giofranchi

Generally, an insurance company, to be considered “cheap”, should sell below BV. Therefore, at 1.58 x BV LRE might look fairly priced or even expensive. My idea is that it is not. Instead, I think it could turn out to be one of the best investment available in today’s relatively expensive markets for the next 10 to 15 years. :) giofranchi

+1 Unfortunately, this is much easier said than done: this world changes ever more quickly and business models and brands seldom benefit from changes. Great entrepreneurs, instead, adapt. :) giofranchi

Given the fact I AM THE BUBBLE GUY!!, I guess you are talking to me… ;D ;D So, let’s examine what you are saying: First of all, you write both about strategy and about decisions made by a Manager. They are two different things: I am critical about strategy, instead I almost never question single decisions made by a Manager (I only question them when they evidently seem to go against the general strategy). (Btw, also the term “Manager” is somewhat misleading: I look for great entrepreneurs, and their first duty is to shift capital from poor performing assets to high yielding ones. Everything else follows. At least, this is my experience managing the two businesses I personally control. So, I guess the term “Entrepreneur” might be a much better choice! :) ) Second, not only the strategy of the company I decide to invest in is important, but it is important in relation to my own strategy (or the strategy I decide to follow for my firm). For instance, my firm’s equity is up 15% this year, yet I have basically three large stock market investments: FFH, LRE, and BH. FFH has gone nowhere, LRE has actually declined, BH is much smaller than the other two. Then, I hold a lot of cash. For the next 3-4 years I can see my firm’s equity increasing 15% annual, practically without running any stock market risk. And why should I accept market risk? To grow 20%? In a deleveraging with stock market prices high? No, thank you! That’s why FFH’s strategy fits perfectly with mine. The same thing can be said for LRE: I want a cash generating machine in an industry that works well during a deleveraging. Engineering services surely are not such a business, for profit higher education might be and is working just fine, insurance might do very well. So, Lancashire as well fits perfectly with my own strategy. Then, what is Mr. Brindle’s strategy? Well… basically to look for the best bargains he can find… and what should I question about that? This being said, I am well aware FFH and LRE might not fit well with someone else’s strategy… But, of course, I can only speak for myself. giofranchi

"The Unwatched Variable" by Charles Gave giofranchi Daily+9.24.13.pdf

wellmont, I attach a series of articles in which the author summarizes the whole Biglari’s story until now. Hope this helps, giofranchi biglari-holdings-sardar-biglari-bet-the-jokey-part1.pdf biglari-holdings-inc-sardar-biglari-bet-the-jokey-part2.pdf biglari-holdings-inc-bet-the-jokey-part3.pdf biglari-holdings-inc-bet-on-the-jokey-part4.pdf biglari-holdings-inc-bet-the-jockey-part5.pdf biglari-holdings-inc-bet-on-the-jokey-part6.pdf biglari-holdings-inc-bet-the-jokey-part7.pdf biglari-holdings-inc-bet-the-jockey-part8.pdf

I take the time to read all of your posts and I presumed your belief (based on the general tone of your posts) was that they hadn't slipped up -- merely been early. I think that true of a lot of the shareholders who are buying today. Thus, it's not the kind of "slippage" that's going to create a buying opportunity as some people are seeing it as favorable slippage. No Eric! Please, don't waste you precious time!! :) Fwiw, I don't think Mr. Watsa was early... I think he was and is successfully following a strategy... Ok, another bubble talking, I know... In a deleveraging I think you must have a strategy. Surely you must have one, if you are at the helm of a large company. And a strategy like this: "don't worry, everything is going to be fine!" is not what I have in mind... Mr. Buffett has the following strategy: "every month $1.2 billion in cash are delivered at my door". Ok, that's a good strategy. Can Mr. Watsa use Mr. Buffett's strategy? Unfortunately no! So, Mr. Watsa devised this alternative strategy: "I will grow capital when general stock market prices are low, and I will PROTECT capital when general stock market prices are high". This is what I think and this is what I have seen him doing since 2006. But the market doesn't care what I think! The market only sees a business that hasn't been meaningfully profitable for 3 years now! To get more bearish on FFH, the market must see something worse than the lack of profitability, which is the loss of capital. But, wait, if FFH loses capital, its management would have failed exactly to do what it is striving to achieve since 2010... To protect capital! So, the question would become: do you prefer to invest at BV with a management who is successful at what it wants to do, or to invest at 0.8 x BV with a management that has proven to be a failure? giofranchi

But what exactly do you mean by “slipping”?! If FFH hasn’t slipped during the last three years… It has posted almost no earnings!! LRE is another matter: the importance of LRE is to possess a "cash machine". I suggest to anyone who is interested to read every conference call by Mr. Pearson of Valeant. You will clearly understand how a business with not so much upside, but that keeps generating substantial amount of cash, might be a great asset to own. :) giofranchi

Well, keep in mind they now enjoy a leverage they have never enjoyed before… because it takes time to put insurance float together, and to make it grow. So, you don’t want to necessarily compare past results with present results. Because past and present find Fairfax in two very different situations… Instead, the average return on its portfolio of investments is imo a much more reliable figure, to judge their investment acumen… And investment acumen hopefully doesn’t deteriorate over time… For those very few great practitioners it actually increases year after year! :) giofranchi

I see only 1 clear outlier here: 1988. giofranchi

Not at all! The goal I have is to increase my firm’s equity at a CAGR of 15%. If I achieve that, I will be satisfied. And I still think Fairfax might play a meaningful role. That’s all! giofranchi

+1 7.5% or even 15% arent garenteed just because you have a business model, or are happy with lumpy returns. I think Al's message missed the mark.... Well, historically they have achieved a 9.4% annual return on their investment portfolio… I thought 7.5% was somewhat conservative… But it seems I live in a bubble!! ;D ;D PS Actually, I don’t even need a 15% compounded increase in BVPS… My firm will probably continue to post operating profits for many years into the future… (of course, this might be another bubble of mine!! ;D ;D) Therefore, a 10% compounded annual return from its stock market investments will probably be satisfactory! To achieve such a result Fairfax must get a 4.5-5% annual return on its investment portfolio… practically half its historical result. That’s I think a good margin of safety… Of course, a good margin of safety, if you find yourself in bubble territory, might still not be enough!! ;D ;D giofranchi

I don’t agree. What matters is the business model. And, if there is one thing Mr. Buffett showed the world, is that Fairfax’s business model is one of the very best. To achieve a 7.5% yearly return on your investment portfolio is not all that difficult! Remember Mr. Graham who said that to achieve satisfactory results in investing is easier than you think? Well, exactly! The business model will do the rest, and Fairfax’s BVPS will compound at 15% annual for many years into the future. And, of course, it doesn’t matter if that 7.5% return is achieved in a manner you don’t like or you don’t approve. Of course, many members of the board are not satisfied with a 15% compounded return… Because, like Al has said, they can achieve much better results… That’s a good reason to sell your Fairfax shares! But not because you think they won’t achieve a 7.5% annual return on their portfolio! That is a bet you are most probably going to lose. giofranchi

I had exercised 100% of my over-subscription privileges and I got a 10.8% allotment. giofranchi

Except that I like the FFH’s business model much better than LUK’s. And like Al says (well, ok, someone else said it before…), time is the friend of the truly great business! :) giofranchi

Liberty, it is my pleasure! :) Now I must dig deep into Transdigm, because I don’t know it yet! giofranchi

Another word starting with "f" springs to mind. At least Prem is holding to his word and won't sink more cash into the deal. Thanks for posting as this was my biggest worry cheers nwoodman Yes! This is very important! And let me breathe a sigh of relief! ;) giofranchi

Hi Al, here I must (ruefully) admit I agree with you… The exact opposite to the majority of people on the board, I invested in Fairfax not “in spite of”, but “because of” all its cash and hedges… Now, this BBRY deal threatens to put in jeopardy its until now rock solid balance sheet… Of course, I will wait for more disclosure on the subject, in order to be able to evaluate the matter with as much objectivity as possible. Then, if I don’t like what I see, I will act accordingly. giofranchi

twacowfca, is the second half of the year usually better for LRE than the first half? For instance, in first half 2012 LRE reported $0.57 in diluted earnings per share, while during the second half 2012 it reported $0.72. It could be just a silly question, but, given your experience, might there be some “seasonal effect”, which tends to favor LRE’s business results during the second half of the year over the first half? Is it something we could expect with a certain regularity year after year (if and when mini black swans don’t happen, of course), or will it be just random? Thank you! :) giofranchi

I think the Bloomberg page for the LRE’s quote is very well done: http://www.bloomberg.com/quote/LRE:LN You see a Price/Book of 1.5726… and LRE is an insurance company, right? So, it cannot be cheap… And that’s exactly Mr. Market mistake: to price LRE as if it were just a well-run insurance company… Look instead at the TTM P/E: it is just 7.4533…!! As soon as you stop thinking about LRE as an insurance company, you start seeing a TTM earnings yield of 1 / 7.4533 = 13.4%. :) giofranchi

Will Mr. Watsa buy the rest of BBRY? http://seekingalpha.com/article/1707752-who-is-going-to-buy-blackberry-mike-lazaridis-large-tech-or-prem-watsa?source=email_investing_ideas&ifp=0 Sincerely, knowing how much Mr. Watsa likes FFH’s 30% cash position, I think it is very unlikely he will use it now to buy BBRY… And, if I were him, I wouldn’t… Not now… Things are still not clear enough… Given the great deleveraging we are living through and high stock market prices, before parting with its cash, FFH should still wait and be patient… Let’s take the evidence that “this time is different” and policy makers have truly been successful in averting yet another panic, when it finally comes for sure… Not now… Imo it is still too early. giofranchi

Real Estate Bubble in China??! giofranchi

giofranchi

Thank you! :) giofranchi

--Charles Gave giofranchi Daily+9.19.13.pdf

I couldn’t find any further information on the subject about MKL. FFH, instead, provides more detailed information. I quote it below, because I wouldn’t be much surprised, if similar numbers apply (more or less) to MKL as well: --FFH 2012 AR giofranchi