giofranchi

Hi ap1234! Though I cannot answer to your first question, I have argued for some time on the board that I believe FFH under the supervision of Mr. Barnard can achieve an underwriting profit in the future. He has done a wonderful job at Odyssey Re, and he will replicate that performance now he is supervising all of FFH insurance operations. When you buy troubled insurance companies, you are going to struggle fixing past mistakes for many years, either you are called Fairfax or you are called Berkshire. There is no easy way to cope with past mistakes for anyone. Though I cannot be sure about the timing, so I cannot answer to your third question either, I really think FFH has taken all the right steps to achieve a good underwriting performance in the years ahead. I want my firm to be a long-term shareholder of FFH, so I don’t dwell too much on timing, and I don’t even dwell much on quarterly or yearly results. Instead, I dwell a lot on their process. And there is nothing that I can see there, which I don’t like. :) giofranchi

Thank you very much for posting this one! :) giofranchi

Sign me up too. +1 That would be really great! giofranchi

Imo, not just good but great take on the state of the markets! Very good job Mr. Hay! :) giofranchi EVA+4.19.2013+NA.pdf

premfan, I am not sure I understand. Could you elaborate on that? Best, Ragu The statement above was a joke :D. Shareholders dont need to rationalize shady behavior just accept it. Just accept that the people you do business with doesnt matter if they promise riches. Just be honest and say you are looking for the next brk/luk and actions dont matter. You did which is great cause most shareholders try to rationalize cognitive dissonance. Investing in biglari holdings above BV where fairfax is trading around BV is madness if you are looking for compounders and the next brk/luk. To make money you need leverage. Many types of leverage: hedge funds, royalty fees, cheap debt, insurance float, and etc Biglari is the master of leveraging his shareholders for personal income gain. The shareholders are his leverage. How does biglari use his shareholders? Easy the blueprint is there. Model Buffet and target market value investors. Biglari holding is his leverage for becoming rich. Yes shareholders will get a little piece of the pie. Beggars cant be choosers. I'm done talking about this topic. Fantastic post! I couldn't agree more. Investors are choosing BH at above book, compared to Fairfax at or below book...crazy! Prem or Sardar? Hands down there is only one rational choice there! Especially when one has the enormous advantage of float and their team has a far superior record to creating shareholder value. You don't even have to consider ethics...just common sense would dictate you pick Fairfax over BH! Cheers! Parsad & premfan, no one is saying buy BH instead of FFH! My firm’s portfolio is 31.1% in FFH and only 4.8% in BH. But what I call “the man at the helm risk” should always be considered. If I could trade like Eric, whose portfolio was 0% in FFH 4 months ago, whose portfolio now is 50% in FFH, and whose portfolio will yet again be 0% in FFH after the next crisis, well, I wouldn’t care at all about “the man at the helm risk”! Yet, unfortunately…, I am not like Eric! Think of it: to trade like Eric, you not only have to get the big picture right, you must also get it more right than Mr. Watsa. Your timing must be better than Mr. Watsa’s. Otherwise, why bother jumping in and out FFH?! Clearly, I am not that person. Instead, when I make an investment, or when I start a new business venture, I always think in terms of 10 years at least, and I always ask myself: what’s the quality of the people I am partnering with? How long will the partnership last? Alas, the answer to the second question is always at best only a guess. For instance, even young, talented, and trustworthy people cannot control illness or accident… Therefore, you must have some diversification. That’s the only reason I put some capital in my second, third, fourth, etc. best ideas. Do you think it is so crazy? Thank you! :) giofranchi

giofranchi giofranchi, this isn't really "news". Here are some snippets from the Q4:12 earnings call (mid-Feb 2013): Brian Lawson (CFO): "The board also approved a normal course issuer bid that permits us to repurchase approximately 55 million shares and Bruce will speak further on this in his remarks." Today's "news" is that they have received regulatory approval from the Toronto Stock Exchange. Other snippets from the earnings call were the following: Bruce Flatt: "In addition, as a result of this cash generation, we will also likely use portions of it to repurchase common shares in the company. Brian just mentioned the renewable of our common share issuer bid which often we authorize, but don't use. But depending on price and other opportunities, we may use a large portion of this 50 million plus share issuer bid over the next year to repurchase common shares with this excess cash." And in answer to a question: "I guess, Michael, these are all capital allocation decisions and to answer this question, one that was asked earlier, our business is about capital allocation at the most senior corporate level and all we do is decide whether we should take money out of one thing and put it into another. There is no doubt our shares are we believe are a good investment compared to other things, some other things today. And as we harvest cash, one of the places we'll look to – is to pull in stock. I don't think we should specifically say whether we're going to be in the market buying at these levels are not, but it's very possible over the next year that as I said in my notes, that we'll use a portion or a significant portion of our allotments." So I would be surprised if there wasn't a meaningful number of shares bought back over the next year. But, as I say, this isn't "news". Hope this helps. P.S. Gio, were you at the Fairfax AGM? I was there and was keeping an eye out for you to have a chat......alas! So many people, so little time..... Hi WhoIsWarren, I never have the ambition to give you “news”… you are always one step ahead!! ;D ;D I haven’t read the conference call transcript yet (I think it is stacked under a thick pile of other documents… I am always late!!), and I didn’t know Mr. Flatt had talked about “50 million plus” shares buyback! I think it is an important number, that speaks loud about what management thinks IV really is. Thank you! No, unfortunately I could not be there… I would have liked it very much, just to meet you and other very thoughtful investors I have come to know on this board… I will surely arrange things so that I get the chance next year!! :) Gio

giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

It is precisely because he is afraid of and threatened by losing control that his behavior might have been questionable... I remember Mr. Munger referring to the Mr. Buffett of the early ‘70s as “the serial acquirer”… Probably, way back then it wouldn’t have been pleasant to stand in Mr. Buffett’s way… Mr. Watsa has full control over Fairfax, if not as a majority shareholder, at least through the ownership of voting shares. Right? I say this not to excuse improper behavior, but just to point out that maybe biaggio is right, and when Mr. Biglari finally gets full control, he will also behave very differently… In business the threat of losing control is a very real and dangerous one! It is impossible to always be proven right by the market and to always grow with the same high speed… year after year, month after month! And, if you have not full control, it is easy that people, who, instead of focusing on the process, focus just on results (even worse, quarterly results!), might start questioning your judgment and your way of managing operations and deploying capital. Then, you are in serious trouble, the whole organization actually is! Parsad, Don’t you think this might somehow explain Mr. Biglari’s behavior until now? Thank you, giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Hi biaggio! Right now it is a 4.5% position (the smallest in my portfolio), that I would gladly increase to 7.5%, if a correction comes. Here I would also reply to Hielko’s last post. I tend to focus on the process very much. I really think there are some patterns that I recognize as successful. And I want to partner with entrepreneurs who have molded their business in accordance with those patterns. They are essentially ways of managing operations and ways of deploying capital. In this framework of mine character traits have almost no place. That is because I have an extremely hard time inferring anything from a character trait. I mean, a lot of very successful entrepreneurs have much in common in the ways they manage operations and deploy capital. Yet they might possess very different characters and personalities. Beyond honesty, which is absolutely required for business success, but which I wouldn’t exactly label a character trait, I have a very hard time to judge, for instance, how much humbleness on the one hand and arrogance on the other might influence business success… I dare say sometimes you should be humble, sometimes you should be arrogant… arrogance, for instance, might help you stand your ground when the crowd moves momentarily against you… of course, it would kill you, if because of it you cannot recognize your errors… yet, I am not sure arrogance per sé always keeps you from admitting your mistakes... I have met many arrogant people who weren’t endowed with a bit of self-criticism, but I also know some arrogant people who instead are... Likewise, arrogance per sé won’t certainly give you power of will... You see? Imo, too many shades of grey! Then, why not a 15% position? Because the patterns I recognize might certainly be incomplete. Just because I cannot infer much from character traits doesn’t automatically mean character traits are not crucial to business success. In fact, a lot of people, that I have much respect for on this board, actually think they are! So, I like how Mr. Biglari manages BH’s operations and how he deploys its capital very much. Yet I must acknowledge my inability to judge how much behavioral flaws might get in the way and spoil things. How have I chosen to cope with that limitation of mine? Capping for now my position in BH at 4.5%. Just a few words about “serial entrepreneurs”: I had already heard the expression, so my best guess is that they exist… though, if they actually do, I have still to meet one! I agree that failure might be catastrophic for a retiree (of course, then, he shouldn’t have dabbled with stock picking in the first place, and be content buying an index!), but failure is not benign to entrepreneurs either. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

I liked it too! Although, I was not smart enough to have benefited from the “bubble”… :( giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Yes! That perfectly applies to the kind of managers Mr. Icahn often refers to! Please, take a look at the video I posted in the IEP thread. They are not entrepreneurs. And I don’t think Mr. Biglari is that kind… but I might surely be wrong! Why do you think an entrepreneur could restart from scratch if his business fails? Even if he can, why should it be easier for him, than it is for any other investor? An entrepreneur’s job is to shift capital from an area of low returns to an area of higher returns. If he fails in his judgment, he loses the capital at his disposal. Perhaps you think he can easily put it back again the second time? Again, this is a trader mindset. Nothing wrong with it! But entrepreneurs rarely think in terms of “independent bets”. Usually, they just have a few ideas they understand much better than their competitors, and think they have found much value there. By your standard, the great majority of entrepreneurs never get involved with a sufficient number of different businesses to even build a so-called “track record”! That doesn’t mean you cannot recognize who really has skills from charlatans. The soundness of the process, imo, matters a lot. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Interview with Mr. Malone: http://www.cnbc.com/id/100637283 giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes Q1_2013_CoreValueCommentary.pdf

Well, “fastest” and “easiest” perhaps, although I seriously doubt it!, but surely you also want “safest” and “very long lasting”. If so, the ONLY way is to increase IV. I speak out of experience: not that I have ever tried to deceive my partners… ;D, but sometimes I have made the mistake to act or to make a choice, without explaining the facts underlining my reasoning in details to my partners. Some sort of trouble always ensued… Any time, without exception. And my partners are just family members and close friends! And I have never even dreamt of doing something dishonest! I just had the superficiality of not explaining myself clearly enough (mistake that I won’t commit anymore!). Running a productive business, you will never get rich and stay rich without transparency and honest behavior. Hielko, your experience is different from mine? You run a business without full transparency, and still are successful at it? Or, maybe, you personally know someone who does? Well, “concentrated” is very different from “leveraged”. I know that most traders don’t like the idea of being “concentrated” as much as they don’t like the idea of being “leveraged”, but entrepreneurs are not traders. And entrepreneurs are always concentrated. Most of them run just 1 business. Some run 2 or 3, but no more. Once again I speak out of experience: my own firm manages just 2 kinds of operations (engineering services and for profit education), that, by the way, are closely linked. Every entrepreneur with which I do business runs very few operations, only the ones he understands very well. Even when I invest the fcf my firm generates, I choose a concentrated portfolio made of just a few companies that I have studied a lot, and in which I have full confidence. I find it very difficult to switch mindset, and I prefer to stick to what I know. Well, Mr. Biglari behaves like an entrepreneur, and not like a trader. That doesn’t automatically mean he takes foolish risks! I find it very ironic to think that only traders can be “widely diversified”, entrepreneurs don’t have such a “luxury”, and yet there would be no trader without entrepreneurs!! ;) Once again, is you experience different from mine? Do you know many entrepreneurs who successfully run 50 different businesses? giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

If it is so, I guess he is smart enough to understand that the safest way to get and stay rich is to increase the value of BH at the fastest rate compatible with a margin of safety. Any other way won’t do it. I am positive he knows this very well. As far as arrogance is concerned, the same things could have surely been said about Mr. Malone or Mr. Icahn some decades ago. Personal character traits are very difficult to judge, and might be misleading. The evidence, though, is clear enough: Mr. Biglari has successfully built and controls a compounding machine like no one else his age, at least that I know of. Until now he has been much more successful than the great majority of his peers, despite the obstacle that his arrogance might represent. Like all of us, he has some strengths and some weaknesses. As long as his strengths outnumber his weaknesses, I think BH will be fine. Time will tell. :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

2012 Annual Report. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes 2012AR.pdf

Hoisington Quarterly Review - Q1 2013 giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes HIM2013Q1NP.pdf

Horizon Kinetics on Oaktree Capital & Others. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes Scalablility_Mar2013.pdf

I agree. But, as Mr. Buffett has very often repeated, all other things being equal, he much prefer to buy whole businesses than parts of companies through the stock market. And the reason, imo, has much more to do with fcf redeployment than complete control over management (“we won’t provide management. If you need managerial help from us, it means we are both in trouble”, right?). Dividends in some cases might account for only 30% - 40% of earnings. And, after being distributed, they are taxed. Vice versa, fcf some years might even be higher than reported net earnings (ask Mr. Malone!), and of course it stays inside the company, so it is not taxed twice. That’s why I said that Mr. Buffett’s situation might not be so easily duplicable by others! :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

+1 Unfortunately, when you buy insurance (I think that’s exactly how Mr. Einhorn looks at Gold) and then disaster doesn’t happen, you are going to look foolish to the great majority of people… You might argue that Mr. Buffett never buys insurance, and you would be right… if you don’t look at the $1 billion in free cash BRK’s businesses send to Omaha each month as the very best and most effective of insurance policies! ;) So, do learn from Mr. Buffett, but always keep in mind that your situation is not, and probably won’t ever be, even close to his. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes Imo, the real question is: does Gold qualify as an effective insurance policy? On not? If it actually can fluctuate that much, I have come to the conclusion that it doesn’t qualify. That’s what I have asked Moore, because he undoubtedly knows a lot about the precious metals market and to hear from him would be great! (Though I know he is very busy!) :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

+1 Unfortunately, when you buy insurance (I think that’s exactly how Mr. Einhorn looks at Gold) and then disaster doesn’t happen, you are going to look foolish to the great majority of people… You might argue that Mr. Buffett never buys insurance, and you would be right… if you don’t look at the $1 billion in free cash BRK’s businesses send to Omaha each month as the very best and most effective of insurance policies! ;) So, do learn from Mr. Buffett, but always keep in mind that your situation is not, and probably won’t ever be, even close to his. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

What Are Gold Prices Saying? giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes What_Are_Gold_Prices_Saying.pdf

If that is so, and probably it actually is, the reason is that almost nobody understands the importance of a sound currency, of a currency that ultimately makes real economic sense. Mr. Keynes showed us its importance and insisted on how political reasons should never interfere. The Euro simply doesn’t make any economic sense for Italy, Spain, Greece, or even France, and the result is that from 2000 onward all those countries are continuously losing in competitiveness against Germany and northern countries in general. And the longer it lasts, the larger that gap will become. Those who view the Euro “as a guarantee against the poor administration of their own politicians” imo are day-dreaming. As soon as you choose a currency for political reasons, instead of economic ones, you know you are in serious trouble. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Great! Really fascinating stuff!! I am deeply humbled by my ignorance… You do a wonderful job and I am positive there is a lot more to be known and discovered out there! :) --Albert Einstein giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Eric, I must admit I am not a tax expert. I have one who works for me and my partners. And we trust him (maybe, not the best of policies!). What we have done is that we have never distributed a dividend for the first 7 years, while for the last two years I have agreed to pay at least a “symbolic” dividend. :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes