giofranchi

This I will never understand… In a past conference call Mr. Watsa clearly said that he was very satisfied with all the capital they had put together until now trough the years, and what they were trying to achieve with all the hedges in place was to protect that capital. Not to grow it, but to protect it! If you want to grow your capital fast, look somewhere else… I can understand that! But now people say they will buy FFH at $200… which would entail a major decline in BV… So, you are probably investing in a myriad of companies whose management has zero skin in the game, and explains what they do, how and why, half as well as Mr. Watsa & Co. have been doing for more than 25 years… Yet, you are betting that those managers will be successful and will fulfill their promises, while Mr. Watsa & Co. will fail… It might happen! Everything might happen! But to me it makes no sense at all! giofranchi

Ross, sorry, but I disagree with you here. 1) “once in a lifetime opportunity to pick up some fantastic bargains”?! Why?! Two years ago the market in general wasn’t particularly cheap… On the contrary, it already was quite expensive… Therefore, I don’t see why we will never see those fantastic bargains again… There is really no reason at all not to expect other bargains that will be at least as lucrative in the future! 2) As far as equity hedges are concerned, everyone has different opinions: I still think a lot of people will suffer much larger opportunity costs down the road, when they lack the cash to scoop up even better bargains than those available two years ago… You and others, instead, think only about the opportunity costs FFH has already incurred… I guess we won’t have to wait much longer to know who is right about equity hedges! 3) Maybe you are right about bonds… what matters to me is that those bonds were bought below par with an after tax yield of 5.79%, and are insured by BRK. If held to maturity, interests received plus appreciation will get very close to that 7.5% annual return needed to compound BVPS at 15% per year. So maybe their fall in value is real, but only because they increased in value too quickly before… that certainly doesn’t make them a bad investment… but I am sure you don’t really think they are a bad investment… nobody would think that! 4) I don’t understand your comparison with a company that makes widgets and breaks… equity hedges are not a bad acquisition… equity hedges are a strategic decision to protect your capital, instead of growing it fast. I have already said it could turn out to be a wrong decision… but I have also already said that I don’t think so! And that is the reason why I invest in FFH, because I agree with what they are doing. If that decision truly is the wrong one, once there is evidence about that, they will change course. But they need evidence! They won’t and shouldn’t change course just because you and others don’t agree with their reasonings! 5) Finally, also regarding FFH underwriting results there are many different views… personally, I have a tremendous amount of respect for Mr. Barnard and I think underwriting results are very strictly linked to the quality of management. If you prefer to rely on history, well then look no further than OdysseyRe’s history! If Mr. Barnard succeeds in duplicating for FFH as a whole what he has achieved at OdysseyRe, the good underwriting results certainly won't be only a one time event! giofranchi And Ross, this is how Mr. Watsa commented the bond losses during the conference call: giofranchi

Q2 2013 Conference Call Transcript giofranchi fairfax-financial-holdings-Q2-2013-conference-call-transcript.pdf

tombgrt, I didn’t point out the zero loss in equity hedges, because I find anything to cheer about it… I thought it was obvious I was comparing Al’s forecast of a $500 million loss to what actually happened, to point out how difficult it is to forecast future results correctly… especially quarterly results! Therefore, I still think that to jump in and out of FFH (like any other stock!) isn’t easy at all. But, if you are successful at it, well, good for you! And good luck! PS Ah! Of course, if you think I am… silly… you can always save yourself the pain of reading and commenting my posts! ;) giofranchi

This is also another common misunderstanding! And it really seems so obvious to me… Only because I don’t make the technical drawings of the engineering projects we work on, doesn’t mean that I reckon them useless, right? I know that the engineering service business wouldn’t make money without producing and delivering technical drawings. The same applies to FFH: only because I don’t use a Graham-type approach to stocks, doesn’t mean that I reckon it useless, right? I know that FFH wouldn’t make money without investing its float that way. What I do is to decide if having my firm’s assets invested in the engineering service business and in FFH makes sense, or if there are better alternatives. I look for the best businesses I can find. Then, I let them do their job. giofranchi

Ross, sorry, but I disagree with you here. 1) “once in a lifetime opportunity to pick up some fantastic bargains”?! Why?! Two years ago the market in general wasn’t particularly cheap… On the contrary, it already was quite expensive… Therefore, I don’t see why we will never see those fantastic bargains again… There is really no reason at all not to expect other bargains that will be at least as lucrative in the future! 2) As far as equity hedges are concerned, everyone has different opinions: I still think a lot of people will suffer much larger opportunity costs down the road, when they lack the cash to scoop up even better bargains than those available two years ago… You and others, instead, think only about the opportunity costs FFH has already incurred… I guess we won’t have to wait much longer to know who is right about equity hedges! 3) Maybe you are right about bonds… what matters to me is that those bonds were bought below par with an after tax yield of 5.79%, and are insured by BRK. If held to maturity, interests received plus appreciation will get very close to that 7.5% annual return needed to compound BVPS at 15% per year. So maybe their fall in value is real, but only because they increased in value too quickly before… that certainly doesn’t make them a bad investment… but I am sure you don’t really think they are a bad investment… nobody would think that! 4) I don’t understand your comparison with a company that makes widgets and breaks… equity hedges are not a bad acquisition… equity hedges are a strategic decision to protect your capital, instead of growing it fast. I have already said it could turn out to be a wrong decision… but I have also already said that I don’t think so! And that is the reason why I invest in FFH, because I agree with what they are doing. If that decision truly is the wrong one, once there is evidence about that, they will change course. But they need evidence! They won’t and shouldn’t change course just because you and others don’t agree with their reasonings! 5) Finally, also regarding FFH underwriting results there are many different views… personally, I have a tremendous amount of respect for Mr. Barnard and I think underwriting results are very strictly linked to the quality of management. If you prefer to rely on history, well then look no further than OdysseyRe’s history! If Mr. Barnard succeeds in duplicating for FFH as a whole what he has achieved at OdysseyRe, the good underwriting results certainly won't be only a one time event! giofranchi

[amazonsearch]High Financier - The Lives and Time of Siegmund Warburg[/amazonsearch] --Lucie Warburg, mother of Siegmund Warburg giofranchi

Ok, I am using Al’s post not as a critique towards him… but a critique it surely is! And it is a critique towards anyone who think FFH successes and misfortunes can be accurately timed, and therefore it is possible to jump in at 0.9 x BV and sell at BV, repeating the process over and over again. FFH lost money in Q2 2013, but let’s look at the results: - 94.2 CR, producing and underwriting profit of $84 million - $71 million of gains in equity and equity-related investments - NO LOSS FROM EQUITY HEDGES - ($496) million of bonds losses - bonds losses of course are only paper losses, while FFH received $112 million in cash from those same bonds - BV decreased, but only to $362 And let’s look at equity results for the first 6 months of 2013: including the losses from equity hedges, FFH has recorded a gain of $176 million out of a portfolio worth $583.7 (preferred stocks) + $4,704.2 (common stocks) + $1,400.2 (investments in associates) = $6,688.1 million. A 2.63% return, or a 5.26% annualized. Now I ask: what’s so wrong with a 5.26% annual return from stocks, when you are as defensive as you have ever been in the past, and as you will probably ever be in the future? Will the stock price fall after yesterday’s results? It might. After all FFH has lost money… But, please, look at OdysseyRe: 84.4% CR for the first 6 months of 2013… even though I cannot say it is a Lancashire kind of result, it is impressive nonetheless, isn’t it? And the mind behind OdysseyRe success is now also behind all the insurance and reinsurance operations at FFH. In a low returns investment world, they are focusing on their insurance and reinsurance operations, and they are getting better and better. That’s exactly what I would be doing if I were in their stead, and therefore, although I might be mistaken, I surely have nothing to complain about! I will use any further weakness in the FFH stock price to buy more. --John Maynard Keynes giofranchi

Hi SD, What do you mean by long term bonds? 10 years? Well, if interest rates rise 100 basis points, I lose 10%… and rates have just risen more than 100 basis points in a matter of weeks… Ah… C’mon! You clearly are not aware of the powers of a really good coffee… Well, of course! The best coffee you can get is in a Starbucks… ;D ;D ;D If you ever come to Milan in winter, let me know! It is cold and everyone wants coffee, you are right, but I will let you taste the best cup of coffee in the whole city… And you will suddenly realize why everybody wants that coffee and not another one! ;) giofranchi

I would also add that I like to partner with someone who: 1) Takes the time, a lot of time!, to explain thoroughly and very clearly what he is doing and why. Always from a strategic point of view! I want to make sure I would be doing the same things, if I were in his stead. 2) Is still young enough to keep working as the chief strategist and capital allocator of his/her company for a very long time. As I have already said, to really understand the true reasons behind one person’s success is extremely difficult… too many variables involved… many of them clearly not knowable by the general public… so, a successor might do fine… but I like the founder much better! 3) Enjoys some competitive advantage: he/she might control whole businesses, which keep generating new cash for him/her to shrewdly deploy; he/she might have enough muscles to play an activist role in each venture he/she decides to pursue (this also means playing a strategic role: fix the management problem, then a new, better, more efficient management will micromanage all the operations); he/she might have some sort of cheap and safe leverage (insurance float, for instance). 4) Is at the helm of a company small enough to be effectively controlled and to have still much room to grow. I always put myself in his/her shoes: would I feel comfortable trying to control an organization with hundreds of billions in assets? Would I feel able to keep on growing its capital at a satisfactory compounded annual rate? The answers are: NO and NO. giofranchi

Hi Kraven, I know you are extremely good at what you do, but even for you it must be a huge amount of work! I think you run a portfolio of 50-60 securities, right? Please, correct me if I am wrong. And I guess your medium holding period is between 2 to 3 years, right? Let’s say 2.5 years. You have been investing for more or less 20 years now, right? So you must have already bought and sold something like (20 / 2.5) x 55 = 440 securities. Let’s say that you have bought and sold all those companies at least twice: that would bring the count down to 220 securities. The single thought that you have studied 220 companies deeply enough, to get to a strong conviction about all the cash they will generate until they shut doors, gives me the headaches! ;D Moreover, what for? If they are selling for less than a reasonable target price, you already know that there might be a huge discount to IV… is it so useful to know exactly how huge that discount actually is? giofranchi

Q2 2013 Letter giofranchi Third-Point-Q2-2013-TPOI-Letter-Final.pdf

Hi txlaw, on the contrary, it is me who must apologize! I was the first one to say I don’t think anyone can know an organization like BAC very well, and it is clear instead that you strongly believe otherwise… So, I was not careful enough and it was me who provoked you… I am really sorry! Now, let’s comment on this issue of IV… I agree with you that also the expression “to buy below IV and sell at IV” is somewhat misleading… the simple fact is IV is almost useless… because, though everyone seems to talk about IV, no one in the end uses or even calculates it. Take, for instance, the net-net bargain idea of Mr. Graham, or the “replacement value” idea: they have nothing to do with IV… the only link they have to IV is that current assets minus total liabilities are probably worth much less than IV, and that replacement cost is probably much lower than IV. Also people who are more interested in earnings power almost never calculate IV: how many times have you heard the expression: “I want growth for free”? As if to consider earnings at today’s level were a “safe” policy… Once again: either you know what you own or you don’t, there is no substitute for that. Even when all your efforts are concentrated in trying to know what you own, very few people calculate IV: take, for instance, my calculation of the discounted present value of LRE future equity: that number clearly is not IV! Which kind of business sustain a ROE of 20% for almost 30 years, then disappears all of a sudden? Like I have assumed? It makes no sense, right? In fact, people who concentrate all their efforts on knowing ever more deeply what they own usually are interested much more in the CAGR of their wealth, rather than in assigning a precise IV to their holdings. Therefore, let me try this other expression: “to buy below a specific target price, and to sell when that target is reached”. But… I already know this one will be misleading too!! If I have understood correctly, what you seem to be doing is something that I find very rare indeed: you really strive to calculate IV and you keep your holdings, until they reach “that” target. If this is the case, I am sure you must know all your holdings very well. But let me be clear: I think this is possible only because, as you have said, you run a very concentrated portfolio and because its turnover must be very low indeed! Once again let me use LRE as an example: I don’t expect to see LRE ever trade at IV! It follows that, to hold it until it gets to IV, I must hold it forever… Ok, that’s a little bit emphatic, but it conveys my idea well. Your behavior is much different from the construction of a widely diversified portfolio of companies that are selling “below a specific target price”. When I misleadingly talked about trading, I was referring to the strategy of assembling a widely diversified portfolio of companies that are selling below a specific target price, with the goal to sell them as soon as that target is reached. Even if that target price generally grossly underestimate IV. I repeat: a very sound strategy to make a lot of money, but one which doesn’t require to know all the businesses involved very well. So, in how many businesses can a person have great conviction? Well, as you have said, it depends on a lot of things. Personally, I am at work 12 hours each day (week-ends included) and in between the businesses I manage and the businesses I invest in I am already very busy! Of course, I see my circle of competence expanding over time… but not rapidly… Finally, regarding BAC: I am sure Mr. Moynihan is doing a wonderful job, but: --Cable Cowboy Remember that I am a “guy who owns his business”, I am not a finance guy. And by “to own my business” I don’t mean that I must micromanage it… in fact, I never do! It means, instead, that I am the one to take all the “strategic decisions”, that I am the one to choose how its capital is used. If I cannot do that, to invest in a business, I require at least that there be another person, I admire and trust, who puts his/her interests and mine at the same level, and who does that job in my stead, possibly the same way I would have done it! Otherwise, I won't invest. giofranchi

+1 as well, keep the discussion going! Ok then, the PM I sent txlaw follows: He then answered me with very good counter arguments and I hope he will post his message as well. To that message I will now post some new comments. giofranchi

;D ;D ;D (I guess this post doesn't count... ;D) giofranchi

Gio; this board member is interested!!! I feel like I'm sitting around a big table with my Many Italian friends drinking chianti, eating a big plate of spaghetti, loud debate going on. Arms and hands waving while points are made. Someone looking in might think there's going to be a fight. But it's always interesting and there are always new things learned. So please don't stop the open forums. If someone doesn't want to read they can just move on. Ron Hi Ron! I have started reading [amazonsearch]High Financier – The Lives and Time of Siegmund Warburg[/amazonsearch] by Niall Ferguson… maybe I will learn to love the banking business! Jokes aside, you know that I might have my ideas on the banking business and on the insurance business, but I never let my ideas get in the way of a great opportunity: if I find someone who is truly worth of my admiration and trust, even if he is a banker! ;D, rest assured that I will invest with him without thinking about it twice! ;) Cheers! Gio

tombgrt, there is a reason why I use the words investing and trading: when you own a business for the long run, you must rely on the wealth that business is going to create through the years. If you buy it at a bargain price, that represents just an extra boost to your financial well being. Instead, if you keep buying below IV and selling at IV, you keep relying on mistakes made by the market, but very little on the long term wealth created by those businesses. Anyway, I understand why using the words “investing” and “trading” might cause misunderstandings, so let’s say instead “to buy and hold” and “to buy below IV and sell at IV”. Sorry, I didn't mean to mislead anyone! :) giofranchi

Hi txlaw, I really enjoy our discussion about the insurance and banking industry. But maybe this is not the right thread, and maybe other board members are not very interested... So, I have sent you a PM, and maybe we can go on sharing our views that way! :) giofranchi

txlaw, on the contrary, I think I have understood perfectly well what you mean by diversification. And in theory I also agree with you. But in practice I still think it gives a false sense of security. In practice, like Mr. Lewis and many others have demonstrated time and time again, one very bad decision taken by a fool at the wrong time is enough to bring down even the most diversified of business organizations. I don’t understand why it is so difficult to believe that I truly have nothing against trading… It is simply that I don’t like to spend my time looking for statistically cheap stocks, jumping in when I have found one, and out when it gets to IV. But, if FFH does just that on my behalf, with the benefit of float, which I don’t enjoy, well then I am perfectly fine with it! It is a good way to make money! Still, I call it trading, not investing… If it is not clear, think about what they did with International Coal (in attachment) and think about what they are doing with Kennedy Wilson. The first I call trading, the second I call investing. If they do both and make money, well I am very happy! But why insisting in calling investing what instead is trading? If you recognize a statistically cheap stock, and you want to take advantage of it, very well! Do it! But don’t tell me that you know the business very well… because it is even useless to know it very well! Even Mr. Graham has always acknowledged he didn’t know the great majority of the stocks he put money into very well. He just recognized a cheap stock, when he saw one! For what I know also he was an investor at least once, that’s to say in Geico. And he probably really knew that business, and stayed with it for years or decades, and really wanted to own it, he was confident about its future prospects and potential growth, and didn’t care too much about valuation, at least not until its share price really got wildly expensive… Probably, I cannot express myself clearly enough, but to me the difference between playing a temporary undervaluation, and owning a business is self evident… in the first case you don’t really need to know the business, in the second, if you don’t know it very well, you are looking for trouble! How is well enough? I prefer to be conservative and repeat that well enough is how I know the to businesses I personally manage… but, if that is too much, think about twacowfca and how well he knows Lancashire… that would be well enough for me too!! Of course, I completely disagree that FFH is more dangerous than most “well run” banks… whatever “well run” might mean… But I have talked so much about FFH, and here in Italy it is getting late… Let’s just say that the 9 out of 10 a bank collects in bonds and deposits is not safer nor more dangerous than the 1.5 out of 2.5 an insurance company collects in float… to think it is safer is another false sense of security… because it all depends on people and the choices they make. A group of people that collects deposits and feels safe imo is instead in greater danger than a group of people that knows they are dealing with probabilities and are very focused on not making any error and on improving their underwriting skills. One thing about leverage: 2.5 to 1 is a completely different thing than 10 to 1! To get a good 15% ROE, FFH must achieve a 7% return on its portfolio of investments. Instead, a bank that is levered 10 to 1 could achieve less that 2%… and yet FFH has an history of 20% ROE, while the average bank probably doesn’t get to 10% ROE… giofranchi International_Coal.bmp

Hi tripleoptician, I think I have just expressed my views about some topics of yours on this other thread: The 13th Labour of Hercules. Anyway, let me tell you that I believe FFH is great value today… but of course it seems I am the only one to have this view about FFH on the board… so, take my words with a grain of salt! ;) giofranchi

Gio, fair enough on this point. There are many value investors who would agree with you on this notion that BAC is too big to understand. I would disagree. Further I actually think that because BAC is so big, I have the benefits of business diversification that makes BAC a stronger investment than a local bank, sort of like an insurer that is diversified across jurisdictions or a conglomerate that is diversified across businesses. (When is your conglomerate going public, btw? Let me know so I can invest ;) ) If I owned a local or community bank, I feel I would have to watch that company like a hawk to make sure that the local economy was not in peril and to really make sure that the underwriting was very good, since all the eggs would be in that local basket. I'd be exposing myself to localized disasters that could wipe out my investment. But I get your point and respect your hard line decision to stay away from companies like BAC. I'm curious, do you stay away from all banks? Hi txlaw, with all due respect, that’s exactly what I meant when I said that it is very easy to fool ourselves into thinking that we know a company…! Business diversification… doesn’t mean anything to me. Too big, too systemically important, too diversified… to fail? Don’t mean anything to me. We all witnessed how a single decision taken by Mr. Lewis in 2008, to buy Countrywide Financial, almost brought that mighty organization down to its knees… Look, to really know a business, you should be “signing all the checks”, like Mr. Ergen so masterfully put it. That’s why, if it were for me, I would go only after businesses that I own, control, and manage from a strategic point of view, not a day by day running of their operations. Unfortunately, life is hard, the world in which we live is unjust, I am misunderstood and unlucky, etc. … whatever! The simple fact is I don’t have enough capital to buy whole businesses! That’s why, even though regretfully, I must invest in the stock market. And if I cannot do it all by myself, the second best alternative is to partner with someone who owns, controls, and manages from a strategic point of view, not a day by day running of its operations, a business. I demand: 1) that person should put his/her interests and mine at the same level, 2) that person explains very clearly what he is doing, so that I might be positive I would be doing the same things. If I am sure about 1) and 2), well, it then becomes something much similar to a business that I own, control, and manage from a strategic point of view, not a day by day running of its operations! That’s exactly why I have repeated many times that I focus on the modus operandi, on the process, on HOW that person I call my partner is doing things, much more than on WHAT he is doing. That’s why I have repeated many times that I invest in FFH because I would be doing exactly the same things, if I were in their stead. Instead of trying to know and evaluate everything FFH is doing, which I think is impossible because I am not the one “signing all the checks”, I focus on how FFH is conducting its businesses. I hope this answers also to tombgrt’s objection (hey! I know that there will always be uncertainties… as I have said, unfortunately this is only the second best alternative! And even to own whole businesses, my first choice hands down, would entail its own uncertainties and risks). As you might imagine this limits the number of companies in which I would invest very much… to tell the truth the great majority of publicly traded companies are uninvestable to me. Beware! I have said uninvestable, not untradable! Practically all of them are tradable and I agree with tombgrt that there is the potential to make a lot of money trading them… I would add, if that is how you like to spend your time! As far as banks are concerned, I don’t really understand the banking business. I am always skeptical of a business that must be levered 10 to 1, just to produce a mediocre ROE… Anyway, if I had to invest in banks, at the right price I would choose something like BOKF. giofranchi BOKF.bmp

They have probably 1000x more AUM than the average investor on this forum, hence the universe of stocks they can pick from is much smaller. If they don't see interesting opportunities that doesn't mean there are none for you. Well, Awilco Drilling, for instance, is a $3.45 billion capitalization company. Alleghany has only $500 million invested in publicly-traded energy companies... Therefore, if AWLCF is such a good bargain today, it is beyond me to understand why Alleghany wouldn't heed your suggestion! ;) giofranchi

Hi txlaw, Yes! Of course I agree! The view I don’t agree with is that anyone can be confident enough to say: I know BAC well, therefore I can judge its true value, therefore I know it is a bargain. Imo a $2 trillion organization is just too difficult! I always try to keep in mind Mr. Keynes words: If he felt himself entitled to invest in only two or three enterprises, because he was positive they were the only ones he knew well enough, who are we to act differently? Yet, I fear it is way too easy to deceive ourselves into thinking that we know and understand something… Well, of course a combination of the two! My firm falls in the category of those businesses which hold more cash than it is strictly necessary to always assure their operations will be smoothly run. Therefore, I hold some cash both to be sure that working capital will never fall short of what is really necessary, AND to take advantage of future opportunities. You see? I think I know very few businesses… Hey! I am smarter than Mr. Keynes was, so I don’t confine my circle of competence to two or three enterprises… ;D ;D Let’s say I think I know 15-20 names I am perfectly confident to invest my firm’s capital. Unfortunately, no one among them is dirt cheap today… FFH, which I think is dirt cheap, is already 30% of my firm’s portfolio… That’s why I hold cash, hoping to get the chance to average down in those 15-20 names in the future! By the way, I was rereading Alleghany 2012 letter to shareholders and I have found this: This judgment is very common among the managers I admire and respect. Instead, it seems that on this board outstanding opportunities are everywhere! I am not a trader, I don’t follow 100, 500, or 1000 stocks, so I guess I truly cannot know… Yet, I would suggest that this board go and talk to Alleghany and others… No? Why not to sell them your precious ideas? They have deep pockets, but apparently are short of ideas! ;) giofranchi

Packer (and anyone else), is there a good place to find a history of the U.S. financial system, e.g., to read about these periods? I've been looking for a good book that has detailed information about the various financial events, just to have some history to be able to rely on. I'm fairly well-versed from 1923 on, but wouldn't mind beefing that up as well. I would suggest the following list: [amazonsearch]A Monetary History of the United States, 1867-1960[/amazonsearch] [amazonsearch]A History of Interest Rates[/amazonsearch] [amazonsearch]The Great Wave, Price Revolutions and the Rhythm of History[/amazonsearch] [amazonsearch]This Time Is Different, Eight Centuries of Financial Folly[/amazonsearch] Cheers! giofranchi

merkhet, that’s why I invest in FFH: because they were hedged before 2008, not after! ;) BTW, I just wanted to make one more thing very clear: each situation is unique. I hate rules, because they are very impractical. If you follow rules, most of the times you end up lacking the flexibility that is required, to make the best decisions. Take my case, for instance: during the last 3 years I have kept a 30% investment in FFH and a 30% in cash. Yet, I have succeeded in increasing my firm’s BV at 17% annual. How is it possible? Because my firm, thanks God!, generates operating earnings. And those earnings at the end of each year were taxed, then summed to my firm’s equity. (I also paid out some dividends! :) ) I know that, as my firm’s equity gets larger and larger, those operating earnings will contribute less and less. People sometimes argue: in 1996 the S&P500 already was as expensive as it is today, then it shot up for 4 straight years, before a correction finally arrived. So, whoever is hedged or hold large sum of cash today might run the risk of waiting for a long time! Imo, the comparison is clearly fallacious: from 1996 to 2000 the S&P500 behavior ceased to be representative of the US stock market. Technology and Media stocks shot up, distorting the behavior of the whole index, while a lot of other sectors were left in the dust. Today instead, as it were in 2007, the advance is much broader. So, imo the comparison with the 2000 peak is another generalization and is misleading. But, let’s assume vice versa that it is a sound comparison: then, what should be the most likely scenario for my firm? Very low returns from investments for the next 4 years… but we don’t need them! Because during that time operating earning will still be meaningful enough to help us achieve our goal of a 15% CAGR in BV. Then what? Well, if the market keeps marching upward for another 4 years, like it has been doing for a while now, I am almost sure even Packer, Kraven, and others will get scared… and rightly so: because it will then be the most spectacular stock market bubble in human history all over again!! And a needle to prick that gigantic bubble will be just around the corner! Then, exactly when my firm’s equity has increased so much, that operating earnings start to become less relevant, my buying power will be perfectly intact and I will be able to shift focus from operating businesses to investments. A 15% CAGR in BV will go on, only from year 5 or 6 onward the largest contributors will be investments, instead of operating businesses. Most important, this way I see almost zero chance of screwing things up! (Hey! I know I will find a way nonetheless… but don’t tell my partners!! ;D) Now, what’s wrong with my reasoning? I think each one of us must have a strategic vision for his/her very unique situation. Because in the end only a soundly thought out plan, followed with discipline, is what will lead to good results. Rules and quotations won’t get you there. giofranchi