giofranchi

The reason why the iPhone is not a commodity product might be different form the reason why a Nike pair of shoes is not a commodity product. But that doesn’t mean the comparison is useless. There are always reasons why people want a product at all costs, and the reasons are never exactly the same for two different products! For Nike it might be that flash of red… For the iPhone it might be Apple’s ecosystem… The result in the end is the same: both products are products people want at all costs. Then the iPhone will truly have become a commodity product… But why do you assume it will be so? Cheers, Gio

Pete, I understand all you are saying and it is obviously the thesis of the bears. But it all boils down to one single question imo: is the iPhone a commodity product, or is it a product people want at all costs? Until now it has been THE single product people want at all costs, and sincerely I don’t see what has changed. I also agree what we’ll be able to do with our smartphones doesn’t matter much… if the iPhone were a commodity product. But if the iPhone is a product people want at all costs, the more things we will be able to do with the iPhone the longer new versions of the iPhone will be bought by already existing customers. Am I wrong? In other words, we are used to paying 9x EPS for a commodity product, aren’t we? Therefore, those who say AAPL is expensive today think about the iPhone not only as a commodity product, but actually as a POOR commodity product… Cheers, Gio

Personally I think quite puzzling how people might believe the smartphone market is saturated and will start to slow: 1) What we can do with our smartphone will only increase over time, and we will become ever more dependent on its use. That is at least until a new product replaces the smartphone… But I don’t see one on the horizon yet. 2) The smartphone will become the most necessary object we carry with ourselves not only for the young, but for the old too (think about healthcare and the constant monitoring of our biological signals). 3) I also don’t think it is growth that protects pricing. In fact what we have witnessed so far is volume growth in spite of pricing. What protects pricing is the fact the iPhone is not a commodity product. We won’t go back to the PC, will we? If nothing new that could replace the smartphone is even on the horizon yet, and the iPhone is not a commodity product, and therefore will continue to dominate the smartphone market, is it plausible to think EPS will not only stop growing but actually start decreasing? I don’t think so. Of course, you might think the iPhone is a commodity product instead. That’s a business judgement. Mine is as good as yours (probably yours is better!). But until now the iPhone has not been perceived like a commodity product by its users (for all the reasons that have been repeated many times on this thread). Cheers, Gio

http://www.marketwatch.com/story/apples-stock-sinks-on-concern-about-slowing-growth-2015-11-10?page=2 I don't understand what Mr. Kass means with this: Which multiple does Apple deserves? 5-7x EPS? ??? Even a company that won't grow anymore, and is selling for 9x EPS, isn't yielding more than 10%? Isn't 9x EPS a low enough multiple? Or will EPS not only stop growing forever, but also start contracting? Cheers, Gio

Keep in mind the track record of analysts who try to read the supply chain tea leaves. The company has much better visibility, and has a good track record with their guidance. Chances are, they will land somewhere close to the top end of their guidance, which would be pretty great considering the tough comp and FX headwinds. Per share results will be further improved by the reduce share count since last year. +1 Cheers, Gio

Well, I have meaningful investments in LMCK, LBRDK, and LILAK... I think I have enough exposure to Malone's companies and that those three are a bit easier to understand than LVNTA. That's the only reason why I don't follow LVNTA very closely. Otherwise, I would consider investing in it. Cheers, Gio

+1! No guarantees in business nor investing, of course. I just wanted to point out that survivorship bias might be a much larger issue when you decide to invest with “outsiders” who have not actually proven to be “outsiders” yet! ;) Cheers, Gio

Yeah, I think this is a big issue. I don't think it is as bad as most of the management books (e.g., Good to Great), as capital allocation is clearly important. It may just turn out to really say, "pay attention to capital allocation!", which we pretty much already know. Not to denigrate the book, I enjoyed it a lot. What about sticking with those who have at least a 15 years track record of being great at allocating capital? Who are at the helm of great businesses with favorable secular trends as tailwinds, in industries where competition is kept at bay? How much is survivorship bias going to render the final outcome unpredictable then? Cheers, Gio

Intrexon’s Billionaire CEO Is Betting on the Most Controversial GMOs http://www.wired.com/2015/11/meet-billionaire-ceo-behind-controversial-gmos/?mbid=social_twitter Cheers, Gio

I agree with all you have said. The fact is I don’t expect anything spectacular to occur holding cash either… But it could! In the case of a crash that comes soon. Cheers, Gio

+1 Cheers, Gio

Ok, so do you see too rapid a P/B expansion right now? Cheers, Gio

Well, generally cash is a very poor choice in an inflationary environment… Will FFH do even worse?! Maybe, but I don’t see why we should assume that. Catastrophic losses in their insurance / reinsurance businesses? I agree it is a risk. But luckily enough they seem to have become much better underwriters than they were just a few years ago. Cheers, Gio

I have just sold some Liberty Broadband and added some new cash to buy some LILAK. Is it good diversification, or "diworsification"? Cheers, Gio

Great opportunities might come even if a general market crash doesn’t happen. Think about the recent rout in the pharma and biotech industry. If you hold a company that is very diversified and very well hedged against the gyrations of the stock market, you can sell it when some great opportunities present themselves. I agree with Eric that in a general market crash FFH might not prove to be a good cash equivalent, but in almost any other circumstance I think it could serve that purpose quite satisfactorily. In fact I would say FFH will be a better substitute for cash, if no general market crash comes our way. If, instead, we will continue to witness crashes circumscribed to specific sectors (energy, biotech, whichever will be next), I guess FFH will be a fantastic substitute for cash: because, as Eric has pointed out, the effect of a slow compounding machine will be added to the great optionality cash offers. Cheers, Gio

+1 Then what? 1) You are not worried about a crash at all and you are 100% invested, 2) You are worried about a crash that might come soon and you hold cash, 3) You are worried about a crash that might come some years from now and you hold FFH, 4) You are worried about a crash, but you don’t know when it might come, and you hold both cash and FFH. Which of the 4 cases? Is there a fifth? Cheers, Gio

If I am not wrong, FFH during the first quarter of 2009 wasn’t hedged anymore. It had taken its hedges away at the end of 2008. This being said, I think no one is expecting FFH to stay at the level it is trading today in a market crash. But you have two options: 1) To hold cash, 2) To hold a company whose stock might decrease less than your other holdings in a crash, in order to sell it and buy more of those companies you like and which have been more hardly punished in the crash. In other words, to sell a cheap stock in order of buying an even cheaper one. I don’t know of a third alternative (or maybe yes: simply being 100% invested all the time… but I guess that doesn’t suit everybody well!). Cheers, Gio

Well, truth be told, when you end-up being acquired, the acquirer should be considering all the cash the business is going to generate in the future. Not only the cash the business is generating at the moment of the acquisition. Therefore, changes in the portfolio of products and/or in the cost structure of the business, that will lead to higher cash flows in the future, could be reflected only in the purchasing price. I follow activist investors because in my experience poor performance is very often the fault of poor management. Even when the performance of a business is not so bad, poor management is often the cause why a good business is only doing so-so. In my everyday life I am exposed to lots of businesses and very often I find myself thinking “if only that business were better managed!”. I have no doubt that lots of value can be created replacing the wrong management with the right one. I don’t have personally the financial wherewithal to do so, but some activist investors out there do. And since I follow activist investors, I have come to realize the biggest threat is a company that decides to fight them. That is when lots of time can be wasted without the ability to implement any meaningful change. Coming to your question about valuation: If you value BAX on a TTM EPS adjusted for the recent spin-off, it seems to be trading at a very high multiple (27x). Yet, please consider: 1) BAX after the spin-off is a much more focused business. The market does not seem to have realized that, since after the spin-off BAX has basically gone sideways. 2) Net margins seem to be very low if compared to the rest of the industry. Therefore, there is much room for expansion. 3) BAX is not fighting Loeb: in fact Loeb has already gotten two seats on the board and has replaced the old CEO with the one he has chosen. Given 1), 2), and 3) I think TTM EPS have very little meaning. The value of BAX depends very much on how good a job Mr. Almeida will be able to do. This being said, there is obviously no need to rush in here. I have just opened a small position to get involved and to keep following the story as it evolves. PS Even on a TTM basis, which as I have said has very little meaning, BAX seems to be trading at a discount if compared to Medtronic and Boston Scientific. While, if Mr. Almeida is successful, I see much more upside for BAX than Medtronic and Boston Scientific. Another one, Becton Dickinson, is selling for 3.2x Sales, while BAX is selling for 2.1x Sales. Also BAX still holds 19.5% of Baxalta, which is a $23 billion market cap company. BAX ownership of Baxalta could be valued at: $23 x 0.195 = $4.5 billion. If you take those billions away from BAX market cap, the market is assigning a valuation of $20.5 - $4.5 = $16 billion to BAX’s business. It is selling then for just 1.63x Sales. Well, to buy 10% of BAX Loeb must have invested almost $2 billion. What’s Third Point AUM? $20 billion? I don’t think it is much larger. Therefore, Loeb has put almost 10% of his fund in this idea. He might be talking his book, but surely (at least with this idea) he seems to be also putting his money where his mouth is! ;) Cheers, Gio

Well, I think the growth of the medical devices sector is more in line with the growth of the overall economy than with the growth of the biotech sector... Isn't it? Second, 120% or 140% in 3.5 years... Anything that doubles in less than 5 years is good for me! ;) I am not suggesting the same result will be achieved with BAX. I am only saying that the job done at COV has been quite satisfactory! Cheers, Gio

+1 That's similar to what I meant when I said that doing 3) will help you very much in getting better and better at doing 1)! ;) Cheers, Gio

I have opened a position in BAX. - Is it a high quality business? Maybe not yet, but it surely has the potential to be. I like the sector of medical devices and I think its future growth is predictable enough. - Is management great at creating value for shareholders? Mr. Almeida’s track record surely is very interesting and he knows the industry very well. He has been put in place by BAX’s largest shareholder, who evidently has lots of trust and respect for his abilities. - Is the price attractive? Valuation after a spin-off is very difficult to ascertain, but I like the idea of owning a “special situation” kind of company: if Mr. Almeida is successful in executing his strategy for a more focused company, today’s EPS have little meaning. Overall, I see the risk of a contraction in the multiple BAX is selling for if nothing good happens, with a huge upside if Mr. Almeida is successful instead. Cheers, Gio

Ahah!! ;) Thank you, Gio

I think CHRT, and I am not sure about LMCA... You might want to check it out! Cheers, Gio

Given they keep holding their equity hedges, and they keep holding lots of cash, I would surely like them buying more high quality companies at attractive prices. The fact the general market might be a bit stretched at this point doesn’t mean there are no high quality stocks selling at attractive prices. For instance, the companies controlled by Malone are cheap right now imo. And BRK has bought large investments in them during the last year or so. I surely would like FFH to follow suit. You know I also think AAPL is cheap right now: think of Mr. Icahn, who has said he is more hedged today than at any time in the past, and who has publicly said he shares many of the concerns FFH has about the general economy, but still holds a very large investment in AAPL. Cheers, Gio

Allergan Reports Exceptional Third Quarter 2015 Continuing Operations Performance with 90% Increase in Net Revenue to $4.1 Billion and 65% Growth in Non-GAAP EPS to $3.48 http://www.prnewswire.com/news-releases/allergan-reports-exceptional-third-quarter-2015-continuing-operations-performance-with-90-increase-in-net-revenue-to-41-billion-and-65-growth-in-non-gaap-eps-to-348-300172007.html Cheers, Gio