giofranchi

That is a good objection! I demand: 1) first class management 2) good business 3) at least 10% pre-tax owner earnings yield in year 1, with an history of growth that, if sustained in future years, could lead to a compound return on my investment of 15% annual. Therefore you are right! Very unlikely to reach 25%! :) giofranchi

Well Jay, Though it might sound a bit arrogant, I would define ME a ‘successful investor’ (17% CAGR since inception in 2005)… Packer and twacowfca, instead, are investors from a Marvel Movie!!!! ;D ;D ;D giofranchi

Thank you, Packer! In this we actually differ… I don’t pay much attention to the consensus view or to Mr. Marks, when he says there is a bargain price for every asset… vice versa, I want to own only businesses that I reckon good businesses, led by capable and trustworthy people. In other words, I wouldn’t have invested in a textile business in the 1960s or in a newspaper in the 2000s (many other examples are, of course, available), nor I would partner with idiots or villains (with the glaring exception of Mr. Biglari, of course!! ;D), no matter the price that is offered to me. This might be a serious limitation of mine. giofranchi

Wow! You've got us beat, Keith. Over a slightly longer period, 13.5 years, the best estimate for our geometric return is 27.5% per annum, compounded. Of course, Eric puts both of us in the shade. At one time or another since Y2K, we have had more than half the portfolio value in one of five different companies. Both Packer’s 37% annualized and twacowfca’s 27.5% annualized are extraordinary results and extraordinarily difficult for me to understand… let alone replicate! I don’t think they can be explained by the small amount of capital they have managed… whatever small capital they started with, it must have grown very large by now! In the interview Mr. Bryan describes the best risk-adjusted strategy for investing capital that I could think of: In the long run (more than 10 years) I don’t think you can keep investing only in microcaps… 1) if you are very successful, like Packer and twacowfca, capital begins to grow large, 2) even if you are extremely capable, you cannot always be right dealing with microcaps, and just a few mistakes can destroy a track-record… That’s why I think Mr. Bryan's is the best risk-adjusted strategy: concentrate on businesses that have already proven themselves, but are still small enough to triple or quadruple. And that’s what I do! But I am very far behind both Packer’s track-record and twacowfca’s… So, am I stupid? Do you think such an outperformance can be explained simply by Packer’s and twacowfca’s superior brainpower? I know they both are extraordinarily gifted practitioners of value investing, but it seems hard to believe they do what I do, yet they just do it so much better…! Or maybe, have they a strategy that is much more effective than Mr. Bryan’s on a risk-adjusted basis? If so, please tell me! Share your secrets with the rest of us!! :) giofranchi

--page 8 Treasury stock on the Balance Sheet are a reduction to Shareholders’ equity. Therefore, I don’t think I am double counting it. But I might be wrong… If anyone is sure about this, I would gladly hear from her/him! :) giofranchi

Endo to Acquire Specialty Generics Company Boca Pharmacal: http://www.endo.com/news-events giofranchi

From what I can see on its 10q-q3-2013 filing, BH equity at July 3, 2013, was $482 million. The Company’s proportional share of its common stock, as held by the investment partnerships and recorded as Treasury stock, amounted to 105,670 shares, which at yesterday price of $408 are worth $43 million. BH will receive $76 million in cash from the issuance of 286,767 shares. Therefore, total equity will be: $482 + $43 + $76 = $601 million. Shares outstanding at August 5, 2013, were 1,433,835. With the issuance of new shares the total outstanding will be: 1,433,835 + 286,767 = 1,720,602. At yesterday share price of $408, market cap is: $408 x 1,720,602 = $702 million. Therefore, BH is selling for $702 / $601 = 1.17 x BV. If my numbers are wrong, please correct me! giofranchi 10q-q3-2013.pdf

A friend of mine sent me the link to this wonderful video. If you haven’t already done so, watch it! You won’t regret it. It is time very well invested! :) http://www.youtube.com/watch?v=ExGsvl7k55Y&desktop_uri=%2Fwatch%3Fv%3DExGsvl7k55Y&nomobile=1 giofranchi PS Of course, you need to turn English subtitles on!

Of course, among the classics I forgot to mention Bob Dylan!! The true Shakespeare of our times. His “Another Self Portrait (1969-1971): The Bootleg Series, Vol.10” is just out. Don’t miss it! Cheers! :) giofranchi

I don't think one day will be enough... At least one day and one night... Hard work!!!! ;D ;D ;D giofranchi

First take by the Brooklyn Investor. giofranchi third-point-reinsurance-the-brooklyn-investor-august122013.pdf

The way Mr. Ackman describes PAH really intrigues me! And Mr. Martin Franklin is often praised by Mr. Murray Stahl as a very shrewd capital allocator. PAH is listed on the London Stock Exchange. giofranchi Pershing-Square-Q2-Letter1.pdf

giofranchi

"Free Money vs Growth" by Charles Gave --Charlie Munger giofranchi Daily+8.26.13.pdf

Hi Jeff, here, in no particular order, are the “classics” that I reckon required readings: VICTOR HUGO: “Les Misérables”, “Ninety-Three”, “The Man Who Laughs”, most of all “William Shakespeare” and “The Toilers Of The Sea”, which I think are his true masterpieces. CHARLES DICKENS: “David Copperfield”, “A Tale Of Two Cities”, “The Chimes”, “Great Expectations”. LEO TOLSTOY: all his Christian tales, “Chadzi-Murat”, “What Is Art?”, “Resurrection”, I know he is famous for his novels, like “War And Peace” and “Anna Karenina”, but my four selections are what I like the best and what I continue to reread time and time again. FEODOR DOSTOYEVSKY: “The Brothers Karamazov” and “Demons”. FRIEDRICH SCHILLER: “The Robbers”. FRIEDRICH NIETZSCHE: “The Birth Of Tragedy”, “The Gay Science: With A Prelude In German Rhymes And An Appendix Of Songs”, “Thus Spoke Zarathustra”. GUSTAVE FLAUBERT: “Salambò”. JOSEPH CONRAD: “Typhoon” and “Youth: A Narrative”. WILLIAM BUTLER YEATS: “The Collected Poems” and “The Celtic Twilight”. PABLO NERUDA: “The Essential Neruda: Selected Poems”. ANNA AKHMATOVA: “The Complete Poems Of Anna Akhmatova”. WALT WHITMAN: “Leaves Of Grass”. FRANCIS SCOTT FIZGERALD: “The Great Gatsby”. J.R.R. TOLKIEN: “The Lord Of The Rings” and “The Silmarillion”. GABRIEL GARCIA MARQUEZ: “One Hundred Years Of Solitude”. SENECA: “Dialogues And Essays”; EPICTETUS: “The Handbook”; MARCUS AURELIUS: “Meditations”; NICCOLO’ MACHIAVELLI: “The Prince”; DAVID HUME: “Selected Essays”; ADAM SMITH: “The Wealth Of Nations”; RALPH WALDO EMERSON: “The Essential Writings”; BENJAMIN FRANKLYN: “Poor Richard Almanack” and “Autobiography”. More recently I have really enjoyed the “American Trilogy” by PHILIP ROTH: “American Pastoral”, “I Married A Communist”, and “The Human Stain”. --Friedrich Schiller giofranchi

twacowfca, does it really seem too much that I don’t have a brain of my own, if I continue to say that I couldn’t agree with you more?!?! ;D Anyway, let me add that I don’t think you can time a bottom in share price correctly. When I like a business very much, and its share is priced so that I can lock in at least a 10% owner earnings yield in year 1, with a track-record of past growth that could lead me to enjoy an average 15% annual return for many years into the future, I invest. Period. I also always leave some dry powder to average down. I am a great believer in averaging down with a great business! And while I am averaging down, I constantly plan when I will be buying next (at what price) and how much I will be buying. That’s why, like original mungerville rightly pointed out, I hadn’t my math on the reinvestment of dividends correctly thought out: because I will never reinvest any dividend just to reinvest it… instead, I will buy more Lancashire when the share goes down in price, even if no dividend is distributed; and I will refrain from buying more when the share goes up in price, even if I have just received a dividend (or a special dividend!). giofranchi

I spent the last 15 days reading “River of Stars”. You know, I think I have read quite a few novels in my life. I have read every novel by Dickens, by Hugo, by Tolstoj, and by Dostoevskij, every single novel they have written. I have read Conrad, Flaubert, Fitzgerald, and I have read every play by Shakespeare. And I have read quite a bit of philosophy too: from Seneca to Hume, from Machiavelli to Nietzsche. I have even read the sacred tests of almost all religions: from the Bible to Lao-Tzu, from Confucio to the Dhammapada and the Hagakure. I love poetry (Yeats, Neruda, Achmatova, etc.). Yet, I don’t think I am exaggerating, if I say that in Canada today lives one of the greatest poets and novelists of all times, and his name is Guy Gavriel Kay. “River of Stars” is an epic tale that goes well beyond storytelling: it is deeply rooted in history, it is touchingly poetic, and it is a sort of treaty on warfare. And warfare is all about risk-management, so, as weird as it might sound, this novel could be read both as a poem and as a treaty on risk-management! By the way, I remember that also Mr. Taleb, in one book of his, writes about an encounter he had with some generals of the US Army. And he tells how impressed he really was by the profound understanding those people showed to possess about risk and how to manage it! I cannot recommend “River of Stars” strongly enough. His most thoughtful work to date. giofranchi

On August 07, 2013, like I have written in a post of mine, I doubled my firm’s investment in BH. The price I paid was little less than $430. After the shares started trading “ex-Rights” yesterday, BH stock price closed at $431.71. Of course, it might fall from here, but on Monday morning, if I wish so, I will be able to sell half of my shares for the same price I paid on August 07, and yet receive a number of Rights that are double the number I would receive, if I had kept my firm’s investment in BH like it was on August 06, 2013. So basically, I enjoy the possibility to buy twice the number of BH shares at $265 for free. Furthermore, my average cost on August 06 was $370, and so, if I decide to keep my whole investment in BH, I will see an average cost not much higher than it was previously: ($430 + $370) / 2 = $400, ($400 x 5 + $265) / 6 = $377.5. And I will possess 2.2 x the number of shares I possessed previously. This means that, whatever paper profit I was seeing on August 06, next Tuesday, when I will be buying shares at $265, and if BH stock price stays around $430, that paper profit will be more than double: ($370 / $377.5) x 2.2 = 2.15. And this is without taking into account any more share that I might be able to buy oversubscribing, which I will certainly do. It surely might have been just good luck, but it doesn’t look like a wash to me at all! :) giofranchi

Hi agaglio, Like you can read in David's post, BH shares started trading "ex-Rights" today. The correspondig decrease in price has nothing to do with the WSJ article... giofranchi

"Of Dynamite Fishing and Whales" by Charles Gave giofranchi Daily+8.21.13.pdf

cr6196, here I cannot fully agree with you. You see, I think that some men seem to be born prepared to assess risks much better than all other people, and then to take those risks. If you find such a man (a very rare find!), the most important thing is to stick with him. Then, you could question their strategic decisions as much as you like. You could decide to pass everything they do under the microscope! But those will only be details… Only details? Many of you might ask. Aren’t details important? Many of you might even think details are what counts the most! I don’t agree. Because details are very often misleading… You end up missing the forest for the tree… No one, not a single person, on this board knows Cathedral as well as Mr. Brindle does… no one, not a single person (at least that I know of!), on this board has a track-record that even comes close to Mr. Brindle’s… and yet we think we could know better than Mr. Brindle and doubt his judgment… Result: we let the opportunity to invest with a great businessman go… So, as I see it, if now you are not interested in Lancashire, because you think its share price will keep getting lower, then I might agree with you… I don’t know how to predict share price movements… but I might agree with you. Vice versa, if you are not interested in Lancashire for what you think you know about Cathedral or about how Lancashire’s business is going to change and will look like in the future… then, I beg your pardon, but I don’t agree. Same with Fairfax… when everybody is questioning their judgment regarding CPI linked derivatives and equity hedges… My idea: find a great businessman/investor, and let him do what he does best. :) giofranchi

WhoIsWarren, I look at your objection this way: the long term & the short term. As far as the long term is concerned, I have no doubt Mr. Brindle paid less than what he thinks Cathedral is really worth. I think he is an extremely shrewd allocator of capital and I don’t question too much the judgment of “extremely shrewd” businessmen, especially when I don’t really know what we are talking about (to say I know Cathedral very well would be simply ridiculous!). But what if, after assuring satisfactory long term results, you have also the opportunity to achieve a good short term result? Will you say: no, thanks, I don’t care about the short term?! Of course not! Am I wrong? If they succeed in making this acquisition pay off starting from year 1, well I won’t be the one to complain about it! I would also answer to some of cr6196’s questions: about how LRE reserves, and why they decided to use sidecars, and the relationship between combined ratios and ROEs, twacowfca will answer much better than I could. Sincerely, I partner with Mr. Brindle, because I have no doubt he will always do whatever he can to maximize shareholders value, and because he has an almost 30 years history of being “extremely shrewd” at doing so. I don’t know every detail of the business like twacowfca, and he will answer your questions with great accuracy (like he always does! Thank you again!). But I see you are somehow worried about the Cathedral acquisition… So, first of all: why now? Well, I guess simply because purchasing whole businesses is not like investing in the stock market… you simply cannot buy and sell whenever you want or feel like… instead, you must seize the opportunity when it appears. Who really knows the motives of Cathedral management and owners? Therefore, I don’t think it is easy to judge their timing either. Of course D&F is a line of business Lancashire is winding down… But Mr. Brindle & Company haven’t purchased a business they were running themselves, right? You cannot expect to buy a business only if it already mirrors exactly your own, right? Otherwise, you will never buy a new business! I think you will never find anything that is perfect… instead, it should be a compelling opportunity from the start, like Mr. Brindle has defined Cathedral, and then you will have to work hard to make it ever better and better. Finally, you point out that things are changing… But things are always changing! That’s why I like to partner with “extremely shrewd” capital allocator, because this is the only thing that never changes: their ability to make money for themselves and for their shareholders. Look at it this way: I am in business since 2004, and I have already been forced to adapt my firm to changes 3 or 4 times… Mr. Brindle, instead, has been in business for almost 30 years: how many times do you think he faced the necessity to do something differently? Something new? I guess already many times! And the only thing that never changed is the average ROE he achieved… or, as I have just said, the money he has made for himself and his shareholders. I invest in Lancashire, assuming that Mr. Brindle’s financial acumen will continue to benefit Lancashire’s shareholders for many years to come. And of course, I might be wrong. :) giofranchi

Ha -- don't bet on it What's the saying? Don't trust anyone under the age of 30. And don't trust anyone over the age of 30. Do your own work. ;) WhoIsWarren, I am still at the beach (alas… the very last day!)… Cannot do my own work! But I am just fine with your work!! ;D ;D giofranchi

Just bought more at 735 GBp. If WhoIsWarren is right (he tends to be right very often! :) ) and Lancashire is selling for 1.5 x BV, I am locking in a ROE=19.5% / 1.5 = 13% owner earnings yield. Which is even better than the 11.6% I had in mind. In an investment environment that I don’t like at all, I’d rather partner with Mr. Brindle than do almost anything else. If the price keeps going down, I will keep adding until Lancashire gets to be 30% of my firm’s portfolio, with a weight equal to Fairfax. Then, if their prices go down, I will add to both positions! ;) Ok, now I know you all think I am completely nuts! ;D giofranchi

Thank you, WhoIsWarren! Great post! And you come to the very well justified conclusion, that I had thought about too: BV somewhere in between Libis' and Ian L's. :) giofranchi