giofranchi

AZ_Value, I have barely got to the disclaimer on page 1 and I have already found something I don’t understand… You say you own a few shares “just so I can get the annual report sent to me and attend the annual meeting if I want to.” Well, I have attended the annual meeting twice (in 2010 and this year), and I have never been asked a certificate to show I own FFH shares (an identity card is all I have been asked)… On the other hand, the AR is perfectly downloadable in pdf file… Therefore, I don’t see any true reason to own only “a few shares”. Now I will go on reading. ;) Gio

Hi guys! I am just back from two wonderful days in Toronto. :) AZ_Value, I will certainly read your blog. And I will answer to each point you bring up. Let me just say that I am more convinced than ever that FFH is a great company and will go on compounding capital at high rates of return. ;) Cheers, Gio

Thank you very much! I will surely check it out! ;) Gio

;D ;D ;D Sounds like I will go broke! ;) Gio

Ah! Ok! Now I get it! Thank you, Gio

Ross, I am not sure I understand how this actually works: is the poll done on a quarterly basis? I am probably going to vote for the same 5 companies years in a row… What’s the meaning of expressing my vote each quarter? ??? Gio

I have just finished listening to the interview. I didn’t know Mr. Ubben, but his ideas make a lot of sense to me. Great entrepreneurial spirit! ;) Gio

At some point, yes, if they can't grow it. But their playbook for value creation is in their historical record with other companies. They increase their position, they grow the company, they buy back massive amounts of stock. Where they are right now, I am not sure - but it doesn't look like they are done yet. If you listen to Ubben's views on the big pharma business, he views the sector as MASSIVELY wasteful and full of poor capital allocators - pouring large amounts of cash down the R&D toilet. That's how he characterized the VRX opportunity to compete. So it looks like they think they can still grow the company. I agree with this part. They can definitely still grow. Bausch & Lomb's primary business is eyecare which I doubt even qualifies as pharma. So they have already expanded outside of their core sector and their is plenty of room to grow. Not only! I think Mr. Pearson has studied Mr. Malone’s playbook very well, and he knows there are many ways to create shareholders value. Growth is what makes more sense right now, so that’s the way they are going for some more years. But, when it finally ceases to be the most rational choice, there will be other aces in Mr. Pearson’s sleeve: spin-offs and share repurchases among them. I guess mostly spin-offs: how to grow very big and subsequently scale down, always creating shareholders value. Wash, rinse, and repeat! ;) Mr. Pearson is shrewd and young enough to do this very successfully and for a very long time to come. :) Gio

Thank you very much once more! :) Cheers, Gio

Great! ;) Thank you very much! Gio

I always like the point of view of a (very successful) business owner! :) +1 Gio

Sorry, I am not sure I understand what you mean... Can you elaborate a bit further? Thanks! Gio

Yours undoubtedly is an entrepreneurial question. And the answer can only be another question: do you trust Mr. Pearson’s abilities as an entrepreneur, or do you trust them not? If you trust them, you believe he will cut non-strategic costs aggressively, while keeping strategic costs in place, or even increasing them. That’s what a great entrepreneur does. How can you develop trust in an entrepreneur? By listening at what he says, and by looking at the results of what he does. And by judging if what you hear and see is worthy of your esteem. Gio

Well, just look at how the 8 different indices, which combined give the M score, are calculated, and I think it is clear that many distortions are inevitable when lots of acquisitions enter the equation… In fact, they are ratios of year X to year X-1, and therefore they implicitly assume a steady business regime… Steadiness that instead gets shaken each time a new acquisition is made! And this is the very same reason why Cash EPS are the true measure of VRX’s profitability, not FCF. Gio

By the way, show me a company, which has made as many acquisitions as VRX in the last 5 years, that sports a better M score! ;) Gio

an m-score of -1.98 says they do. Mr. Malone probably had an M score greater then –2 all his life! ;D I don’t think it works that way. If you have a sound business model, you know very well you are going to make much more money being honest, than being dishonest. And, as I have said, I don’t see any flaw in Mr. Pearson’s business model. If someone might point me out a weakness that has escaped my attention, I would gladly take notice and reevaluate my thesis about VRX. An M score certainly is not enough! ;) Gio

Very good paper by Mr. Hay. Gio EVA+4.4.2014_NA.pdf

Thank you very much for posting! :) Aren't these two things mutually exclusive??! This I don't understand ::) I am willing to pay much more, and expect much lower returns. ;) Gio

Well, VRX before 2008, before Mr. Pearson came in and changed everything, was a completely different company. It was, to make an easily understandable comparison, BRK before Mr. Buffett came in. The new business model Mr. Pearson implemented has value investing at its core, with a flare of activist involvement, in an industry full of inefficiencies. The business model has been very often and very clearly explained by Mr. Pearson, and I don’t see any evident flaws. The stock price is justified by the results achieved thanks to that new business model. Of course, if they are cooking the books and reporting Cash EPS that are not real but much inflated, then I have been deceived. If someone who speaks so plainly and openly about the goals and dynamics of his business, as Mr. Pearson does, is a fraud, then anyone might be deceiving and no one might be truly trusted. Unfortunately, without trust business itself becomes impossible. And without business chart reading and technical analysis would not exist… because, what would you be “reading” then? ;) Gio

The stock price of this thing is coming down, and it is fast approaching the level I would buy more… and aggressively! But also LRE stock price right now is very low, I wouldn’t sell any of my FFH holdings, because they will be much more valuable in the future, nor I would sell any of my BH holdings, because they are cheap, and I wouldn’t sell any of my ALS holdings. Thanks God I have a lot of cash! And yet, people continue to think that cash is nothing but a drag on performance… Really, I don’t understand… ::) Gio

Mr. Pearson answering if Valeant is going to use its stock as currency for future acquisition: --Q4 2013 Earnings Call February 27, 2014 Gio

Gio

--George F. Baker Gio

Imo, and it doesn’t count much!, the last two posts by Liberty show a very good understanding of VRX business model. Any bear should think about those posts and see if he/she can figure out something wrong with their logic. I cannot. :) Gio

Also my experience, though I might be wrong here, is that usually, when you partner with the best in the world, good unexpected things tend to happen, rather than bad unexpected things. :) Gio