giofranchi

Great company! And I have posted many times in the Markel's thread. ;) Gio

original mungerville, I know what you mean. But I don’t think much in terms of what I gain and what I lose. Instead, I think in terms of how much I am right and how much wrong. … And my thesis about LRE has turned out to be wrong … I still can remember WhoIsWarren often asking twacowfca ‘what if Mr. Brindle resigns?’, and I remember me always thinking ‘Come on! People don’t worry about Mr. Buffett retiring, who is 83, and should I worry about Mr. Brindle retiring, who is just 50?!?!’ … And I was convinced I was right and WhoIsWarren was worrying about nothing really serious! Well, it turned out he was very right, and I have been very wrong … Today I am buying small positions in Liberty Media, Greenlight Re, Third Point Re, Valeant Pharma, Endo International, and Jarden Corp.. The rest stays in cash for now. Gio

lu_hawk, revenues have increased from $0.8 billion in 2009 to $5.7 billion in 2013... As I see it, there are only two options here: either Mr. Pearson’s business model is working very well, or Valeant is a fraud that puts Worldcom and Enron to shame! Furthermore, Non-GAAP adjustments are very well explained and detailed, with lots of footnotes, in each News Release. The largest adjustments to get to Cash EPS from Net Income per share are: - Inventory step-up, - In-process research and development impairments and other charges, - Legal settlements and related fees, - Restructuring, integration, acquisition-related and other costs, - Amortization and impairments of finite-lived intangible assets and other non-GAAP charges. They all seem to me pretty much related to acquisitions, and therefore one time items (with the exception of amortization of intangibles, which is not a cash expense anyway). Don’t you agree? If not, why? Could you please comment on each Non-GAAP adjustment, explaining why it shouldn’t be considered in calculating Cash EPS? As far as your statement “all that matters is real cash” is concerned, I don’t agree. All that matters in business is to do what’s best for the long term. If right now they see great opportunities for external growth via acquisitions, because their business model enables them to aggressively cut all non-strategic costs still plaguing the pharmaceutical industry, and can take advantage of a low interest rates environment, what makes sense for the long run is to go on taking advantage of those opportunities. Like they are doing. ;) Once again, as I have often repeated, the only sensible bear case for VRX would be to tell me why its acquisitions are bad businesses, and/or why Mr. Pearson has overpaid for them. Period. Gio

No james22, until I have doubts, price doesn’t matter to me. Same with LUK. Gio

original mungerville, never again heed what Gio has to say! After all, maybe, frommi’s idea was not such a bad one! ;) But… I just like investing too much! … Yes, I know … Now I almost sound like an addict! ;D ::) Gio

writser, sorry, today I don’t feel like discussing the philosophical underpinnings of investments too much… Let’s just say I feel more comfortable judging the traits that distinguish a great entrepreneur, than forecasting how many thousands of liters of fluid Coca Cola will sell next year, and the year after that, and so on for the next two decades… Please, look for me tomorrow and I will be ready again to engage in our philosophical dispute! ;) Gio

In my experience businesses don’t work that way. I might be wrong. And I truly hope I am. But, despite Mr. Barnard and Mr. Bradstreet are world class at what they do, I would sell FFH, if Mr. Watsa weren’t at the helm. The same is true for any business that I know of, LRE included. I have never dealt with businesses that don’t depend on a person. I am sure they might exist (Coca Cola?). But they are very difficult for me to understand. And I cannot be sure LRE is among them. Whenever I feel predictability is threatened, I sell. Gio

Dazel, thank you! :) I already have a substantial position in Altius… I have still room to average down, therefore I will most probably buy some more… Yet, today is a “bad” day. And I prefer not to make buying decisions the same day I have made such a difficult selling decision… Gio

I have no doubt you are right. And I agree first quarter results will be exceedingly good. The reasons I invested in LRE are two: 1) Mr. Brindle, 2) Its unique characteristics. I have never expected reason n.1 to disappear so soon. I must admit I never saw this coming. I will keep watching LRE, but now I simply must acknowledge my thesis was wrong. Thank you, twacowfca! I am very grateful for all your answers and points of view. I am deeply obliged to you. :) Gio

Well, I understand it might be dubious! I understand it very well! But I have done this many times before. Last time with Leucadia. I would do this with FFH too, if Mr. Watsa were to retire. And it also is a 25% position in my portfolio. Of course, 25% positions are more the exception than the rule. Let me explain why LRE was such a large position: 1) In my portfolio I have many businesses that can grow and compound capital over time. I also wanted a cash machine: a business that is very profitable, but cannot grow quickly, and therefore distributes most of its earnings to shareholders. 2) Lancashire is very tax efficient in distributing its earnings. 3) Lancashire will be very profitable whatever the economy and/or the market do. 4) In the stock market it is extremely difficult to find 1 + 2 + 3. I have asked many a time to show me a machine as good at 1, 2, and 3 as Lancashire, but no alternative idea came up. If I could have invested 8% in 3 different businesses with Lancashire’s characteristics, I would certainly have done so! All this, of course, had ONE essential premise: TIME. Time is my biggest competitive advantage. And I want to be invested in businesses led by outstanding people for at least a decade, two decades are even better! In other words, Lancashire yesterday for me had characteristics very difficult to find elsewhere, and was very predictable too. Today it has become much harder for me to predict… when predictability is gone, I am gone too... no matter how large a position an investment was! ;) Gio

I have just closed my entire position. Without Mr. Brindle I am not interested. It was a 25% position. All in all since my first investment in LRE I have lost some money. I will watch from the sidelines and see how this develops: if Mr. Maloney truly is a worthy successor to Mr. Brindle, I might get interested again and reinvest in LRE. Now I have a mountain of cash and no idea. :( Gio

Of course, I would like to know what twacowfca thinks about this most unexpected (at least on my part…) development. Thank you in advance, Gio

Yes! It seems he actually is retiring... If this is the case, I must admit my thesis for Lancashire was completely wrong... And I will act accordingly. :( Very bad news today... Gio

I don't see any evidence of this. Organic growth might not be stellar, but it is not bad either. Gio

There is no “excellent business model that has substantial potential for expansion”, unless someone has decided to allocate capital, and/or time, and/or brain power to it. This is something every entrepreneur knows and understands from the start. --Jean-Baptiste Say, around 1800 Of course, there is luck! But would you really jump in a “wonderful boat” stirred by someone who has just been lucky? Well, then good luck to you! ;) Gio

Liberty, I get your point! And it is funny. ;D ;D The truth, though, is simply I see those methods as tools, nothing else. Would you prefer to have them at your disposal or to have them not? Then, when they are at your disposal, it is up to you to decide how to use them. And you must know your own situation and its needs to make the best decisions possible. ;) Gio Absolutely. I do the same thing as you, and I certainly don't consider myself on the level of any of the people I try to draw inspiration from. One more thing, and this must be very clear: by “the best decisions possible” I mean the ones you are most comfortable living with. Not necessarily those that will maximize your returns in the long run… Between a 15% annual + peace of mind and an 17% annual + anguish, I go for the first choice anytime! ;) Gio

Liberty, I get your point! And it is funny. ;D ;D The truth, though, is simply I see those methods as tools, nothing else. Would you prefer to have them at your disposal or to have them not? Then, when they are at your disposal, it is up to you to decide how to use them. And you must know your own situation and its needs to make the best decisions possible. ;) Gio

No problem at all, frommi! I don’t see anything bad in participating in a vibrant economy like the US through the use of an index fund! And I am sure the combination of that simple strategy with the earnings of my operating businesses might keep me wealthy for a very long time, running almost no risk. It is a great combination that you have suggested! But, as I have told you, I am a little bit more ambitious… and I have the goal of compounding capital at 15% annual. That’s why I am trying a different strategy. But it surely is riskier. And which one will prove to be better in the end is still an open bet! ;) Gio

-Warren Buffett on June 25, 1999 (Business Week) Well Joel, when I say “you are not in Buffett’s camp” I mean exactly that! We all have different situations: some of us are private investors who work only for themselves, others are private investors who work for themselves and their families (big difference!), others manage money for themselves plus a bunch of friends, others manage money for themselves and a lot of other people (big difference!), some of us are business owner, and some must be involved in the day by day operations of their businesses, others enjoy the luxury of only be involved in strategic decisions, once again a big difference! Etc. You see? You simply cannot come out with a quote by Mr. Buffett and infer that is the best way to do business, because that quote is true only in the context it was uttered: that is to say from the perspective of one among the most successful stock pickers of all time! Do you feel to be among them? Have you a family to care for? Have you clients to care for? Have you a business to care for? How much of your time those cares consume? If the answer to question 1 is YES, to question 2, 3, and 4 is NO, and to question 5 is ZERO, then I agree with you: you need no cash! But you see? It just depends too much on the circumstances… Everything else is just theory. Models and spreadsheets might be elegant, but I have never found them very useful. This is also imo only theory. First of all, let me ask you a question: now I have 4 ideas that I think are great. In this market 4 ideas are not bad at all! To be fully invested, I’d put 25% in each idea… And what if my full position in idea n.3 and n.4 is just 15% of managed capital? How should I behave, if I don’t feel comfortable to invest in idea n.3 and n.4 more than 15% of my firm’s capital? Second, let me be very clear about this point: if someone is fully invested now, he will most probably be fully invested forever! My experience is that if you WANT to find “great bargains”, you will always find a way to justify them. I still remember Value Line that in November 2007 gave the highest mark on Safety to BAC, forecasting Annual Total Returns of 13% - 17% for the next 5 years… the stock was then trading at $46.27!! (See file in attachment) Look, when I see complacent behavior and greediness, I raise my cash reserve. Period. You know what I find extremely funny about “macro”? That I invest in LRE, which most probably will do very fine no matter what the economy in general does, and nonetheless I like to keep my eyes open and observe what happens around me. Instead, those who invest in BAC, which is a “systemically important institution”, and therefore is intrinsically and deeply connected with the US and the global economies, and therefore will surely suffer if the US and the global economies suffer, insist they don’t care about “macro”… Gio BAC_-_Value_Line_-_23_nov_2007.pdf

Way too kind, original mungerville! :) Thank you very much, Gio

To be clear: it is exactly because I read almost everything they post that I am convinced Packer, Kraven, Eric, etc. are outliers, and those who think they can imitate them are wishful thinking. With probably the only exception of Kraven, though I read what they post, I still don’t clearly understand how they manage to do what they do… I wouldn’t imitate them, even if I had the time to do so. Because, though their methods work fabulously for them, I never do anything unless I think I understand it quite well. ;) Gio

On the contrary, I read almost everything Packer, Kraven, Eric, and others post. And I think I have learned a lot form them! But I am a business owner. And I run three different businesses. Of course, I am involved in strategic decisions, and little in day by day operations, but it takes time anyway. Therefore, it would be most impractical for me to try to imitate them. An index fund would be fine indeed. But I guess it would be difficult to grow my company’s BV at 15% annual, relying solely on operating earnings + the returns from an index fund. Instead, I think the strategy of partnering with great entrepreneurs might give that little boost to my company’s portfolio returns, in order to achieve my goal of capital compounding. If I remember well, you also are a business owner, and you should be able to understand what I mean. ;) Gio

But, Tom, most of those people you refer to have only the illusion to know what they are doing! And that illusion is kept alive by nothing more than a market which went up 30%+ in a year! You really think everyone can jump in and out of a lot of different businesses, only because someone like Packer is successful in doing that?! I am sure I cannot!! Let me put this very clear: Right now I am fixating my whole attention on just 5-6 businesses, and I have the general conviction that they are undervalued, but no real idea which one is most undervalued! Even devoting a lot of time to follow each one of those businesses, because they are few and therefore I can follow them closely, I don’t think I can truly pick-up one and say with great confidence this is the most undervalued of the bunch! Let alone make comparisons among each one of them! This is not how businesses work! Businesses are complicated, constantly evolving things. And our experiences are very limited indeed! If you put together a portfolio of 100 statistically cheap stocks, like Kraven does, that’s a whole different story, and I might agree with you a constant rebalancing of that portfolio might work out just fine! But it is simply not what I do… Neither I am interested in putting together a virtual museum! But I would like to minimize my decisions of buying and selling. That’s why I have come to the conclusion that to partner with great entrepreneurs and to let them do their work is the most sensible course of action for me. And I will sell my holdings only when greatly overvalued. Like Packer has suggested, if one of them is deeply undervalued, while the others are above fair value, I also think it is safe enough to shift some capital from the fairly valued to the deeply undervalued… but that is where my trading activities will stop! Gio

Thank you Packer! And this I understand better, even if I don’t like it much, because it assumes too much buying and selling on my part. The more I buy and sell, the greater the chances I am making stupid decisions! ;) Anyway, I strongly believe that all 4 investments of mine are trading below fair value right now! Imo they are not even at fair value! That’s why I am grateful I have some cash to take advantage of good opportunities. Gio

Mine was a rhetorical question…! There is no doubt it is better to have cash, which has not depreciated, than to use a currency which instead has depreciated, like the price of my 4 investments… and a market correction hasn’t even begun! Anyway tombgrt, listen, I don’t jump in and out of stocks. I want to increase my holdings of those 4 investments of mine over time, not decrease them. And at the same time I want to be able to seize any great opportunity that comes my way. To hold some cash makes it easy to achieve both goals. If on the other hand you think you can “move around the level of portfolio concentration and leverage and focus on certain stocks depending on market conditions”, well… then good for you! I have some difficulties even to understand exactly what you mean, let alone implementing it! That’s why I don’t like math in investing, even if I am an engineer and I have always loved math and always been very good at it: because I want to keep it as simple as possible, in business I have yet to find something difficult that works well in the end. ;) Maybe you are right about VRX. But you also know that, when the price is a fair one, I pull the trigger. Then, if I get the chance to, I average down as long as I might. I will start buying around $100-110, and go on buying to the $60-$70 range. Gio