giofranchi

I am curious about EXOR: could you elaborate a little bit? Is it just a matter of the meaningful discount to NAV it is trading at, or do you also really like what you see? Thank you, giofranchi

FFH, OAK, LRE, LMCA, BRK, BAM… and a MOUNTAIN of cash! I am much more interested in emerging from the next few years with my purchasing power intact, than in getting rich. To get rich, there will be plenty of time afterwards. :) giofranchi

I havent thought of it in this way before, but it makes perfect sense when you think about it. Well, I guess FCF is the best kind of float: you are free invest it, without the need to ever give it back! :) The larger and more durable the moat, the larger and more predictable the FCF. At least, that’s how I have always thought about the operations of my business. giofranchi

From the Value Investing World blog: http://www.valueinvestingworld.com/2012/12/professor-sanjay-bakshis-presentation.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ValueInvestingWorld+%28Value+Investing+World%29 giofranchi

Great infographic, Sportgamma. Thank you! giofranchi

Yes! Thank you for posting! giofranchi

If business is not profitable, better be disciplined and let it go, right? http://www.reuters.com/article/2012/12/05/liberty-starz-idUSL1E8N58YE20121205?feedType=RSS&feedName=financialsSector&rpc=43 giofranchi

Mr. Russell Napier on deflation. I have read his book “Anatomy of the Bear: lessons from Wall Street’s four great bottoms” and I have found it to be well documented and well written. giofranchi sobering-stuff.pdf

BeerBaron possesses the uncanny (and very uncommon!) ability to communicate big ideas with small (but very clear!) sentences. It seems to me the hallmark of every great investor! Or is it just the alcohol in all the beers you drink...?! ;D ;D ;D Just joking! I am most certainly a fan of yours! :) giofranchi

Maybe it is true… But I also think that the so-called “accumulation of wealth” goes hand in hand with the accumulation of knowledge. Knowledge in its broadest meaning: psychology, (financial) history, accounting, strategic thinking, game theory, economic analysis, statistics, also science & technology, even fractal geometry!! (I am reading “The Fractalist: Memoir of a Scientific Maverick”) are all useful and worthy subjects to delve deeper and deeper into. I find this constant process of self-improvement to be extremely fascinating. The outcome, growing richer and richer, isn’t bad either! ;D giofranchi

December 2012 Gary Shilling's Insight. giofranchi insight-1212ab.pdf

ASTA, thank you for your answer and welcome to the board! :) giofranchi

“John Templeton was once asked what had made the greatest difference to the quality of his investment decision making. He replied, “Every mile I moved away from New York.” As we have seen, this is borne out by the evidence; the margin by which his fund beat the market went from zero to 6 percent per annum when he moved to the Bahamas and started to work on his own. Investment analysis is, or should be, a contemplative and peaceful task. It is unlikely to be successful in an environment where the telephone never stops ringing and the analyst is distracted by multiple screens of data, all changing in real time, on the desk in front of him. … As we have seen, initially working alone in the Bahamas, Sir John was able to produce a track record that is unlikely ever to be bettered. He had no Internet and no fax machine. His information was out of date by the time it arrived. All he had was access to historic financial statements, the contacts he had built up over many years, and the scope for extensive travel. It was the depth and clarity of his thought that determined his results, not the volume of information or the speed with which it was delivered.” TEMPLETON’S Way with Money I was wondering, just curious, how many investors on the board have already managed to successfully arrange life habits and job tasks, so that their investment analysis actually is a “contemplative and peaceful task”? In other words, how many of you already succeeded in breaking free from the daily frenetic routine most people have to constantly endure? giofranchi

“Yes! 50 Scientifically Proven Ways to Be Persuasive” is also interesting, and I would recommend it. It is not a 3 page resume of “Influence”, but to each way Mr. Cialdini dedicates just a few pages, so you can jump from one chapter to another, because they are uncorrelated. And you can choose to read only the ones that grab your attention the most. It is enjoyable and very easy to read (not time consuming at all!). giofranchi

Frank, I really think that your feelings about near term returns on equity are inevitable. In a secular bear market “lumpy results” are the only results possible. That’s what the market hates and that’s the cause of your near term feelings. But: June 6, 1933 It is my conclusion that the successful investor must cultivate the habit of "patience". He must be able to hold his money and wait until it is really the time to buy. In this panic it meant waiting over 3 years until stocks were really at rock bottom and selling at less than 1/10 of their normal value. I suppose the real investor would then have the patience and courage to wait until normal times returned before selling. Patience to wait for the right moment - courage to buy or sell when the time arrives - and liquid capital - these are the 3 essentials as I see it now. The Great Depression, A Diary - Benjamin Roth Who has more patience, courage, and liquid capital than FFH? When the right moment comes, FFH equity will rise again very fast! And don’t ask me how much will it take: remember, we have to cultivate the habit of “patience”!! ;D I bought more FFH today. :) giofranchi

Which is why, Eric, that when you say you are headed to the sidelines (clipping dividends from high quality, low risk stocks) after the next wave of wealth, I don't believe you! :) There is a lot of truth in the old cliche: "It is the journey, not the destination." I see it time and again including my personal experience. When I first started working I dreamed of making six figures annually and felt that a after a few years at that level I could walk away and live on easy street. Two years later I had reached that goal at the age of 27. I took me about a week to get accustom to my new "wealth" and realize there was more, much more, if I wanted to stay the course. I ended up working for another 20 years. And my income went up exponentially with over the years. By any objective measure I could have walked away anytime, but I couldn't break away from opportunity. It was just too exciting and fun. I stopped working for others five years ago at 47. I thought I would play lots of golf, travel on Netjets, and spend lots of time relaxing poolside in my new mansion as that is all easily in my budget. What actually happened? I live in a modest home, travel coach, and spend my time reading financial reports. I commit more energy to wealth creation now than ever before but enjoy every minute of it. It's just too fun and to walk away would be a setback to my level of life satisfaction. Right now you see it as a stressful rollercoaster and you want to get off, and sit on the sidelines in the shade. But as time passes you will remember the thrill and forget the anxiety which makes it very hard to stay away from a significant allocation of assets to the next "inevitable". I hope BAC rallies like crazy, and that you at least have a chance to prove me wrong, but until then I'm betting against because I believe wealth doesn't change our fundamental approach to life. onyx1, I am very impressed by what you have just written! It is just amazing how many fabulously accomplished people can be met on this wonderful board!! :) giofranchi

Thank you Farnam! Great video! And I always check your blog early in the morning, as soon as I get to my office, to find many others interesting articles and ideas! :) giofranchi

Thank you! It is actually what I am doing. My worries rest much more on “the man at the helm leaving” risk, than some black swan kind of event that could make the company blow up. But the result is almost the same: a portfolio of 7 to 10 (maybe even some more, if I can find high quality) owner-operators. giofranchi

txitxo, you always bring the scientist’s and the statistician’s point of view into the discussion, and for this I thank you, because every time it is very interesting! ;) You said the absolute minimum is at least 4 companies, and I am curious: take, for instance, twacowfca’s portfolio of BRK, LRE, and FFH. Though presently not that much concentrated, I am sure I would sleep very soundly at night with such a portfolio! 3 stocks, not 4… How do you look at such a portfolio? Of course, my point of view is that BRK is a collection of 70 plus businesses, with a very large and diversified portfolio of stocks; the same is true for FFH, which is a collection of many insurance companies and possesses a diversified, very well protected, portfolio of stocks. So, intuitively I judge twacowfca’s portfolio to be much more diversified than it appears to be at first glance. Now, to my question: do you think that my intuitive judgement has statistical relevance, or that it is statistically flawed? twacowfca, I know from your posts that you are much versed in statistics, what’s your thought on the subject? Thank you, giofranchi

BeerBaron, fortunately, I always try to keep in mind the diagram in attachment (which probably most of you already know), and I always try to “find lessons and inspiration in the success of others”, rather than “feel threatened by the success of others”. I have discovered that, compelling me to behave like the diagram suggests, helps me very much to avoid easily falling victim of envy. I do not envy ERICOPOLY, even when he says he is up 15,000% over the past 10 years (ok, I know what you must be thinking now: that is a monstrous lie!!! ;D ;D ;D). Instead, I greatly admire him for his achievement and I have the utmost respect for him! I will go on reading every idea he posts, and I will try to learn from him as much as I can. Today I will be buying more FFH! ;) twacowfca, thank you very much! Your wisdom, counsel, and support are always precious and very much appreciated! giofranchi mindset_diagram.pdf

biaggio, I wish I were humble… unfortunately, I am just a realist!! ;D Whoever has the patience to hold a significant amount of cash today, and whoever has the discipline to follow BeerBaron quote on position sizing, I judge him/her to be a great investor. ;) giofranchi

Shalab, sorry! I don’t know how, but I missed this thread of yours! I find it extremely interesting… but you made me laugh!! I am really not a good investor!! Surely, I am not in the league of Sanjeev, twacowfca, valuecfa, Moore, uccmal, tariq, racemize, PlanMaestro, ERICOPOLY, Beerbaron, biaggio, berkshiremystery, yourself, and others who constantly write on this wonderful board! This is what I have written in a personal message to Bart this morning: Just a few words about the way I invest my firm’s free cash: I tend to stick with a bunch of owner-operators that I think I understand well enough, just because it fits my personality and I feel quite comfortable with it. I am also very risk averse: right now I am keeping a lot of cash in usd and gold, I also want to be market neutral, so I am shorting the indexes. Results, unfortunately, simply don’t care what I am comfortable with…! 2012 has been a terrible year: speculative stocks went up a lot, so I am losing money on my shorts, owner-operators went sideways at best, with FFH (by far my largest holding) that was down significantly from $410 to $350, so I am also losing money on my long positions, gold went nowhere and the euro appreciated on the usd, so I am losing money on fx as well… It really seems I got it completely wrong!! Viceversa, a lot of traders on the board are booking spectacular returns: I remember ERICOPOLY who said a month ago he was up 100% for the year! So, you see, on the board I just write about what I know, but that doesn’t mean it is the way to go, or even it has any usefulness at all… :( No, really, if you have the patience to bear with me, I’d really like to go on posting some thoughts on the board, because I enjoy the company of great investors!! But surely I am not one… not even a “do no harm” investor… “First, do no harm”: I am not even able to follow this basic and most important precept! :( But I will get better very quickly, learning from all of you! ;) Thank you, giofranchi

Understood (at least, I hope! :) ). You are saying that there are not many funds, which are selling for more than their NAV. Even among the best performing funds. Am I right? I agree and I can understand why: both the mutual and the hedge fund business models have weaknesses that the FFH business model doesn’t have (among them no permanent capital and a much higher cost of money). I consider them to be fundamentally riskier than FFH and I have never invested in a fund. That’s probably one of the reasons why no fund command a significant premium to NAV. giofranchi

I attach a brief article I read some days ago on the subject. Hope it helps! giofranchi reflections-on-complacency-valuations-bearmarkettroughs-patience.pdf

Viking, thank you for your very clear answer! I understand what you are saying very well. My point of view is a little bit different, though. Because I don’t trade. I am an entrepreneur (at least, I try to be one!), not a finance guy. And sincerely I find trading to be quite risky… maybe just because I am so bad at it! ;D Instead, I find much easier to identify outstanding mangers, who are at the helm of compounding machines, and partner with them. I invest in owner-operators and almost never sell. Price should really be out of whack on the upside, to induce me to sell. Historically, if you take away the returns generated by owner-operators, you find that the performance of the S&P500 is quite unsatisfactory. Right now there are more or less 100 owner-operators. I have put together a portfolio of 10 owner-operators, that I think I understand quite well, and that are trading close to book value. The S&P500, on the contrary, according to the iShare Core S&P500 ETF (IVV), is trading at 3.75 x BV. It seems to me a no-brainer market beating strategy. :) giofranchi