giofranchi

shalab, You surely are right! Yet, Mr. Buffett kept 28% of BRK Total Assets in Cash + Bonds at year end 2012… and he can count on $1.2 billion of new cash coming in every months… BRK is exactly the example of a company that always keeps much more cash at hand than what is strictly necessary to run smoothly its operations! ;) giofranchi

Packer, though I know LRE is not a trading opportunity, I firmly believe that the most impressive misjudgments the market commits are in pricing businesses that will go on compounding capital for many years into the future. The market simply ignores how to judge the prospects of a business beyond 2-3 years… That’s exactly why LRE is not a trading opportunity: because the market won’t recognize its error anytime soon… it will probably be a slow and gradual recognition year after year for a very long time to come. Imo in the end LRE shareholders will be handsomely rewarded. The S&P500 is selling for 2.54 x BV with an average ROE of 13%; LRE is selling for 1.7 x BV with an average ROE of 20%. As you can see from the picture in attachment, LRE growth in fully converted book value per share plus dividend since inception, 7.5 years ago, is 270%. It means that $1 in BV at the beginning of 2006 now is worth $3.7. It has compounded value at 19% annual. If LRE goes on performing like it has done since inception for the next 20 years, then it literally disappears (no residual value here!), the present value of its future equity would be $35, using a discount rate of 10%. So, the market is pricing LRE for 1.7 x 7.19 = $12.3, or 35% what it would be really worth, if it succeeds in keeping its ROE at 20% for the next two decades. Of course, the market is absolutely incapable of making such long-term valuations. Generally, I am also not very good at it! But I look for those 5 to 10 investments, witch I have the confidence to invest in for the very long run. And, if I can find them, I am almost sure they will be deeply undervalued! giofranchi

shalab, you surely remember what Mr. Twain used to saying, right? Every time is different and each of us is called to use his/her own judgment. I don’t believe in things on auto-pilot. --GoodHeaven 2013 Semi-Annual giofranchi

Packer, I agree. But I always look only at business results. I don’t care about anything else. And I think LRE operations will be practically undisturbed by any market downturn: it will keep generating a lot of cash, exactly when cash will be needed the most. Second, I don’t know of any other company better positioned than FFH to capitalize on the foolishness of others. And I want to be clear: I don’t think FFH defensiveness is a mistake at all. We have embarked on a lot of never attempted before things… and, just because the outcome is unpredictable, no one should be excused for not seeing or acknowledging the risks involved. Imo we must turn things around: if everything will finally be solved for the better, that would be good luck… instead, the risks of wall-street (financial economy) diverging too much from main-street (real economy) should be evident to everyone… A company like FFH has the duty to protect itself from those risks… even if at the end we all get lucky and the consequences of those risks are averted… and its defensiveness turns out to be nothing more than wasted time and resources. I invest in FFH, because they are doing precisely what I would be doing, if I were in their stead. giofranchi

Kraven, I think we live in a much more uncertain world… Sometime I look back at the file in attachment… either those folks at Value Line were complete fool and wholly incompetent, or we live in a much more uncertain world! giofranchi BAC_-_Value_Line_-_23_nov_2007.pdf

writser, what can I say? As you have suggested, Packer, PlanMaestro, Kraven, and others are heroes! And they will go on doubling, tripling, and quadrupling their money! If there is something I am completely immune to, that something is envy. Therefore, I am sincerely happy for them, but won’t try to emulate them. Instead, I will stick to what I know, understand, and judge the most sensible course of action. I am quite positive I also will create some wealth… Though, of course, much less than Packer, PlanMaestro, Kraven, and all your other heroes! ;) giofranchi

Hi Kraven, think just a second about my firm. The majority of its assets are concentrated in 4 businesses: 1) Engineering services 2) For profit higher education services 3) Fairfax Financial Holdings 4) Lancashire Holdings Then, there is cash. You surely know many companies. Let me ask you a question: how many of them, percentage wise, hold just the minimum cash required to smoothly operate their businesses, and how many hold some cash also for safety? Just in case a rainy day comes? Even if that sad day might never come to pass? I want my firm to be in the second group. If I had to choose between 15% annual + a safety net and 20% annual with no safety net, I would go for the first one without hesitation. And for safety net I mean cash. So, my question in not: do I have to hold cash? Instead, it is: how much cash do I have to hold? Furthermore, it is something that is continuously changing. Both to always hold 5% of cash and to always hold 50% of cash doesn’t make any sense to me… Of course, I tend to decrease the cash level depending on how many opportunities to do business at high rates of return I see out there… But I also like to keep my eyes open and see what other people are doing. Anyone who manages a business know that, even if he does everything perfect and doesn’t commit any error, his results will still be influenced by external forces. More specifically, if everyone around you is going to suffer losses, you will experience some pain too… So, how are they behaving? Soundly or foolishly? If foolishly, I want to increase cash. Finally, I don’t understand your view on FFH or LRE: in 2008, when the market fell (37%), FFH stock price increased from CAD$287 to CAD$390, +35.9%; while LRE stock price increased from 368 GBp to 425 GBp, +15.5%. Furthermore, it is very likely that LRE will go on paying huge dividends also in a downturn, dividends that could be used to scoop up great bargains. So, I sincerely don’t see how anyone could time these things… giofranchi

I know and I understand what you mean. Yet, every bubble in history was supported by some idea and justification. It is not like people all of a sudden get mad in mass and then a bubble ensues. There was always some reasoning behind, that was true… until it wasn’t any more. Today it is: if interest rates are bound to stay at zero for many years into the future, all asset classes are worth more than in the past, stocks included. No matter stocks are already priced to yield no real return over the next 7-10 years, according to the latest GMO letter… No matter negative real rates have led time and time again to the formation of bubbles… I am not saying I am out of the market! I am just saying that I am comfortable leaving some money on the table and playing it safe. giofranchi

What Drives History giofranchi

"The Emergence Of A US Underclass" by Charles Gave giofranchi The_Emergence_Of_A_US_Underclass.pdf

wellmont, imo it is not enough. I am always invested in productive businesses, and yet sometimes I am aggressive in my business dealings and sometimes I am defensive. To behave always the same way, irrespective of what’s happening around you, doesn’t make a lot of sense to me… On this topic I think the 2013 semi-annual report by the GoodHaven Fund is a very good read. giofranchi

Third Point sells YHOO shares to Yahoo http://www.marketfolly.com/2013/07/third-point-sells-yhoo-shares-to-yahoo.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MarketFolly+%28Market+Folly%29 giofranchi

Likes financials (BAC): …and technology (MSFT): and explains what could happen with BAC if interest rates were to rise: Hi hellsten, please take a look at the Pzena commentary in attachment: it is from Q2 2008. Citigroup stock price closed Q2 2008 at $167.6, it bottomed in March 2009 at $10.5, and closed yesterday at $52.25. If you had heeded Mr. Pzena’s advice, 5 years later you would still have less than 1/3 of your initial capital… This means at least two things to me: 1) Expressions like “world-class franchises” are almost meaningless… either you know exactly what you own, or you don’t. And imo to know mega-banks very well is extremely difficult. 2) You might certainly think the market will keep on advancing for a while, and you might certainly choose to play that advance. But, “to party like it is 1999” is dangerous here… There is a time for aggressiveness and a time for caution… Imo now is the time for caution. This doesn’t mean I am not invested in businesses that I think I know very well, that I like very much, and that I think are undervalued… In fact, I am always invested! It simply means that I am playing it safe. giofranchi Commentary_2Q08.pdf

'Southern Europe Walks On Thin Air' by Mr. Charles Gave giofranchi Southern-Europe-Walks-On-Thin-Air.pdf

Al, I had previously missed this post of yours… FFH had first started to be 100% hedged when the S&P500 was at 1060. That certainly doesn’t mean their average hedge level today is 1060… in fact, I guess it should be higher! The right way to look at equity hedges imo is the following: As of March 31, 2013, equity and equity-related securities were worth $4,797.0 (Common stocks) + $593.0 (Preferred stocks) + $1,322.2 (Investments in associates) = $6,712.2 million. If equity hedges represented approximately 104.5% of that amount, they translate into a short position worth $6,712.2 x 1.045 = $7,014.25 million. The cumulative losses of 2010, 2011, and 2012 because of equity hedges are ($1,528.2) million, and in Q1 2013 they recorded another loss of ($592.8 ) million. For a total of ($1,528.2) + ($592.8 ) = ($2,121) million. Now how much would a short position worth $7,014.25 million have to rise, and correspondently how much would the market have to fall, to recoup a ($2,121) million loss? 2,121 / 7,014 = 30.24%. To keep protecting 100% ever increasing investments in equity and equity-related securities, FFH surely realized some gains, but also must have somewhat averaged down on its short positions. Don’t you agree? Am I completely off the mark here? giofranchi

Not really… I am a tennis player… But I love and admire everything that is masterful!! ;) Cheers! giofranchi

After all, even for a genius of golf of Mr. Mickelson’s caliber it took 20 years to win his first Championship Open! :) Scottish Open + Championship Open in a row: the first one in history to achieve such a feat. Congratulations Mr. Mickelson!! 8) giofranchi

--Jeff Saut http://streettalklive.com/daily-x-change/1771-is-this-a-2007-redux.html --Justin Mamis http://www.raymondjames.com/inv_strat.htm giofranchi

King Icahn is a good biography. It's a bit dated as it was written in the mid 90's but gives a good story of his career and life to that point. You can download its pdf file on the IEP - Icahn Enterprises thread. giofranchi

Hoisington Quarterly Review and Qutlook Q2 2013 giofranchi HIM2013Q2.pdf

The wheels are coming off the whole of southern Europe giofranchi The_wheels_are_coming_off_the_whole_of_southern_Europe_-_Telegraph.pdf

My pleasure! :) giofranchi

'The Mirror Cracks' by Michael E. Lewitt giofranchi 2013_07_17_OTB.pdf

The Growing Trend of Hedge Funds Starting Reinsurers: http://www.marketfolly.com/2013/07/the-trend-of-hedge-funds-starting.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MarketFolly+%28Market+Folly%29 giofranchi

Cheers! giofranchi Confessions_Of_An_Owner-Manager.pdf