giofranchi

"Antifragile", by Mr. Taleb giofranchi

David Rosenberg's 35 Charts For 2013 giofranchi David_Rosenbergs_35_Charts_For_2013.pdf

Well, I really shouldn’t be the one to answer your question: twacowfca is much more knowledgeable than me both with regard to the insurance/reinsurance industry as a whole and, of course, with regard to Mr. Brindle and his very peculiar skills. Anyway, what I can tell you is that imho Mr. Brindle is an outlier, someone who achieved a 19% ROE for 20+ years with very low volatility in an industry as competitive as insurance. And that amazing result was achieved just through his shrewd and opportunistic underwriting skills, because he almost always followed an extremely conservative investment policy. In any downturn (and I certainly don’t know when, but I am positive a new downturn is awaiting for us somewhere down the road) LRE will be very robust: exceptional underwriting coupled with very low investment risk is where you want to be during any crisis! I don’t know Mr. Hedges or Mr. Courtis track record, before joining GLRE, but I guess they cannot hold a candle to Mr. Brindle… That being said, I hope I am wrong: if Mr. Hedges should turn out to be as good an underwriter as Mr. Brindle is, GLRE’s future will be a bright one indeed! (and I will make a lot of money!! :) ) giofranchi

twacowfca, don’t you think it is always a good idea to invest in something that could benefit from short-term volatility/disorder, still retaining the potential to “do well long term regardless of Mr. Market’s moods”? Ok, maybe not such a good idea at the beginning of a secular bull, but what about now? When general stock market prices are high and a bundle of still un-restructured debt plague the whole developed world? That’s why I have loaded the boat with FFH. giofranchi

Very good (and reassuring) stuff! And thank you very much for your answer about MKL and their new deal! giofranchi

+1 +1 giofranchi

ap1234, I clearly cannot speak for Parsad, but, if I might guess, I would suggest that “overvalued” means MKL purchased all Alterra shares at book value, using its own shares that were trading at 1.2 x book value. So they were “overvalued”, if compared to what MKL was able to buy with them. Parsad, please forgive me, if I am way off the mark! MKL actually increased BV per share at a 17% CAGR since 1991 (21 years). Nothing that compounds BV per share at 17% is overvalued, I mean in “absolute” terms, selling at 1.2 x BV. Furthermore, with the Q4 2012 end of the year rally in stocks, and with a low exposure of MKL to Sandy, I wouldn’t be surprised to see its BV per share at $405 by year end, that’s to say 10 days from now. Today I bought a small position, that I plan to significantly increase in the future, at $445: $445 / $405 = 1.1 x BV. Or Buffett’s (former) threshold to buyback BRK shares. MKL is a very good business and I like the Alterra deal (at least for what I could see on its presentation). I look forward to averaging down aggressively in the future. giofranchi Gio,... I had admired Markel for probably over a decade, since I ever heard of them the first time. And I have religiously studied their annual reports, which are a master piece of integrity. They are in my opinion in the crown league of owner run insurance companies/i.e. jockey stocks (BRK, FFH, MKL, LUK). I purchased MKL shares after the financial crises and owned them til last year,... but redeployed my MKL funds into much cheaper BAC. So, I would agree with Sanjeev, that MKL is currently in my opinion not extremely cheap. But their current deal is good, because they do the purchase with some nicely valued stock. Hi berkshiremystery, I have absolutely no doubt that BAC right now is much more undervalued that MKL (or at least it was a few days ago: congratulations to all of you for the very nice rise in BAC stock price!). But you also know that I just don’t jump from an undervalued stock to another. I know and understand well it is a very sound way to make a lot of money, but I just don’t enjoy the process… Instead, what I like is running businesses, which generate some free cash flow, and use that cash to buy other businesses, that become parts of my own firm (or, at least, I like to think about them that way! Call me delusional…). Therefore, I wait for the right price, I buy, and then I very seldom sell. From this it immediately follows the great emphasis I put on knowing the management very well, on understanding what they are doing (how and why), and on trusting them 100%. I never start a project, within the two businesses that I personally run, if I don’t have the right people in place. Why should I invest differently? I know that striving to maximize the fcf I can extract from my businesses, using it to purchase owner/operators at good prices, stick with them, and constantly increasing my firm ownership of those businesses over time, will surely turn out to be a much slower way to accumulate wealth, than jumping opportunistically from one undervalued stock to another. But that’s what I like to do! And I literally “tap-dance” to work every morning: why should I change something that makes me feel so good?! :) Just for the sake of completeness, it is not true that I never sell: but, when in fact I do sell, it is to adjust my firm’s portfolio to the overall market exposure I want it to maintain. As I have already said, Sir John Templeton’s “Yale Plan” still makes great sense to me, and I try to follow it as best as I can. Look, with the exception of the two businesses I fully control, my firm’s other investments are all listed in some stock exchange: to believe they are not subject to market risk is dangerous and simply not true. Finally, I would really like to know what twacowfca thinks about Markel and their new deal with Alterra: very few people are as knowledgeable as twacowfca about the insurance industry, so his opinion would be greatly appreciated! Thank you, giofranchi

Great! Thank you, Christopher1! Cannot wait to put my hands on this one! :) giofranchi

I think he just means overvalued relative to LUK's issuance, which was below book value and has a similar compounding record. racemize, sorry! I hand't read your post yet! ;) giofranchi

ap1234, I clearly cannot speak for Parsad, but, if I might guess, I would suggest that “overvalued” means MKL purchased all Alterra shares at book value, using its own shares that were trading at 1.2 x book value. So they were “overvalued”, if compared to what MKL was able to buy with them. Parsad, please forgive me, if I am way off the mark! MKL actually increased BV per share at a 17% CAGR since 1991 (21 years). Nothing that compounds BV per share at 17% is overvalued, I mean in “absolute” terms, selling at 1.2 x BV. Furthermore, with the Q4 2012 end of the year rally in stocks, and with a low exposure of MKL to Sandy, I wouldn’t be surprised to see its BV per share at $405 by year end, that’s to say 10 days from now. Today I bought a small position, that I plan to significantly increase in the future, at $445: $445 / $405 = 1.1 x BV. Or Buffett’s (former) threshold to buyback BRK shares. MKL is a very good business and I like the Alterra deal (at least for what I could see on its presentation). I look forward to averaging down aggressively in the future. giofranchi

dcollon, I have ordered it, but haven’t read it yet. Christopher1, instead, has already read “Cable Cowboy” (he is always one step ahead of me!! ;D ) and told me it is very interesting: for instance, he found that from 1974 Mr. Malone returned 91,000% for his shareholders! That’s better than Mr. Buffett and a result even our star ERICOPOLY could envy…!! ;D I really look forward to reading it! giofranchi

Hello ASTA! I wasn’t aware of the fact that Mr. Weschler bought this company for BRK! That’s a useful piece of information, and prompts me to dig deeper and investigate the company further! Thank you very much, giofranchi

Yes! Thank you very much for this recommendation. I have bought the book right away and I am positive I will enjoy reading it very much! :) giofranchi

It seems to be the only wide-moat company in the Morningstar’s universe to still deserve a 5-star rating (besides Applied Materials, Exelon, and Western Union, which seem destined to a perennial 5-star rating!). Price / Fair Value is just 0.65. Furthermore, its moat trend seems to be positive, and its management very shareholder oriented. Please, find the Morningstar’s analysis in attachment. Anyone follows this company and knows it well? Thank you, giofranchi National_Oilwell_Varco_Dec2012.pdf

Mr. Jeff Gundlach on Bloomberg: http://www.zerohedge.com/news/2012-12-18/jeff-gundlach-fiscal-cliff-circus-and-why-investors-should-hold-cash-through-2013 giofranchi

Does it sound too “materialistic” to wish you all not just a happy 2013, but also a very prosperous, rich and thriving new year?! ;D ;D ;D giofranchi

Point is, if you're not managing OPM, you can be fearful, max cash and that's fine. You don't have a mandate. Tepper used the word relative quite a bit...he's smart. Relative to cash at 0%, a lot of things look cheap. But, relative to cash with "honest" interest rates, not so much. Thank you for posting this: very interesting! giofranchi

And sometimes the obvious needs to be bolded :) Well, my firm already operates in the housing sector… I don’t want to invest there! Guess then I will have to look at the auto sector… ;) Thank you PlanMaestro and enoch01! giofranchi

I agree. Great book: a lifetime achievement! I think I have never used as many post-it to mark the pages of any other book before or since I read "Thinking, fast and slow". :) giofranchi

I am completely out of bonds right now. And I am 70% invested in high-quality stocks. Much more than the “Yale Plan” would suggest to be safe at the prevailing market valuations. The reason is that I also keep 8% in gold, and 22% shorting low-quality, cyclical stocks. My own adaptation of an hypothetical 30% stocks 70% bonds portfolio, in the age of “The Great Moderation”, is a long/short strategy. Results will be very lumpy, I know, and in the short run (2013) I clearly run the risk to lose money. But I really cannot get comfortable with any other strategy… giofranchi

That sentence doesn’t really make sense to me. As with every business, some insurance companies are fragile, others are robust, others (ok, I agree, the minority by far!) are even anti-fragile (see, for instance, FFH and LRE). It all depends on management. Management of an insurance company has three duties: 1) To asses risk better than the insured, to know the premium under which an underwriting contract risks becoming unprofitable, 2) To restrain from underwriting a contract, when competition forces the premium to fall below the minimum level required for the contract to be profitable, 3) To invest opportunistically the float gathered through the years. An insurance company that fails in 1), 2), and 3) is fragile, one that succeeds at least in 1) and 2) is robust, and one that succeeds in all those three endeavors is anti-fragile (it will literally benefit from volatility and disorder, like all successful investors do). That being said, I think Mr. Taleb makes a clear distinction between a single insurance company and the insurance industry. The insurance industry as a whole is clearly anti-fragile. The bigger the disaster, the more scared, and therefore the more irrational, the insured become. The more irrational the insured become, the greater the edge the insurance industry has on them: 1) benefits from disorder. Furthermore, the greater the disaster, the less dumb capital is available in the insurance industry: 2) benefits from disorder. giofranchi

Charting US Debt And Deficit Since Inception. giofranchi Charting-US-Debt-And-Deficit-Since-Inception.pdf

John Mauldin on Gold. giofranchi December_17_2012.pdf

Interesting thesis by Broyhill Asset Management. giofranchi CCH-Thesis-Dec-12.pdf

PlanMaestro, thank you very much for posting this: a lot of food for thought! If I have understood properly what Mr. Tepper is saying, he believes the stock market is cheap, because of all the money the Fed is going on printing, and because it is keeping interest rates at zero. Now, let’s go back a second to Sir John Templeton’s “Yale Plan”: the variations he advised to a typical 60 percent program are summarized in the following table: 6th zone above stock market normal: 10% maximum in stocks 5th zone above stock market normal: 20% maximum in stocks 4th zone above stock market normal: 30% maximum in stocks 3rd zone above stock market normal: 40% maximum in stocks 2nd zone above stock market normal: 50% maximum in stocks 1st zone above stock market normal: 60% maximum in stocks Stock market normal zone: No change necessary 1st zone below stock market normal: 60% minimum in stocks 2nd zone below stock market normal: 70% minimum in stocks 3rd zone below stock market normal: 80% minimum in stocks 4th zone below stock market normal: 90% minimum in stocks 5th zone below stock market normal: Fully invested in stocks So, now let’s look at the graph in attachment: it seems that right now the valuation of the stock market is in its 80th percentile. Which is like saying the stock market right now is in the 4th zone above a normal valuation: 30% maximum in stocks. At least that’s what history suggests. Of course, it might be possible the Fed will succeed in making history irrelevant. But it surely takes Mr. Tepper, a much better investor than I am, to make such a call! It is extremely difficult for lesser investors, like myself, to play the Fed game and, in doing so, muster the confidence to disregard history! I think the “Yale Plan” is simple, straightforward, actionable, and will ultimately lead to at least a moderate amount of success. Instead, playing the Fed game is fraught with difficulties and uncertainties, even if it might give you the chance to book much larger profits. I really would like to know what you think about this. Thank you again, giofranchi