giofranchi
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Posts posted by giofranchi
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Cardboard - you beat me to it (nice to bump into you by the way - long time). But I already wrote my post so here it is anyway :)
what is this extra $500M going to do?
I share your concerns about dilution, but we have two transactions to be completed on the upcoming months - Eurolife (say $350 million) and ICICI Lombard ($230 million). It looks like Prem intends to fund these purchases at the Holding company level. So this $500 million will maintain holding company cash at current levels. I'd rather not see a repeat of past holdco liquidity issues should we get into a turbulent market. We are much better off to be issuing equity now, versus when these aquisitions were announced.
I suspect the fallback option may have been to have one of the subs close on the aquisitions. But after all the progress made over the years unstacking the capital structure, I think most would agree it is better to have these at the holding company level.
b.
I also think this explanation makes a lot of sense.
Thank you!
Gio
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The term “platform” imo is a bit misleading: Google, Apple, Facebook, Amazon are all platform companies. A platform imo is any business that can scale very quickly, reaching a global footprint, and that can add new products or services to improve the experience of its customers.
Cheers,
Gio
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Running an organization, buying companies, strategic hedging decisions, exploring the market in India and various hedging decisions are all VERY difficult.
You may be right. But in the perspective of a whole portfolio, not just a single company, I am grateful I can invest in a company that will do moderately fine if nothing bad happens, and that will perform far better than most other investments if something bad happens instead. Especially because a global deleveraging has historically always been a very treacherous environment for the financial markets.
To hold a large position in such a company right now is imo a 1-foot hurdle.
Cheers,
Gio
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They have probably never been more conservatively financed than at the end of 2015. But they still seem to be very cautious about using their cash reserves. I am not sure why… If they still expect “stock prices to go down by a lot and to stay down for a long time”… Anyway, that’s the reason I hold a large position in Fairfax: until this global deleveraging is finally over, an investment that might benefit from deflation is welcomed imo.
Cheers,
Gio
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2015 Results:
Fairfax India is selling exactly at BV: not bad for a company very well positioned to capitalize on India's strong demographic trend.
Cheers,
Gio
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Sorry we weren't discussing the investment merits between banks and Apple etc.
I was trying to say that human society progressed despite not having smart phones in the past 1000 years. But without banks the human progress would not have happened.
Now with the onset of negative rates, looks like we may need to go back to our caves :-(
Ok. I understand. But I wasn’t discussing investment merits either… Instead, I am not sure I would say humanity at the stage of development it has reached today only benefits from what’s ‘necessary’… Imo the more technological progress goes on, the more humanity will benefit from ‘great’ products.
In the past the onset of negative rates has led to wars, hasn’t it? War has historically succeeded in accelerating the deleveraging process through defaults, and in causing inflation (and interest rates) to rise again. Right?
It might be just wishful thinking… But let’s hope this time the deleveraging process might proceed from the building of wealth, instead of the defaulting of debts. And to build wealth you ‘need’ great products!
Cheers,
Gio
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Agreed re banks vs. Apple and Google!
What do you mean?
Both Apple and Google are examples of companies which create wonderful products.
Banks instead are very useful, I agree. But I would not define their products nor services wonderful.
Therefore, I don’t see how a comparison between something that’s ‘necessary’ and something that’s ‘wonderful’ might make much sense…
Cheers,
Gio
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Cheers,
Gio
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Agreed. So far I've broken even (in sterling, not dollars) in this selloff because of Fairfax. I'm mildly nervous that won't continue.
I think what people want, and almost never get, in investing is clarity: will I make money, or will I lose money. And if I’ll make money, how? I think in a difficult environment the way Fairfax makes money is clear to most people. Therefore, if some forced selling happens to Fairfax as well, I think it will probably be short lived.
Many other company that I know of and follow will probably go on being profitable even in a very difficult environment. For instance, for Berkshire to stop being profitable a really catastrophic event should occur. But people don’t know how much Berkshire will earn in a difficult environment, and they are probably guessing Berkshire will earn much less in a difficult environment than what it has earned until now. Furthermore, while everyone knows a difficult environment doesn’t last forever, no one really is sure how long it could last: some months, one year… two? Of course it makes a lot of difference!
With Fairfax, instead, it is different because people think that it will make more money in a difficult environment than it did until now. Therefore, the psychology is reversed imo.
At least for me it surely works that way.
Cheers,
Gio
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I know that falling yields is obviously good, but trying to figure out how much widening muni/credit spreads are going to offset that.
Hard to tell… I was only suggesting that in a very difficult environment a bad earnings report could cause the stock to fall, even if Q1 2016 looks very profitable until now… How much profitable is anyone's guess!
Cheers,
Gio
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With bond yields that keep falling, Q1 2016 is getting more and more profitable for Fairfax. If Fairfax announces slightly disappointing Q4 2015 results, and consequently its stock trades lower, there might be a good opportunity to buy more.
Cheers,
Gio
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A recession 'where' would probably be a good clarifier...
I guess developed economies (North America and Europe).
Imo it depends on asset prices: if they keep falling, a recession in developed economies cannot be ruled out.
Cheers,
Gio
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I'm waiting for the rest of the quarter to play out and to get the end results of what may be a phenomenal quarter, but I actually may end up reducing my holdings a little bit after that to re-balance the portfolio more towards the names that have been absolutely trashed in the last 4-6 months.
Instead, I think I am adding some more: it is trading at 1.31xBVPS, with a BVPS of 400USD as of last September. If Fairfax has made some money during the last three months of 2015, it is trading for a lower multiple. Moreover, the first three months of 2016 look great until now… therefore, it might actually be trading closer to 1.2xBVPS.
As cash comes in I am still cautious to invest it in faster growing businesses. And I think I’ll park it momentarily in Fairfax, waiting for more bargains to appear.
Cheers,
Gio
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I'm pleasantly surprised that Fairfax has been totally immune to recent market weakness.
Me, too.
+1!
Cheers,
Gio
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I recently read that this leaves the most important factor out and that is supply. This is not an argument against healthcare, but without supply you know nothing about the attractiveness of a sector. Look at oil, demand is growing since decades, but does it mean oil prices will go up?
Yes, of course!
In fact Mr. Zell talked about both supply and demand… He was saying though that in general the world today is experiencing demand that is too low, and that is the real problem, not oversupply… As you have rightly pointed out, oil might be the right counterargument (among many others I am sure!).
Cheers,
Gio
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Added to Novo Nordisk A/S [NOVO.CPH] this morning [uS ADR: NVO]. It dropped about 5 percent on the disclosure of results for FY 2015.
A great company with a great growth potential. A bit expensive right now imo… And I am still cautious to pay for growth in the pharma and biotech sector… But I’ll keep watching!
I was listening to an interview with Sam Zell in December and he had this to say: “I always ask myself: where is demand coming from? Where is growth coming from? And then I try to align my investments with the most plausible answers.”
Therefore, a strong secular tailwind is very useful for the creation of value.
Sometimes, though, things get out of control and too much capital flows in an industry with great opportunities for long-term growth. Prices rise too high, too fast. And then a steep correction is inevitable. That’s what we have just witnessed with biotech.
This correction could surely go a while longer, but at some point a great buying opportunity might be within reach.
Cheers,
Gio
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Shane Parrish from Farnam Street is highlighted. Enjoy!
Thank you, David!
Shane has been very successful, and very deservedly so!
Cheers,
Gio
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I am currently reading:
- [amazonsearch]How Google Works[/amazonsearch]
- [amazonsearch]Berkshire Beyond Buffett[/amazonsearch]
- [amazonsearch]Superintelligence[/amazonsearch]
- [amazonsearch]A Short Guide to a Long Life[/amazonsearch]
I would recommend all four.
Cheers,
Gio
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You should probably ask why you want to outperform, anyway. Is being a multi-millionaire at retirement not enough for you, or is it the thrill of the hunt? I understand the thrill of the hunt. Not being satisfied with only being in the lowest caste of rich people is kind of silly.
Buying a selection of companies, instead, forces you to think about business. And there are at least two reasons why I believe that thinking about business might be useful:
1) It helps you manage your own business much more effectively;
2) It is great fun! ;)
Cheers,
Gio
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ABT, which I think of as a diversified collection of healthcare businesses, has returned 7% compounded from December 31, 1999, to December 31, 2015, dividends excluded... And it has paid on average a larger dividend than the S&P500.
Cheers,
Gio
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I dont know anything about Malone's companies.
9 years instead of 15 years...
Cheers,
Gio
2015_-_liberty_media_corp_investor_day_long_term_returns.pdf
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Is it a fund you have invested in? A fund you work for? Or your fund? ;)
Cheers,
Gio
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Can we collectively name those funds, investment type companies, or hedge funds who have:
Beaten the S&P 500 by 4% per year pre tax BUT after fees, for 15 years.
Fairfax has increased BVPS at a CAGR of 6.5% since the end of 1999. That is after fees AND after taxes.
As we can see in the picture in attachment, the S&P500 has returned 3.73% compounded annual since March 2000.
This of course doesn't consider dividends (neither those distributed by Fairfax nor those distributed by the S&P500).
Not quite the spread you are looking for... But not bad!
Also the Malone's family of business should have performed pretty well... though I don't have the precise numbers.
Cheers,
Gio
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But is the gigantic CPI put the right way to execute this thesis?
I don't know... The upside potential, if compared to the downside risk, doesn't look bad to me... But maybe there are even better ways. I just don't know them.
Cheers,
Gio
Fairfax Financial to raise C$735 mln via equity issuance
in Fairfax Financial
Posted
Though I don’t expect Fairfax to double BV in the next two years, I agree that judgement about their investing abilities is too harsh… Or was that simply an ironic remark? ;)
Cheers,
Gio