giofranchi

A Return To Old Faithful by Mr. Charles Gave Gio Daily+5.21.14.pdf

http://glennchan.wordpress.com/2014/05/22/anybody-who-believes-this-slide-deserves-to-lose-money-in-junior-mining/ Glenn, It is not that I believe or don’t believe that slide… It is simply that I am not qualified enough to judge it! But… imo very few people are! Trying to dig too deeply into the technicalities of a business is dangerous… You might get the feeling you really know them… While instead you don’t! Most important of all imo is that you don’t have to, in order to recognize an outstanding management and a predictable business… In other words, you very often run the risk of missing the proverbial forest for the tree… Take for instance LMCA… Just a few days ago you told me you thought LMCA was easier for you to understand than ALS… Then you also wrote LMCA would buy back its shares and sell Live Nation… What really happened is that LMCA didn’t buy back its shares and announced the intention to buy 3,700,000 more shares of Live Nation… Probably you thought a better use of capital buying back its shares than investing more funds in Charter… Mr. Malone evidently thought otherwise… And probably you thought Live Nation is no longer a great investment… Mr. Malone evidently thought otherwise… I would never be able to understand all the technicalities of the businesses I like, but I like them nonetheless… I would never be able to foresee their next moves, but I think I am able to foresee that in the long run “good moves” will outweigh “bad moves”, and those businesses will create value… I am positive that, if I were to question every step management takes, I wouldn’t be able to invest in any business… Is there what I look for in the people I want to partner with? If the answer is Yes!, I let them do their work, and take both the good and the bad news as they come! Gio

Hi Gary, I look at revenues growth and Cash EPS growth. As long as revenues and Cash EPS grow handsomely, I am willing to adding whenever the price is around 13xCashEPS. Cash EPS, according to Mr. Pearson & Co., is what the business would truly earn in a steady state regimen, meaning if it would stop making acquisitions. Of course, the bears think Cash EPS overstate the true earning power of VRX… To that I can only say I find Mr. Pearson's thesis much more convincing than theirs! Listen, in the end imo it is very easy. It all comes down to this: either you have trust and respect for Mr. Pearson, or you don’t. I would suggest to read all the conference call transcripts of the last few years: having done so, I have come to like, trust, and admire Mr. Pearson very much. On the other hand, if you think Cash EPS are misleading, like the bears seem to think, you cannot trust Mr. Pearson. And, if you don’t trust him, valuation is the very last reason why you shouldn’t invest in VRX! ;) Gio

How many stocks are “many” enough? I don’t think your portfolio is made of 5 to 10 stocks like mine… Am I right? ;) Gio

I think one of the most difficult thing for the market to do, and therefore one of the areas where the largest discrepancies between prices and values can be found, is to assess correctly a business which will compound capital for many years into the future. And that is so difficult for the market to do, because it is the job of the entrepreneur… while only a very tiny percentage of market participants are entrepreneurs. Therefore, yes! I guess price can lag iv for many many years… Until that business finally ceases to be a compounding machine (if BRK risks that fate, nothing really lasts forever! ;)). This, of course, doesn’t mean you cannot make a lot of money: if iv is 2xbv, and a business sells for 1.5xbv 10 years in a row, but increases bv at 15% annual, your capital in that business grows 4 times, even if the business in year 10 is still undervalued… Gio

Of course it would! But MKL might grow 10 folds and still be much smaller than BRK… Gio

Ah! Ok! Now I feel stupid... :-[ Gio

Ah! Ok! Got it! ;) Thank you, Gio

The reason why BVPS at BH has not shined until recently has nothing to do with size… Of course, how could it?! BH is still a very small company with huge room for growth! The reason instead is that you cannot grow BVPS at high CAGRs when all your assets are in a relatively low return business (unless you make use of a lot of leverage!)… In fact, at the beginning investments were almost negligible… now that investments have grown large enough, BVPS in the last 2 years has increased 20%+: BVPS growth at BH actually has accelerated! And I think it will keep increasing very fast for a very long time! MKL, of course, is already much larger than BH… But imo is not TOO large to keep compounding at high rates. Gio

Thank you as always, Dazel! :) Could you please help me with the missing Annual Reports, and let me know where I can find them? Cheers, Gio PS I bought yesterday, I am buying today! ;)

Well, if you go back 20 years the CAGR in BVPS is 15% (see page 2 of 2013AL). In many years the 5-year CAGR in BVPS has exeeded 20%... As reacently as 2007 it was 18%... The whole letter is a fantastic read imo! Find it in attachment! ;) Gio MKL2013AL.pdf

Sorry if they have already been posted… but I cannot find the Annual Reports for year 2011, 2012, and 2013… Does anybody know why they are not available on ALS’s web site? Thanks, Gio

What do you mean exactly? 5-year CAGR in BVPS, for instance, is 17%... Gio

The way I look at ALS is basically the same way I look at BH: I like royalty and franchise businesses, and I think they have much in common. First of all they provide an able manager with a constant stream of cash that requires little capital to grow. Both the fast-food business and the mining business are here to stay (though the mining business might certainly be more volatile), and I don’t see them subject to any kind of disruptive change in the foreseeable future. Mr. Dalton and Mr. Biglari have proven to be very good at what they do, they are both very young, and still have plenty of time to create much value. Of course, they may encounter obstacles along the way: Kami for ALS and CBRL for BH… And there are risks: ALS is not truly yet a proven royalty business, it is becoming one; BH is not truly yet a proven franchise business, it is becoming one. Yet, overall I like what I see in both cases. I will keep buying as the prices of ALS stock and BH stock trend down (today included ;)). Gio

All I can say is I judge Mr. Einhorn to be among the best investors of our times, if not ever. :) Gio

Gio

I have bought more ALS, more BH, more TPRE, more GLRE, more VRX, more ENDP, and more LMCA. I have also increased a bit my cash position. :) Gio

I have added today at CAD$13.45. Gio

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Gio

--Charles Munger, 2014-05-05, on CNBC's "Squawk Box" Gio

Well, all I can say is I look for outstanding entrepreneurs, like Mr. Watsa, at the helm of predictable businesses, like FFH (insurance imo is a predictable enough business, meaning that I don’t see it subject to any sort of disruptive change in the foreseeable future). But… I would be glad if I am right about the man and about the business 5 times out of 10! Therefore, I invest my firm’s assets in 5 to 10 companies, and almost never exceed a 30% position. ;) Cheers and thank you very much for your first post! Gio

+1! ;) Gio

By a very simple discounted value of equity calculation (with a 9% discount rate) it takes only 13 years of compounding BV at 15% annual, to get to a present value of equity of 2xBV0 (BV0 = BV today). After that BH could close doors… Not very likely, right? Most of all because by then Mr. Biglari will be only 50! :) 15% compounded annual, with the mix of very safe operating earnings and very good investing capabilities he has engineered, is imo decidedly achievable. ;) Gio