giofranchi

Either art or diet coke, first and foremost I need to KNOW what I am investing in. And in my experience to know a business well is quite difficult; on the contrary, to suffer the illusion of knowing a business well is quite easy. Not to fall prey of the illusion of knowing a business well, I let my circle of competence grow very slowly over time. Even so doing, I believe there are inside my circle of competence some businesses I don’t know as well as I think. Among the few businesses I think I know well, none are cheap right now (with the possible exception of the ones I already own a lot of). Gio

Ah! By the way, I don’t have a clear exit price… I almost never sell… ;) Gio

I think it is very easy and straightforward: both for VRX and for ENDP I look at “Adjusted Diluted Cash Earnings Per Share”. And I feel quite comfortable to add to my holdings of both companies, when their share prices trade at around 12x ADCEPS. In 2013 ENDP’s ADCEPS have been around $4.25. ENDP has increased Sales at a CAGR of 22% for the last 5 years. Assuming that 2014 ADCEPS will be 20% higher than in 2013, they will probably be around $5.1. Therefore, I will gladly add at a price of around $62. Yesterday ENDP’s share price closed at $75.29. When I talk about a correction, I mean I hope its share price might come down by ($75.29 - $62) / $75.29 = 17.65%, around 20%. I don’t know if I ever will see ENDP’s share price come down by as much as 20% (though I think anything fluctuates and can come down significantly), but, if it ever does, I will be ready to act. :) Gio

Q4 2013 Conference Call Transcript http://seekingalpha.com/article/2031401-greenlight-capital-res-ceo-discusses-q4-2013-results-earnings-call-conference-transcript?part=single Gio

And Mr. Bradstreet’s, and Mr. Barnard’s (even if insurance is “just” the lever… ;) ). Gio

Thank you for this one. :) Gio

I have just purchased the book. Thank you for recommending it! ;) Gio

Gio

The Kinesis facility executes its first “Special Draw” to underwrite off-cycle collateralised reinsurance http://www.lancashiregroup.com/media/releases/2014/19-02-2014.aspx Gio

Well, of course my “7 lean years + 3 boom years” was only meant to give you an idea of the timeframe I am using for judging FFH’s results. If 7 lean years won’t be followed by very good results, then I will judge FFH’s strategy a bad one. I have no idea what the future holds… but why are you assuming that rising rates would accompany a market correction? The opposite imo might be even more plausible. Is this totally unthinkable? A stock market correction, with interests rates that go down as people fly to the safety of government bonds. FFH’s equity hedges rise more than its stocks portfolio declines, its bonds portfolio appreciates, and they keep underwriting profitably. That would surely lead to “boom” results! And it is far from unthinkable. It is simply too early yet, to dismiss such a scenario! ;) Gio

I agree. That’s why I have said that imo to have a cash reserve, and to make it grow or shrink strategically over time, and to hedge equity exposure are two very different things. Even accounting for exceptional mark to market bond losses in 2013 and a 30% cash position, without the losses due to equity hedges FFH would have posted very satisfactory results! Gio This being said (equity hedges have undeniably been a costly mistake!), what to do now? Mr. Soros seems to agree with FFH's strategy of keeping equity hedges in place: Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion http://blogs.marketwatch.com/thetell/2014/02/17/soros-doubles-a-bearish-bet-on-the-sp-500-to-the-tune-of-1-3-billion/?mod=MW_home_latest_news Gio

I agree. That’s why I have said that imo to have a cash reserve, and to make it grow or shrink strategically over time, and to hedge equity exposure are two very different things. Even accounting for exceptional mark to market bond losses in 2013 and a 30% cash position, without the losses due to equity hedges FFH would have posted very satisfactory results! Gio

This guy? "Prem Watsa bend over the hedge funds have something special for you." http://www.cnbc.com/id/42035716 Sure… He was short FFH… Mr. Watsa cannot be too fond of him, right? Yet, you very well know how difficult it really is not to be skeptical about FFH during its “lean years”… ;) And despite that mistake, Mr. Loeb is a self-made billionaire, with an outstanding track record of building wealth for almost 20 years now, who writes constantly and consistently about his investment strategies and ideas. He is still young and will be at the top of his game for decades to come. Since I have followed him, I have witnessed many good and very successful investment thesis, and no major blunder on his part. Now he has partnered with Mr. Berger, who has an outstanding track record as an insurance and reinsurance underwriter himself: and imo that’s exactly what an astute entrepreneur would have done. :) Anyway, there is a TPRE thread: if you wish, we could continue this discussion over there. Gio

Second half of 2010. 2009 has been a great year for FFH. OdysseyRe has been posting great underwriting results for years now. Under the leadership of Mr. Barnard, who made OdysseyRe so much profitable, let’s hope underwriting results for the whole FFH’s family of insurance companies will become satisfactory year after year, with a comfortable enough degree of predictability. Even if I agree 2013 underwriting results will be difficult to exceed or even match in the future. It seems we have studied different histories… All I have studied about great capital allocators and entrepreneurs of the past suggests they always had the cash to take advantage of great opportunities, the few precious times those opportunities had presented themselves. Mr. Buffett, the greatest advocate of stocks among them all, has shown to always have ready cash at hand: just look at the billions he was able to invest in 2008/2009. Imo a cash reserve is one thing, hedges are another. Gio

Felix Zulauf Warns Of "Another Deflationary Episode" Gio Felix-Zulauf-Another-Deflationary-Episode-15Feb2014.pdf

Yes! I had noticed that! And, of course, I like it. Lancashire will probably keep on putting cash in our hands, when cash is most useful: during times of trouble! :) Gio

--Didier Sornette, world renowned mathematician. Kraven, I think that, should the markets march on for 3 more years like they have done in 2012 and 2013, we would have created the most “fragile” environment in history. And I think FFH is “anti-fragile”, meaning it will benefit from whatever bad outcome awaits a fragile system. You might call this speculation, I like to call it business judgment. Anyway, in investing we are always dealing with the future… therefore, no certainties here! My answer to your question was simply meant to tell you I think you are right, and I definitely have a time horizon over which I judge FFH results: I look at 2000 – 2009 as one cycle for FFH, and I look at 2010 – 2019 as another cycle for FFH. Therefore, I think more patience is required before we could label FFH a mediocre, a good, or a great business. Gio PS And you know very well I am not smarter than you… the opposite is most surely true!

writser, of course this is my worst case scenario for FFH... I do not really expect FFH to make no money for the next 3 years… No money 4 years in a row? Really?! ???... As I do not really expect the markets to march on perfectly undisturbed, like they did in 2012 and 2013, for the next 3 years… Gio

What I do believe is this: if the markets keep rising like they did in 2012 and 2013 for 3 more years, FFH will make no money for 3 more years, then it will make 35% compounded annual for the following 3 years. Gio

Hi Kraven, yes, I agree! And I repeat my “7 lean years + 3 boom years” model for FFH: 7 years of no return, followed by 3 years of 35% cagr… therefore, 3 more years of no return to go! ;) Cheers, Gio I thought you said you don't know when the boom years are. So how do you know there are three more years of no returns ? In fact! I don't know and I don't really care! ;) Gio

Hi Kraven, yes, I agree! And I repeat my “7 lean years + 3 boom years” model for FFH: 7 years of no return, followed by 3 years of 35% cagr… therefore, 3 more years of no return to go! ;) Cheers, Gio

I guess it is just an example… One of the most difficult thing to do for investors, according to Mr. Ray Dalio, is to think that what has gone on for some time might change in the future and even revert. You get the same idea in the chapter about “mean reversion” in “Thinking Fast and Slow” by Mr. Daniel Kahneman… When Mr. Watsa keeps repeating that things might be reversed, he simply is not believed and summarily dismissed by… well, almost anybody! If instead he provides evidence that things might actually reverse, maybe people will think twice before judging. Gio

Here we go again... Poor Italy... :( I have just renewed my Canadian Passport, and I am glad it won't expire until 2024! ;) Gio stratfor-italy-another-political-crisis-another-prime-minister.pdf

I don’t think it works exactly that way... Let me explain: I see insurance as a “relative” game, meaning that, to make money from insurance operations, all you must be able to do is to assess risk better than your competitors. That’s it! However the rules of the game might change, as long as someone is a better judge of risk and probabilities, he or she might go on posting underwriting profits. Needless to say, I like the renewed effort FFH is making to finally become an overall profitable underwriter. Gio

I think LRE is a unique proposition inside my firm’s portfolio. As my firm’s capital grows, the cash my operating businesses provide will become less and less relevant… I look at LRE as my first strategic choice to try and keep new cash generated each year relevant as a percentage of my firm’s equity. I won’t be able to do that by purchasing a new operating business, because my firm’s capital is not large enough yet… Therefore, my only choice is still the stock market. And I simply don’t know of any other public company, which could carry out that task as egregiously as LRE. This is the reason I wouldn’t change LRE for practically anything else. :) Right now I have no investment in TPRE. But I would never bet against Mr. Loeb in the long run. On the contrary, I would gladly partner with him. And I probably will do in the not too distant future. :) No comment on AIG. If I don’t see an entrepreneur I can respect and admire at the helm of a business, I immediately lose interest… even if it represents an outstanding investment opportunity… But that’s me and only me! ;) Gio