giofranchi

From gurufocus.com: Period Bought/Sold (Sh.) Qtr. End Shares Avrg. Price Gain (%) 2010Q3 +2,065,000 2,065,000 $50.14 -79.5% 2011Q2 +6,308,300 8,373,300 $43.59 -76.5% 2011Q3 +3,425,000 11,798,300 $26.61 -61.4% 2011Q4 +1,000,000 12,798,300 $18.88 -45.7% 2012Q1 +14,050,200 26,848,500 $15.05 -31.8% 2012Q3 +25,006,200 51,854,700 $7.22 42.1% Shares Bought: 51,854,700 Average Price: $16.98/share -40% Average Costs 51,854,700 Average Cost: $17/share -40% Current Price: $10.26 giofranchi

I agree. "... I didn't like the very last scene of "Other People's Money." It felt tacked on, manufactured, concocted out of a Hollywood studio's knee-jerk need to provide a smileyface ending that was not in the spirit of the film. "Other People's Money" is a four-star movie that loses its way in the last, crucial scene, and for that it loses half a star, but that doesn't mean I didn't enjoy every moment right up until the happy ending, which is the unhappiest moment in the movie." - ROGER EBERT giofranchi

I agree with the PlanMaestro’s thesis that moats are not forever. That’s why I invest in owner/operators, because their moats consist in the abilities of their founder/largest owner/manager. And, among owner/operators, I concentrate on the ones which are in the business of buying $1 bills for 50 cents. Because that is a business which will always be with us and will always be highly remunerative. Partnering with extremely successful capital allocators, when you understand what they do and agree with their strategy, is the safest way I know of for accumulating wealth. (Condition n.1: they must be still relatively young, so that they can go on compounding for a long time. Condition n.2: they must have permanent capital, BRK, FFH, etc.. Condition n.3: if they have float, BRK, FFH, etc., even better!). giofranchi

Well, I guess one way is to check the ratio Net Premium Earned / Surplus. If it is lower than average, an underwriting loss will be less detrimental than average to shareholders equity. Also, and most important of all, you must have confidence in the management of the company. You must be sure you have partnered with true achievers. Because insurance is nothing but a promise. And how could you know exactly what management has promised?! Paraphrasing Mr. Buffett, if you are willing to promise silly things, people will find you! :) twacowfca, any thought on this crucial topic? giofranchi Net premium/surplus isn't representative for comparison of insurance companies with different underwriting profiles, because one line of underwriting may be more exposed to large losses than another. So, I guess the question is: how can we compare underwriting profiles? First of all there is “frequency” and “severity”: it seems to me that most of the time frequency business is less risky than severity business. Then what? Is there usually sufficient disclosure to dig deeper and know which kind of frequency or severity contracts each insurer is underwriting? giofranchi

Well, I guess one way is to check the ratio Net Premium Earned / Surplus. If it is lower than average, an underwriting loss will be less detrimental than average to shareholders equity. Also, and most important of all, you must have confidence in the management of the company. You must be sure you have partnered with true achievers. Because insurance is nothing but a promise. And how could you know exactly what management has promised?! Paraphrasing Mr. Buffett, if you are willing to promise silly things, people will find you! :) twacowfca, any thought on this crucial topic? giofranchi

Well, in the first video Mr. Buffett wouldn’t have explained value better, while in the second video Mr. Icahn couldn’t have been more convincing!! ;D ;D giofranchi

+1 giofranchi PS I won't even try to answer your question about sidecars, because we all know who is really knowledgeable on that topic (among many others! :) )

Unfortunately, I have just very few of them... Anyway, I will look for the ones I have and post them as soon as I can. giofranchi The letters in attachment are what I could find from 2011. Hope it helps. giofranchi February_14_2011_Letter.pdf BASSKyle_-_Hayman_Capital_Mgmt_Ltr_12_14_2011.pdf Hayman_Capital_Management_Letter_to_Investors_Nov_2011.pdf

Enjoy! http://www.grahamanddoddsville.net/?p=1561 giofranchi

twacowfca, on page 21 of the presentation you find an annualized investment return of 9,6% since formation of GLRE (2005-2011): 2005: 14.2% 2006: 24.4% 2007: 5.9% 2008: (17.6%) 2009: 32.1% 2010: 11.0% 2011: 2.1% 2012 YTD: 10.5% Those are all after fees and expenses. That’s why I think in more normal times Mr. Einhorn might achieve a 10%-15% investment return after fees and expenses. Actually, from 1996 (inception of his fund) until 2006 Mr. Einhorn achieved an annualized return of 29% (I don’t know if before or after fees… :)). giofranchi

Well twacowfca, I know that what you say about Mr. Einhorn and about GLRE is correct, but: 1) Mr. Einhorn is a good investor, not a great one: true, but I think his long/short value based with macro hedges way of investing is very conservative. It might not lead to outstanding results all the times, but it surely is conservative. And I like conservative investing. Actually, I think that conservative investing is the only kind of investing I could agree with. I think those who shoot for the sky still have to learn how to make their capital truly and effectively work for themselves. That is not to say that I admire cowards! I would never leave my capital in very short term bonds, which earn a pittance! 2) GLRE could not write a lot of business, so the leverage they have gotten from their model has not been great: true, but I like a reinsurer which is underleveraged, a 10% decline in the value of their investments means just a 14% decline in the value of their equity, compared to a 25% decline in the equity of their average peer competitor. And that makes me sleep soundly at night! 3) Notwithstanding 1) and 2), they have achieved a CAGR in BV per share of 11.7% from 2004 to 2011. Not bad, if you think that those years were among the most difficult for investing! What’s not to like about 1), 2), and 3)? Please look also at page 39 of the presentation in attachment: if they grow invested assets to 175% of capital, they would still be underleveraged compared to their peers. Earned Premium at 50% of capital is also a conservative number. With investment returns in between 10% and 15% (reasonable for a “good” investor like Mr. Einhorn) and with a combined ratio in between 90% and 100% (reasonable for a “good” underwriter), they would be compounding BV per share in between 18% and 31% annualized. I bought in at book value. giofranchi Greenlight_Re_2012_Investor_Meeting.pdf

Unfortunately, I have just very few of them... Anyway, I will look for the ones I have and post them as soon as I can. giofranchi

Well, I guess you are right: the claim payment duration for their portfolio averages between 1.5 – 3 years. twacowfca, I looked for it hastily this morning, but could not find it: which is the average claim payment duration for Lancashire? Thank you, giofranchi The average time til payment of a claim for property cat exposed (re)insurers varries in a band that usually averages about 18 months, depending on the types of claims they are paying and if some claims are contested. Retrocessional claims are settled quickly normally, but when there is a super cat, claims get complicated as they often go around in a circle or even a spiral from one company to another and back to the original insurer as in the LMX spiral of the mid 1980's. The phenomenon of loss creep is much more prevalent after a very large event. That said, Lancashire's usual average time til payment of claims has been about 18 months, until recently, but with the strange supercats of 2011 and the surprising demand of the Italian authorities that the hulk of the cruise ship be removed from the rocks in one piece (which has been fully reserved) instead of piecemeal means that their average time until claims are paid is now almost two years. twacowfca, thank you! Your answer is accurate and precise as usual. Here is something I don’t understand though: you once wrote that Mr. Brindle could not invest the way Mr. Buffett does, because Lancashire concentrates on short tail contracts, while Mr. Buffett could hold the float for much longer. If that is really the case, how do you explain the way Mr. Einhorn invests? GRLE, just like Lancashire, underwrites short tail contracts, but invests almost nothing in short-term low-yielding bonds. What am I missing here? giofranchi

Well, I guess you are right: the claim payment duration for their portfolio averages between 1.5 – 3 years. twacowfca, I looked for it hastily this morning, but could not find it: which is the average claim payment duration for Lancashire? Thank you, giofranchi

Anyone know how to get this letter in pdf? Find the pdf in attachment. giofranchi Hayman_Capital_Management_LP-_Market_Commentary__Nov_2012_.pdf

Thank you for posting. I think that Mr. Bass’s reasoning on Europe is always crystal clear! giofranchi

Well twacowfca, no doubt I agree with you! I think good P&C underwriters, that concentrate on short tail contracts, are going to do very well in the next few years. Obviously, it follows that outstanding underwriters (like Lancashire) are going to do extremely well! What I am not so sure about is the following: And that’s because I think a P/E contraction is a very real risk. I am not saying it will happen, just that it is a risk nobody should ignore. That’s why among companies with longer tail books I prefer those with a fully hedged stock portfolio and a lot of cash at hand (the only one I know of is Fairfax), or those which employ a long/short value based strategy and are much underleveraged if compared to their peers (the only one I know of is GreenlightRe). And yes! Thank you! I am feeling much better now. giofranchi

Thank you very much twacowfca, very nice discussion! I got a terrible cold and I was in bed the last two days, so I can read your impressions from the meeting just now. It seems that the so-called “new normal” is very good news for Lancashire! I also find Mr. Brandon’s comment about the stock market interesting. Time will tell! giofranchi

I also like and always check the "GMO 7-Year Asset Class Forecasts". giofranchi

Michael E. Lewitt on the Fiscal Cliff, on Europe, and on the Outlook for stocks and bonds. giofranchi 11-15-12_TCS.pdf

I think dshort.com is a wonderful site to keep track of market valuations. Over there you can find on a monthly basis: - The Crestmont Research P/E Ratio, - The cyclical P/E ratio using the trailing 10-year earnings as the divisor, - The Q Ratio, which is the total price of the market divided by its replacement cost, - The relationship of the S&P Composite price to a regression trendline, - The S&P Composite P/E10 ratio by Percentile, among many other market valuation metrics. I highly recommend the site. Of course, I think you know that gurufocus.com provides the market-cap / GDP ratio. Hope this helps! giofranchi

I know: nothing new! And I really hope they are dead wrong! But at least some of it seems logic reasoning to me. Table on page 29 is a sad thing... giofranchi Lowering_Berkshire_s_Economic_Moat_Trend_Rating.pdf

WOW! Next year I would really like to come! ;) Well, with all the questions I have already asked YOU about the insurance business in general and about the specifics of some insurance companies … it is hard to come up with something new! Anyway, when the meeting is finished and you find some time, I guess we all will be very grateful, if you could briefly sum up the most interesting topics brought up and discussed. Enjoy your staying in Bermuda! :) giofranchi

Bridgewater on "The Five Stages Of A Sovereign's Life-Cycle". giofranchi The_Five_Stages_Of_A_Sovereign_s_Life_Cycle.pdf

Personally, I think it is a very good article. I only invest in companies that are owner-operated. No matter what the price offered is! Because I don’t trade, and I don’t want to be invested in a company that is not owner-operated. So, I have nothing to add to the discussion about BAC and AIG. Instead, I would like to express my thought on portfolio concentration: I have great confidence in all the owner-operators my firm is invested in. With the only possible exception of FFH, which I could call my single best idea (and the one I have by far the largest amount of capital invested), I would be hard pressed to find the 2nd, the 3rd, …, or the 10th best idea… I think I have partnered with a group of outstanding individuals and it is really tough to choose among them. But this I would say: being invested in 7 – 10 ideas mitigates the risk of “the man at the helm leaving” quite satisfactorily. That’s my view on diversification. If I were sure that Mr. Watsa’s health would remain in great shape for the next 20 years, that he would never have any accident, and that his priority will always remain to increase FFH BV per share at 15% annualised, than I would feel comfortable to invest all my firm’s capital in FFH. giofranchi