giofranchi

Well, I guess it depends on anyone's idea of predictabily. My idea of predictability is different from my idea if certainty. I define a business predictable, whenever I possess a very clear idea of how and why it could achieve a high compounded return on invested capital for many years into the future. This doesn't mean it will actually achieve such a result. It simply means that it might, and that I have recognized how and why. This is the process I follow managing my own businesses: I say yes to the activities that I understand, and I say no to those that I don't understand. And you kown what? Until now I have never experienced very unpleasant surprises! Why should I invest differently? And management counts! To fully grasp the true potential of any business, management matters a lot! giofranchi

premfan, believe me: I don’t care much about a “candid letter”. What I want is to understand a business. Saying that LUK is much stronger now with JEF, though it might certainly be true, doesn’t help me understand it any better. Is LUK a new animal? If so, please, give me something useful to understand its new behavior. Otherwise, it is unpredictable to me, and I don’t invest in unpredictable things. A good, long, well-reasoned, and stacked with news, letter might lend a hand and provide some help. Though far from me saying it would be enough! giofranchi

Thank you Grenville, good news! I will certainly read that letter with the utmost attention and, as always, with much pleasure. :) giofranchi

Muscleman sent me the following PM: Hi muscleman, First of all, I don’t care about “tangible book”. Tangible book per se is meaningless and might even be very often deceiving. As always, you must know and understand the business. There is no substitute for that. Second, truth be told, I don’t like change… because change decreases my knowledge and understanding of the business. Imo, Mr. Cumming and Mr. Steinberg were Leucadia National. Are they so out of the business to not even put out the shareholders letter for year 2012? Well, I fear that my knowledge and understanding of the business has decreased… a lot! So, LUK might certainly be cheap, if it still were the business that I used to know. But, what if it is no longer that business? It might still be “statistically” cheap… But statistically cheap things are for traders, when I invest (I mean, when I buy something for the next 10 years, with no intention of selling), I NEED and REQUIRE to know and understand the business. No matter what the price is, because there is no substitute for knowledge and understanding. I stay away for now, while I try to watch the new management very closely and get to understand them better. If in time I still like what I see very much, I will be glad to invest in LUK once again! :) giofranchi

Hi Joel, Of course you are right! What I actually meant is that, when management says at year end 2012 that fair value has increased to $44.93 from $40.99 at year end 2011, it is very difficult to check if that figure ($44.93) is correct or otherwise. So, either you trust what they say, or you don’t. If you trust management, it is plain to see that you now are able to buy something that might go on increasing in fair value 12%-15% annual for 0.77 x what it is actually worth today: so, it is a great bargain and you will invest! Instead, if you don’t trust management, you won’t invest no matter what! The fact that management has more or less $5 billion invested in BAM should provide at least some comfort! :) giofranchi

I would invest that cash in the online medical platform my sister and her husband are developing, to make their medical practice easier to reach at any time and from anywhere. I think the business is a good one and I know its management very well! :) giofranchi

Q4 2012 Letter I think BAM has a stated goal of achieving in between 12% and 15% annual increase in the intrinsic value of the business. And at the end of each year they openly comment on what was the actual result for the 12 months just passed. Then, of course, they keep track on the share performance: Q4 2012 Letter Personally, I would not know how to calculate intrinsic value by myself… how could you know the increase or decrease in value of a port, a railroad, or real estate scattered across the globe?! …That’s why I think that to invest in BAM you must trust management. :) giofranchi

Thank you Kraven! I have purchased it, but never found the time to read it yet! Now that you have suggested to read it, I will put ‘King of Capital’ at the top of my list. :) giofranchi

Mr. Charles Gave on a deflationary failure, France, and the Euro. giofranchi Charles-Gave-Warns.pdf Charles-Gave-Get-Out-Of-Banks-Get-Out-Of-France-Get-Out-Of-The-Euro.pdf

Liberty Media? giofranchi

Thanks writser! Yes Gio, you should get a chair like mine! Hi guys! I had missed your suggestions till now… sorry! Actually, I don’t like to be seated for long… I know, I am a strange fellow… but the truth is I almost always walk or stand upright while reading!! Sometimes I also lift weights!! ;D ;D Probably, that’s why I don’t pay so much attention to how comfortable my chair is!! ;) Cheers! giofranchi

This is what I mean by “circle of competence”: please, read all twacowfca has written about LRE and ask yourself “does exist a company about which I can honestly claim to know as much as twacowfca knows about LRE?”. If I had to answer, it would be clearly NO! Though I am a bit ashamed to admit it… Then, ask yourself “why did twacowfca took the trouble to study and understand LRE so intimately?”. If I might, let me suggest the following answer: “Because that is the only way to invest.” Because that is the way Buffett, Carnegie, Rockfeller and a few others got their 20% annual returns. Let’s make it very clear once again: I am not talking about trading in and out of stocks! To buy a basket of statistically cheap stocks and to sell them when they are no longer statistically cheap works and will make you rich, but has not much to do with how twacowfca invested his capital so successfully in LRE. Now that I think of it, if measured by twacowfca’s standards, the problem I have is not that my “circle of competence” is very small, the problem actually is my “circle of competence” is non-existent!! :-[ Of course, I let twacowfca answer WhoIsWarren’s very good questions about the sustainability of LRE’s low corporate tax rate, and about LRE’s ability to expand into new niches. Why? … Simply because I ignore the answers… :( giofranchi

Well, you surely are quantitatively right, but my comparison was more a qualitative one. WEB 2007 AL Of course, LRE doesn’t earn 60% pre-tax on invested capital, it earns 20%. So the math is very much different! But qualitatively, imo, the two share the very important aspect of providing their owners with a very predictable and increasing stream of cash. Ok, I agree that See’s stream of cash increased at a pace much faster than what LRE might achieve in the future. But that is not the point! You better own the best cash machine you can find! This is the point! Who cares if it is not the next See’s Candies?! Because a cash generating machine gives you optionality, optionality makes you robust, and robustness gives you peace of mind and a clear vision. In other words, cash helps you to be rational! And, of course, in an intellectual game like investing actually is, rationality is a huge competitive advantage. At least, this is how I see it! But I might be very well wrong! giofranchi

Financial Sector: Bigger and More Profitable Than Ever giofranchi

Yes! Or, if I might suggest the comparison, with LRE you have your own See’s Candies. I like the comparison for three reasons at least: 1) Mr. Buffett and Mr. Munger were wise enough to pay up for the stream of cash See’s Candies would provide in future years; 2) See’s Candies has never grown very rapidly, and remained a relatively small company; 3) Mr. Buffett and Mr. Munger have always said the stream of cash See’s Candies generated throughout the years has been the source of a fantastic competitive advantage to them. So, buy LRE and get your own See’s Candies to work for you! :) giofranchi

I really hope you will share that idea with the board!! ;) giofranchi

Sorry to nit-pick here, but can I get some thoughts on the after-tax return to investors in LRE? My understanding of LRE is that the markets it plays in is quite small, so they typically can't reinvest capital earned at 19% RoE and therefore return excess capital to shareholders in the form of dividends. Unfortunately dividends are taxed. At the very least an investor will be subject to dividend withholding tax (say a pension fund), and may even be subject to tax at the marginal rate of income tax (over 50% where I come from). And that's the case whether you take the cash or reinvest the divis back into the company. So the after tax return to an investor in LRE is much different to the experience of an investor in a company that can use the capital internally. I guess the bottom line is that your 11% 'yield' on LRE is too high, or alternatively in order to get a 11% yield you should demand a lower P/B. Or maybe there are other future avenues / niches for LRE to deploy retained earnings at high returns? Any thoughts on this? Am I wrong to view it like this? Hi WhoIsWarren, first of all, you are right: the gross yield is little more than 11%. There is no doubt about that. And you are generally right, if you put in doubt the possibility to compound at 11% reinvesting the dividends. To that, though, I must comment that not all situations might be the same: for instance, I invest on behalf of my company. And it must pay state taxes at the end of the year on the earnings it declares. Foreign taxes on dividends, instead, are non-existent for LRE. So, actually, my firm gets to reinvest all the dividends it receives from LRE, as soon as they are accredited on our bank account, and then it must pay taxes at the end of the year on pre-tax earnings. Furthermore, as a service company, there are many ways to reduce the amount of pre-tax earnings declared, and therefore to delay tax payments in the future. Think about what Mr. Malone did with TCI (which in 1988 generated $850 million in cash and declared no earnings!), on a much smaller scale of course, and you roughly get the idea. Finally, just a few words about LRE’s prospects for growth: 1) LRE’s equity increased from $0.947 billion on December 2005 to $1.236 billion on March 2013, a 3.75% CAGR. On September 30, 2012 it reached a maximum of $1.5083 billion. That equates to a CAGR of 6.8%. Then it paid 2 special dividends in a 4 months time span: the reason why equity is currently low. 2) If it keeps growing equity at a CAGR in between 3.75% and 6.8%, let’s say 5%, 10 years from now it will have reached $2.01 billion. Imo, still a very low figure, if compared to the trillions of USD spent each year on insurance premium payments worldwide! So, everyone who thinks about LRE only in terms of “bond-like yield”, and doesn’t take into account at least a 5% CAGR in BVPS, imo is missing something important in valuing the business. giofranchi

WOW!! That’s what I call a VERY LARGE circle of competence!! ;) And I can see a VERY TALL pile on the floor: are all those papers about just one specific company?!?! ;D ;D Cheers! giofranchi

31.5% FFH 12% LRE 5.5% LMCA 4% MKL 4% GLRE 4% BH 4% VRX 3.5% BAM 3.5% TPOU 18% Cash (USD) 10% Basket of shorts giofranchi

Albert Edwards: "Has The US Recession Already Begun?" giofranchi Has-The-US-Recession-Already-Begun.pdf

http://apod.nasa.gov/apod/ap130606.html Very short and funny video! :) giofranchi

Hi Parsad! The letter you received from Mr. Buffett is simply amazing! Just a few days ago I received a PM from dcollon asking me if I had attended the SIC put on by Mr. Mauldin, and my answer follows: So, you see: I still behave exactly as you did way back in 1999-2000!! ;) I attach some pictures I have just taken of my own office (I am the worst photographer in the world!). Cheers! giofranchi

Enjoy! giofranchi MGI_Disruptive_technologies_Full_report_May20131.pdf

Well, there is always the “Lifetime Member” achievement… Sometimes I wonder: will I ever get there…?! And then I sigh deeply and melancholy…!! ;D ;D Cheers! giofranchi

-- The First Tycoon: The Epic Life of Cornelius Vanderbilt The great attention to the strategic aspects of business, rather than the tactics or operating aspects, is another trait Mr. Vanderbilt apparently shared with Mr. Buffett (and many other outstanding entrepreneurs throughout history). giofranchi