giofranchi

Q2 2013 Conference Call Transcript giofranchi fairfax-financial-holdings-Q2-2013-conference-call-transcript.pdf

tombgrt, I didn’t point out the zero loss in equity hedges, because I find anything to cheer about it… I thought it was obvious I was comparing Al’s forecast of a $500 million loss to what actually happened, to point out how difficult it is to forecast future results correctly… especially quarterly results! Therefore, I still think that to jump in and out of FFH (like any other stock!) isn’t easy at all. But, if you are successful at it, well, good for you! And good luck! PS Ah! Of course, if you think I am… silly… you can always save yourself the pain of reading and commenting my posts! ;) giofranchi

This is also another common misunderstanding! And it really seems so obvious to me… Only because I don’t make the technical drawings of the engineering projects we work on, doesn’t mean that I reckon them useless, right? I know that the engineering service business wouldn’t make money without producing and delivering technical drawings. The same applies to FFH: only because I don’t use a Graham-type approach to stocks, doesn’t mean that I reckon it useless, right? I know that FFH wouldn’t make money without investing its float that way. What I do is to decide if having my firm’s assets invested in the engineering service business and in FFH makes sense, or if there are better alternatives. I look for the best businesses I can find. Then, I let them do their job. giofranchi

Ross, sorry, but I disagree with you here. 1) “once in a lifetime opportunity to pick up some fantastic bargains”?! Why?! Two years ago the market in general wasn’t particularly cheap… On the contrary, it already was quite expensive… Therefore, I don’t see why we will never see those fantastic bargains again… There is really no reason at all not to expect other bargains that will be at least as lucrative in the future! 2) As far as equity hedges are concerned, everyone has different opinions: I still think a lot of people will suffer much larger opportunity costs down the road, when they lack the cash to scoop up even better bargains than those available two years ago… You and others, instead, think only about the opportunity costs FFH has already incurred… I guess we won’t have to wait much longer to know who is right about equity hedges! 3) Maybe you are right about bonds… what matters to me is that those bonds were bought below par with an after tax yield of 5.79%, and are insured by BRK. If held to maturity, interests received plus appreciation will get very close to that 7.5% annual return needed to compound BVPS at 15% per year. So maybe their fall in value is real, but only because they increased in value too quickly before… that certainly doesn’t make them a bad investment… but I am sure you don’t really think they are a bad investment… nobody would think that! 4) I don’t understand your comparison with a company that makes widgets and breaks… equity hedges are not a bad acquisition… equity hedges are a strategic decision to protect your capital, instead of growing it fast. I have already said it could turn out to be a wrong decision… but I have also already said that I don’t think so! And that is the reason why I invest in FFH, because I agree with what they are doing. If that decision truly is the wrong one, once there is evidence about that, they will change course. But they need evidence! They won’t and shouldn’t change course just because you and others don’t agree with their reasonings! 5) Finally, also regarding FFH underwriting results there are many different views… personally, I have a tremendous amount of respect for Mr. Barnard and I think underwriting results are very strictly linked to the quality of management. If you prefer to rely on history, well then look no further than OdysseyRe’s history! If Mr. Barnard succeeds in duplicating for FFH as a whole what he has achieved at OdysseyRe, the good underwriting results certainly won't be only a one time event! giofranchi

[amazonsearch]High Financier - The Lives and Time of Siegmund Warburg[/amazonsearch] --Lucie Warburg, mother of Siegmund Warburg giofranchi

Ok, I am using Al’s post not as a critique towards him… but a critique it surely is! And it is a critique towards anyone who think FFH successes and misfortunes can be accurately timed, and therefore it is possible to jump in at 0.9 x BV and sell at BV, repeating the process over and over again. FFH lost money in Q2 2013, but let’s look at the results: - 94.2 CR, producing and underwriting profit of $84 million - $71 million of gains in equity and equity-related investments - NO LOSS FROM EQUITY HEDGES - ($496) million of bonds losses - bonds losses of course are only paper losses, while FFH received $112 million in cash from those same bonds - BV decreased, but only to $362 And let’s look at equity results for the first 6 months of 2013: including the losses from equity hedges, FFH has recorded a gain of $176 million out of a portfolio worth $583.7 (preferred stocks) + $4,704.2 (common stocks) + $1,400.2 (investments in associates) = $6,688.1 million. A 2.63% return, or a 5.26% annualized. Now I ask: what’s so wrong with a 5.26% annual return from stocks, when you are as defensive as you have ever been in the past, and as you will probably ever be in the future? Will the stock price fall after yesterday’s results? It might. After all FFH has lost money… But, please, look at OdysseyRe: 84.4% CR for the first 6 months of 2013… even though I cannot say it is a Lancashire kind of result, it is impressive nonetheless, isn’t it? And the mind behind OdysseyRe success is now also behind all the insurance and reinsurance operations at FFH. In a low returns investment world, they are focusing on their insurance and reinsurance operations, and they are getting better and better. That’s exactly what I would be doing if I were in their stead, and therefore, although I might be mistaken, I surely have nothing to complain about! I will use any further weakness in the FFH stock price to buy more. --John Maynard Keynes giofranchi

Ah… twacowfca, what can I say?! I am surely a much less demanding (and much more superficial!) student!! ;D ;D giofranchi Well it's true!! I have so many questions about this company and I am afraid that I will eventually break twacowfca's patience and he'll stop responding to me :-\ :-X I am planning to speak to the company directly to put my many questions to them, but it's much better to be "educated" in these areas beforehand so that I can better judge management responses ;) Ah, well, as far as I am concerned, I am enjoying it very much! So, please don’t stop!! (Sorry twacowfca! ;D ;D) giofranchi

Ah… twacowfca, what can I say?! I am surely a much less demanding (and much more superficial!) student!! ;D ;D giofranchi

Hi SD, What do you mean by long term bonds? 10 years? Well, if interest rates rise 100 basis points, I lose 10%… and rates have just risen more than 100 basis points in a matter of weeks… Ah… C’mon! You clearly are not aware of the powers of a really good coffee… Well, of course! The best coffee you can get is in a Starbucks… ;D ;D ;D If you ever come to Milan in winter, let me know! It is cold and everyone wants coffee, you are right, but I will let you taste the best cup of coffee in the whole city… And you will suddenly realize why everybody wants that coffee and not another one! ;) giofranchi

Ah! Ok! And why do you think those perils are not adequately understood? giofranchi

Q2 2013 Presentation See how property D&F has been replaced by property catastrophe: page 24. Sincerely, I don't mind this kind of things… if a profitable business stops working, get out of it and find a good replacement! I have done so already two or three times in my still young business career and never had any regrets. Employees might suffer a bit? Of course… and these are never easy decisions to take for the man at the helm… but ultimately you want to see him do what should be done to maximize the firm’s profitability. Well, at least… that’s what I want to see! ;D Also very interesting: underwriting comes first: lessons learned That’s another way to say the market is inefficient, right? twacowfca, can you comment on that? What exactly are those “single peril” higher layers? Thank you, giofranchi q2-2013-investor-presentation.pdf

I would also add that I like to partner with someone who: 1) Takes the time, a lot of time!, to explain thoroughly and very clearly what he is doing and why. Always from a strategic point of view! I want to make sure I would be doing the same things, if I were in his stead. 2) Is still young enough to keep working as the chief strategist and capital allocator of his/her company for a very long time. As I have already said, to really understand the true reasons behind one person’s success is extremely difficult… too many variables involved… many of them clearly not knowable by the general public… so, a successor might do fine… but I like the founder much better! 3) Enjoys some competitive advantage: he/she might control whole businesses, which keep generating new cash for him/her to shrewdly deploy; he/she might have enough muscles to play an activist role in each venture he/she decides to pursue (this also means playing a strategic role: fix the management problem, then a new, better, more efficient management will micromanage all the operations); he/she might have some sort of cheap and safe leverage (insurance float, for instance). 4) Is at the helm of a company small enough to be effectively controlled and to have still much room to grow. I always put myself in his/her shoes: would I feel comfortable trying to control an organization with hundreds of billions in assets? Would I feel able to keep on growing its capital at a satisfactory compounded annual rate? The answers are: NO and NO. giofranchi

Hi Kraven, I know you are extremely good at what you do, but even for you it must be a huge amount of work! I think you run a portfolio of 50-60 securities, right? Please, correct me if I am wrong. And I guess your medium holding period is between 2 to 3 years, right? Let’s say 2.5 years. You have been investing for more or less 20 years now, right? So you must have already bought and sold something like (20 / 2.5) x 55 = 440 securities. Let’s say that you have bought and sold all those companies at least twice: that would bring the count down to 220 securities. The single thought that you have studied 220 companies deeply enough, to get to a strong conviction about all the cash they will generate until they shut doors, gives me the headaches! ;D Moreover, what for? If they are selling for less than a reasonable target price, you already know that there might be a huge discount to IV… is it so useful to know exactly how huge that discount actually is? giofranchi

A recent article. giofranchi oaktree-capital-an-alternate-asset-manager-to-look-at-for-the-next-financial-crisis.pdf

Q2 2013 Letter giofranchi Third-Point-Q2-2013-TPOI-Letter-Final.pdf

Hi txlaw, on the contrary, it is me who must apologize! I was the first one to say I don’t think anyone can know an organization like BAC very well, and it is clear instead that you strongly believe otherwise… So, I was not careful enough and it was me who provoked you… I am really sorry! Now, let’s comment on this issue of IV… I agree with you that also the expression “to buy below IV and sell at IV” is somewhat misleading… the simple fact is IV is almost useless… because, though everyone seems to talk about IV, no one in the end uses or even calculates it. Take, for instance, the net-net bargain idea of Mr. Graham, or the “replacement value” idea: they have nothing to do with IV… the only link they have to IV is that current assets minus total liabilities are probably worth much less than IV, and that replacement cost is probably much lower than IV. Also people who are more interested in earnings power almost never calculate IV: how many times have you heard the expression: “I want growth for free”? As if to consider earnings at today’s level were a “safe” policy… Once again: either you know what you own or you don’t, there is no substitute for that. Even when all your efforts are concentrated in trying to know what you own, very few people calculate IV: take, for instance, my calculation of the discounted present value of LRE future equity: that number clearly is not IV! Which kind of business sustain a ROE of 20% for almost 30 years, then disappears all of a sudden? Like I have assumed? It makes no sense, right? In fact, people who concentrate all their efforts on knowing ever more deeply what they own usually are interested much more in the CAGR of their wealth, rather than in assigning a precise IV to their holdings. Therefore, let me try this other expression: “to buy below a specific target price, and to sell when that target is reached”. But… I already know this one will be misleading too!! If I have understood correctly, what you seem to be doing is something that I find very rare indeed: you really strive to calculate IV and you keep your holdings, until they reach “that” target. If this is the case, I am sure you must know all your holdings very well. But let me be clear: I think this is possible only because, as you have said, you run a very concentrated portfolio and because its turnover must be very low indeed! Once again let me use LRE as an example: I don’t expect to see LRE ever trade at IV! It follows that, to hold it until it gets to IV, I must hold it forever… Ok, that’s a little bit emphatic, but it conveys my idea well. Your behavior is much different from the construction of a widely diversified portfolio of companies that are selling “below a specific target price”. When I misleadingly talked about trading, I was referring to the strategy of assembling a widely diversified portfolio of companies that are selling below a specific target price, with the goal to sell them as soon as that target is reached. Even if that target price generally grossly underestimate IV. I repeat: a very sound strategy to make a lot of money, but one which doesn’t require to know all the businesses involved very well. So, in how many businesses can a person have great conviction? Well, as you have said, it depends on a lot of things. Personally, I am at work 12 hours each day (week-ends included) and in between the businesses I manage and the businesses I invest in I am already very busy! Of course, I see my circle of competence expanding over time… but not rapidly… Finally, regarding BAC: I am sure Mr. Moynihan is doing a wonderful job, but: --Cable Cowboy Remember that I am a “guy who owns his business”, I am not a finance guy. And by “to own my business” I don’t mean that I must micromanage it… in fact, I never do! It means, instead, that I am the one to take all the “strategic decisions”, that I am the one to choose how its capital is used. If I cannot do that, to invest in a business, I require at least that there be another person, I admire and trust, who puts his/her interests and mine at the same level, and who does that job in my stead, possibly the same way I would have done it! Otherwise, I won't invest. giofranchi

+1 as well, keep the discussion going! Ok then, the PM I sent txlaw follows: He then answered me with very good counter arguments and I hope he will post his message as well. To that message I will now post some new comments. giofranchi

;D ;D ;D (I guess this post doesn't count... ;D) giofranchi

Q2 2013 Earnings Call Transcript: http://seekingalpha.com/article/1583432-greenlight-capital-res-ceo-discusses-q2-2013-results-earnings-call-transcript?source=email_rt_article_title giofranchi

Thank you, Sportgamma! Very interesting! :) giofranchi

Gio; this board member is interested!!! I feel like I'm sitting around a big table with my Many Italian friends drinking chianti, eating a big plate of spaghetti, loud debate going on. Arms and hands waving while points are made. Someone looking in might think there's going to be a fight. But it's always interesting and there are always new things learned. So please don't stop the open forums. If someone doesn't want to read they can just move on. Ron Hi Ron! I have started reading [amazonsearch]High Financier – The Lives and Time of Siegmund Warburg[/amazonsearch] by Niall Ferguson… maybe I will learn to love the banking business! Jokes aside, you know that I might have my ideas on the banking business and on the insurance business, but I never let my ideas get in the way of a great opportunity: if I find someone who is truly worth of my admiration and trust, even if he is a banker! ;D, rest assured that I will invest with him without thinking about it twice! ;) Cheers! Gio

Q2 2013 Results giofranchi Press-Release-Q2-2013-FINAL-with-tables.pdf

oddballstocks, I really didn’t mean to bother you or Sportgamma… sorry if I did! If there is a company my firm really resembles (except that my firm is a thousand times less successful… :( ), that company is FRMO. In fact, the revenues of both rely on the one hand on “consultancy services”, and on the other hand on investment returns. Also the idea of paying shareholders from the top line, instead of paying them from the bottom line, is exactly what I do with my firm! :) What is happening with my firm is that, as investments grow, the part of revenues tied to “consultancy services” will become less and less relevant. So, that is my worry about FROM as well… though I understand that FRMO is in a far better position, being the revenues generated by “consultancy services” a percentage of AUM. Therefore, as investments grow, automatically the revenue generated by “consultancy services” should grow too. Anyway, I was only asking… don’t see any harm in that! giofranchi

Thank you, twacowfca! Do you know if there are transcripts of LRE conference calls available on the web? I now will listen to conference call, but I usually much prefer to read them… :) giofranchi

tombgrt, there is a reason why I use the words investing and trading: when you own a business for the long run, you must rely on the wealth that business is going to create through the years. If you buy it at a bargain price, that represents just an extra boost to your financial well being. Instead, if you keep buying below IV and selling at IV, you keep relying on mistakes made by the market, but very little on the long term wealth created by those businesses. Anyway, I understand why using the words “investing” and “trading” might cause misunderstandings, so let’s say instead “to buy and hold” and “to buy below IV and sell at IV”. Sorry, I didn't mean to mislead anyone! :) giofranchi