posting underwriting profits. Needless to say, I like the renewed effort FFH is making to finally become an overall profitable underwriter. Gio

Conference Call Transcript Gio fairfaxs-ceo-discusses-Q42013-results.pdf

SD, I take the exact opposite view: from the second half of 2010 until 2013 FFH couldn’t have been more wrong, yet they still managed a 2-3% growth. To be so much wrong, and yet to be able not to loose capital is imo an impressive risk-management feat. Think for a moment about the experience of Mr. Bruce Berkowitz in 2011: he was wrong for less then a year and lost almost half of his AUM… Now, compare that with FFH: 3.5 years of being totally wrong, and yet practically no damage to its capital… And you might start to see the resilience of FFH! ;) When they are right, and sooner or later they will, FFH will post spectacular results. :) This is not to say they have not made mistakes (and me too alongside with them!). They, WE, have most surely made mistakes! But that’s precisely what gives me confidence in the fact that, when they finally do things right, returns will abound and will be plentiful. Gio

This is the part I agree with... ;D ;D ;D Gio

Ah! These days it seem that every collaborator I have is trying to bother me and distract me from my reading pleasures… Of course, I keep reading the story of Mr. Baker, albeit at a much slower pace than you are doing! :) Gio

Yes! Of course I have! And I agree. Cheers! Gio

I don’t know how you guys look at these numbers, but to me $770 million are a lot of money! :) Gio

I have just started reading [amazonsearch]Benjamin Franklin An American Life[/amazonsearch] Gio

Yeah… Right! My “7 lean years + 3 boom years” model for FFH is made of 7 years with no return whatsoever, followed by 3 years of 35% annual compounded. Like it or not, that’s what they are doing. In the end you would get a very satisfactory 10-year annual compounded return. And imo running a very low risk, so that you would be able to invest a significant amount of money in this single idea alone: very good return, especially if compared to the amount of work that is required. Of course, there is a caveat here: you must have almost “saintly” patience… As I have always said, not a strategy for everyone… As for me, I am well prepared for 3 more years of almost no returns! ;) Gio In that case, why not buy something like Fiat or Bac, hold for 3 years and thn sell to buy FFH after 3 years. Well, I simply don’t know when those 3 boom years will materialize… The lean years for FFH are the boom years for FIAT+BAC, the boom years for FFH will most probably be the lean years for FIAT+BAC… Given my very refined timing skills… I am almost sure that, if I jump from FIAT+BAC to FFH and vice versa, I will end up to be both in FFH and in FIAT+BAC at exactly the wrong time… That’s how good I am!! ;) Gio

Yeah… Right! My “7 lean years + 3 boom years” model for FFH is made of 7 years with no return whatsoever, followed by 3 years of 35% annual compounded. Like it or not, that’s what they are doing. In the end you would get a very satisfactory 10-year annual compounded return. And imo running a very low risk, so that you would be able to invest a significant amount of money in this single idea alone: very good return, especially if compared to the amount of work that is required. Of course, there is a caveat here: you must have almost “saintly” patience… As I have always said, not a strategy for everyone… As for me, I am well prepared for 3 more years of almost no returns! ;) Gio

Cass Freight Index Report January 2014 Gio Cass_Freight_Index_Report_-_Jan_2014.pdf

This is important. :) Thank you, Phoenix01! Gio

;D ;D ;D Ah! Well, you have a good point!! Though, I was thinking more about something like “confidence in the management of a business”… Gio

Let me put it this way: if you truly had your “just 10 investments in life” scorecard, and you truly knew the stock market would be closed for the next 10 years, were you still interested in Citigroup? Though I know that mind frame is way too rigid and will surely make me overlook many great investment opportunities (like C probably is today), I cannot escape from it… Guess that’s just the way I am and my brain works… No wonder, Eric, my returns are so much more lackluster than yours! Gio

Al, I think Mr. Watsa & Co. will prove to be much more flexible than you assume right now. Equity hedges, for instance, are not here to stay. Should the evidence come they are no longer warranted, Mr. Watsa & Co. will remove them, even at a substantial loss. Furthermore, I don’t agree in a recession the insurers would get killed… Insurance is one of the best business to be in a recession… And insurance operations at FFH are getting better and better! Also, though not everybody believe in market cycles, the timeframe you have taken into consideration, to calculate FFH’s CAGR, is absolutely not favorable, because it doesn’t consider the fact we are today at half the present market cycle… In other words, the timeframe you have taken into consideration could be split as follows: 2002 – 2006: FFH was WRONG 2007 – 2009: FFH was RIGHT 2010 – 2013: FFH was WRONG To judge performance you lack the following: 2014 – 2016: FFH is RIGHT Then, at the end of 2016 we will calculate again FFH’s CAGR for the whole period: I guess it will be much higher than 13%! ;) Of course, I already can imagine your answer: 2014 – 2016 FFH continues to be wrong! But let me tell you, I still don’t think so… And if so, that’s when Mr. Watsa & Co. will finally remove the equity hedges, accepting the losses. Gio

Al, I don’t think I would call my point of view “faith in FFH”… I think almost any stocks portfolio assembled with a “value philosophy” is most probably bound to underperform a small-cap index in an up market, while outperforming the same index in a down or flat market… Anyway, I always read what you have to say with the greatest interest! :) Gio