giofranchi

http://ir.valeant.com/investor-relations/news-releases/news-release-details/2014/Valeant-Pharmaceuticals-Announces-New-15-Billion-Securities-Repurchase-Program/default.aspx Gio

Yes! Thank you! Actually, I had started a thread on Platform Acquisition Holdings… Very interesting! ;) Gio

Gio

My pleasure! :) Gio

Another company I would keep my radar focused on is Jarden Corp. Since inception in 2001 its stock has appreciated 2,150%… therefore, this is yet another boat I have somehow managed to miss… :( Anyway, I view it much like I view TransDigm: Jarden is an $8 billion market cap company with a lot more room to grow in the consumer products industry, led by Martin E. Franklin, who is an astute investor and businessman. He is only 48 and could stay at the helm for the next 30 years. Should a market correction come, also Jarden Corp. is on my buying list. :) I attach the latest presentation to investors. Gio JAH_Investor_Presentation_January_2014.pdf

Well, but is anyone worried about the potash royalties?! Really?! Not me! Actually, until now my worry was to never find a way of buying potash royalties at a decent price!! Gio

Wow! Now you see why someone so knowledgeable as ap1234 has only posted 49 times?! Because each time it loads the boat with so much information!! ;D ;D Now I will try to answer some points of yours: There is a lot of difference between “being affected by market cycles” and “being able to take advantage of market cycles”. ALS’s royalties are almost not affected by market cycles, because they are not based on commodity prices, instead they are tonnage based. But what I thought we were talking about was their ability to take advantage of a decline in commodity prices. That is why I had talked about macro… Hey! Everybody is complaining about Mr. Watsa’s hedging strategy, dubbing it as “macro”… And what’s different, if you keep a ton of dry powder? I guess you are right! Here “macro” has nothing to do… The fact here is we don’t agree on the business: I don’t think ALS is a cyclical business anymore. I think it has become a cash flow machine, and the more royalties it purchases, the more pronounced the transition will become. About my calculation of the cash ALS will have on hand 3 years from now: $60 million + some cash ALS still has on hand (even if it is not $100 million, like Dazel suggests) + some organic growth in the royalty portfolio + the greatly enhanced ability to borrow a cash flow machine enjoys even in a downturn = (more or less) the buying power of a cyclical company with $125 million in cash. Let's say I try to be "vaguely right"... :) I repeat: there is a mountain of difference between knowing and understanding how market cycles affect your earning power, and keeping a ton of dry power to take advantage of market downturns! I like to always keep some liquidity, but I will never refuse to buy a cash flow machine, led by astute investors and businessmen with lots of skin in the game, at what I consider is a very good price, because I think a market bottom lies ahead. As an aside, I really don’t think a lot about macro… What I look for is just to get a grasp on how my fellow investors are feeling and therefore behaving. And I currently don’t see much enthusiasm about commodities… I might be wrong! Secular cycles, as you say, are difficult to understand… ;) Gio

Both scenarios are very fine! :) Thank you, Gio

Ok, thank you! I guess I knew what your answer would be, but I just wanted to know for sure! ;) Gio

This is funny… $380 is exactly my price target for adding more FFH! ;) Cheers, Gio

Well, Sanjeev, twacowfca, Packer, oddballstocks, onyx1, SharperDingaan, and you (and others as well!) are both investors and businessmen! This only reinforces my idea your points of view are not far from those of the Prems and the Warrens of the world (albeit, probably, on a smaller scale!). :) Cheers, Gio

I also think ItsAValueTrap is very smart. He has done an outstanding job with the LMCA thread, and therefore I respect his thought very much. This is the reason I would like to know why he expects a correction in ALS stock price to come anytime soon. Is it a valuation concern? If so, could you explain why ALS should be overvalued? Based on the true worth of the assets on its balance sheet, and based on its track-record for compounding shareholders wealth, I would say ALS is still cheap! Certainly not overvalued! Could you please let us know your thesis on ALS? Thank you! :) Gio

Hi Dazel, I was referring to TransDigm Corp. From the 2012AR: Should a market correction come, TransDigm is probably my first choice! It’s a $9 billion company, with a lot more room to grow, and a leader / founder who is both an extremely shrewd investor and businessman. He is in his mid 60s’ and could stay at the helm for another couple of decades! How I have missed the boat with this one so far, I cannot truly tell… :( I attach the latest presentation to shareholders. Cheers, Gio TDG_IR_Presentation_-_September_2013.pdf

Let's say you just have an insurance company and nothing else in your holding company -- you'd better be pretty damn cautious about MTM losses on equities. Now, instead suppose you also have a few very high quality (and wholly owned) companies surrounding it -- companies that just throw off tons of cash.... Two things just happened by adding the very high quality wholly owned cash machines: 1) insurance ratings went up on the insurer, ultimately leading to better underwriting results (charge more for higher ratings) 2) You can invest the float a bit more aggressively given the huge amounts of earnings power across the consolidated entity I believe the insurance businesses within Berkshire would earn lower ROE as entities outside of Berkshire. The structure boosts intrinsic value. Similarly, I think an aircraft carrier is better off travelling in a convoy of destroyers. Buffett is playing a little game of fleet admiral here. That's a very good perspective, Eric. Warren had squeezed cash from BRK to buy NICO which meant that a company with lousy returns was joined to a controlled insurer with a huge pile of cash and marketable securities. BRK's ownership of NICO gave Warren optionality; if NICO had got in trouble with high intrinsic value but low market value equity holdings on its BS Warren could have squeezed or even liquidated BRK with its remaining working capital to provide relief to NICO. Things weren't all rosie. Warren's investments were such a spiderweb of cross holdings that the SEC took interest and was about to bring suit around that time. I think the key reason he took the plunge into investing almost all NICO's assets in equities was that equity holdings of insurance companies didn't have to be marked to market then. If his regulator questioned those holdings which were likely carried at purchase price, Warren could have pointed to how solid the underlying businesses were. NICO had been a homegrown Omaha success. I suspect that the regulator of that local business was not unfriendly or activist. :) I agree that operating businesses, which throw off tons of cash are very good things to possess… I think this is self-evident! But don’t forget that until the mid-90s’ almost 90% of the increase in BV for Berkshire was achieved thanks to insurance + investing. And during the 80s’ Berkshire practically only grew through insurance + investing. Even if today marked to market accounting, like twacowfca suggests, limits the amount of equities an insurance company can purchase, without running too much risk, and therefore what Berkshire achieved during the ‘80s is no more replicable, I think Dhandho Holdings might still do pretty well. Think about Markel: Mr. Gayner is surely a smart investor, but he is no outlier, nor he has a better track record than Mr. Pabrai… actually, his track record is only slightly better than the S&P500. Yet, MKL has compounded BVPS at more than 16% for the last 20 years. Dhandho Holdings imo is going to be a very good vehicle for compounding capital, even without owing operating businesses… This, of course, doesn’t exclude the fact Mr. Pabrai could very well decide to buy entire businesses in the future! :) Gio

twacowfca, in Q4 2012 LRE paid out a special dividend, then it paid out another special dividend in Q1 2013. Given Cathedral’s over reserving, a relative quiet and therefore profitable Q4 2013, and the fact the last special dividend was a sort of “half special dividend”, do you see any chance LRE will declare another special dividend, when it announces Q4 2013 results on Thursday, 13 February 2014? Thank you! :) Gio

ap1234, I have understood your point, and I think my actions speak very loudly: do you see any post of mine in the Altius thread from 5 months ago? No. Do you see some posts of mine now? Yes. Did I have an investment in Altius 5 months ago? No. Do I have an 8% investment in Altius now? Yes. It should be clear that I am very well aware of the fact Altius today is no longer the same business it was 5 months ago. And it should also be very clear which Altius I prefer!! ;) a) to possess a cash-flow machine + some dry powder b) to have a mountain of dry powder I will choose a) anytime, without hesitation. You have written: This not only is “macro” (a downturn in commodities), but it is also “timing” (6 months), and I cannot invest based on “macro” + “timing”. I simply don’t know how. What if “macro” is correct, and the worst for commodities is really yet to come, but “timing” is wrong, and it will take another 3 years before a deflationary scare finally falls upon us? 3 years of cash-flow and Altius will have almost the same cash at hand it had 5 months ago… :) Gio

;D ;D ;D Cheers! Gio

I have never figured out how twacowfca gets to know all the information about LRE he posts on the board… I think it is something like the magician who won’t let his tricks be discovered by his audience…!! ;) Anyway, thank you very much! :) Gio

Well, Blue Macaw quoted ap1234, who asked how ALS could take advantage of the fact the worst for commodities might still lie ahead. Of course, ap1234 doesn’t think 15 or 20 years in the future… We all are well aware of the threat a potential deflationary scare poses for the next 2 to 3 years, maybe 5 years from now at the maximum! That’s why I think cash flow from the purchased royalties most probably will do the work it is intended to: that is to provide liquidity in times of trouble. Because both Paintearth and Sheerness will still be producing 5 years from now, and therefore still paying royalties to ALS. With that cash ALS will then be able to buy other royalties at depressed prices. Nothing is sure, I agree, but I will be content to bet on those outcomes that are reasonable! ;) Gio

Q4 2013 Commentary Gio Q4_2013_Commentary.pdf

Ouch!! … I am so naive … !! ;D ;D Gio

If this thing goes down to 735 GBp, I will buy more. :) Gio

I don’t know if I “believe”, or if I “don’t believe” in coal. Regarding commodities I am pretty agnostic… I like to keep it simple: 1) I think that we humans will go on producing more and more, therefore also consuming more and more commodities; 2) I think that changes happen, but require major capital expenditures, and therefore proceed very slowly. What this means is, if 53% of Alberta Power Generation nowadays is through coal, most probably coal will still be used for a long time. Besides my simplistic convictions about commodities, what I truly like about the coal royalties (the ones for power generation, not for metallurgical purposes) is that they are not linked to the price of coal, because they are tonnage based royalties. This way, even if the worst for commodities were yet to come, those royalties won’t be greatly affected. The cash would still flow in basically undisturbed, cash that will turn out to be very useful for further acquisitions, given the truly depressed commodity prices that would then be reached. :) Gio

ap1234, I also enjoy our discussion very much! And in theory I agree 100% with every point of yours… but I don’t understand why they should apply to the PMRL purchase… Just look at the first three lines on page 4 of the presentation: -Attractive purchase price multiple Apparently, management thinks they are truly getting a bargain. Maybe, not a distressed price, but surely a very good price. -Assets rank among the highest quality within the royalty sector Apparently, management thinks the quality of the royalties they have just purchased is very high. -Strong upside potential Apparently, management thinks there is substantial opportunity for growth here. Therefore, if you believe in management, basically they have already provided the answers to your points 2 and 3. Is management reliable? If it is not so, I have made a big mistake! ;) About your point 1: the mineral sector, like all resources, imo is very predictable in the long run: humans will go on consuming more and more. The problem is it is subjected to wild fluctuations around a positive growth trend… That’s why I think 3 years of decline in prices, though a very short time, like you have suggested, are also a cushion against the probability that we are at the top of a cycle in those fluctuations. Of course, I am not saying it cannot get worse… All I am saying is we probably do not find ourselves at the top of the cycle right now. As far as the big jump in price is concerned, I am, and probably will always be, pretty agnostic about stock price movements. Why did it go up? I don’t know, and I didn’t ask myself the question either. Gio

And that’s exactly why 8% of my firm’s portfolio already is in Altius. I would gladly and quickly get to 15%, if and when a correction in its share price comes. Maybe, my idea that ALS’s share price might come down is just foolish… And, if ALS were a private business, I would have built a full position right away at these prices… Yet, the nature of the beast (the stock market) is too ingrained in me, that I must always leave ample room to average down, even if the business is among the very best that I know of… Maybe, I am making a mistake here… We will see. :) Gio