giofranchi

The latest article by Mr. Easterling. 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 Article-Game-Changer.pdf

--Charles Gave 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 France_On_The_Brink_Of_A_Secondary_Depression.pdf

Vinod, sincerely I hope this doesn’t happen. It would simply mean that profit margins will be 25% higher for the next 10 years than they were on average during the second half of last century: probably the best time for capitalists in the whole history of mankind . Imo, if it actually comes to pass, social unrest will ensue. I wouldn’t run such a risk… even if its probability were very thin… I don’t think it is enough to understand how businesses work, I think we should never lose sight of how people behave too. Furthermore, I don’t think “fair value” for the S&P500 is very useful here. If and when people realize that profit margins are unsustainable at the current level, they will sell. And when people start selling, they have the nasty habit to shoot on the downside. Once again the late Mr. Gary Shilling is the one I agree with. $80 in earnings for the S&P500 and a multiple of 10: S&P500 at 800 is where we might be heading (almost another –50% correction). Because I am a chronic optimist, let’s say I think a –40% correction is possible! :) 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

Absolute Return Partners Letter April 2013 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 The_Absolute_Return_Letter_04131.pdf

Kyle Bass and Dylan Grice on Japan: http://www.zerohedge.com/news/2013-04-07/kyle-bass-japanese-retirees-will-lose-half-their-life-savings 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 Dylan-Grice-Japan.pdf

RECANTATION by Charles Gave 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 EVA+4.5.2013+NA.pdf

Probably you are right (well, I guess it depends on how old you are…). Anyway, that doesn’t automatically mean other good capital allocators and compounders won’t be there to find and to partner with. Actually, all the companies mentioned in this thread have already proven to be good at creating much value for their shareholders. Even if they will never be as good as BRK! :) 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

--Chaz Ebert (Mr. Ebert’s wife) I don’t remember a single movie rated 4 stars by Mr. Ebert that I didn’t like. I think he was among the very best movie critics and his departure is a great loss for everyone who loves cinema and its history. giofranchi

When it comes to capital allocation, small or huge have meaning only in the right context. And, imo, the right context is the following question: are opportunities still many and frequent, or the capital they manage is already so large that opportunities have become hard to find? Think about the markets BAM operates in: real estate all over the globe, one of the largest market out there; infrastructures and renewable energy all over the globe, two of the fastest growing markets out there. I think there are still many opportunities to be found and still much room for growth. :) 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.” - John Maynard Keynes

Cheers! :) 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.” - John Maynard Keynes Distressed-Debt-Presentation.pdf

OAK and LRE are respectively my second and third largest positions. LMCA and BAM are not huge and can go on compounding capital for many years. :) 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.” - John Maynard Keynes

March 2013 performance. 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.” - John Maynard Keynes 2013-3-March-Monthly-Report-TPOI.pdf

Well, thanks for posting this report. However , is it supposed to be distributed freely in the forum? Sanjeev has asked numberous times to not put any copyright materials here.And I just saw this at the end of report. It is a breach of international copyright laws to reproduce all or part of this report by email, fax or any other means. The Short Side of Long’s report is provided on fortnightly basis to paid subscription members only. If you are not a paid subscriber and receive emailed, faxed or copied versions of the reports from a source other than Short Side of Long, you are violating the Copyright Act. THE SHORT SIDE OF LONG theshortsideoflong.blogspot.com Copyright © 2013 All rights reserved. I only post material that I receive directly from the author and that is for free. The only exception has been the Gary Shilling Insight… Parsad, I apologize for having posted some work by Mr. Shilling, and I will certainly do it no more in the future! 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.” - John Maynard Keynes

Short Side Of Long Issue 2 April 2013 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.” - John Maynard Keynes SSOL_Issue_02.pdf

"Contagion Starts Small" by David Kotok 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.” - John Maynard Keynes Contagion_Starts_Small.pdf

Yes! To start, probably even better! If you want just one novel, instead of a story that spans two books. :) 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.” - John Maynard Keynes

I agree 100% SwedishValue, and welcome to the board!! :) 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.” - John Maynard Keynes

Unless you like the fantasy genre, I would leave aside both the “Fionovar Tapestry” trilogy, and “Tigana”… too many magicians there! :) (Otherwise, I think they are extremely good) And I would choose among other more historical novels. “Sailing to Sarantium” and “The Lord of Emperors” imo would be a good choice. They are about the city of Byzantium, during the reign of emperor Justinian, and about the building of Santa Sofia. The same Byzantium that enthralled Mr. Yeats and prompted him to write some of his best and most renowned poems. They are about a very gifted artist and about what it really means and is really required to perform exceptional and enduring work. 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.” - John Maynard Keynes

I think it is much worse than: "Brussels considers itself a master of game theory". You have guys in charge like the Eurogroup chief Dijsselbloem, better known as Dieselbomb, who needed 6 years to get a BA degree in Agricultural Economy in some small Dutch University, has no MSc or PhD and has been the typical European political hack for most of his career. But he became Finance Minister in November of last year, and although obviously doesn't know squat about anything, is pontificating in the press about how to solve Europe's problems by confiscating money from depositors over the 100k limit and retracting his statements one day later, as we say in Spanish, "dónde dije digo, digo Diego". With idiots like that running the show even SuperMario may not be able to keep the euro together. I am trying to figure out what happened to people who were holding stocks in Laiki and Bank of Cyprus. If they were not affected by the bail-in, then there is going to be a massive bull market in Europe as everybody over the 100k limit who is not able or does not want to transfer their cash abroad puts as much of their money as they can into stocks. Many risk averse people will think that it is much better to put up with the fluctuations of owning BRK or FFH than to get shorn like the poor cypriots. +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.” - John Maynard Keynes

Parsad, I know that novels, which have nothing to do with finance and investments, don’t belong here… But Kraven wrote me a message saying: “It’s very peaceful here. I always find that when I get some geographic distance I am able to think more clearly.” And I experience the same kind of clearness of thought each time I read my favorite Canadian author: Guy Gavriel Kay. Generally, I don’t read novels. After reading everything from Hugo, Dickens, Tolstoj, Dostoevskiy, etc, I generally find novels a bit boring… Guy Kay is a glaring exception! The richness of life he is always able to describe, and his poignant observations on human nature, go well beyond any plot scheme (plot which, by the way, never fails to be enthralling!). Every now and then, I really enjoy take a little distance from the daily routine and read (or reread) one novel of his. I always come back happily and enthusiastically recharged! During the last three days (Easter Holidays) I read “Under Heaven”, which I still missed. And I was not disappointed at all! Moreover, today Mr. Kay’s latest novel “River of Stars” is finally out. Again, I beg your pardon, if this is out of place. I just wanted to share on the board something that often enables me “to think more clearly”. 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.” - John Maynard Keynes

IceCap Asset Management March 2013 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.” - John Maynard Keynes IceCapAssetManagementLimitedGlobalMarketsMarch2013.pdf

It's not so much the interest expense as the non-interest expenses (e.g., salaries, occupancy etc) being spread over a smaller deposit base that drives the cost so high. I agree. But I was referring to the way the money is first collected and then used. Not to the amount of money. A small, very focused team, led by a very driven individual, is much more effective, imo, than a large and widely scattered organization. In the first case errors can be more easily averted and, when committed, can be more easily identified and dealt with, before they become pernicious. 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.” - John Maynard Keynes

Kraven, here is what I wrote to Christopher1 just yesterday: Have you ever made a comparison between BNP Paribas (or any other large bank) and Fairfax? BNP Paribas has a ratio total assets vs. tangible equity of 26, for Fairfax that ratio is 3.4. It means that BNP Paribas has put to risk $26 for each $1 it owns, while Fairfax has put to risk $3.4 for each $1 it owns. Moreover Fairfax has put those $3.4 to risk through HWIC, which is a very small corporation, and therefore very easy to manage and control. Doesn’t it strike you as a comparison between two utterly different risk profiles? I also tend to compare the equity of an insurance company to the equity of a bank corporation, the float of an insurance company to the deposits of a bank corporation (though their costs are demonstrably different), and the debt of an insurance company to the debt of a bank corporation. And that is because both float and deposits are liabilities whose risk profile is much safer than long-term debt. Now, please consider, for Fairfax total assets are funded this way: 29.3% equity, 60.8% float, 9.9% debt. Instead, for BNP Paribas total assets are funded this way: 3.8% equity, 29% deposits, 67.2% debt. If Fairfax and BNP Paribas are both black boxes, they certainly are two very different black boxes! :) 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.” - John Maynard Keynes Gio, your points are well taken, but it's a bit of a strawman argument. BNP is a weaker bank, so you've compared two things are extremes. I could say look at VERF compared to FFH. VERF is a tiny community bank with about $4 of tangible assets for each dollar of tangible equity. It is almost completely funded with deposits and only $5 mil in debt. Of course it's impossible to buy. I am not saying banks and insurance companies or FFH, in particular, are identical investments. But my point stands. If a bank is a black box, so is an insurance company. It doesn't matter to me that one might be more leveraged than another. Balance a bowling ball on a pin and some level it doesn't matter how thick that pin is (unless it is not really a pin at all but something else with a point on the end). So BNP and FFH may be different kinds of black boxes, but at the end of the day one still has to rely on the numbers as they stated in the financials. Nothing more or less. I agree. Still I believe simple heuristics like “skin in the game” and “small is beautiful” (because small is easy to manage and therefore to control) go a long way in business. Then, hey!, I have learnt: “you don’t know what you cannot know”, right? ;) Cheers! 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.” - John Maynard Keynes

Kraven, here is what I wrote to Christopher1 just yesterday: Have you ever made a comparison between BNP Paribas (or any other large bank) and Fairfax? BNP Paribas has a ratio total assets vs. tangible equity of 26, for Fairfax that ratio is 3.4. It means that BNP Paribas has put to risk $26 for each $1 it owns, while Fairfax has put to risk $3.4 for each $1 it owns. Moreover Fairfax has put those $3.4 to risk through HWIC, which is a very small corporation, and therefore very easy to manage and control. Doesn’t it strike you as a comparison between two utterly different risk profiles? I also tend to compare the equity of an insurance company to the equity of a bank corporation, the float of an insurance company to the deposits of a bank corporation (though their costs are demonstrably different), and the debt of an insurance company to the debt of a bank corporation. And that is because both float and deposits are liabilities whose risk profile is much safer than long-term debt. Now, please consider, for Fairfax total assets are funded this way: 29.3% equity, 60.8% float, 9.9% debt. Instead, for BNP Paribas total assets are funded this way: 3.8% equity, 29% deposits, 67.2% debt. If Fairfax and BNP Paribas are both black boxes, they certainly are two very different black boxes! :) 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.” - John Maynard Keynes

ASTA, thank you very much for your review! I purchased it some time ago, but have not read it yet. After your suggestion, I will surely make it my next book! :) I love to study the ways of the greatest entrepreneurs of the past. 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.” - John Maynard Keynes