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Leucadia shareholder letter from Chairman and President


Partner24
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There was that post asking who the best are at special situations.  All you have to do is read LUK's letter and you know exactly who is the best.  Did anyone know they were buying car dealerships and leasing them back for nice fat returns?  These guys are brilliant.  They will find every way possible to exploit inefficiencies and make a buck!  Cheers!

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There was that post asking who the best are at special situations.  All you have to do is read LUK's letter and you know exactly who is the best.  Did anyone know they were buying car dealerships and leasing them back for nice fat returns?  These guys are brilliant.  They will find every way possible to exploit inefficiencies and make a buck!  Cheers!

 

 

ah yes, garcadia. leucadia has a name that marries other names so musically!

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LUK is the largest position in my portfolio (% of total portfolio is high teens or low 20's depending on the day).  Does anyone have any thoughts on rebalancing (i.e. selling some shares), especially since it's been bumping up against its 52 high? 

 

I'm tempted to do this BUT I'm worried selling LUK now could be like selling BRK in the 80's...

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LUK is 100% of my portfolio and I'm not selling any shares. I'm adding in small amounts. Check out the book Path to Wealth through Common Stocks by Philip Fisher. He had one line that stuck in my brain. Paraphrasing, it said something along the lines of the best businesses run by the best managements can drop like a rock in a business depression, but in the next cycle, they tend to not only meet the previous all time high, but exceed it handly. The all time high for LUK was $52 and change.

 

It's really hard to say when a stock is dramatically overvalued, sometimes people look at the entire market as a clue. In my mind, long term interest rates would have to double before I consider lightening up.

 

 

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Guest Bronco

Scorpion - I would recommend that you do not call in to Cramer and play "Am I diversified"?

 

I applaud you sticking with one stock, I really do.  I was in a similar situation up until recently with Loews.  

 

What makes you think LUK will go up in the future?  Is it a value play now?  Growth story based on their assets?  Or just betting on the jockey?  (of course - option D all of the above).

 

I know they hit some nice home runs the last couple of years.  I just haven't followed the stock closely lately.  Any concerns that the two leaders are getting old?  Some of my favorite stocks are in this situation - BRK, AAPL (health).  

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I'm a pragmatist on these questions. I wouldn't ever sell a stock because of age risk, if and when it happens I'll deal with it as it unfolds. Age, like investing is a longer-term proposition. Look at what's happening to Berkshire, it is undergoing "some" turbulence in P/BV and valuation, maybe in part due to age and succession but turbulence is not a loss nor the end of the world. Loews, when the sons took over, has gone through a decade of turbulence. Again, there is time to think about these issues and make an informed decision. Generally, if I had a really great partner who was much better than me, I'd want to have him/her working for me until the end, a lot of value can be created between now and then - assuming they are of sound mind.

 

As for growth in BV, I expect it to keep pace with the S&P500. Low expectations = few disappointments. In reality, I think it will do better, no point to invest in something without the possibility of upside.

 

 

 

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In the last 96 years, 14% of the years have had a negative CPI and 86% had a positive CPI. Of the 14%, about 90% was in 5 years of the Great Depression. The story of the past - and of the future is inflation. A deflation hedge, in my opinion, is a waste of time and money.

 

I think this is a widely held belief, and it is growing in breadth and depth.  Consequently, cash has been building in my port for the past couple of months.  It seems very few people want cash right now.

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In the last 96 years, 14% of the years have had a negative CPI and 86% had a positive CPI. Of the 14%, about 90% was in 5 years of the Great Depression. The story of the past - and of the future is inflation. A deflation hedge, in my opinion, is a waste of time and money.

 

True but if you are wrong you are 100% wrong. It seems like you have placed your bets and so far its worked out beautifully. What about a slow down in China / fall in commodities?

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I'm worried about high inflation far more than a moderate disinflation or deflation. In fact, if you look at their letter and what others have written about how the US must rein in the debt and Congress stop fighting, that would be moderately disinflationary. That's not bad for business, in fact it's probably pretty good.

 

If a government is going to kill the engine of prosperity for the Nation, why would it choose hyperdeflation instead of hyperinflation? The choice is a 100% man-made decision. But these are extremes that aren't going to happen anyway so why worry about it?

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I agree.

 

If I were Bernanke and didnt have control of Congress, I would go with inflation thinking probably incorrectly I can put that genie in the bottle when the time comes fairly easily. Bets the hell out of deflation. Its why I hold oil. The other thing though is China, that scares the hell out of me.

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If I was a conspiracy type thinker, I'd say it's in the interest of the US to help the whole emerging world get wealthier with the debt we've got it would not be pretty for the world to stumble. But think about it - the reason the US has this ballooning debt is in part becasue of this huge consumption - that had to come from the wealth of the world growing over the last few decades. To live outside your means as a nation, the pie was getting bigger and the American nation wealthier (albeit more indebted).  Those nations must hold the surpluses that the Americans have given up which is why the central bankers are always talking about global imbalances, etc.. The only things that really worry me are natural disasters and war with weapons of mass destruction. That we are able to "gum up" our economies from time to time I'll take anyday compared to the other disasters that are possible.

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Guest Dazel

 

 

If you guys can explain to me how I can pay pay $9b market cap and $2 billion dollar debt...I will buy. especially when most of this board thinks that commodities are risky! I am listening.

good letter...we have owned Leucadia sold on valuation.

 

Dazel.

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