giofranchi

One more thing about FFH and the 2008/2009 experience. In three years (2007, 2008, and 2009) FFH’s BVPS increased 146%. Now, you might argue FFH is not as well positioned to take advantage of a market panic as it was back then in 2007, but I guess no one can say it didn’t take advantage of the last panic effectively enough! I don’t care about what its stock price did during those three years. All I care about is that during the panic its BVPS compounded at 35% annual three years in a row. That’s all I really need to know. If FFH nowadays is positioned half as well as it was back then in 2007, to take advantage of any future market panic, I am correct in my business judgment, and therefore satisfied (even if I have no clue about what its stock price might do in the future). :) Gio

Thank you, Eric! This truly sounds great! As I have said, much work for me to do in options and much room for growth… As you have said, it surely will be worth the effort! ;) Cheers, Gio

I didn’t mean that! You should know by now, if there is someone who buys insurance (maybe too much of it!), it is just me! Instead, what I meant is I don’t feel comfortable yet with the “technicalities” of options trading. That’s why I wouldn’t buy or sell options with much capital involved. Gio

That sounds like a very good strategy. The problem is I don’t master options half as good as you do… Half?! Try 1/5! Much better! ;) And I wouldn’t dare following your strategy with much capital… Options clearly is a field where I still have a lot of room for growth and improvement! :) Gio

Ah! Another thing: I don't want timing to be part of the equation! I am terrible at timing! ;) Gio

My pleasure, Liberty! :) Gio

Well, but, as I have said, I already hold some cash… The problem with cash is plain to see: it will do well only if a market panic really unfolds! In any other scenario it will do terribly… FFH, instead, will do fine, even if the market keeps marching upward (at least, that's my business judgement...). What I want is a portfolio of businesses (both private and publicly traded), that insulates me from what the market does (read what other people do) as much as possible. I don’t want the growth of my net worth “to depend on the kindness of others”. FFH has a very well defined place in this portfolio of businesses, and I don’t know of any other company that might replace it. Gio

I already hold both cash and some short positions… And I don't want to stay too much out of the game. Therefore, can you point me at a business, any business, not necessarily an insurance company, that is better positioned than FFH to take advantage of an hypothetical market panic? I would then gladly shift some capital from FFH to … Gio

Well, this I understand! You think they are not well positioned to take advantage of a market panic. Ok! No problem with that. It is a business judgment! Now, the fact I have no problem to understand your judgment about how FFH has positioned its business... of course, doesn’t mean I agree with it! ;) Gio

A wonderful book from first page to last. About the life and the methods of an unsurpassed financier and a great man. Gio

Eric, Of course I have already said it many times, and you know very well my thought on the subject… But I repeat it once again: the reason to hold FFH today is not that the price of its stock will do fine in a market panic… Sincerely, I have no idea how it will behave… And I don’t see how anyone can predict such a thing… What I do know, instead, is that no other company I am aware of is so well positioned to take advantage of a market panic. This is the only reason I hold such a large investment in FFH today. Because it is a business led by opportunistic people, who are doing something I understand and like. Period. And because I think it is cheap. No idea what the stock price shall do. And don’t care. You might say: well, I don’t like what they are doing… That’s perfectly fine! It is a business judgment. It is different from mine, but I understand and respect other points of view. And also find them useful. I think that’s what Packer is saying: he thinks this bull market will go on for years, therefore he feels no need to be invested in a business positioned to take advantage of a market panic. Very well! I can accept eventually to be wrong. (And don’t forget my firm’s equity is up 22% this year, the FFH investment notwithstanding! ;)) What I cannot relate to is the following thought: in a market panic FFH will go down with everything else, therefore I will buy it later at more advantageous prices… This is something I really don’t understand, because business is not done that way. Gio

Not much to say about that experience… In 2008 I was mainly invested in high quality, high free cash generating companies: PG, JNJ, ABT, and KO. Then I also had a stake in BRK and WMT. Of course, they declined somewhat, but the free cash my businesses generated was very high compared to the net worth of my company. Therefore, I was able to average down aggressively, and just a few months later I was already in the black… Today, things look much different: if next year my businesses generate a free cash that is 10% of my firm’s net worth, I will be very satisfied. Therefore, to take advantage of any market correction (-20 / -30%), or panic (-40 / -50%), that might come to pass, my strategy simply cannot be the one that worked so well in 2008/2009. Gio

Does the CAPE still work? Gio does-the-cape-still-work-december2013.pdf

Maybe, the economy will do just fine… I don’t know. What keeps me worrying is a CAPE that doesn’t stop getting higher and higher… Now, like rijk has just pointed out, it breached above 26. If it doesn’t stop increasing, it means that my fear Keynesian policies stimulate prices more than the underlying economy is not yet proven unfounded… Because it simply means that prices keep increasing faster than earnings. If we get to Mr. Shiller’s bubble threshold, a CAPE of 28-29, no matter what the economy does, only two outcomes will be plausible: 1) prices stay flat for a long time, 2) a crash. Of course, I have never seen 1) happen before. Gio

Gio

--Russell Sage Gio

Merry Christmas & Happy Holidays from Milan, Italy. A cheer to many more years of continuous learning and improvement together! :) Gio

Thank you, David! :) Well, I guess this answers pretty well what Mr. Biglari is going to do with the CBRL investment: either he gets to buy the whole company, or he is out. Nothing to say about it: I would be doing exactly the same thing. +1 +1 Gio

Thank you, Liberty! ;) Gio

Your guess is just right!! ;D ;D ;D Well… It has really been a “tour de force”…!! I am exhausted!! Probably, what I liked the best is “Notre Dame”: to think that they started building it 850 years ago, and still is a majestic building… is truly impressive! The civil engineer that still lurks inside me cannot but cherish such an extraordinary accomplishment! ;) Nice to hear you are visiting Thailand! Unfortunately, I have never been there, but it must be great! Enjoy your staying very much! Cheers, Gio

Among all the fine pieces of art I was able to look at closely, “Le Penseur” (The Thinker) by Auguste Rodin is by far the one the best fits the “mood” of this board! :) --WikipediA Cheers! Gio

No no! If they meet my “hurdle rate”, I always invest! It is just not so easy to meet it!! ;) Well, the fact is my portfolio many times is very concentrated… It might just happen that even in a market that keeps going up 2 or 3 positions are down at the same time… Just look at FFH and LRE today, which are by far my largest investments! :( Gio

Joel, I am not talking about downturns… great opportunities might arise for very different reasons… And a general market downturn is only one of them! A BP’s offshore plant blows up, and XOM sells off abruptly… Johnson&Johnson recalls some flawed products in its portfolio of OTC drugs, and Abbott sells off abruptly… They are only two of the examples that come to my mind right now, and that I was able to take advantage of in the recent past. How could you predict when and why those kind of opportunities might present themselves? Imo, it simply is not possible. Gio

;D ;D ;D Very funny story! Don't mess with successful small business owners! ;) Gio

No one of the great financial minds of the past viewed cash only for liquidity reasons. Not even Mr. Buffett (otherwise, how could he have deployed so many billions in 2008 and 2009?!). If you hold cash only for liquidity reasons, by definition the amount of cash you have will never change, no matter which opportunities arise! (It will change only if your liquidity requirements change) Rebalancing is easy to say, but very difficult to do… You must be sure that your other investments are performing well at the exact time the opportunity you want to grab becomes available. And, of course, you can never be sure! If, instead, they are underperforming at the same time that opportunity becomes available, your purchasing power might be greatly diminished. You can rebalance anyway, but you won’t be able to purchase as much of that opportunity as if you were holding some cash! How much cash as a strategic asset to hold? I don’t know. That is the hard part, and the part those great financial minds of the past managed so shrewdly… it is up to each one to decide! Gio