giofranchi

I want to make clear that I don’t think Sir John Templeton’s “Yale Plan” is a timing system. Sir John Templeton followed the “Yale Plan”, BECAUSE he did not believe in timing systems! In fact, Sir John Templeton was among the first investors to look at stock markets all over the world. Even if he truly was a global investor, there were many times when he preferred to hold a lot of cash and bonds. I just don’t see the European markets shoot up, while the S&P Composite sinks… My best guess for 2013 (but who cares!!! ;D ): S&P Composite will go up, maybe not as much as in 2012, and European markets will outperform. And I will hold protections and I will underperform again!! >:( giofranchi

Well, it obviously depends on two things: 1) Has Markel overpaid for the acquisitions made for ventures? 2) Have the true economic values of the businesses Markel acquired increased or decreased? If the answer to question n.1 is: no, they have not overpaid. And if the answer to question n.2 is: after the acquisitions, they have kept increasing. Then, there is absolutely no reason to exclude goodwill from BV per share. Warren Buffett has clearly thought us in his 1983 letter to shareholders: And also: giofranchi

Well, I guess it was in “The Forgotten Man” that I have read Mr. Mellon disliked Mr. Hoover because: “He is too much of an engineer.” Engineers might be very smart and very good technicians, but to invest successfully you must first of all be “wise” and be a “deep thinker”. I know very few engineers who qualify… Of course, enoch01 and I are wonderful exceptions!! ;D ;D ;D giofranchi

- Jose Raul Capablanca, Cuban chess player who was world chess champion from 1921 to 1927 and one of the greatest players of all time History suggests the endgame for stocks is S&P Composite P/E10 of 10 to 12 in the coming years. When, of course, nobody knows. What will cause the decline in prices, of course, nobody knows. Will it be a gradual contraction in P/E, or will it happen all of a sudden? Of course, nobody knows. Even if you don’t believe that history will rhyme, and instead you believe this time it is different, you should ask yourself: can stock prices really stay elevated forever? What are the implications? Well, the most obvious implication is that we will never see a new secular bull in stocks again. Because the only true reason for a secular bull in stocks to begin is that their prices are very much contracted. So, if today you hold a lot of cash (or some put options, or some short positions), it means you believe in endgame n.1. Vice versa, if today you are 100% invested in the stock market, it means you believe in endgame n.2. But, please, don’t tell me the endgame is irrelevant, because, like Mr. Marks has said: “if you don’t follow the pendulum, and understand its cycle, then that implies you always invest as much money as aggressively.” Personally, I have an idea where the pendulum will be a few years from now, and I think the following quote is crystal clear: Prem Watsa, FFH Conference Call Q3 2012 giofranchi

The Baupost Group on the morality of the Fed Fortunately, my firm also generates fcf that I can go on investing, whatever happens to the stock market. But, its yearly fcf is just 12% to 15% the capital I have invested in the stock market. I believe my firm’s investments will do significantly better than the market, should any correction come. But a 30% decline in general prices would anyway mean that the fcf generated by the work and efforts of an entire year will be wiped out… Not so sure my partners will enjoy the ride… giofranchi And yet that would be the perfect time to add to your positions. I think a perfect example to point out to your partners is as bad as it was a few years ago look what a buying opportunity it also turned out to be if you had cash available. Are the partners family or private investors? Sophisticated or not? Both family and private investors (mostly friends). And not very much sophisticated... they are all engineers... ;D Really, I have control on my company… that’s not what worries me! I just don’t like to be “all in” all the times! Do you know of any Poker player who plays that way?! ;D Dry powder is important. Cannot believe otherwise… giofranchi

This of course seems the right thing to do, but properly identifying the rise and fall seems hard to do. I tend to think Marks guidance is the most useful for this, and as I said above, each time he's been asked in the last few years, he's said, "neither too optimistic or too pessimistic", or something along those lines. I tend to think that ignoring the macro is the thing to do, unless it is in the extremes (very high or low/very low)--if it is in the middle, stick with micro! racemize, let’s think for a moment at the history of debt super-cycles and where we are today. As the Keynesian Endpoint I posted in the Macro “Musing” thread shows (I think very well), the last time we were so close to the “Detonation Rate” was 1941. Mr. Watsa has repeated many times that the last comparable period in modern history, to the period we are living trough, are the ‘30s and the ‘40s in America (or the ‘90s in Japan). Now, if you read “The Great Depression, A Diary”, you will find that almost nobody got the 1937 “extreme” right, probably because the 1937 extreme was way below the 1929 extreme. And on a 10-year cyclical-adjusted P/E basis the 1937 extreme was exactly where we find ourselves today! I don’t mean to say the stock market will decline in 2013. Actually, I don’t believe that! Instead, it will probably still go up, like Mr. Tepper believes! Maybe a lot! What, on the other hand, I want to say is that to get only the extremes right is very much difficult. Sir John Templeton didn’t believe he was able to do that. Remember Mr. Graham who has said: “anyone who wasn’t defensively positioned by 1925 would have been wiped out during the 1929 crash!”. Or something like that… Mr. John Hussman keeps saying the market is in the worst 1% or 2% of all weekly observations in a century of data. Mr. Jeremy Grantham forecasts no return for US large caps and a negative return for US small caps for the next seven years… who really knows if we will get the chance to see even more extreme valuations? Remember 1968: valuations were not much higher than they are right now, S&P Composite P/E10 of 24 vs. a P/E10 of 22 today. And we know that on an inflation adjusted basis the market declined 63% from 1968 to 1982. I think it is very risky to call both a top and a bottom. Adjusting gradually, you might forfeit some gains, no doubt about that! But I think it is much easier and less risky to do. giofranchi

enoch01, I agree with you! And I am always in the stock market! It is just that I am not always 100% in it with my firm’s capital. As I have already written in this thread, Sir John Templeton’s “Yale Plan” still makes a lot of sense to me. And it is a very easy and actionable way to “follow the pendulum”, like Mr. Marks is used to saying. First, I want to know how much stock market exposure is reasonable and safe, then, with the capital I have decided to keep invested in the stock market, I look for bargains. Furthermore, I do not believe only in the extremes. Anyone who has studied Sir John Templeton knows he advocated a gradual shift from stocks to bonds + cash, when general stock prices were increasing, and a gradual shift from bonds + cash to stocks, when general stock prices were declining. Because he never believed a second neither in speculation nor in forecasting. giofranchi

The Baupost Group on the morality of the Fed Fortunately, my firm also generates fcf that I can go on investing, whatever happens to the stock market. But, its yearly fcf is just 12% to 15% the capital I have invested in the stock market. I believe my firm’s investments will do significantly better than the market, should any correction come. But a 30% decline in general prices would anyway mean that the fcf generated by the work and efforts of an entire year will be wiped out… Not so sure my partners will enjoy the ride… giofranchi The_Baupost_Group_on_the_Fed.pdf

And sometimes the obvious needs to be bolded :) If the market being high is followed by a general decline in prices, do you still believe the rebound in the housing and auto sectors will be unaffected? giofranchi

Dish Network Corp., Icahn Enterprises, and The Howard Huges Corporation. giofranchi Dormant_Assets_December_2012.pdf

Thank you ourkid8, I always enjoy reading a very well exposed investment thesis! giofranchi

plato1976, thank you for your questions and the doubts you have raised! Generally, I never follow or try to understand every movement the management of a company I invested in is making. I don’t think I can have all the facts to judge them properly. And I believe that partial or incomplete knowledge is more dangerous than no knowledge at all! :) At least, it surely is misleading. So, what I tend to do is first try to read everything I can about the management, understand what they have done in the past and what they will (probably) do in the future, and most of all get to know how they will operate and why. Second, if I really could get comfortable with how they will operate and why (it happens very rarely indeed!), I tend to let them do their job. So, I am not familiar with what Tom Ward has done at SD, nor with the Fibrek takeover offer. And I would be grateful, if you could briefly summarize your objections regarding both Tom Ward and Fibrek. Thank you, giofranchi

Eric Sprott on Gold and Silver: http://seekingalpha.com/article/1080891-eric-sprott-i-think-we-are-in-for-a-shortage-of-physical-gold?source=feed giofranchi

Article on Seeking Alpha: http://seekingalpha.com/article/1080301-markel-bargain-opportunity-presented-by-arbitrageurs?source=feed giofranchi

twacowfca, that quote of yours is a wonderful Xmas present! ;) I will purchase that book right away, and read it asap! May you follow in your great uncle’s footsteps! :) giofranchi

Thank you frith2012, I will surely check it out! giofranchi

The Keynesian Endpoint. giofranchi

I find this hard to believe without further context. Without technology we would live in trees. Is the quote from the book "Antifragile"? Yes! From the paragraph “Life Is Long Gamma”, page 185 of the hardcover version of the book. Anyway, I don’t know if he is right about real estate and technology. I believe, though, he is quite right about banks! ;) giofranchi you would be very wrong then, as it relates to banks. It is flashy to say that and if you look across the spectrum, but on an individual bank level massive amounts of wealth have been created in the banking sector by prudent and solid operators. Thank you Junto, you really stirred my curiosity! If you have read some posts of mine, you know what I look for while investing my firm’s fcf. And I am always on the lookout to find other investments that might match my criteria. And I would be much grateful, if you could provide some suggestions in the banking sector! Maybe starting a new thread titled: “Owner-operators with an outstanding track-record in the banking sector”. Or something like that… I guess it could interest almost everybody on this board! :) giofranchi

Thank you Parsad, I think they will surely do! I remember sometimes ago I purchased a book titled “Warren Buffett Invests Like A GIRL – And Why You Should Too”… I bought it, but never read it… Now I plan first to read Hetty Green’s biography, then to discover why Mr. Buffett invests like a girl!! ;D giofranchi

Yes, we not only bought it, but jumped in with both feet after I finally understood why Warren loaded up on a stock that was obviously sliding down a slippery slope to bankruptcy. I didn't understand it at first as other value investors were bailing out of a sinking ship while Warren was loading up his truck with 15% of USG's stock. What's wrong with this picture, I asked. Has Warren suddenly become senile? No, the evidence showed he was still as smart as ever. He also knew more about asbestos liability than anyone else on the planet. Therefore, I bought some USG stock and averaged down to $11/share on the falling knife. I thought USG would lose 95% of its value as Dow Corning and WRGrace had done, and that's what happened. I stopped buying and a week later the stock bottomed at less than four dollars per share, and I'm sitting with a loss of about two thirds of my average purchase price, and USG is in Cpt 11 bankruptcy. This got my attention, and I started to spend some serious time (translation: become obsessed) studying USG and their situation. Two weeks later I finally understood the key insight Warren had from his first purchase, and I backed up my truck and started throwing in the moneybags, but still with a little nagging thought: could these possibly be counterfeit? WOW! That is very much “brain damage”! I mean, wonderful stuff, but so time consuming and difficult! … Sometime I think I must be a little dumb … I keep asking myself, why everybody try harder and harder to succeed in doing what’s so complicated?! Isn’t it much easier to extract all the cash possible from anyone’s business, job, or profession, and just buy some BRK, some FFH, and some LRE? And do it again and again, at least until you become financially independent? Why do people enjoy so much outsmarting everybody else in the trading game? Isn’t it rewarding enough to run a honest and useful business every day as effectively as possible, to save as much cash as possible, to be able to identify a few great businesses, and to use all your saving to become part-owner of those great businesses? Maybe, it is just an issue of lack of ambition on my part… but, twacowfca, on average how do your “trading experiences” fare, if compared with your investments in BRK, FFH, and LRE? Thank you very much, giofranchi

Yes! I also read that poem some days ago: really a lot of great stuff on your blog!! Congratulations and keep doing such a wonderful and very useful job! giofranchi

I find this hard to believe without further context. Without technology we would live in trees. Is the quote from the book "Antifragile"? Yes! From the paragraph “Life Is Long Gamma”, page 185 of the hardcover version of the book. Anyway, I don’t know if he is right about real estate and technology. I believe, though, he is quite right about banks! ;) giofranchi

Farnam, thank you very much for posting this on your blog: http://www.farnamstreetblog.com/2012/12/hetty-green-the-richest-woman-in-america/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+68131+%28Farnam+Street%29 My favourite quotes: A girl ought to be careful about the man she marries, especially if she has money. When good things are so low that no one wants them, I buy them and lay them away in the safe; when owing to some new development, they go up and my shares are so needed that men will pay well for them, I am ready to sell. Railroads and real estate are the things I like. Government bonds are good, though they do not pay very high interest. Still, for a woman safe and low is better than risky and high. Common sense is the most valuable possession anyone can have. Ah! If we all could learn more from the women in our lives...! ;) Just out of curiosity: someone (Parsad, of course) knows how many women are members of the board? I would read their posts with much attention! I have purchased both the book and the audiobook. giofranchi

+1 giofranchi

Well, if a very peculiar corporate culture is LRE’s source of success, I don’t really think LRE and GLRE are that much different! GLRE’s staff is composed by just 24 people, who take all the decisions. Brendan Barry is Chief Underwriter Officer and has a staff of only 8 people. GLRE probably is as free from “standard bureaucratic procedures” as LRE is. Certainly, how you use the capital gathered collecting premiums is important. Because it affects the overall results of the company (rate of growth in BV per share). But that doesn’t mean the underwriting part of GLRE shouldn’t learn from LRE, and even try to emulate what Mr. Brindle & Co. achieved in the past and will go on achieving in future years. In fact, I really hope that Mr. Hedges and Mr. Barry might study Mr. Brindle with the utmost attention and respect, and follow in his steps! giofranchi