giofranchi

Thank you very much for posting! :) 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

Part 5 in attachment. 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 On_Insurance_Investing_Part5.pdf

I agree 100%. Especially on Italy… ;D ;D ;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.” - John Maynard Keynes

Then (2007) and now. 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 NA+EVA+3.15.2013.pdf

ECRI's latest presentation: The US Business Cycle in The Context of the Yo-Yo 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 ECRI_1303_US_Business_Cycle.pdf

PlanMaestro, thank you very much for the treasure chest of information about Keynes’s ways of investing that you have shared with us! Very much appreciated! :) 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 am not really pessimistic… I like to think of my view on the markets as cautious… And that I don’t think it is the right time to reach for yield… or to grow by leaps and bounds. That time will come, but I don’t think it is now. By nature I find much easier to grow 6.5% for 8 years, and then to grow 50% in year 9 and 10. Rather than to grow steadily by 14% each year. And right now I think it is the moment to accept a 6.5% return on my firm’s equity. I don’t think that means I am pessimistic… To get to that 6.5%, in fact, I am still heavily invested in the market! If you ask me: do I agree more with Mr. Watsa or Mr. Marks? … well, that’s really tough! Just let me answer this way: 10% of my firm’s capital is in OAK, 30% is in FFH. :) 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

It has immediately become one of my favourite quotes from Mr. Howard Marks. :) 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

Please, find it in attachment. 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 Year+End+letter+2012.pdf

+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

WEB 2012 AL - Mr. Prem Watsa 2012 AL Every extremely successful businessman throughout history possessed one feature: always cash on hand, when a great opportunity presented itself. I don’t know of a single exception to this basic rule. How didn’t they end up like the guy who used to write the Growth Stock Outlook? Don’t ask me! I don’t know! It’s a secret! :) But, for all the differences of economic outlook and portfolio positioning, Mr. Buffett and Mr. Watsa clearly agree on what counts the most. 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

New speech by Kyle Bass: http://media.chicagobooth.edu/mediasite/Viewer/?peid=f15d95d054e8442ab0cc1c60321383101d 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

It is always a pleasure to read Mr. Frank Martin! :) 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 mcm_2012_annual_report.pdf

giofranchi, That is almost entirely due to the CDS gains. I do not see that happen in a market crash going forward. I am referring to the fact that if Fairfax did not have CDS gains I think it would have declined along with BRK, LUK, etc. I have benefited a lot from Fairfax during that period but I do not expect a repeat performance. Also I think Market would probably give us some time to load up on Fairfax if any deflation hedges look like they would be a home run. Hence, my preference for cash as a hedge instead of Fairfax. I could be wrong but that is the only way I can sleep well with my portfolio. Vinod Well, in 2008 FFH gained $2,080 million from equity hedges and $1,290 million from CDS. So, when the markets really melted down, FFH actually gained more from its defensiveness than from its macro call. :) Anyway, I understand what you mean, and I like your barbell type portfolio! ;) giofranchi Vinod is likely right. FFH was way down in March 2009, giving an excellent time to invest, if one had the cash. This was despite the fact they were booking billions in gains. In a heavy market sell off FFH will drop too, probably not as much as the S&P, but it will drop. This likely has little to do with FFH and more to do with shareholders being forced to sell at disadvantages prices to pay for margin calls. It is only after the dust settles that the gains will bring FFH to new highs. It is not a perfect portfolio hedge with the time lag. The closest thing to a perfect hedge is cash. Well, after being up +36% in 2008, when the S&P500 was down -37% the same year, it might very well be that FFH stock price sagged in February and March of 2009… But, to take advantage of that, you must have had all the cash needed to invest in a very limited time window (2 months, more or less)… good luck to you!! ;D And you would have lost all the 2008 gains anyway… :( Definitely not my game! 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

giofranchi, That is almost entirely due to the CDS gains. I do not see that happen in a market crash going forward. I am referring to the fact that if Fairfax did not have CDS gains I think it would have declined along with BRK, LUK, etc. I have benefited a lot from Fairfax during that period but I do not expect a repeat performance. Also I think Market would probably give us some time to load up on Fairfax if any deflation hedges look like they would be a home run. Hence, my preference for cash as a hedge instead of Fairfax. I could be wrong but that is the only way I can sleep well with my portfolio. Vinod Well, in 2008 FFH gained $2,080 million from equity hedges and $1,290 million from CDS. So, when the markets really melted down, FFH actually gained more from its defensiveness than from its macro call. :) Anyway, I understand what you mean, and I like your barbell type portfolio! ;) 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 am not so sure… stock hedges and deflation hedges are… just hedges! FFH, thanks to leverage and skillful investing, and (hopefully!) profitable underwriting, is able to create much alpha. Just look at 2012: stock hedges went down, deflation hedges went down, BV per share increased 6.5%! So, FFH surely might underperform 2 or 3 years more, but I don’t see how they could lose money. Vice versa, if something goes wrong, and in a deleveraging many things can go wrong, FFH will shine. Again: +6.5% if they are wrong, great results if they are right. Imo, that is the way to go! :) 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

Vinod1, I am not so sure… FFH BV per share increased 53%, 21% and 33% in 2007, in 2008 and in 2009. Its share price increased 24%, 36% and 5% in 2007, in 2008 and in 2009. Better than cash, right? ;) 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 like the way Dylan Grice writes very much. dcollon, thank you for posting! 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

Thank you! Now I understand what you meant. Although, if Germany doesn’t allow the printing press to run, a 4th scenario becomes the more likely by far: WAR!! ;D No, seriously, I think that Europe will have to print even more than the US. 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

Well, a lot of dumb money, shoveled around by unprepared and naïve people, who get elated by the fact that now at last they can invest in the US, is the stuff gigantic stock market bubbles are made of… I don’t believe that either: the Chinese must deal with a domestic housing bubble that threatens to sweep away the savings accumulated during a lifetime… so, they might be left with little capital to invest abroad! Anyway, even if it were true, it doesn’t mean that “the grand disconnect” is resolving itself by economic fundamentals rising to meet the financial markets, instead it just means that “the grand disconnect” is getting grander and grander. If you really believe in the “Emerging markets new era thesis”, what do you think would happen if the Fed stops printing money and the US Government stops deficit spending? Most probably the economy would tank and the market would crash, and who cares about emerging markets! Competition, be it in the US and Europe, or worldwide (emerging markets included!), is not the only force that will always check the expansion of profit margins, also a sort of “social contract” must be properly taken into account: a world in which the owners of capital reap all the benefits of enterprise at the expense of the others, who will always be the great majority of people on earth, is not sustainable. Improvements must be constantly pursued, and those who succeed must be satisfactorily rewarded, but everyone must be better off because of their achievements. The great and the rich will always have to take care of the little and the poor. And that means capital will always be soundly rewarded, but the reward it is entitled to must be checked. Think of Mr. Buffett’s argument about taxing the rich, when he says the rich will always keep investing, even if they must pay higher taxes, because the rewards are so great anyway… that’s exactly what I mean! Finally, I must admit I didn’t understand very well what you called the 3rd scenario: could you please elaborate a little bit further? I got it presumes some sort of US$ devaluation… Do you really see that?! The US$ has already devalued for 10 years… and it is a much undervalued currency, if compared, for instance, to the Euro… Exchange rates must make economic sense! The cost of life in Europe cannot be higher than the cost of life in the US, when the average US citizen earns 20% more than the average European citizen… A further devaluing of the US$ against other major currencies would wreck havoc around the world, at least surely in Europe! Imo, two are the scenarios that matter: 1) economic fundamentals rise to meet the financial markets: when the economy clearly doesn’t depend on money printing and deficit spending anymore, FFH will quit its hedging strategy. 2) the financial markets nose dive to meet economic fundamentals. 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

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-candidates_1.pdf short-candidates_2.pdf short-candidate_3.pdf

- Mr. Prem Watsa 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

Vice versa, I don’t agree with the “Emerging markets new era thesis”. Margins cannot go on expanding ad infinitum, just because emerging markets are consuming more resources than in the past. Capital, imo, is entitled to a fair amount of return. And it cannot grow to the sky. If it does, troubles of any kind will ensue. Anyway, if you don’t like Shiller’s PE, let’s use replacement cost, or market capitalization vs. GDP: they all paint the same picture! Mr. Watsa acknowledges that “the grand disconnect” could resolve itself by economic fundamentals rising to meet the financial markets. If that happens, I believed they will recognize it, and quit their hedging strategy. I think we won’t have to wait much longer to know how this will end. And, even if they are finally proven wrong, is it really that unbearable to live with 2-3 years of 6.5% returns? You would know that during the most uncertain investment environment in our lifetime, we have always been well protected and never risked a permanent loss of capital. I am grateful for 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.” - John Maynard Keynes

Packer, sincerely the more the market disagrees with Mr. Watsa, the less I am worried… Let me explain: today the Shiller P/E10 of the S&P500 is 23.38. At the beginning of 2012 it was 21.21. If 2013 turns out to be as much “risk-on” as 2012 was, by 2014 it will be nearing 26, and we will ever more clearly be running the risk of finding ourselves in a stock market bubble… In Jan 1, 1929 the Shiller P/E10 was 27.06… Even the greatest fans of Mr. Bernanke’s among you, would then start to get seriously worried! Instead, FFH will have another +6.5% year and won’t have to worry about anything! Never undervalue peace of mind! It is the best place to make sound reasoning and to take the right decisions! :) Moreover, the timing of the hedges was far from perfect the last time they proved to be very useful. Quoting Mr. Watsa: 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

Mr. Watsa has made reference to this in his recent letter the shareholders: if it weren't so dangerous, it would be very very funny! http://www.businessinsider.com/60-minutes-chinas-ghost-cities-2013-3 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