giofranchi

Good to know! Thank you again! :) Gio

Great! Thank you very much! :) Gio

I will surely do, and I appreciate your help very much!! :) Thanks again, Gio

Ok! No need to read the remaining 165 pages!! ;D ;D ;D Very kind of you! ;) Gio

Thank you! :) Gio

Thank you original mungerville! Your endorsement is another reason I will surely enjoy the reading of all those 165 pages! ;) Gio

Now, this truly intrigues me… Sorry, craigatk, I had misinterpreted your post! ;) Perhaps nothing has intrigued me so much since twacowfca started talking to me (and others) about LRE! Now I have 165 pages of posts to read! Thank you very much, Dazel! :) Gio

Thank you! :) I ask because the only reason one should really expect a stock to go from 1 to 10 is the quality of management. Everything else changes. In my experience a business is subject to too many external influences, and you may never truly know what will happen tomorrow. Therefore, you want to partner with someone who has already proven he/she possesses the ability to adapt and stir the boat wherever the next opportunity lies. The fact Mr. Brian Dalton is still young is a big plus. But I usually look for an established track-record, which is good enough to impress me! Though I am sure the Prairie Royalties was a very good deal and will contribute to create a lot of value, one deal imo does not make a track-record… Gio

Dazel, this is a great post! :) And that's precisely one of the reasons I always want to partner with great capital allocators: because I know they will find a way to double again a stock that has already doubled! ;) Now, sorry but I don’t have the time to read all the 165 pages of posts on Altius… So could you please shed briefly some light on the qualities of management? Thank you very much, Gio

Gio

Well, but you surely don’t have to be Mr. Buffett to do something similar… I am Mr. Nobody, yet in my minuscule world I think I also enjoy some of that freedom… ;) Gio

bmichaud, I don’t think things are black or white, like you described in your post. I think, like Mr. Marks says, Things are made of many shades of gray. An overvalued market simply tells you that other people are behaving without prudence… and therefore you want to apply prudence in your own dealings… that’s all! No one ever says “refrain from doing business”. I am always in the game. But I have devised my game so that it does not only depend on equity investing. For instance, I have businesses that I control and manage day after day: if I think people are behaving recklessly in the market, I am able to shift my attention to those businesses I control, and to try to maximize their earnings. I am absolutely not out of business, it is just another kind of business, one that better suits the present situation. You better make sure you are not the proverbial “man with one hammer”, because otherwise it is extremely difficult to see all the different shades of gray… If your net worth only depends on stock market investing, it is almost impossible to be conservative at the peak of the market, as it is to be very aggressive at the bottom… But just try to have means to make money which don’t depend on the stock market, and everything radically changes: because at the top of the market you make a lot of money anyway… who cares if you leave some percentage points on the table? At the bottom of the market, instead, you can invest freely, because you know you will always have new cash to average down, should the market continue its slide, and therefore you don’t mind the waiting. You should really try this. Because I know that, as much as I talk and try to explain, if one doesn’t experience the feeling of freedom and the opening of opportunities a continuous stream of new cash really affords, one cannot fully grasp it… Gio

Gio

Maybe the Berkshire of today… Yes! But what about the Berkshire of 1993? As I have shown before, the Berkshire of 1993 still relied almost completely on insurance + investing. And it was much more similar to today’s FFH than many people realize. Yet, Mr. Buffett, an outstanding investor by any possible definition, decided to link his financial success to the combination of insurance + investing, instead of to just keep on investing capital. Gio

I think otherwise… The larger you become, the more difficult it is to get satisfactory unlevered investment results, the more useful float becomes. :) Gio

Well, I guess that’s a matter of what you do best and what your circle of competence is. They have extraordinary investing results. This is where their circle of competence is. They do NOT have extraordinary underwriting results. So will you tell me where their should stay if you advocate for circle of competence? Staying within circle of competency is exactly what I am arguing for if I suggest that a pure investing structure might get them the same (if not better) results with less risk. Eric, the simple fact is we will never know if they would have succeeded in compounding capital at 17.5% annual for 27 years only investing capital… What I am sure about is that I don’t know anybody who has been able to achieve such an outstanding result… Therefore, I wouldn’t bet on Mr. Watsa to be the only one able to do so… It is not a reasonable bet… Furthermore, to say that insurance is not Mr. Watsa’s circle of competence… well, then, probably we just see things too differently regarding FFH! ;) Gio

Well, I guess that’s a matter of what you do best and what your circle of competence is. Although, I am sure Mr. Malone has been very successful with his Liberty Media, I wouldn’t want to see Mr. Watsa investing heavily in telecom and engineering mergers and spin-offs a la Mr. Malone… Exactly like I wouldn’t want to see Mr. Malone writing insurance… I think they are both great entrepreneurs… as long as they keep inside their own circle of competence: to Mr. Malone mergers and spin-offs of media companies, to Mr. Watsa the gathering and investing of float through insurance. The point is they both have found a way to get an advantage over simply investing capital. That’s what also Mr. Ichan has done being an activist value investor. I like holding companies only if they show to have some kind of advantage over simply investing capital. Gio

Well, but it is relevant to me! Because I have to choose between investing in FFH and BRK’s business model, or investing in mutual / hedge fund’s business model! Sincerely, it is irrelevant to me to think how Mr. Watsa and Mr. Buffett would have performed without writing insurance and gathering float! We will never know! Gio

Well, I would argue that the ability to issue shares at 2x or 3x has been just another advantage over a mutual / hedge fund? Has it not? Gio

With this I agree of course! But overall, over the course of 28 years, it seems to me that on average float has done more good than harm. On page 24 of the book "Fair and Friendly: The First 25 Years of Fairfax", you can read: He was referring to "The Float", of course. Gio

If you don’t consider the outlier year of 1985, FFH’s BVPS at the end of 1986 was $4.25. Therefore, BVPS has compounded at 17.5% annual for 27 years. Sincerely, I don’t know many mutual / hedge funds, but among those that I know not one managed to sustain 17.5% annual for 27 years. Leucadia imo has yet another business model: I think it has been much more of an activist value investor than many people realize. Just read the last letter by former management and it simply jumps out of the pages! Activist value investing, like Mr. Ichan has proven many times, exploits a weak link in modern capitalism, and therefore enjoys a clear mean to outperform. Just like insurance, also activist value investing is not without risks… That’s why, just like insurance, it works only in the hands of skilled and shrewd entrepreneurs. Gio

Well, maybe it is not impressive to other board members… but it surely is very impressive to me!! ;) Cheers, Gio

I don’t know if this adds some worthwhile perspective on Eric’s question about the effectiveness of FFH’s business model compared to the mutual / hedge fund’s business model... I will give it a try: At the end of 1985 FFH’s equity was worth $7.6 million. If you compound $7.6 million for 28 years at 20% annual, you get to a capital of $1,253 million. I have chosen 20% annual for 28 years, because I don’t know of any mutual / hedge fund with such a stellar track record. Even if you don’t consider 1986, which was a formidable year for FFH, at the end of 1986 FFH’s equity was worth $29.7 million. If you compound $29.7 million for 27 years at 20% annual, you get to a capital of $4,080 million. Instead, FFH’s equity today is worth $7.9 billion. This comparison already takes into consideration the “not so good” underwriting track-record FFH has shown until now (though I understand and agree with original mungerville’s point of view that FFH’s underwriting track record is not as bad as it seems). Think how much better the comparison will look, if and when FFH starts underwriting profitably year after year! :) Gio

Congratulations txitxo! ;) You already know what I think: 1) Your strategy is awesome and works extremely well! :) 2) I don’t have the right mindset to follow your strategy (I like business and its dynamics too much… I always want to understand deeply what I own… I simply don’t like owning what I think I don’t understand clearly) 3) Sorry, but you probably won’t compound at 41% annual for the next 10 years (let’s say your portfolio is worth 500k Euros, while probably it is worth a lot more!, compounding at 41% annual for the next 10 years would bring your net worth to around 15.5 million Euros! In my experience, that’s something even a very good business won’t be able to do for you…). Of course, I hope for you that I am dead wrong!! All the best and keep up the good work! Gio

Gio PRFFHJan32014FFHAnnualDividend.pdf