giofranchi

Al, as far as I am concerned, it goes something like this: you have to know some businesses very well, not many businesses, just a few, but make sure in those few businesses you have developed great conviction. Then, you will be able to deploy into them your “cash reserve” at the right time, provided, of course, that you have a cash reserve! Now, when will you see me use my cash reserve? 1) If FFH trades near today’s BVPS, that makes no sense at all, 2) If LRE trades around 1.15 – 1.2 x BVPS. When will 1) and 2) happen? I cannot know. What I know is that I won’t be able to take advantage of 1) and 2) without some cash reserve. Gio

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I would say Fairfax and Lancashire. Gio

What do I want for Christmas? Well guys, you know I am in love! You will meet her next April in Toronto, and you will realize why I cannot really ask for anything more! I am blessed with something I don’t deserve. :) Cheers! Gio

David, while I agree with the Farnam Street’s part of your post, the second part is clearly too kind…!!!! We all know what an extremely experienced investor and very successful professional you are, and this wonderful board would be much poorer without you. We are all very lucky to have made your acquaintance through this great community of like-minded people! :) Cheers, Gio

http://ir.valeant.com/investor-relations/news-releases/news-release-details/2013/Valeant-Pharmaceuticals-Agrees-to-Acquire-Solta-Medical-for-292-Per-Share-in-Cash/default.aspx Gio

Thank you, David! Sounds interesting. Gio

Hi original mungerville, of course I find myself in the same situation as yours in trying to evaluate the quality of Mr. Brindle & Co.’s underwriting decisions… I am absolutely not good at it… But, let’s face it: practically all of us invest in businesses we have no true control over, and the technicalities of those businesses very often elude us! Even with P&C insurance companies, that rely on investments to produce returns, I very rarely examine and question each single investment of theirs, and decide to buy them based on my judgment about the quality of those investments… Instead, it is always management that I try to judge. If I can muster great respect and great faith in the person (or team) at the helm (and it is absolutely not easy!), I then tend to let him/her do his/her work. Let’s look at it this way: from my point of view, I don’t see any real difference between Mr. Marks and Mr. Brindle… They both operate in a field I know very little about: Mr. Marks high-yield bonds, Mr. Brindle underwriting contracts. Yet, I believe both of them are very astute and deeply opportunistic value investors. Cheers, Gio

+1 Good post! Gio

Joel, I think anyone should read and study Mr. Russell Sage’s methods and how he made use of his “cash reserve”. Don’t forget that we are always talking about the future while investing… And the future is never certain! 1) The fact an investment meets “your hurdle rate” is and will always be a supposition you make about a business you don’t manage… And even if the fate of that business were in your own hands, you may never be sure about its future… I am absolutely not sure about what will become of the businesses I manage personally! 2) I think events that create great opportunities are inherently unpredictable. Other people are not able to predict them, otherwise they simply wouldn’t occur, would they? Why are we supposed to best other people in predicting them? I don’t need to predict. Because I know I will always have the cash to take advantage of them. 3) Besides Mr. Sage, I know of no other great financial mind of the past, who didn’t always have ample cash reserves, Mr. Buffett included: AL2012 If we are not to learn from those great and very successful minds of the past, how are we supposed to navigate the perilous waters of investing? This being said, I admit it is much easier to raise cash, when you cannot find any investment that matches or exceeds “your hurdle rate”! ;) Gio

+1 ;) Gio

This is simply perfect! I have just read that Mr. Rockefeller slowed down and relaxed in his mid-sixties… As good as Mr. Biglari is, he most probably is no Rockefeller… The sooner he learns this lesson, the better! ;) Gio

These things invariably change. :) Gio

Well, that was before I knew BVPS had increased 7.5% in Q3 2013… I have bought more at 750: 700 x 1.075 = 752.5. Of course, valuation changes. It is true they have paid out a special dividend in the meantime, but probably BVPS has kept increasing in Q4 2013 too. Your analysis is much similar to how I value Lancashire. Anyway, I think there is another reason: my “universe” of investments is very limited… I have great confidence in only a small number of businesses… And I don’t tend to stray outside that circle… Right now practically every investment of mine is shooting up in price, with the exception of Fairfax and Lancashire. In FFH I already have a full position. In LRE, instead, I still have room to average down. As my other investments increase in price, I am taking profits, and then I have two options: either increase cash, or invest more in something I know, understand, have great faith in its future prospects, and still think is fairly priced, and still look for building in it a larger position than the one I currently have: the only investment I know with all those characteristics is LRE. ;) By the way, it is true that LRE is selling at around 1.5xBVPS, but such a rising market as the one we are living trough sooner or later will recognize that LRE is also selling around 9.5 TTM EPS… An euphoric market should find its way to “such an excuse”, and start buying LRE too! ;D ;D Cheers! Gio

Sanjeev, I understand your point of view and Onyx’s very well! And it keeps reminding me that I have to constantly scrutinize every new move by Mr. Biglari! And, depending on what I see, my judgment might very well change over time. For now, what I see is an extremely well designed platform for doing business. If Mr. Biglari’s flaws of character truly are important, they will gradually mar the effectiveness of that platform. And business will suffer. I am not saying it won’t happen. All I am saying is I will take the evidence as it comes. Today the evidence that I see is this one: despite all his flaws of character, Mr. Biglari has devised a platform for doing business which, with the only exception of Fairfax and Lancashire, has no equal. If someone can show me one that is better, I will gladly shift capital from BH to that other platform I ignore the existence of. Gio

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"A New Widow Maker?" by Mr. Charles Gave Gio Daily+12.10.13.pdf

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--Mr. Sardar Biglari This is EXACTLY how I feel about my own company (albeit on a much smaller scale…). And that’s why I invest in BH. Gio

I have sent the interview to a bunch of friends and colleagues with the following comment: Gio

Yes, with this I agree. IV could have been explained in a somewhat clearer way… Gio

I don’t think this is the right way to look at it… Let me explain: When you purchase a whole business and most of your capital is used for such an investment, and you have to reorganize it, you simply cannot take the growth in BV of that business after the reorganization as a metric to evaluate the quality of that investment. Simply because most of your capital is locked into a business the growth potential of which is not 20% per year! Therefore, what you want to compare is always your initial investment in that business with its BV, and you want to make sure the CAGR of your initial investment is satisfactory. In BH’s case, only after “other investments”, which instead have the potential to grow 20% per year, have become large enough to have a true impact on BV, BVPS growth could be used as the right metric to evaluate performance. Imo that moment came at year end 2012. Gio

It's already in the price of the stock. The general consensus is for $1.80 per share of earning in two years. That's a $21.60 stock price at 12x earnings -- that's 38.4% higher than today's price. You get to that price even if every dollar of capital generated between now and then goes towards loan losses -- that's more than $20 billion per year of capital generation, multiplied by two years... in addition to their loan loss reserves! That's a tremendous amount of safety discounted in the price. I am covering some short positions today and I will use the proceeds to buy BAC. I still think I don’t understand BAC, but it is just too much difficult to stay short right now… And I respect Eric’s work and point of view very much. Let’s see how this will play itself out! ;) Cheers, Gio