giofranchi

Broyhill Asset Management Investment Outlook Feb 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 Investment_Outlook_Portfolio_Strategy_Feb_13.pdf

Of course, and I don’t argue with that. The fact is returns are related to quality, but they are not related to quality ONLY. 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, of course I agree! If you have read any post of mine, you understand why nobody agrees more than me! What I meant, though, is a bit different. Let’s put it this way: would you judge the whole American economy “safer” than any single business? I guess so: as safe as a single business might be, there is always a slight probability that something completely unexpected goes terribly wrong… But what about the whole American economy? It will never go bust! So, does it follow that an investment in the whole American economy is always “safer” than an investment in any single business? No. Why? Because the safety of an investment is always a risk/reward affair. And the balance between risk and reward is what matters. The whole American economy might be less risky, but it will grow 2% to 3% for the next decade. If your reward hurdle is 10% annualized, an investment in the whole American economy is the “riskiest” thing you could do, because the probability to never achieve your hurdle is almost 100%. I do not agree that 1 dollar of FFH BV is worth less than 1 dollar of BRK BV. If I assign the same probability to the fact that FFH increases BV at a 15% annual compound rate over the long term, as to the fact that BRK increases BV at a 10% annual compound rate over the long term, which is the case, 1 dollar of FFH BV is worth more, not less, than 1 dollar of BRK BV. The reason why I assign the same probability to the fact FFH will be able to compound BV per share at 15% over the long term, and to the fact BRK will be able to compound BV per share at 10% over the long term. 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

Partner24, I had missed your comment till now… sorry! While I understand your point, I cannot completely agree with it. Let me explain: the safeness of an investment is not the safeness of the business you invested in. It is quite different. I think we all agree on that. As I see things, FFH at BV is a safer investment from a risk/reward perspective than BRK at 1.3 x BV: 1) A lower multiple: not the most important thing, probably the least important thing, but I like it anyhow. 2) FFH is much smaller than BRK, and Mr. Watsa could be at the helm for the next 20 years, while Mr. Buffett surely will not. Less capital to invest, more room to grow. The longer the founder stays at the helm compounding capital, the better I like it. I am not saying BRK won’t find the right solution. I am just saying that, as far as a good business is concerned, I HATE CHANGE. We are talking about risk, right? 3) In a down market no one will shine like FFH, either in the short and in the long term. In a up market (and no market stays exuberant forever…) I believe FFH will lag behind BRK in the short term, while still being profitable, but it will do at least as good as BRK in the long term, probably even better! Of course, you might disagree with me, but those are the reasons why I said FFH is the strongest ark I know of. 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

Great! I hadn't thought of that: my “sum of the parts” analysis was flawed, but conservative… a lucky outcome!! ;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, take a look at page 5 of the Presentation in attachment: if you buy into Liberty Media right now, you get a portfolio of companies valued at $11,202 million marked to market, as of December 31, 2012. Then you also have $1,420 million in cash. The $540 million of debt you see on the balance sheet in fact remained with Starz in the January 2013 separation. So, Liberty Media right now is debt free. Actually, as can be read on page 1 of the Press Release in attachment, Liberty Media had $1.8 billion in cash and no debt at the time of the spin-off. This leaves us with a portfolio worth $11.2 billion + $1.8 billion of cash = $13 billion of “liquidation” value. And market capitalization today is $12.93 billion. It means LMCA is trading for less than NAV, and you are getting Mr. Malone paramount skill for creating value completely for free. Imo, a good bargain! LMCA management seems to agree with me: from January 11, 2013 through January 31, 2013, barely 20 days, they repurchased $52.1 million worth of stocks at an average cost per share of $110.19. :) 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 LMCA_News_2013_2_27_General_Releases.pdf Q4-12-Conf-Call-Slides-LMC-final.pdf

Fourth Quarter and Year End 2012 Earnings Call 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 Q4-12-Conf-Call-Slides-LMC-final.pdf

The worst is over 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_Limited_Global_Markets_February2013.pdf

Thing goin' on that you don't know http://www.cravensbrothers.com/archives/1459 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 if these writings by David Merkel have already been posted... 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 Insurance_Investing_Part1.pdf Insurance_Investing_Part2.pdf Insurance_Investing_Part3.pdf Insurance_Investing_Part4.pdf

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.” - John Maynard Keynes

Thank you, Ross! Very 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

Hi Palantir, and thank you very much for your kind remark! :) Sorry, I had missed it till 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

Another article on Seeking Alpha: http://seekingalpha.com/article/1218661-it-s-time-to-buy-national-oilwell-varco?source=email_investing_ideas&ifp=0 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

"Fifty Trades of Grey" by Michael Cembalest, J.P. Morgan Asset Management 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 02-19-2013_-_EOTM_-_Fifty_Trades_of_Grey.pdf

Yesterday I watched the movie “Skyfall” for the first time. And I enjoyed it very much! One memorable scene comes when Emme quotes a few lines from the poem “Ulysses” by Alfred Tennyson. They are really worth repeating: 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

Interview with Felix Zulauf. 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 Interview_with_Felix_Zulauf_Feb2013.pdf

A new article on Seeking Alpha: http://seekingalpha.com/article/1202381-national-oilwell-premier-e-p-service-company-at-bargain-valuation?source=feed 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

Cashin, Klarman, & Marks: Klarman Marks http://www.zerohedge.com/news/2013-02-20/cashin-klarman-marks-un-abating-risks-collapse 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

+100!! :) 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

Visualizing Bob Farrell's 10 Rules 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 visualizing-bob-farrell-10-rules-of-investing.pdf

Hi berkshiremystery! Well, in fact I sort of preceded John Huber! ;D In the thread “The Waiting Game” I had quoted exactly the same comment by 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

The Keynesian Depression 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 The-Keynesian-Depression~Guggenheim~12_2012.pdf

Yes. Being there is the most important thing. I agree. Though, since 14value asked for some writing that might help his friend in such a time of sorrow and need, I attach a very brief tale by Lev Tolstoj. All his Christian short tales have both the simplicity and the power to let me put life in the right perspective, with all the meaning it truly deserves. I hope they will continue to do so, when my time of need and sorrow finally comes. God bless you, Giovanni THE_THREE_QUESTIONS.pdf

Dazel, with all due respect, I don’t quite agree with your analysis. Please, follow me for just a sec, and I will try to explain my reasonings. First, let’s compare FFH returns with the returns of the general market: FFH 2011-2012: FFH BV x share at 2010 year end: $379.46 FFH BV x share at 2012 year end: $378.10 Dividends distributed: $20 Total returns: $378.10 - $379.46 + $10 + $10 = $18.64, or +4.9% of FFH BV x share at 2010 year end. S&P500 2011-2012: Closing price at 2010 year end: 1,257.64 Closing price at 2012 year end: 1,426.19 Dividends distributed: 58.34 Total returns: 1,426.19 – 1,257.64 + 27.09 + 31.25 = 226.89, or +18.04% of the closing price at 2010 year end. So, yes! FFH is trailing behind the general market for the last two years. But… and here is the rub! A 13% cumulative over-performance of the general market could be easily and completely wiped out by a 2 months correction! Now, let’s take a similar look at the 3 years from 2008 to 2010: FFH 2008-2009-2010: FFH BV x share at 2007 year end: $230.01 FFH BV x share at 2010 year end: $379.46 Dividends distributed: $23 Total returns: $379.46 - $230.01 + $5 + $8 + $10 = $172.45, or +74.97% of FFH BV x share at 2007 year end. S&P500 2008-2009-2010: Closing price at 2007 year end: 1,468.29 Closing price at 2010 year end: 1,257.64 Dividends distributed: 77.96 Total returns: 1,257.64 – 1,468.29 + 23.94 + 23.56 + 30.46 = -132.69, or -9.04% of the closing price at 2007 year end. Finally, lets’ take a look at the whole 5 years from 2008 to 2012: FFH 2008-2009-2010-2011-2012: FFH BV x share at 2007 year end: $230.01 FFH BV x share at 2012 year end: $378.10 Dividends distributed: $43 Total returns: $378.10 - $230.01 + $5 + $8 + $10 + $10 + $10 = $191.09, or +83.08% of FFH BV x share at 2007 year end. S&P500 2008-2009-2010-2011-2012: Closing price at 2007 year end: 1,468.29 Closing price at 2012 year end: 1,426.19 Dividends distributed: 136.30 Total returns: 1,426.19 – 1,468.29 + 27.09 + 31.25 + 23.94 + 23.56 + 30.46 = 94.20, or +6.42% of the closing price at 2007 year end. So, how do you go from a total return of +6.42% to a total return of +83.08%? Answer: you want to invest in something that doubles its capital, when right, while still being profitable, when wrong. And you want to have patience, because sometimes that thing will be right, and sometimes it will be wrong. Second, if for “missed opportunity” you refer to the financial industry in the US, well actually Mr. Watsa & Company were among the first to recognize it and to take advantage of it. When Mr. Berkowitz was still dabbling with defensive stocks (say, for instance, Pfizer), Mr. Watsa had already bought a lot of Wells Fargo and US Bancorp at very depressed prices! Later he also chose to make a substantial investment in Bank of Ireland. Finally, if our politicians will definitely prove them wrong, FFH under-performance to the general market will get wider and wider. But I have an extremely hard time believing that… would you prefer to bet on Mr. Watsa & Company, or on our politicians? Com’n let’s be realistic: politicians don’t have a clue about what’s really going on! And, vice versa, if Mr. Watsa & Company will be proven right, the next doubling of FFH’s capital might just be around the corner! :) 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