giofranchi

Al, sorry but I do not see any mathematical evidence that FFH is overvalued today… Have you taken a look at “My 7 lean years model for FFH”? It very simply considers a CAGR in BVPS of 12% (less than 15%!!) for the next 16 years. Then it applies a 9% discount rate, to arrive at FFH’s Present Value of Equity. And you get a present value of 1.54 x BVPS. This assumes that beginning in year 17 FFH completely ceases to create value… which, I hope you might agree with me, is quite conservative… Therefore, I think FFH’s Present Value of Equity, as computed by “My 7 lean years model for FFH”, significantly underestimates FFH’s fair value… Well now, as of yesterday FFH is trading at a multiple of $409 / $334.5 = 1.22 x BVPS. Yesterday’s dilution accounts for 5.4% of FFH shareholders’ equity, and BVPS today might be: $334.5 - $334.5 x 0.054 = $316.4. Even so, FFH is trading at a multiple of $409 / $316.4 = 1.29 x BVPS… significantly less than 1.54 x BVPS… which is significantly less than FFH’s fair value… How many margins of safety do you need?! I understand all your and Cardboard’s criticisms about FFH, but I do not understand the math… nor the assumptions behind your calculation of FFH’s fair value. PS If you need another margin of safety, what about a discount rate of 9% for a company whose 10 year average cost of capital is only 1.1%? Even if you don’t like to define the discount rate as the cost of capital, and you prefer instead to think about discount rate as the possible return from similar investments, stocks in the long-run have returned on average more or less 9%… Yet, I guess you agree that FFH is no average stock, and the proof is in the fact that during the last 28 years FFH has left the S&P500 far behind… Therefore, I also think that to apply a discount rate of 9% is another conservative assumption to arrive at FFH’s Present Value of Equity. giofranchi

A lot of bad news these days... :( giofranchi

Sincerely, I don’t think it is obvious at all… In fact, I don’t know much about macro, but, if I were to make a bet on the future state of developed countries economies, I would still side with Mr. Watsa… It will surely become clear… But I guess it will just take a little longer! giofranchi The federal reserve would have done everything in its power to fight inflation over the last several years if it was a real possibility. Inflation? I guess you meant deflation… Am I right? And, yes! The Fed has done all it could to fight deflation… but there is still no evidence it will ultimately be successful… I am not saying it won’t be… I am just saying that we still have to wait a bit longer. giofranchi

Sincerely, I don’t think it is obvious at all… In fact, I don’t know much about macro, but, if I were to make a bet on the future state of developed countries economies, I would still side with Mr. Watsa… It will surely become clear… But I guess it will just take a little longer! giofranchi

Ok! Thank you! :) giofranchi

Endo Health Scores A Huge Win http://seekingalpha.com/article/1810472-endo-health-scores-a-huge-win?source=email_rt_article_readmore giofranchi

I thought 7.4% has been the growth in "fully converted book value per share"... Am I wrong? giofranchi

Hi Cardboard, I have read your analysis and I thank you: one of the reason I write on the board is to find people who disagree with me, and to listen to them carefully. Though people who agree with me are much more pleasant, those who disagree with me are much more useful! ;) This being said, I try to answer your points: First of all, I look for a 15% CAGR from each investment of mine. If I don’t believe that it is possible to achieve such a return, I do not invest. Please, mark my word “possible”: it certainly doesn’t mean “guaranteed”, nothing in this life is nor should be guaranteed… And I do not think that a 15% CAGR in BVPS is possible, because Mr. Watsa says so. I think it is possible, simply because they must get investment results, which are significantly worse, not better, than the ones they have historically achieved, in order to grow BVPS at a CAGR of 15%. Now to your points: 1 – I am not so sure: since the early ‘80s Bonds have been in a spectacular bull market, and the team at FFH was one of the best worldwide to capitalize on that secular trend. In future years that trend will most probably be reversed, and that’s when I would like to see more capital invested in stocks and wholly owned businesses. That’s also when “bad legacies”, like liabilities linked to damages made by asbestos, will probably have petered out and become less and less of a drag. 2 – It is true that CRs during the last 10 years have hardly stayed below 100%, but it is also true that policies written from 2003 to 2012 have brought in $43.0 billion of cumulative net premiums written at an average CR of 95.8%. Therefore, once again, problems of the past are still weighing on FFH’s underwriting results, but things are clearly improving. Furthermore, Mr. Andy Barnard, for whom I have great respect, has just begun supervising all FFH’s insurance & reinsurance operations. And, if he only gets close to replicating the success achieved at OdysseyRe… 3 – I think that in due time they will move closer and closer to the way of investing Al is suggesting. But, as I have already pointed out, not in a hurry… They will take their time, and rightly so imo. As long as macro is concerned, let’s just say that I am an agnostic… their macro bets imo are neither a plus nor a minus, I am just curious to see how all this will play out! 4 – Nothing to say about Mr. Watsa’s billionaire status… 5 – / 6 – As you know, I invest in BH… So, I simply guess we have different ideas of “trust”! ;D ;D 7 – I have already said what I think about the whole BBRY saga. Thank you again for your thoughts and analysis! :) Cheers, giofranchi

Q3 2013 Results twacowfca, any comment? Thank you! :) giofranchi LRE-Q3-2013-Results.pdf

Cardboard, wow! You have written a lot and I will read all with much interest and calm. Although, you have started not very accurately… 15% CAGR “guaranteed”?!?! I don’t think I have ever said such a thing!! giofranchi

I can see foreign capital pouring in!! Ahahahahahahahahahahah!!!!!! giofranchi

Thank you Vinod! You are always very precise and I read and enjoy all posts of yours. :) This being said, have you taken a look at “My 7 lean years model for FFH”? I make the assumption of 0% ROE for 3 more years… So, 7% is just wonderful!! ;D ;D Ok, I am only joking, but I guess you are right when you say I want to spend a lot of time thinking about my investments, then I want to stay with them through thick and thin… Of course, until something clearly deteriorates for the worst, or I am offered an obscene price to sell them! giofranchi

+28% today... until now, at least! The market seems to be satisfied... :) giofranchi

Al, what can I say? Congratulations! In the thread about Italian banks I have specified “Must 1), Must 2), Must 3)”… Among the businesses I know, and I certainly DON’T know many of them, FFH is still one that complies with “Must 1), Must 2), Must 3)” egregiously. If BMO and RBC also do, I cannot tell… If you think they do, I would be very pleased to know more about them! :) Gio

As things stand, the only thing that I expect will cause me to reconsider is any sale of BH shares by Sardar. I also believe that the odds on such a possibility are somewhere between zero and none. Best, Ragu As I have said before, no one can say ragu lacks conviction in his ideas!! ;D ;D ;D giofranchi

giofranchi LMCA_News_2013_11_5_General_Releases.pdf

Sorry, never looked at any Italian bank… I invest the same way I do business: 1) I must have deep respect for the people I partner with and for the skills they have proven to possess, 2) I must like the business and understand why it should be predictable, 3) I must be offered a very good price. Italian banks right now might comply with 3), but they are as far from 1) and 2) as any investment idea could be. (As an aside, how anyone could be sure about 3), without 1) and 2), is still beyond me…). Therefore, I never bothered to look at them… This doesn’t mean there is no money to be made… There might very well be! It simply means unfortunately I can be of no help… :( Christopher1 on the other hand knows banks very well, and maybe he could offer us his own perspective on the industry in Italy! ;) giofranchi

Endo Reports Third Quarter Financial Results http://www.endo.com/news-events/press-releases giofranchi

http://www.endo.com/news-events/press-releases giofranchi

Sorry kumar… I know my English is bad… So, please, just have some patience with me… What I meant is that I wouldn’t be surprised if many other investments in the past hadn’t worked out well, exactly like BBRY has not worked out well… When you employ a basket approach to investing in equities, I guess that’s just the rule of the game: some investments go to zero, some others go nowhere, a few skyrocket… Am I wrong? :) Just curious: are you selling FFH short? giofranchi

Parsad, sorry, today I am bothering you… But I don’t think my expectations that FFH can grow BVPS at a CAGR of 15% for many years into the future are completely extravagant and unfounded… People on the board say “I am living in a bubble”, yet no one has convincingly explained why FFH should fail to achieve that goal. They must return circa 7% on their portfolio of investments, when historically they have returned 9.4%. I am not saying it will be easy, I am not saying they will succeed. All I am saying is I think my expectations are reasonable and don’t see why I should temper them. Here is, I think, something important: when you really want to invest in a business for the long-run, I mean you want to own a business for years, you can be neither too optimistic nor too conservative. Instead, you must be (at least vaguely) right. Why you shouldn’t be too optimistic is plain to see for everyone. Maybe, why you shouldn’t be too conservative, is less well understood. Yet, if you think of it, this also is clear enough: because, if you don’t know the true potential of a business, as soon as the stock rises, you will sell it. --TITAN giofranchi

Because they're on track to make the same error three times. Could you please explain what you mean? If you mean they will invest more capital in BBRY equity, I don't think it is likely: if they haven't done so yesterday, they most probably won't do it in the future. If you mean they are making other bad investments a là BBRY, well that's exactly my point: once again, they have made a lot of bad investments in the past, they will do more in the future. I simply don't understand all the fuss about BBRY... giofranchi

Parsad, you know I have the utmost respect for your money-management background, which is something you share with the great majority of the people on the board. But you also know that my background is different: I have started as a businessman and only afterwards I have looked at the stock market as a way to complement my strategy for building wealth in the long run. So, mine is the perspective of the businessman. And, according to Mr. Buffett, both perspectives, the investor’s and the businessman’s, are important, right? Now, given my background, I know personally many more businessmen than investors, money-mangers, or traders (if, of course, we exclude all the great people I have had the chance to meet on the board!). And all those businessmen that I know are alike: each one of them has built one business and runs one business: one and only one! And let me tell you that in their eyes I am the exception, the unconventional one: what are these stock market investments? They seem to ask. Why don’t you concentrate on your true business instead? And they seem to disapprove what I do. Now, it is true you will never read of them on Forbes or Fortune, because their businesses lack scale and will never grow very large, but, believe me, they otherwise have been and still are very successful! They have put everything they own in one single business and have been successful for many many years. In my world they are not the exception, they are the rule! And most of them have thrived! :) Cheers! giofranchi

Parsad, I don't want to comment Cardboard's post, he must have his reasons to have such small respect for Mr. Watsa and co. But I must comment your answer: There is a huge difference between the way Mr. Watsa and co. invest in equities, and the way Mr. Biglari invests in equities. A basket approach is completely different from the way Mr. Biglari invested in CBRL. He knows the fast-food industry better than almost anybody else and understands CBRL very very deeply. That's how an entrepreneur invests in a business. You certainly cannot say the same for Mr. Watsa and BBRY, right? I am not saying one way is better than the other, the truth is both of them can yield excellent results, I am just saying they are very different. So, any comparison should take that difference into account. giofranchi

Ron, That's exactly what I mean! Despite BBRY, FFH's equity investments were up 6% in Q3 2013, better than the 5% achieved by the S&P500... I am not saying they didn't make mistakes with BBRY... I am only saying, who cares?! They have made many other errors in the past, they will make many more errors in the future! Why everyone is so obsessed with BBRY?! I cannot understand. giofranchi