giofranchi

Liberty, I hadn't seen this before, and it is very much appreciated! 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

shalab, I think your expectations are very conservative. Imo, to be conservative is a great virtue, so nothing to argue. Anyway, let’s examine how I see things: The S&P500 closed year 2012 at 1,426.19. It closed year 2000 at 1,317.51. In the 12 years from 2001 to 2012 the S&P500 distributed a cumulative dividend of 298.22. If you add that cumulative dividend to 2012 year end closing price, you get: 1,426.19 + 298.22 = 1,724.4. That equates to a 2.27% CAGR in price for the S&P500, dividends included. So FFH has outperformed the market by 9.3% - 2.27% = 7% each year. Now, we all read Mr. Buffett letters and we know that the S&P500 achieved a 9.4% CAGR in price (dividends included) for the last 47 years. If in a few years the S&P500 goes back to perform as average, and the outperformance of FFH stays the same, we could expect a 9.4% + 7% = 16% annual return from FFH, if purchased at book value. Furthermore, and imo this is really key!, FFH, under the general supervision of Mr. Barnard, has the very real chance to start underwriting at a profit consistently. That would be a game changer, and the true reason why I said that good businesses have the tendency to surprise on the upside! Think of it this way: in 2012 the market utterly disagreed with FFH’s very defensive stance, and its combined ratio (thank you Sandy!) was 99.8%, barely profitable… and yet BV per share increased 6.5% (dividend included), and Mr. Watsa has written in his letter: Imagine what they could achieve when the market agrees with them, and if they succeed in bringing the combined ratio down to 95% – 96%! Finally, one of the most important features I look for, when I am appraising with whom to partner, is that he/she be and “under-promising, over-achieving” fellow. I am positive Mr. Watsa is that kind of owner-operator. So, if he says FFH could achieve a 15% CAGR in BV per share going on from here, I tend to believe him (and also to expect some pleasant surprise! :) ). 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 ended 2000 at $148 BV per share. From 2002 to 2012 it distributed a cumulative $51.56 in dividends. It ended 2012 at $378 BV per share. If you add the dividends received, you get to a 9.3% CAGR in BV per share. :) Reinvesting the dividends, your return would have been even higher. 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, if you fold a sheet of paper 50 times, you cover the distance from earth to sun. The first time you do that, you go from 0.1 mm to 0.2 mm. When you do that for the 51st time, you go back from sun to earth!! ;D ;D Ok, just joking… 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 BV per share at the end of 1985 was $2.08. So, an increase of +180% by 1986 year end means that BV per share grew to $5.89. In the 26 years that followed BV per share has grown to $378: that is a 17.35% CAGR. Don’t forget that we are ending a three years period when BV per share has increased by only approximately 10% (including dividends) cumulatively. PS I was kidding before, but it is all true! Amazing, but true! :) 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 Maybe the numbers I have just told you aren’t correct. If you look at “Consolidated Financial Summary”, you find that BV per share at the end of 1985 was $1.52, while at the end of 1986 it was $4.25. If so, CAGR in BV per share from 1986 to 2012 has been 18.85%. :) 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, if you fold a sheet of paper 50 times, you cover the distance from earth to sun. The first time you do that, you go from 0.1 mm to 0.2 mm. When you do that for the 51st time, you go back from sun to earth!! ;D ;D Ok, just joking… 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 BV per share at the end of 1985 was $2.08. So, an increase of +180% by 1986 year end means that BV per share grew to $5.89. In the 26 years that followed BV per share has grown to $378: that is a 17.35% CAGR. Don’t forget that we are ending a three years period when BV per share has increased by only approximately 10% (including dividends) cumulatively. PS I was kidding before, but it is all true! Amazing, but true! :) 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, if you fold a sheet of paper 50 times, you cover the distance from earth to sun. The first time you do that, you go from 0.1 mm to 0.2 mm. When you do that for the 51st time, you go back from sun to earth!! ;D ;D Ok, just joking… 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

Thanks alot Grenville! Faster than head office and right off the transcript...how great is this board. Cheers! Parsad, What do you see as the future returns on Fairfax from here? From your posts, is this a long-term buy and hold position for you? Thanks in advance. With the leverage they use, and their investment expertise, they can get 15% ROE going forward for at least another 10-15 years under the current team. Cheers! Great businesses have the tendency to surprise on the upside! :) 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! 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

From Michael Steinhardt's Latest Interview: On whether investors should wait for a pullback in the market after the big run-up: "I'm not sure it's going to stop, but I think that one must marvel at where the stock market is in relation to the rest of world, in relation to the economics, the politics... it's not a glorious happy time." On his average net long exposure: "I managed money for 29 years, and my average exposure in my funds for those 29 years was between 30-35% net long, now that's probably as bearish as anybody was in that period. I think having lower risk is a virtue. I'm not sure I'm a perma-bear." 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

Sorry Eric, but I cannot agree with your point here… Any business owner, who experiences every day what it really takes to run a business, who understands how much capital allocation is paramount in any business, who constantly studies other businesses, who has developed an interest for the insurance industry in particular, and who knows FFH’s history well, also understands that FFH is not an hedge fund, and that its business model is quite superior to that of any hedge fund. Actually, FFH’s business model is one of the best and most reliable (very predictable in the long term, if not in the short term) I know of. I guess you remember Mr. Chou asking Mr. Watsa: “Do you know how Warren Buffett has accumulated his enormous wealth?”. And I guess you also remember the answer: “Insurance”. Not the hedge fund industry at all. But insurance. Of course, not “mainstream” insurance… But insurance a là Mr. Keynes first, a là Mr. Singleton and Mr. Buffett later, and now a là 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

Well, I read a lot of ideas… just for fun. But when it really comes to commit capital, I never stray outside my circle of competence. And my circle is very small… CCH is outside my circle and I really don’t know if it is cheap or expensive right now. But I have found the Broyhill thesis to be much fun anyway! ;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

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 CCH-Thesis-Dec-12.pdf

Have you seen the presentation Broyhill Asset Management published about Coca-Cola Hellenic? I thought it was interesting. :) 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. :) 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

Gundlach's "The Big Easy" 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 Gundlach-the-Big-Easy-Slides-FINAL.pdf

Please, find the February 2013 Horizon Kinetics Market Commentary 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 Bits_and_Pieces_Feb_2013.pdf

Interesting article from Barron's 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 Fermenting_change_at_Danone.pdf

Sirius XM: What's The Value Of The Largest Radio Giant On Earth. 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 sirius-xm-what-s-the-value-of-the-largest-radio-giant-on-earth.pdf

February 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 2013-2-February-Monthly-Report-TPOI.pdf

New Gary Shilling Insight. 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 insight-0313b.pdf

Evergreen on Gold. 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+3.1.2013.pdf

Charles Gave on the recent Italian election. 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 Charles_Gave_on_the_election_in_Italy.pdf

WEB 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 don’t know: just purchased it, after reading Buffett’s letter. I have read “Trust: Do Business with People You Can Trust” by Mrs. Rittenhouse and I liked it a lot. :) 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

All the silver in the world 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