giofranchi

A brief article for anyone who might be interested. giofranchi greenlight-results-show-benefit-of-hedge-fund-reinsurer-strategy.pdf

dcollon, it seems we are the only ones interested in at least some macro…!! Usually, I agree that macro is just for fun, not very useful for thoughtful investing… :) But I also agree with Mr. Watsa, when he says he believes we are living through a once in a 70 or 100 years historical period. Obviously, a lot of things are said about FFH on the board, some are positive and some are negative, but what I think I really like the best about Mr. Watsa follows: He is incredibly good at being fearful when others are greedy, and at being greedy when others are fearful. That, I think, is what really sets him apart from almost any other investor. So, when he says he is very concerned about the macro environment, I try to pay attention, I try to understand why, and I try to monitor how things are changing. giofranchi

Steven Romick on Blind Faith. giofranchi blind-faith---final-10-31-12.pdf

Bridgewater on Self-Sufficiency. giofranchi Formula_for_Economic_Success.pdf

"Anything that can be learned by a normal American adult on a trip to a foreign country (of less than one year's duration) can be learned more quickly, cheaply, and easily by visiting the San Diego Public Library." - Herbert Simon, "Models of My Life" Interesting letter on China. giofranchi China-s-Paradox-October-2012.pdf

Well, the top 25% returned 279%, but let's just disregard it! The median of restaurant franchisors returned 113%. Why shouldn't the median be compared to the S&P500? If you cannot compare the median of an industry to the S&P500, how could you compare the industry to the overall market? giofranchi

"A Simple World" by Charles Gave. For anyone who might be interested. giofranchi A_Simple_World.pdf

While there's room to debate whether the restaurants are shitholes or not, it's absolutely clear that the industry is a shit-industry. There are thousands of participants, extremely low barriers to entry and cut-throat competition. These chain restaurants continuously face pressure on their margins from every little immigrant-run eatery that pops up. While there may be room for both the chains and the immigrant restaurants, clearly this is a shitty place to try to make good money. But, I guess that's consistent with FFH's primary business of P&C insurance, which is also a highly competitive (shitty!) industry where there's little potential to build a moat. SJ As far as I know, the top 25% of restaurant chains returned 279% from 2001 to 2011. The median of restaurant chains returned 113%. The S&P500 returned 33%. “The most valuable business in the world are brand royalty businesses that can grow without capital investment” Bill Ackman on the new Burger King franchise business model. Maybe, Imvescor is not the case, but surely there are some fast-food restaurant chains that are valuable businesses! giofranchi Yep, that's all true. We call that a "survivor's bias." MCD has done wonderfully well, and some others have done wonderfully well. But Pizza Delight is a third-rate (fourth-rate) regional POS in the absolutely worst segment of the restaurant industry, without the scale to be the exceptional success of THI or MCD. Branding and loyalty are of value, but smaller players struggle to get that, especially with undifferentiated products like pizza. Just ask the franchisees of Dunkin Donut in Canada...or the Outback Steakhouse in Canada...or the Olive Garden in Canada. Or any number of failed quick service or restaurant chains. The industry sucks, even if there are a small number of long-term successful participants. Hussein Muhammed Ali who immigrated from Lebanon or Giorgios Giovakis who immigrated from Greece can almost always undercut them on price. SJ StubbleJumper, I just compared an Index, which returned 113%, to another Index which returned 33%. Both are subject to the "survivor's bias", right? My point is simply that to be a franchisee is tough: you must compete with Hussein Muhammed Ali and Giorgios Giovakis... But to be the franchisor might be really profitable. Anyway, I understand your point: not all franchisor are profitable, because competition is fierce, and so you have to offer high quality producs. Products that unfortunately Imvescor might lack! giofranchi

Both my parents studied and received a Ph.D. in Civil Engineering at the University of Waterloo, and I was born there! I have been raised in Italy, but I travelled back to Waterloo many times and I love Canada! “Born in Ontario” Neil Young & Crazy Horse ;D ;D ;D giofranchi

While there's room to debate whether the restaurants are shitholes or not, it's absolutely clear that the industry is a shit-industry. There are thousands of participants, extremely low barriers to entry and cut-throat competition. These chain restaurants continuously face pressure on their margins from every little immigrant-run eatery that pops up. While there may be room for both the chains and the immigrant restaurants, clearly this is a shitty place to try to make good money. But, I guess that's consistent with FFH's primary business of P&C insurance, which is also a highly competitive (shitty!) industry where there's little potential to build a moat. SJ As far as I know, the top 25% of restaurant chains returned 279% from 2001 to 2011. The median of restaurant chains returned 113%. The S&P500 returned 33%. “The most valuable business in the world are brand royalty businesses that can grow without capital investment” Bill Ackman on the new Burger King franchise business model. Maybe, Imvescor is not the case, but surely there are some fast-food restaurant chains that are valuable businesses! giofranchi

I agree 100%. And, although DNA can play a role, I think in investing we also can go on adapting and learning and improving. Even outstanding investors like the ones at the HWIC. Let’s hope they take heed of your advice! giofranchi

Uccmal, actually I was born in Canada, in Kitchener-Waterloo, and have the Canadian Passport!! Ahahahahahahah!! ;D But I admit I have never eaten in an Imvescor restaurant… are they really that bad?!?! :o Anyway, I was just talking about the fast-food franchise business in general. Which I like. giofranchi

Very small investment, but I like Imvescor's business. giofranchi PRFFH_November_1_2012_Fairfax_Announces_Acquisition_of_Additional_Imvescor_Shares.pdf

Here is the link to the conference call, if anyone would like to understand why they had to increase so significantly their reserves during the quarter. Furthermore, some comments on Sandy. http://www.greenlightre.ky/ They keep on staying very much underleveraged, with Total investments just 1.39 times Shareholders’ equity, and Net premiums earned during the last twelve months at just 50% of Shareholders’ equity. giofranchi

Certainly a very disappointing quarter, as far as underwriting is concerned. Anyway, fully diluted adjusted book value per share has increased 19.4% from September 2011 to September 2012. And the stock is trading at book value. giofranchi GREENLIGHT_RE_ANNOUNCES_THIRD_QUARTER_2012_FINANCIAL_RESULTS.pdf

I agree 100%! Thank you! giofranchi

Thank you! I am very cautious to bet big on any idea of another investor… whoever the other investor is… it is one thing to invest in FFH, it is completely a different thing to invest in RIM, just because Mr. Watsa did it… I don't like it and I don't do it. I hope you agree with me! Mr. Martin Whitman is no exception: I remember I read in “Confidence Game” that Mr. Whitman held a large stake in MBIA and he had this to comment about Mr. Ackman: “He is a young man, very good at advertising himself, but doesn’t understand insurance!” Really?!? ??? giofranchi

tombgrt, you are right and I always like your posts and find something interesting! But that is exactly true for JNJ as well. During their whole history they have been great capital allocators. And they created the largest conglomerate in the healthcare sector worldwide. Also JNJ could be seen as a collection of much smaller businesses with growth potential. But growth is far from assured! Don’t look further than the last 5 years, during which EPS growth has been negative! My point is simply this: both in a $1 billion company and in a $200 billion company the man at the helm is very important. When JNJ gets “lucky” and chooses an outstanding CEO, growth resumes. Vice versa, when the chosen CEO is not that good, growth stalls. Why should it be different for BRK? There is also another point, that maybe is a little bit subtler: JNJ is much more “impersonal” than BRK. JNJ might be just seen as “the healthcare sector”, or better yet as “the best of the healthcare sector”. BRK, instead, is a very personal collection of businesses. I think it is easier for JNJ to find a new very good CEO, than it is for BRK to find the right person to follow in Mr. Buffett’s footsteps… But then again, I might be completely wrong… just food for thought! As long as return on investment is concerned, what are your views on BRK? I mean, 10 years from now? At which rate do you think BRK can go on increasing shareholders equity? And which multiple of BV do you think BRK deserves? giofranchi Thank you for reminding us about how important it is to have a great CEO. There is a limit to success however that constrains most companies: the returns of their industry. Thus JNJ's returns are constrained by the molecular limitations drug companies are facing when they try to develop new drugs, although their nonprescription business has somewhat better prospects. BRK is different. It's one of the few companies that can go anywhere to pick up a good business in a good industry or a piece of a good business through the public markets. Their culture permits and encourages this. Therefore, having a good energetic younger CEO who understands how BRK does it could lead to increasing success for BRK. Never the less, BRK's size does limit potential returns perhaps to about 30% to 40% above the returns of mega cap companies in general. Time will tell. twacowfca, you know very well that JNJ has 3 divisions: pharmaceuticals, devices, and consumer products. Devices are as large as pharmaceuticals, while consumer products are just a little bit smaller. JNJ is a collection of high quality businesses that encompasses the whole healthcare sector. And the healthcare sector is among the industries with the highest growth prospects for the future. I really like JNJ. It is just that I don’t like to invest in a company that is not managed by its founder/owner… This shrinks my investment universe incredibly, and I am well aware of it! Maybe, it is just a flaw of mine. But I don’t trade, I invest. And anyone can talk about moats, competitive advantages, winning strategies, etc., and have different ideas, and different opinions. Let me give you an example that I find illuminating: When I read “Competition Demystified” by Prof. Bruce Greenwald, I found a comparison between MSFT competitive advantages and AAPL’s. Of course, AAPL was “doomed to failure”, while MSFT was going to keep outperforming… Right?! I guess the only problem with that analysis was that Prof. Greenwald didn’t consider the fact Mr. Gates was leaving, while Mr. Jobs was coming back…! The rest, as they say, is history. When you invest, you are partnering with someone for the long run. If you make sure that the partners you choose are great achievers, you will do very fine. Otherwise… you’d much better trade! giofranchi Forever is a long time. I think BRK has the potential to keep on doing what they have been doing for a long time. The world is their oyster, not merely one industry. Were it not so, being a megacap would severely limit their opportunities. You've got a guy there who has been in the position that Brindle was in before he was tapped to run Lancashire. He has done most of the basic stuff that Warren did before BRK got so big. And, he did those things very very well. Our biggest hit hasn't been Lancashire. It was USG when it was in Bankruptcy. We were passive investors, although we wound up being involved in their reorganization. This gave us a Birdseye view of another company in a similar fix, W.R.Grace. Their situation was much more difficult than USG's. It took much longer to resolve satisfactorily for all parties than USG's Cpt 11. Guess who the main guy was who pulled that off: Ted Weschler. He wants so much to be a part of BRK that he has actually paid to join up. A few million for two lunches with Warren, and then mid double digit millions in a haircut he took to liquidate most of his portfolio at an inopportune time before joining BRK. That is high motivation that goes way beyond being a typical corporate executive. twacowfca, as usual, you have convinced me! :) Thank you for all the valuable information you provided about BRK’s future leadership: Mr. Ted Weschler certainly is a manger anyone would wish to partner with! I have a question, just curious: you said your biggest hit has not been LRE, but USG. Was it so just in percentage terms, or in absolute terms too? I mean, did you have the confidence to keep as large a portion of your portfolio in USG, as you did in LRE? giofranchi

For anyone who might be interested: http://www.marketwire.com/printer_friendly?woid=829763&segid=2 giofranchi

tombgrt, you are right and I always like your posts and find something interesting! But that is exactly true for JNJ as well. During their whole history they have been great capital allocators. And they created the largest conglomerate in the healthcare sector worldwide. Also JNJ could be seen as a collection of much smaller businesses with growth potential. But growth is far from assured! Don’t look further than the last 5 years, during which EPS growth has been negative! My point is simply this: both in a $1 billion company and in a $200 billion company the man at the helm is very important. When JNJ gets “lucky” and chooses an outstanding CEO, growth resumes. Vice versa, when the chosen CEO is not that good, growth stalls. Why should it be different for BRK? There is also another point, that maybe is a little bit subtler: JNJ is much more “impersonal” than BRK. JNJ might be just seen as “the healthcare sector”, or better yet as “the best of the healthcare sector”. BRK, instead, is a very personal collection of businesses. I think it is easier for JNJ to find a new very good CEO, than it is for BRK to find the right person to follow in Mr. Buffett’s footsteps… But then again, I might be completely wrong… just food for thought! As long as return on investment is concerned, what are your views on BRK? I mean, 10 years from now? At which rate do you think BRK can go on increasing shareholders equity? And which multiple of BV do you think BRK deserves? giofranchi Thank you for reminding us about how important it is to have a great CEO. There is a limit to success however that constrains most companies: the returns of their industry. Thus JNJ's returns are constrained by the molecular limitations drug companies are facing when they try to develop new drugs, although their nonprescription business has somewhat better prospects. BRK is different. It's one of the few companies that can go anywhere to pick up a good business in a good industry or a piece of a good business through the public markets. Their culture permits and encourages this. Therefore, having a good energetic younger CEO who understands how BRK does it could lead to increasing success for BRK. Never the less, BRK's size does limit potential returns perhaps to about 30% to 40% above the returns of mega cap companies in general. Time will tell. twacowfca, you know very well that JNJ has 3 divisions: pharmaceuticals, devices, and consumer products. Devices are as large as pharmaceuticals, while consumer products are just a little bit smaller. JNJ is a collection of high quality businesses that encompasses the whole healthcare sector. And the healthcare sector is among the industries with the highest growth prospects for the future. I really like JNJ. It is just that I don’t like to invest in a company that is not managed by its founder/owner… This shrinks my investment universe incredibly, and I am well aware of it! Maybe, it is just a flaw of mine. But I don’t trade, I invest. And anyone can talk about moats, competitive advantages, winning strategies, etc., and have different ideas, and different opinions. Let me give you an example that I find illuminating: When I read “Competition Demystified” by Prof. Bruce Greenwald, I found a comparison between MSFT competitive advantages and AAPL’s. Of course, AAPL was “doomed to failure”, while MSFT was going to keep outperforming… Right?! I guess the only problem with that analysis was that Prof. Greenwald didn’t consider the fact Mr. Gates was leaving, while Mr. Jobs was coming back…! The rest, as they say, is history. When you invest, you are partnering with someone for the long run. If you make sure that the partners you choose are great achievers, you will do very fine. Otherwise… you’d much better trade! giofranchi

Mr. Seth Klarman on QE3, Moral Hazard and Financial Risk. giofranchi Seth_Klarman_on_QE3.pdf

tombgrt, you are right and I always like your posts and find something interesting! But that is exactly true for JNJ as well. During their whole history they have been great capital allocators. And they created the largest conglomerate in the healthcare sector worldwide. Also JNJ could be seen as a collection of much smaller businesses with growth potential. But growth is far from assured! Don’t look further than the last 5 years, during which EPS growth has been negative! My point is simply this: both in a $1 billion company and in a $200 billion company the man at the helm is very important. When JNJ gets “lucky” and chooses an outstanding CEO, growth resumes. Vice versa, when the chosen CEO is not that good, growth stalls. Why should it be different for BRK? There is also another point, that maybe is a little bit subtler: JNJ is much more “impersonal” than BRK. JNJ might be just seen as “the healthcare sector”, or better yet as “the best of the healthcare sector”. BRK, instead, is a very personal collection of businesses. I think it is easier for JNJ to find a new very good CEO, than it is for BRK to find the right person to follow in Mr. Buffett’s footsteps… But then again, I might be completely wrong… just food for thought! As long as return on investment is concerned, what are your views on BRK? I mean, 10 years from now? At which rate do you think BRK can go on increasing shareholders equity? And which multiple of BV do you think BRK deserves? giofranchi

Here is where I believe you are mistaken. BRK already has these outstanding managers. They are the ones that truly run the firm, they broadly report to WEB, but he gives them total freedom in their operations. I feel you have not given his lieutenants enough credit. I confidently feel that if one of his lieutenants like Jain, Abel, Nicely, or Weschler became CEO, BRK would continue to prosper. I do not know anything about FFH, so I don't have an opinion vis a vis BRK. Palantir, of course you might be very well right! I have never actually managed something as big and as complex as BRK is today! Not even something that is 1/1000 of BRK! So, I cannot be sure… All I can do is to try an educated guess with my business knowledge and experience. To paraphrase Mr. Munger, BRK’s success lies in their abilities (his and Mr. Buffett’s) to constantly shift capital from failing businesses to thriving businesses. And I tend to believe it is true. Mr. Schumpeter’s “creative destruction” is becoming more and more relevant in today’s hyper-competitive world, and the best way to deal with this reality is to embrace and to apply Mr. Munger’s lesson. I see those outstanding managers you referred to as a part (maybe the most important part!) of each thriving business Mr. Buffett acquired. But neither Jain, nor Abel, nor Nicely, nor Weschler have ever applied Mr. Munger’s lesson. At least, not to such a complex organization as BRK is today. Each one of them knows extremely well his own business… but what about the remaining 74 businesses of the BRK family? Can you be sure whoever succeeds Mr. Buffett will be able to take the right decisions in shifting capital among 75 different businesses? And among all the other acquisitions that will come in the future? It will be a collection of businesses studied and put together, during the course of a lifetime, by an extraordinarily gifted individual… his successor’s task won’t be an easy one! Most of all, the more I study the performances of outstanding business founders/owners the more I realize that each one of them achieved extreme success in his or her own way. Each one of them did what really worked for him/herself, what most fitted his or her own personality. Not one of them copied another, and was as successful! They were all originals. So, I cannot believe in replicating Mr. Buffett, or in finding someone who will be so intimate with BRK in the future, as Mr. Buffett is today. Please, remember that I am not talking about a good and safe business: BRK will always be a good and safe business! I am talking about outperformance (very, very, very tough!). As I said at the beginning, I might very well be completely wrong! But it is a long time that I have been studying the lives, the habits, and the achievements of outstanding business founders/owners, and I hope my perspective could at least be some food for thought! giofranchi

i think the investments per share question misses the point gio was trying to make. which is simply that, ex the short hedges & the associated short term unrealized losses & ex the rimm losses fairfaxes long only equity portfolio has appreciaTED ABOUT 20 ANNUALIZED FOR THE 9 MONTHS ENDED 9-30-12. not too shabby on the long side. timing on the short side has obviously hurt. ( and my kitten just stepped on my CAPS key, which i'm not inclined to edit... :-\ Ugh...I can't stand this type of argument...it's like saying, "Well if I didn't have a large portion of my portfolio in Enron, I'd be up 40% for the year!" My original point was actually a little bit different: I wanted to point out how the RIM investment had been over-publicized. I started saying that a 14% annual return was achieved by FFH on the long side, RIM included. So, anyone who was too worried about the losses incurred with the RIM investment, just missed the whole picture. On the short side, maybe the timing wasn’t perfect. But I really couldn’t care less… I agree 100% with Mr. Watsa’s strategy and I am willing to be patient together with him. I am sure I am in very good company! :) giofranchi Giofranchi, you have a good point. This view on the investing side is similar to tallying up an insurance company's losses into two columns: attritional and catastrophe. The cat losses will be lumpy, but a negative trend in attritional losses is much more cause for concern than an occasional, but manageable catastrophe loss. :) twacowfca, I hadn’t thought about it that way, but as always yours is a very good comment and comparison! By the way, what’s your take on the damages Sandy is going to cause? Thank you very much, giofranchi

i think the investments per share question misses the point gio was trying to make. which is simply that, ex the short hedges & the associated short term unrealized losses & ex the rimm losses fairfaxes long only equity portfolio has appreciaTED ABOUT 20 ANNUALIZED FOR THE 9 MONTHS ENDED 9-30-12. not too shabby on the long side. timing on the short side has obviously hurt. ( and my kitten just stepped on my CAPS key, which i'm not inclined to edit... :-\ Ugh...I can't stand this type of argument...it's like saying, "Well if I didn't have a large portion of my portfolio in Enron, I'd be up 40% for the year!" My original point was actually a little bit different: I wanted to point out how the RIM investment had been over-publicized. I started saying that a 14% annual return was achieved by FFH on the long side, RIM included. So, anyone who was too worried about the losses incurred with the RIM investment, just missed the whole picture. On the short side, maybe the timing wasn’t perfect. But I really couldn’t care less… I agree 100% with Mr. Watsa’s strategy and I am willing to be patient together with him. I am sure I am in very good company! :) giofranchi