giofranchi

Agreed on both. Don't see any reason why gold fundamentals have changed. On the contrary we see Soros, Societe, Goldman inducing speculative shorts in gold while hot money exits to chase equities. The biggest story right now in my humble opinion is that central banks will soon have to come clean that there is no exit strategy. QE will be integral to the economy from here on out. The problem market participants have yet to factor that in. Again - in our view there is no exit strategy. Moore, I established a 10% position on Gold & Silver for my firm. I guess many investors on the board, me included, are not really interested in either Gold or Silver as investments. Instead, they just view Gold & Silver as a “mean to protect and maintain the purchasing power of our capital”. Purchasing power that we want to keep as intact as possible, waiting for the right opportunity to buy the businesses we understand and admire the best. Now, my question to you is the following: if the price of Gold & Silver could be so easily manipulated by Soros, Societe, Goldman, etc., how could we still believe it can effectively “protect and maintain the purchasing power of our capital”? In other words, have we been too naïve, and committed a serious mistake? I genuinely think a lot of people on this board would like to know your thought on this. Thank you very much, giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Would you define the process of finding business in which you could “feel yourself entitled to put full confidence” an easy thing to do?! Then, your experience is much different from mine! ;) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Well, that is not consistent with past returns. Take, for instance TPOU: in the file attached you see it returned 17.9% since inception vs. a 6.5% annual return achieved by the S&P500. Ok, I know that “past results are not indicative of future performance”… But, if nothing of significance has really changed, the fact the future is always unknown and unknowable doesn’t bother me much! :) If the companies you know well and in which “you feel yourself entitled to put full confidence” get to be too pricey, you are left with only two options: 1) to find other companies in which in time you come to “feel yourself entitled to put full confidence”, and which are much more undervalued, 2) to hoard cash. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes 2013-3-March-Monthly-Report-TPOI.pdf

Well, I personally much prefer little and sweet, than very tall and slender, in impossibly high heeled shoes and with the twisted ankles!! ;D ;D Cheers! giofranchi

This is much pessimistic! I have really an hard time imagining a year in which FFH might be more out of sync with the market than 2012. Well, in such a difficult environment and terrible year FFH still returned 6.5%. :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Well, it obviously depends on the price you pay. My list of companies was just an example… I own some of them today. Others I don’t. But, as a rule of thumb, if you can partner at or below BV per share with people who have showed for many years, through many business cycles, to be able to compound capital at 15% per annum, who are still relatively young, who manage a business that is not subject to obsolescence or rapid change, and hasn’t grown too large yet , well, then it is up to you to prove why the future will be different from the past! ;) Moreover, practically every company in my list compounded capital at a higher rate than 15% per annum in the past. No, really: if you could find a great business, led by an outstanding capital allocator, I would not part ways with it (unless, of course, it starts selling for way too much!). :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Thank you, Jack, for your note. :) +1 Unfortunately, it is not easy for me to travel to Toronto each year, but I have done it a couple of times and I have always enjoyed the experience very much! :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Last time I posted a presentation by Mr. Raoul Pal, someone wrote me back, saying he thought this board was a high quality and a serious one… :( It seems I never learn from experience! ;D giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes Global_Macro_Investor_-_April_2013.pdf

Interview with Mr. Paul A. Volcker. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes Dangerous_Economic_Territory.pdf

Interview with Professor Carmen Reinhart. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes Harvard_Economist_The_Crisis_Isnt_Over_in_the_US_or_Europe.pdf

Mr. Charles Gave on "The Social Purpose Of Tax Heaven". giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes Daily+4.11.13.pdf

Well, I am still reading it, but I have yet to find a theological debate. So far it is just very complicated physics explained in plain English with extreme clarity! I have understood that a “flat” universe, which is expanding at an ever increasing speed, instead of slowing down, like it was previously thought, requires energy far superior to the one that can be contained in its observable mass, and therefore circa 70% of that energy should be contained in empty space - the so-called “dark energy” our friend txitxo is a renowned expert about - yet I still have a lot of trouble trying to grasp what “dark energy” exactly is supposed to be… Maybe, as I go on reading, it will become clearer! :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Well, obviously that depends on where you are aiming at! Take, for instance, the thread racemize started a few days ago: “Absolute Investment Targets”. He points out Mr. Pabrai’s minimum requirement is expectation of 2-3x in 2-3 years, or 26% per annum. And that would rule out investments in such companies as BRK, FFH, LRE, OAK, MKL, LMCA, BAM, LUK, GLRE, TPOU, BH, IEP. Viceversa, I argued that exact portfolio, aided by some cash generating sources, gives you a very high probability of compounding capital at 15% per annum for many years to come. I said that the only true risk I see is the so-called “man at the helm risk”, but spreading it among 12 different companies, significantly mitigates that risk, leading to a very high probability of achieving the 15% per annum hurdle rate of compounded return. Now, please, follow my reasoning: provided I am not a complete fool, it should be obvious that I think expected value to be the same in both cases. Otherwise, I would certainly switch to Mr. Pabrai’s strategy, with its 26% expected annual return! But, I also said that, starting with a capital of $1 million, and compounding capital for 50 years, you might reach $1 billion by the end of your career and productive life. Let’s suppose the USD depreciates by a factor of 5 during the next 50 years: your $1 billion then would be the equivalent of $200 million today. Very rich by any standard, but not even close to be in the Forbes 400. On the contrary, if by chance you’d really succeed in compounding capital at the rate Mr. Pabrai is suggesting, you would be worth not $1 billion, at the end of the aforementioned 50 years period, but $104 billion!! Which would be the equivalent of $21 billion today! Definitely among the richest persons in the US and on earth! So, you see? If you are aiming at being included into the Forbes 400, you have no choice except embracing Mr. Pabrai’s strategy and expected annual return. You talked about people with a gambling addiction… well, I don’t know about the US, but in Europe extremely successful entrepreneurs are seen by the great majority of people EXACTELY THAT WAY! And that is what Mr. Gladwell tried to disprove with his article. Not only successful entrepreneurs are very rational, but, if asked to choose between “to do what they love doing” and the Forbes 400 list, they have no doubt and show no hesitation. :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

If, among 3 choices with exactly the same expected value (future profit x chance of success), the great majority of entrepreneurs expressed the same preference (business n.3), it really might follow that something other than pure algebra, and therefore rationality, is at work here. I generally agree with Mr. Gladwell that a higher chance “to do what they love doing” is important for most entrepreneurs. I myself would have chosen business n.3 without hesitation. ;) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

--Malcom Gladwell Mr. Gladwell definition of a “predator” is exactly what I have in mind when I refer to “outstanding capital allocators”. Why on earth wouldn’t you partner with people like that? :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes surething.pdf

You are welcome! I know that activists are looked at with suspicion on the board… so, it is fine to know that at least someone is interested in TPOU! ;) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Mr. Loeb's Q1 2013 Letter. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes Third-Point-Q1-2013-Investor-Letter-TPOI.pdf

Golden Ratio Infographic. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Interview with Mr. Zell: http://www.zerohedge.com/news/2013-04-10/sam-zell-stock-market-feels-housing-market-2006 Enjoy! giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

My firm got incorporated in 2004, and I started investing its fcf in 2006. :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Hi racemize, ok, that’s how I see it: I started some years ago with a capital of $1 million. My goal was to increase capital 15% each year for 50 years. To achieve that goal, I rely both on the operating earnings of the businesses my firm controls, and on the results of my favorite businesses which my firm possesses little pieces of. That way, by the time I retire, I would be a billionaire. And throughout my whole career I would have earned on average $1.6666667 million each month! If you could find a reliable way to achieve that result, why stray far from the sure formula?! Aren’t you satisfied with $1.6 million a month?! Won’t it be proof enough that you really have done things intelligently, and you really have succeeded in creating wealth over time? The surest formula I know of is to partner with outstanding capital allocators, and to constantly keep generating the cash that enables you to double down on them, when the market gives you the chance to do that. Like Kraven is used to saying “you don’t know, what you cannot know”. So, be aware of the “man at the helm” risk, as I like to put it. And spread your bets among 10 to 15 compounders. Otherwise, I really don’t see how you can fail to achieve your “$1.6 million a month” and “billionaire at the end” status! ;) PS Until now I have increased capital at a 17% annual rate… so far so good! ;D giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

[amazonsearch]A Universe From Nothing[/amazonsearch] txitxo, I have started reading A UNIVERSE FROM NOTHING, because Mr. Munger suggested it as a wonderful read. From the Preface I was immediately hooked and I find it pretty amazing! Do you think it is because of my devastating ignorance of the subject treated in the book, or you judge Mr. Krauss to actually be a serious and highly competent theoretical physicist? Thank you! :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Good interview with Mr. Kyle Bass: http://www.gurufocus.com/news/216094/detailed-recap-of-kyle-bass-on-bloomberg giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Hi David! That would be a great conference! I really envy you! :) I am well aware of the fact that macro is usually not very useful for investing… But, paraphrasing Mr. Kyle Bass (who will be at Mauldin’s conference!), when you find yourself at the end of a 70 years old debt super cycle, even if you cannot time precisely how events will unfold, it might be useful to pay some attention. So, always buy good quality when it is on sale and don’t worry about macro. Except at the end of a secular cycle, when you should also pay some attention to what is happening around you! At least, that is how I see it. :) Take care, Giovanni

+1 giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes