giofranchi

Al, what can I say? Congratulations! In the thread about Italian banks I have specified “Must 1), Must 2), Must 3)”… Among the businesses I know, and I certainly DON’T know many of them, FFH is still one that complies with “Must 1), Must 2), Must 3)” egregiously. If BMO and RBC also do, I cannot tell… If you think they do, I would be very pleased to know more about them! :) Gio

Sorry, never looked at any Italian bank… I invest the same way I do business: 1) I must have deep respect for the people I partner with and for the skills they have proven to possess, 2) I must like the business and understand why it should be predictable, 3) I must be offered a very good price. Italian banks right now might comply with 3), but they are as far from 1) and 2) as any investment idea could be. (As an aside, how anyone could be sure about 3), without 1) and 2), is still beyond me…). Therefore, I never bothered to look at them… This doesn’t mean there is no money to be made… There might very well be! It simply means unfortunately I can be of no help… :( Christopher1 on the other hand knows banks very well, and maybe he could offer us his own perspective on the industry in Italy! ;) giofranchi

Parsad, sorry, today I am bothering you… But I don’t think my expectations that FFH can grow BVPS at a CAGR of 15% for many years into the future are completely extravagant and unfounded… People on the board say “I am living in a bubble”, yet no one has convincingly explained why FFH should fail to achieve that goal. They must return circa 7% on their portfolio of investments, when historically they have returned 9.4%. I am not saying it will be easy, I am not saying they will succeed. All I am saying is I think my expectations are reasonable and don’t see why I should temper them. Here is, I think, something important: when you really want to invest in a business for the long-run, I mean you want to own a business for years, you can be neither too optimistic nor too conservative. Instead, you must be (at least vaguely) right. Why you shouldn’t be too optimistic is plain to see for everyone. Maybe, why you shouldn’t be too conservative, is less well understood. Yet, if you think of it, this also is clear enough: because, if you don’t know the true potential of a business, as soon as the stock rises, you will sell it. --TITAN giofranchi

Parsad, you know I have the utmost respect for your money-management background, which is something you share with the great majority of the people on the board. But you also know that my background is different: I have started as a businessman and only afterwards I have looked at the stock market as a way to complement my strategy for building wealth in the long run. So, mine is the perspective of the businessman. And, according to Mr. Buffett, both perspectives, the investor’s and the businessman’s, are important, right? Now, given my background, I know personally many more businessmen than investors, money-mangers, or traders (if, of course, we exclude all the great people I have had the chance to meet on the board!). And all those businessmen that I know are alike: each one of them has built one business and runs one business: one and only one! And let me tell you that in their eyes I am the exception, the unconventional one: what are these stock market investments? They seem to ask. Why don’t you concentrate on your true business instead? And they seem to disapprove what I do. Now, it is true you will never read of them on Forbes or Fortune, because their businesses lack scale and will never grow very large, but, believe me, they otherwise have been and still are very successful! They have put everything they own in one single business and have been successful for many many years. In my world they are not the exception, they are the rule! And most of them have thrived! :) Cheers! giofranchi

Parsad, I don't want to comment Cardboard's post, he must have his reasons to have such small respect for Mr. Watsa and co. But I must comment your answer: There is a huge difference between the way Mr. Watsa and co. invest in equities, and the way Mr. Biglari invests in equities. A basket approach is completely different from the way Mr. Biglari invested in CBRL. He knows the fast-food industry better than almost anybody else and understands CBRL very very deeply. That's how an entrepreneur invests in a business. You certainly cannot say the same for Mr. Watsa and BBRY, right? I am not saying one way is better than the other, the truth is both of them can yield excellent results, I am just saying they are very different. So, any comparison should take that difference into account. giofranchi

giofranchi

Partner24, as I have always said, there is no substitute for knowing and understanding what you own. --Stevie Wonder And, as I have always said, each investment must make strategic sense inside a larger organization. Take, for instance, my own peculiar case: I don’t know many things about the economy, but I do believe we are in a deleveraging. And historically deleveragings have shown mixed outcomes: sometimes they have been benign, other times they have turned out to be very nasty. Now, my organization has a lot of businesses which are doing very fine, and will go on achieving very satisfactory results, if the deleveraging we are living through continues to be benign. Is it so unconceivable to hold also a business that instead will do fine, if and when things should take a turn for the worse? This goes beyond the idea of holding businesses that are cheap… To hold undervalued businesses is a prerequisite I always seek and demand, no matter what! But then I also look for some more general strategic view that might make sense. But let’s say you don’t care about what I think, and how I do business, I still think that to sell FFH now might turn out to be one of the worst moment possible… If I were you, I would wait for: 1) At least a market correction: maybe we will never experience again a 50% market decline, but a 20% correction is very plausible; 2) The economy finally proves FFH wrong: I don’t think we will have to wait much longer to know, 1 or 2 more years, not longer. giofranchi

From the Q3 2013 Conference Call: --Mr. Prem Watsa I think no one on the board believes Mr. Watsa could ever say such a thing, if he weren’t really convinced about it. And I think he knows his company very well, much better than anyone else. Of course, if you think that Mr. Watsa & his team have all of a sudden become blind, or have gone crazy, this won’t be of much comfort to you… Let’s just say that I don’t think they have become blind, nor gone crazy. :) giofranchi

AMiS AgenziaMilanoStrutture s.r.l. (www.agenziamilanostrutture.it) provides engineering services for the civil and infrastructure markets. AMiF AgenziaMilanoFinanziaria s.r.l. manages our portfolio of investments. AMiC AgenziaMilanoConsulting s.r.l. manages the operation of a for profit Master School inside the Politecnico of Milan (www.masterpesenti.polimi.it), and more recently (just started last week!) a financial newsletter (http://super-investitori.portafogliinvestimenti.it/categories/super-investitori) for Italian speaking investors. Cheers! giofranchi

This is what Mr. Hussman is doing right now. I ignored also FFH was used to employing that tactic… giofranchi

I cannot answer to your question… I am sorry! As I have said many times, investments must make strategic sense… And what makes strategic sense for my firm has already changed 2 or 3 times since inception in 2004… I guess it will change so many more times in the future, that I really cannot name an investment I think I will be satisfied to own forever… Also price is very important to me: at the right price, I will sell everything. I can tell you which are my 3 largest positions right now, because I think they will continue to be very large for some time: 1) FFH, 28.3% of portfolio 2) LRE, 20.7% of portfolio 3) BH, 10.9% of portfolio giofranchi

Well, only 9 months ago there certainly was an “Icahn” discount to IEP stock price: it was selling for 0.8xBVPS, while now it is selling for 2.18xBVPS… So, I think it is very difficult to know what kind of discount the market will apply to a stock and why. I am sure I cannot know and I don’t invest based on such a thing. UNAM is an insurance company with a long track record of profitable underwriting, and I hope Mr. Biglari will treat its management exactly how Mr. Buffett treats the management he is fond of. Of course, I know I might be wrong, but Mr. Biglari is not stupid: he knows very well that profitable underwriting is not easy to achieve, and will not get in the way of a management that has proven to be very skillful at underwriting. UNAM’s portfolio of investments, on the other hand, is held almost completely in very short-term bonds, which yield very little. Here is where Mr. Biglari might add much value. giofranchi

Yes, I understand this. Yet, just look at IEP: right now it is selling at a primum to almost any other compounder that I know of... giofranchi

Tombgrt, I am very well aware of the bad results… They are in plain sight for everyone to see, right? So, I am not trying to hide them or pretend they do not exist… I was on a more general level: Mr. Watsa has always repeated that FFH’s goal since 2011 has been to protect capital, not to grow it. So, everyone knew that! If you wanted something growing quickly, you should have looked elsewhere. As far as I am concerned, a large investment in a company that behaved very conservatively, made and still makes a lot of sense… yet, once again, my situation is mine and mine only. Your situation is yours and yours only. Each one of us has different financial situations and needs… how could the outcome be the same for everyone?! My firm’s equity is up 21% this year… despite the fact I hold a large investment in FFH… So, to protect capital was and still is Mr. Watsa’s goal, while waiting for the right time to use all FFH’s financial power… this doesn’t mean that results will automatically be the ones Mr. Watsa hopes for or strives to achieve… and 2013 clearly has not been very kind so far… Another thing I cannot understand is why people continue to compare Mr. Watsa with Mr. Buffett… We all know what Mr. Buffett does, exactly as we all know what Mr. Watsa does… and they are different things! You prefer Mr. Buffett? Very well then, invest in BRK! But it is completely useless to go on saying “if Mr. Watsa would do what Mr. Buffett does…”. He doesn’t! Period. Last thing about cat events: from the conference call you can read that “current-period catastrophe losses increased modestly in 2013 relative to 2012”. Therefore, though clearly not a terrible year, 2013 until now has been less benign than 2012. giofranchi

Well, I don’t think this is the thread to discuss BH… That discussion goes on and on in the BH’s thread! Anyway, let’s see what Mr. Biglari will do with all his cash now… if he is successful in buying UNAM, maybe some of you will change your mind, or at least question your judgment about Mr. Biglari’s modus operandi. As far as I know, his only agenda is to make money, and there is not a single way he deals with management. In other words, he goes hostile with a management which is incompetent and needs to be replaced, while going along just fine with a management which deserves his trust. Behaving this way, I don’t see why he shouldn’t be successful in purchasing businesses at or below IV. We will see. giofranchi

Actually, I don’t know KKR or Blackstone well, therefore I cannot really judge… But I look at BH as a mini-BRK, with a manager who has some advantages (is much younger and has much more room to grow) and some disadvantages (is less cheap and probably not as talented as Mr. Buffett). If KKR and Blackstone fit this description, then I guess they are like BH. The reason GLRE is different from an hedge fund is very clear to me: GLRE assumes underwriting risk and enjoys the use of float, a typical hedge fund doesn’t assume underwriting risk and doesn’t enjoy the use of float. giofranchi

;D ;D ;D giofranchi

Well, hedge funds almost never manage entire businesses. In other words, they are (or at least are supposed to be) good investors, but seldom are good businessmen too. When you partner with Mr. Einhorn and Mr. Biglari, you partner with both good investors and good businessmen. The strategic advantage of managing wholly owned businesses, that keep providing their owners and managers with free cash flow and/or free float, is not to be undervalued! This being said, I agree that Mr. Watsa is cheaper than both Mr. Einhorn and Mr. Biglari. On the other hand, GLRE and BH are still much smaller than FFH, and could probably grow faster. giofranchi

Thank you for posting! :) giofranchi

Hi writser! I guess it depends on what you mean by “macro investing”… My meaning of macro investing is making investment decisions based on what you think the economy will do… My idea of value investing is comparing probable future real earnings with current prices and come to some conclusion of under, fair, or over valuation. The number of companies imo doesn’t matter… I have 10 companies in my firm’s portfolio, Kraven, if I am right, might have 200 companies in his portfolio, the Russell 2000 has 2000 companies… A second thought is that I don’t invest based on macro, because I don’t think I am able to do so… but this certainly doesn’t mean I think nobody can do that! The fact FFH makes some investment decisions based on macro is not the only difference between what I can do and what they can do… It neither is the only difference between how I operate and how they operate… Take, for instance, their way of investing in equities: they are deep value investors a la Graham, and they usually employ a basket approach, they tend to be very diversified like Kraven tends to be… I cannot do that, and you know I operate differently… Yet, who cares? Exactly as I do know Kraven will go on being very successful, the same I think is true for FFH. I must understand what the partners I choose do and how they will be able to perform in the future; I absolutely don’t need to be able to replicate their way of working… Or, put it in another way, if I could do what they do, I would do it myself!! ;D ;D giofranchi

Hi Ron! Of course, I used to holding BRK and made some serious money. But I hold it no more. Two of the things I look for in an investment, BRK can no longer meet: 1) The age of the owner/manager I partner with should be preferably in between 45 and 65 years. That way he surely has already proven himself, but still has many years ahead to go on compounding capital. 2) The company simply doesn’t have to be too big. For BRK to double, it must become the largest company in the world… I cannot convincingly judge such a situation… It is too many orders of magnitudes away from what I am accustomed to… giofranchi

Well, it is just a present discounted valuation… That’s all! No idea of true IV here… Anyway, it would be much higher! tombgrt, it is just what they do: they wait, and wait, and wait, until the odds suddenly become so much in their favor… I am not saying the waiting is for everyone… Far from me… I just tried to quantified, to put some numbers on they way they operate. And came to the conclusion that it is possible to have great financial success that way. And let me add this: I think it is a very safe way to achieve your financial goals. To be very conservative, until people around you lose their mind… it has worked many times in the past, and I guess it will work very well in the future as well. giofranchi

Hi Kraven, I know that what you do is different from what I do (or try to do). I respect your work and have absolutely no problem accepting it. I am also positive you will go on being very successful. I understand what you do, and hope you understand what I do (or try to do). :) Cheers! giofranchi

Hi nwoodman, I will let you know what I call “My 7 lean years model for FFH”… don’t tell anybody, please! ;D ;D ;D Ok, we all know that FFH increased BVPS by 146% during the 3 years of 2007, 2008, and 2009. That equates to a 35% CAGR in BVPS. So, let’s just see what will happen if two more cycles of 7 lean years + 3 roaring years will unfold. I have assumed in my model that FFH doesn’t grow BVPS at all during the 7 lean years, then increases its BVPS at a CAGR of 35% for the next 3 roaring years. 2013 has been the fourth year of the 7 lean years that will go on until 2016. 2017, 2018, and 2019 will be the 3 roaring years. Then from 2020 until 2026 we will experience another 7 lean years. Finally, 2027, 2028, 2029 will be the 3 roaring years that close the second and last cycle. As you can see in the files attached, with these assumptions BVPS will grow at a CAGR of 12% for the next 16 years, and that equates to a Present Value of Equity equal to 1.54 x BVPS at 2013 year end. You might think I must be joking, but this model of mine follows Mr. Munger’s idea that “you have to do very few things right in your whole career, to achieve great financial results, as long as you avoid too many stupid things”. And that’s what great financial minds past and present have always done: to have ready cash, when everybody else is panicking. Even though those moments don’t come that often, I think you should plan and prepare for them. And that exactly what FFH is doing. giofranchi My-7-lean-years-model-for-FFH.xls FFH_Present_Value_of_Equity.xls

I am certainly not married to FFH, or any other company that I hold. I constantly look at my holdings and ask myself if they make strategic sense in my organization. They are only a part of it, so they must fit strategically. If they no longer do, I sell them. I simply don’t think that a very bad quarter means FFH doesn’t fit anymore… For instance, I got much more worried when the piece of news about the consortium for taking BBRY private came out, because I thought that investing more capital in BBRY now was strategically flawed… Until I knew that Mr. Watsa actually had no intention to use new capital that way! :) giofranchi