rjstc
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Posts posted by rjstc
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Gio; Curious if you own any Berkshire? It seems like that would meet most of your criteria without the 7 lean years. Good owner operators, etc. Ron
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Gio; It will be in English also? I definitely would like to subscribe. I also subscribe to one other newsletter already mentioned here. Manual of Ideas and their value conferences. They've been great and and I've gotten some very profitable ideas from them. Both in Europe and Japan where I have little expertise. Looking forward to it. :)
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Hmm, which of my many whoppers should I pick? Choices, choices... :-)
I think I will go with my repeated purchases of Level 3 stock, an affliction that started in 2001, continued intermittently for several years and only ended early last year when I sold the last of the shares I owned. There were quite a few lessons here, such as (i) pay a lot of attention to debt levels; (ii) do not pay too much attention to smart and articulate CEOs; (iii) confirmation from smart investors such as Mason Hawkins and Prem Watsa is no guarantee of investment success; (iv) a compelling story does not necessarily make for a good investment; and (v) huge overcapacity in an industry can throttle even good companies in that industry. But the most fundamental lesson for me was that I should focus on companies with a track record of making money in industries that are not undergoing rapid change.
On the plus side, I feel much cleaner now that I no longer own LVLT. And the stock hasn't tripled since I sold. Not yet, anyway...
Your post mirrors almost exactly my experience with LVLT except I got out a few years earlier.
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The thought keeps popping up in my mind of what Buffett said once. Something like when a mediocre business meets good managers (Investors?). The mediocre business usually wins in maintaining its reputation to the detriment of the managers (investors?). Kind of like JCP vs Ackman. BBRY vs Prem to be determined.
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He's been waiting all this time and finally decided its now time to buy "LVLT". :o :o :o
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I spent the last 15 days reading “River of Stars”.
You know, I think I have read quite a few novels in my life. I have read every novel by Dickens, by Hugo, by Tolstoj, and by Dostoevskij, every single novel they have written. I have read Conrad, Flaubert, Fitzgerald, and I have read every play by Shakespeare. And I have read quite a bit of philosophy too: from Seneca to Hume, from Machiavelli to Nietzsche. I have even read the sacred tests of almost all religions: from the Bible to Lao-Tzu, from Confucio to the Dhammapada and the Hagakure. I love poetry (Yeats, Neruda, Achmatova, etc.).
Yet, I don’t think I am exaggerating, if I say that in Canada today lives one of the greatest poets and novelists of all times, and his name is Guy Gavriel Kay.
“River of Stars” is an epic tale that goes well beyond storytelling: it is deeply rooted in history, it is touchingly poetic, and it is a sort of treaty on warfare. And warfare is all about risk-management, so, as weird as it might sound, this novel could be read both as a poem and as a treaty on risk-management!
By the way, I remember that also Mr. Taleb, in one book of his, writes about an encounter he had with some generals of the US Army. And he tells how impressed he really was by the profound understanding those people showed to possess about risk and how to manage it!
I cannot recommend “River of Stars” strongly enough. His most thoughtful work to date.
giofranchi
Gio!!! I'm amazed. You must be at least 80 to have read that much ;D read separate books with each eye at the same time :o double speed read :P. I know how busy you already are. I'm impressed.
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Two separate thoughts:
1) Ross, thank you for taking this on. I really like the concept and will be very interested to see the results. There have been numerous suggestions from other board members on how to take this forward; I would only add that since this is your “baby”, feel free to do what you want.
2) <Omitted, here, John>
Looking forward to watching this for the months/years to come. Thanks again, Ross.
-Crip
+1! This intiative by Ross is much appreciated! The project has to start at some level/platform. Rome wasn't built in one day. Please also take into consideration, that running this project for Ross takes time away from managing own positions.
+1 I always find Ross to be very transparent, helpful, & interesting. This is a great idea.
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as do all the other banks and a couple of credit unions. how mad is this - our income is on the high side for FL. we want to buy a house and get a loan that secured against a house that I'm putting more than a 50% deposit on and yet.... no dice.
Don't they want to make money - they can't fail to get their cash back even in the worst case scenario!!
Its driving me nuts.
anyway that my eyes on the ground report about florida and the (non) money lending practices of the banks at the moment.
Two years ago, with a net worth of more than $5m, I couldn't get a loan for $100k. I was trying to purchase a $200k property in Sacramento, a 4-plex with $32,000 gross rental income. The property was fully occupied, the rents were below market.
Wells Fargo and Bank of America, plus other local banks. None would bite.
They wouldn't loan me under 2% of my net worth! On a property where I was putting 50% cash down in a market that was already crushed in valuation! The loan amount was roughly 3x the gross rent!
And then John Stumpf (Wells Fargo CEO) would get on TV and claim they wanted to make loans but there were no creditworthy opportunities. What an unbelievable statement.
Their chief excuse was that I didn't have experience as a landlord. I lived a thousand miles away in Seattle and, as I told them, was going to hire a property manager (with experience).
Idiocy at its best.. and yet the banks have turned it around and we are buying shares in them?
I wonder who is crazy!!! maybe I should be getting rid of my shares in BOA....
Would you loan me lots of money at these rates fixed for 30 years. Or would you rather borrow from the fed at practically nothing and loan it out short term for a better spread? It seems to me that as a shareholder longer term they are doing what is best for me. Plus what gets them to better profits now. When rate go up I can see them starting to loosen.
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Yes, the South Bay/Silicon Valley house prices are definitely above previous high... Many parts of the Bay Area are near previous high or not that far from previous high...
I live about 90 miles south of San Francisco. Santa Cruz on the north end of Monterey Bay. I don't know about the rental market but single family home prices are back to where they were before the collapse with multiple offers. This cycle happens every 10-15 years here with prices falling 25-40%. Then they come back like now. Just like the stock market I've bought houses every time and waited for prices to recover. For instance a single family 3/2 home that was selling for $850,000-1,000,000.00 dropped to about $625,000.00 $725,000.00. Now back to $825,000.00+.
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I have a tendency to use multiples as I think there are too many assumptions in classical DCF models to very helpful in finding undervalued securities. In addition multiples will get you 90% of the way there and the additional 10% takes alot of time for limited additional benefit. You can also focus on the issues that make a difference that cannot be modeled - investor psychology, security concentration, industry structure, moats/competitive advantage, other market (bond, option) signals, mgmts track record and incentives. I also do not do this full time so I try to maximize effort vs. time. See my AKA thread for valuation examples using comps. I do valuation as a business so I am familiar with the techniques and the uncertainty in the assumptions.
Packer
Sorry. AKA thread. What or where is it? Thanks
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That stage has passed. Berkshire won't blink even if hard core guys are correct, it cares if there is permanent damage to intrinsic value of the companies it owns.
You know this better, such comments of yours surprises me, may be the head is stuck in FFH bin. On macro level, I think, we should be watching if inflation crosses 2% level for the Fed to act.
Could be you are buying into the Berkshire hype a bit. Investors were always told that Berkshire could not sink. Then we are told by Buffett in 2008 that Berkshire was weeks away from sinking, if the Fed had not acted to stabilize the system...although they would be the last to sink.
How many people had their entire life's savings in Berkshire Hathaway? Foolish to think that corporations aren't susceptible to economic collapses...even the best of the best are susceptible when you have leverage, debt, counterparty liability, and in many cases regulatory requirements for statutory levels of capital! Cheers!
What do you mean by sinking? They have obviously sunk off and on but have always come back.
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This is an excellent thread with great input from many.
Two things are paramount for me, when it comes to my investment dollar
1. Understanding of the business - Enuff said here already
2. The jockey
Jockey
Jockey + Large Capital Allocator
Jockey + Large Capital Allocator + Value Investor
Jockey + Large Capital Allocator + Value Investor + 90+% Net worth in biz
Jockey + Large Capital Allocator + Value Investor + 90+% Net worth in biz + Transparent
Jockey + Large Capital Allocator + Value Investor + 90+% Net worth in biz + Transparent + 25 Year of 20% returns under first jockey
Jockey + Large Capital Allocator + Value Investor + 90+% Net worth in biz + Transparent + 50 Year of 20% returns under first jockey
Jockey + Large Capital Allocator + Value Investor + 90+% Net worth in biz + Transparent + 50 Year of 20% returns under first jockey + Mr. Market offers biz below IV
.....90% of my portfolio is in two jockeys' hands. I follow everything they say, report etc. I avoid businesses whose jockeys belong somewhere at the top of the trait list, my own understanding of the business be damned. Also, I try very hard not to be a busy body in the name of value investing. Buy-and-hold does it for me. I simply trust that my investment will beat the index over the long term modestly. Not counting on anything more.
When a second jockey is in place I have enough trust that the first will have passed the baton along protecting my interests. I will revisit the investment 5 years after the second jockey takes over.
Not bad. Of course you already knew you were going to get asked the question who. I'm guessing Brk & Luk?
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Hi txlaw,
I really enjoy our discussion about the insurance and banking industry. But maybe this is not the right thread, and maybe other board members are not very interested...
So, I have sent you a PM, and maybe we can go on sharing our views that way! :)
giofranchi
Gio; this board member is interested!!! I feel like I'm sitting around a big table with my Many Italian friends drinking chianti, eating a big plate of spaghetti, loud debate going on. Arms and hands waving while points are made. Someone looking in might think there's going to be a fight. But it's always interesting and there are always new things learned. So please don't stop the open forums. If someone doesn't want to read they can just move on. Ron
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I live in Ca. Homeowners is Allied. Auto USAA.
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A very nice birthday to you.
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I don't think anyone can predict how the stock market will perform over the next two or three years. To invest on the definitive prediction that it will rise is close to speculation. Given the amount of external factors affecting markets today, there's possibly a higher probability of markets experiencing a shock in the near future.
No one knows how the future will play out for sure, but if you have a slightly negative view, it doesn't seem to be a terrible time to be hedged.
Obviously, you'll experience a couple years of poor returns, especially if the hedged event does not occur, but the benefit is a peace of mind and protection of capital. And if the hedged event does occur, the firm will be at a huge advantage.
Does it maybe seem a little better to just concentrate on growing the business ie; Berkshire, Markel, etc rather than hopping around trying to guess the next macro trend?
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Hi longinvestor!
I know and agree with all those true things about BRK... Yet, still I am not convinced... I just don't understand a business on autopilot... A business without a strong person at the helm... Just one man or woman... Not a team or a board of directors... But I know that's me, and only me!
Vice versa, I am not worried at all about Mr. Watsa's succession plan. When, 20 years from now, he steps down, FFH will simply be what BRK is today. And I will sell my investment.
giofranchi
And that's what makes this a great sounding board. Both thoughts aren't wrong! In the long run both will work. Maybe one a little better than the other but in the greater scheme of things all that matters is a positive outcome. Good discussions here.
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Gio said:
"In such an environment you must proceed with caution, either you are finally proven right or wrong. It doesn’t really matter.
You might argue: we don’t care about macro, and WEB has said this and WEB has said that... (or Peter Lynch, or whomever!)… But let me also tell you this: I don’t think general rules are of much help to asses specific risks. I mean, just because macro is useless 99% of the times, doesn’t mean that to be “stubbornly blind to macro no matter what” is a sensible course of action. Because 1 time out of 100 you will be terribly wrong. Imo, instead, the sensible course of action is to be always aware of macro, meaning what’s going on around you and your businesses, and each single time decide if it is relevant or not. That’s exactly what Mr. Watsa and his team seem to be doing. In fact, he has stated many a time that they think we are living trough a once in a lifetime period of deleveraging, much similar to the US in the ’30, or Japan in the ’90."
Gio, I love your approach to investing. Sticking with a concentrated portfolio of owner operators who have a great long-term track record, a repeatable process, with skin in the game, incentivized to create value on a per share basis who are still just as motivated about making the next $ as they were about the last one.
That said, I'm not sure I agree completely with your comparison on Fairfax vs. Berkshire. I understand your view on Fairfax being defensive. And I agree with you. Given current equity prices and the # of things that could go wrong in any part of the world, a defensive posture seems to makes sense. Having 30% cash in your investment portfolio is a nice asset to have to buy securities at lower prices in the future. And hedging the equity portfolio limits the mark-to-market fluctuations of their portfolio and still lets Fairfax generate some alpha by maintaining their equity exposures (i.e. similar to a market neutral hedge fund).
However, I would just suggest that Fairfax's defensive positioning is not nearly as strong as Berkshire. To me defense comes from your balance sheet (i.e. capital) and your earnings power. In that respect, BRK seems to win hands down. The company has a fortress balance sheet and huge amount of earnings power. As Buffett noted, Berkshire's operating businesses are 'firing on all cylinders.' So Buffett may not think about 'macro', but in my opinion he has built a much better arc than Fairfax. And ultimately it's not about predicting the rain but having the best arc for when the rain comes.
In terms of Fairfax, the investment portfolio is very defensively positioned. But their balance sheet is weaker than Berkshire. And they have extremely low earnings power today directly as a result of their defensive investment positioning.
From a balance sheet perspective, Fairfax has $1.1 billion in cash/ST investments at the holding co level. But they also hold $3 billion of debt. And while there are no material debt maturities for the next 5 years (a good thing), the cost of the debt is very high. The interest expense on an annual basis is approx. $200 million. The interest expense alone is approx. 2.5% of Fairfax's BV.
From an earnings perspective, the company generates income from underwriting and investing. If we assume they write at 100% (better than their long-term average), they have no underwriting profits. Even if you give them a 98% CR, they have only $120 of underwriting profits ($6 billion premiums X 0.98). From the investment perspective, the company has approx. 500 million pre-tax in income (interest + dividends). With the equity markets hedged, there isn't much in the way of capital gains unless you think they will outperform the market by a significant margin (they have done this historically but not sure you'd want to count on it happening every year).
Fairfax has a lot of expenses: $200 million of corp. overhead + runoff costs, $200 million of int. expense, $65 million and they will have to pay taxes as well.
In 2011, Fairfax had $1 billion in cat losses. If we got hit with similar cat losses in 2013, I'm not sure how Fairfax would have $1 billion in earnings power to cover the losses. In this scenario, BV would actually go down.
Anywyas, I like Fairfax and think it is an interesting investment. But I just wanted to highlight my perspective (which you could completely disagree with) that Fairfax might worry more about the macro picture than Buffett, but I think Berkshire is a much safer business if things go wrong. As such, Buffett doesn't need to worry as much about the macro because his ark is so much stronger.
Very nice logic.
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That was great. Especially the lead in about male (Investors?) problems with aim. Stock picking?
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Like I read somewhere from some guy something like this "When the tide goes out you find out who is still wearing swim trunks". The image is one where it might cause some to use that rope.
Then someone also said this which with patience might be an alternative. Buy cheap and something good might happen.
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A rope. With the market crashing it's pretty clear life is just about over. Not much to live for with all the carnage out there. This is terrible.
I agree!! That's why I ran off. A last gasp of fresh air before the meltdown.
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I have 10%+ positions already but I would like to add to these again at those prices. Have already been adding to LRE:XLON. These seem like pretty much no brainer long term positions. I had been taking some profits and building cash lately so this market selloff is nice.
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Combining this with another recent thread "Strategies for Patience". I have GTC orders for Fairfax at $345. Markel for $440. Bidvest for $39. Plus I've gone to Maui for a month so I got further away from the noise.
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I think it's the opposite. I am a Dutch citizen and am therefore strongly tied primarily to the Dutch and secondarily to the European economy. Investing in US stocks is a very nice way to diversify I think.
Please also note that for multinationals the issue is moot and you'd have to look at the origin of their income. If a stock which is exchanged on a European exchange in Euro's has 80% of its income and revenue from the US market there is far less currency risk (for American's) than for a stock which is traded on the NYSE but has 80% of its cost and revenue in Europe.
TLDR; 1) It's a nice way to diversify, 2) The currency the stock ticker trades in is irrelevant
TLDR?
FFH at multi-year high
in Fairfax Financial
Posted
Txlaw, Grenville, Gio, Parsad. Maybe part of the problem also is that he is called the Buffett of the North, & that expectation is not fair. He is who he is. He invests in the way he knows how. It's obviously not like Buffett or MKL, or LUK. Sometimes when you go from managing medium amounts of money to huge amounts of money you start reaching. We'll only know in hindsight if that's true here.
However as an investor, if I am not comfortable, or think it's a too high hurdle to be comfortable with then I pass and go on to others. That's not saying I mistrust him, or think he's lost his edge. It's just that some are not comfortable and some are. Hindsight will tell us who was MORE right.