giofranchi

It is always a great joy, whenever I come to know a wonderful business, managed by an outstanding capital allocator! --J. Michael Pearson, AL 2012 What else should we look for in a business? I have always loved the pharmaceutical business, and my firm has been a shareholder in Johnson&Johnson, Novartis, and Abbott Laboratories for a long time. I had chosen those three companies, because of the capital allocation abilities they had proven to possess. Especially Novartis, under the lead of Mr. Daniel Vasella, whose letters to shareholders are imo the best in the industry… until I read Mr. Pearson’s! JNJ, NVS, and ABT size was also somewhat of a concern to me: it is one thing to grow a “$3-4 billion revenue company to a $10-20 billion company”, it is a completely different thing to grow a business that already has sales around $60 billion… I just think the former goal is much more predictable than the latter! So, it is with extreme pleasure that I think I have now found a pharmaceutical company, with a great focus on capital allocation and therefore maximization of shareholders return, and with a size that still guarantees a lot of room for future growth. Furthermore, Mr. Pearson embodies all the features I look for in a reliable business partner, he is only 52, and will be able to compound shareholders capital for a very long time. Cash EPS for 2013 are expected to be in between $5.55 and $5.85. $5.55 represents more or less a 7.5% FCF yield on yesterday closing price. Although most of us look for at least a 10% FCF yield, please consider that Cash EPS have increased at an “out of this world” annual rate of 45.4% since 2008! If for the next 10 years the CAGR in Cash EPS dramatically falls to “just” 15%, and at the end of the 10 years VRX still sells for a multiple of 13x (which is not implausible at all!), the return from the investment would be a 15% compounded annual. Yesterday I initiated a small position on behalf of my firm in Valeant Pharmaceuticals, with the hope to average down aggressively in the future. PS Drokos’s post in the “Outsiders” thread compelled me to dig deeper and read much more about Valeant, than I had already done until that moment. :) Also Christopher1’s suggestions were much useful, as always! :) giofranchi

Like I've been saying since last year, I'm out of NA markets except for ~20% of my portfolio in FFH. The numbers show a huge amount of optimism, the Shiller P/E is over 23, etc. Any major piece of bad news can easily provoke a 40-50% crash. Europe has a Shiller P/E below 14, and you can read everyday articles in FT and other serious publications warning of an impending eurozone break up, half of Europe is in deflation, etc. We haven't had any QE yet, only austerity and more austerity. The indicators show that all that pessimism is baked into stock prices. Which market do you think has more upside? txitxo, you already know we have different views here… If the US stock market crashes, every other market all around the world will follow suit. Valuations, pessimism, etc. won’t matter at all. I don’t know of a single instance in which the US stock market crashed and Europe’s instead proceeded undisturbed! Not a single one. I don’t see why this time should be different: imo, everything will fall together. giofranchi

wisdom, words of wisdom! ;D ;D ;D giofranchi

Hi hellsten, unfortunately I think I cannot help you… I have no interest to invest in the Italian stock market… I know it is very cheap, and I might be missing a very good opportunity… but I don’t know of any public company that really interests me, in which I would invest for the long-term. As strange as it sounds, I consider the Italian stock market to be “outside my circle of competence”… ??? giofranchi

Conference Call Transcript Q1 2013 giofranchi oaktree-capital-s-Q1-2013-conference-call-transcript.pdf

Eric, I am not sure I have understood your comment… You really see opportunity costs today?! ??? Well, even if there were some opportunity costs today (Hey! They are very well hidden!! ;)), FFH is trying not to incur opportunity costs that will be 4 times higher in a 1 or 2 years time! That is obvious, so I must have missed the true meaning of your comment… giofranchi

SharperDingaan, I am sure your trading strategy must be much more sophisticated than that: 1) Ever since I have started following FFH on a daily basis some years ago, it has never traded below 0.95 x BV… 2) At 1.1 x BVPS FFH is cheap. The market already is irrational about FFH. Of course, you could bet on the fact that the market gets even more irrational… But I don’t make such bets… What if, instead, its price from now on fluctuates in between 1.1 x BVPS and FV? While BVPS compounds at 15% annual? Following the trading strategy you have suggested, I would completely miss a wonderful investment, that I think I understand very well, and in which I think I can put full confidence. The problem is you cannot afford missing many such investment opportunities, because most probably you will find just a few in a lifetime! It is clear you know the dynamics of short selling much better than I do… So, I must again admit that I don’t understand why FFH could have gone under… Anyway, what I know about business follows: a business that is still controlled and managed by its founder, and that still has an equity > 0, is solvent, no matter what short sellers say or do. My business has equity > 0, and I have full control over it: if anyone, no matter who he or she is, comes to me tomorrow and says I have to close doors, I will be very glad to meet him or her at the door... with a gun in my right hand and a rifle in my left hand!! ;D ;D During its 27 years of great results FFH has experienced a maximum yearly drawdown in BVPS of (21%) in 2001: not even enough to wound it seriously, like subsequent years have demonstrated. giofranchi

Another very strong quarter for OAK... Hey! Wait! Wasn't OAK supposed to be a "defensive" stock?! ??? giofranchi Oaktree_Announces_First_Quarter_2013_Financial_Results.pdf

Q1 2013 Conference Call Transcript giofranchi greenlight-capital-re-Q1-2013-conference-call-transcript.pdf

Or, maybe, like petec pointed out, they are just highly illiquid? I am just guessing here… Of course, you are right! But that’s precisely why I don’t see Mr. Watsa boast about capital gains that he knows will necessarily have be reversed in the future! Still, I am going on guessing… In general, I agree Mr. Bradstreet will have an hard time replicating past successes. But to post capital losses on a bonds portfolio managed by him quarter after quarter seems too pessimistic! giofranchi

Yes! That makes sense, thank you! Though, Mr. Watsa wrote enthusiastically about California bonds in his AL2012: He spoke about $1,279.5 million in unrealized gains and didn’t warn about future capital losses, if they were assured?! It seems very unlikely… What I have always admired the most in Mr. Watsa is something I look for in everyone I choose to partner with: “an under promising, over achieving attitude”. Now, he boasts about capital gains, failing to warn about future capital losses?! ap1234, what makes you believe that those bonds are selling above par value? Couldn’t it be that in 2009 they were just selling circa 18% below par? After all, like Mr. Watsa has pointed out, in 2009 California was considered to be on the verge of being non-investment grade. And now, after appreciating 22.9% on their original cost, they are trading around par? giofranchi

--Chuck Akre, Akre Capital Management giofranchi

Sorry, but I don’t understand. Why keep a bond bought at $50, that is trading at $120, and that will mature at $100? At $120 it is clearly overvalued! Why wait for it to mature, instead of just selling it at $120? I must be surely be missing something here, but I don’t understand why Mr. Bradstreet would keep overvalued investments. giofranchi

New article on Seeking Alpha. giofranchi liberty-s-plans-for-siriusXM.pdf

That's would be awesome! I'd pre-order it. :) Yes! Wonderfull! Cannot wait to get to 2015!! :) giofranchi

Hi ap1234, from Q1 2011, when FFH started reporting investment results on a marked to market basis, as required by the IFRS, the only two quarters in which FFH declared a loss on its bonds portfolio were Q1 2011 and Q1 2013, and cumulatively they have declared a gain of $1,278.7 (2011) + $728.1 (2012) – $119 (2013) = $1,887.8 million. I understand people might be worried that future results from FFH’s bonds portfolio won’t match past results, because interest rates are bound to rise sooner or later… but, to lose money?! With Mr. Bradstreet managing that portfolio?! I might be wrong, but just don’t see it happening! :) giofranchi

Yours has surely been the most exciting and thrilling of week-ends!! I envy your chat with Mr. Kyle Bass, I envy the Southern California sunshine… I also envy the sleet and rain in Omaha!! ;D And your joke about the different weathers and the different moods is great fun! Cheers! Gio

Hi David! So, how was the conference? Any thought to share with the board? Thank you very much and take care :) giofranchi

--Bruce Berkowitz, Firholme Capital giofranchi

SharperDingaan, 1) I really wish I knew how to buy in the troughs, and how to sell on the crests, but I don’t… I think Parsad said there are 1,400 members of this board. Maybe 100 of them know how to buy at the bottom and how to sell at the top… what about the remaining 1,300? What I think I know is how to recognize a wonderful business, and how to wait for the right price to get in, then I “own” a wonderful business, I do not “trade” it. Will I get inside the Forbes400? Most probably not. Will I be financially successful and do what I enjoy doing all my life? Most probably yes. 2) No, you don’t have to hope for hurricanes. You just have to do what any shrewd businessman is doing right now: to be cautious. It has been 4 years now that, despite debt all over the developed world has never been higher in human history and despite the fact that central banks need to go on buying new debt at an ever increasing speed, the market has done nothing but going up. You must be cautious. Ask yourself: what would happen to the market, if central banks stop buying? I repeat: you must be cautious. And to be cautious means not to reach for yield: as I have said, FFH could increase BVPS at 7%-10% annual WITH equity hedges in place, if it keeps achieving CRs around 95%. To be content with 7%-10% annual is to be cautious. In a two years time, either a hurricane will have come our way, or we will have dodged a very dangerous bullet. In both outcomes equity hedges will most probably be gone, and FFH will resume compounding BVPS at 12%-15% annual (exactly what a wonderful business is meant to do!). Irrespective of the outcome, what FFH is doing now is what should be done. I don’t understand what you mean. Could you please elaborate a little bit further? Thank you, giofranchi

Junto, what I wrote was actually just to paraphrase what Mr. Zell had said. I absolutely didn’t mean to quote his words or the interviewer’s! To me what was important is just the general meaning of Mr. Zell’s words, not his exact words. Actually, now that I have listened again to the interview, I realize Mr. Zell hadn’t said he was “building cash”, he just said he wasn’t increasing his positions in the stock market. Therefore, I inferred he was building cash… Anyway, here is the link to the interview: http://www.zerohedge.com/news/2013-04-10/sam-zell-stock-market-feels-housing-market-2006 giofranchi

+1 :) giofranchi

--Seth Klarman, The Baupost Group giofranchi

Hi One World Trader! And welcome to the board! I agree with you, and I simply think any father/mother should make his/her children read “The Richest Man In Babylon”, as soon as possible! And, sincerely, I don’t understand how this book is not mandatory reading in school… … Cheers! :) giofranchi

You don't really need margin calls. You just need a lot of other relatively more appetizing bargains. I'm sure if WFC is at $8 again, AXP is at $10 again, etc.. etc... a given number of shareholders will once again dump their FFH. Given the hedges, there will always be people who hold it as a "defensive" position, an "alternative to cash". Those people will be gone when huge bargains arise. Anyone buying their FFH shares will have to ask if the price for FFH is low enough to make them choose FFH over the rest of the bargains out there. Thus the price will come down. --Seth Klarman If FFH makes a ton of money and its stock price declines nonetheless, I couldn’t care less. The CAGR in BVPS for the next 20 years is all I care about. :) giofranchi