giofranchi

+1 And in that vein I would like to attach a very basic paper by Mr. John Hussman, but one that I always reread with great pleasure: “The Two Essential Elements of Wealth Accumulation”. May everybody on this board accumulate a lot of wealth during their lifetimes, not just as a goal by itself, but as the outcome of a journey of constant self-improvement and of the attainment of ever deeper knowledge. giofranchi The_Two_Essential_Elements_of_Wealth_Accumulation.pdf

HJ, you are right and I agree with you 100%. That’s precisely why I would not invest in Fonsun right away. In my experience political backing is as dangerous and unpredictable as it gets… Anyway, both Guo and Liang are still very young: there will be plenty of time to watch them, to better learn how they operate, and to get confident of the fact they actually have more in common with Berkshire than Russian Oligarchs. ;) Thanks for your thoughtful remarks! giofranchi

It should also be pointed out the fact that Fosun founders and other key senior executives jointly hold a 79.46% stake in Fosun Int’l, making their interests fully aligned with those of the public shareholders. giofranchi

Bill Gross on "Strawberry Fields - Forever?", and Charles Gave on "The Control Engineers and the Notion of Risk". giofranchi OTB121215_2.pdf

BCG on "Ending the Era of Ponzi Finance". giofranchi BCG_Ending_the_Era_of_Ponzi_Finance_Jan_2013.pdf

I think a company that during the last 7 years increased BV at a 55% CAGR might not have encountered serious bumps in the road yet… so I guess yours is not an easy question to answer, though a very important one! Anyway, here is how Mr. Guangchang commented steel operating results in his 2011 Review: It seems to me they recognized and openly admitted difficulties (over-capacity in the steel industry), while also trying to find some alternatives: for instance, shifting production to stainless steel and other special steels. twacowfca, sorry for this most unsatisfactory answer of mine… understand I just started studying this company yesterday… :) giofranchi

Well, from the articles you posted I learnt that both Saudi Prince Alwaleed and Hong Kong billionaire Li Ka-shing invested in Fosun’s IPO. They might not properly be called “value investors”, but they surely are very accomplished businessmen (that is an understatement!!). And I reckon their interest in Fosun to be a great endorsement of the quality of its investment platform. giofranchi

hellsten, I have read Mr. Guangchang letters to shareholders. I was not particularly impressed by his first three public letters (2007, 2008, 2009), but the 2010 and 2011 missives were much better, and full of great information. The guy is improving very fast! I do not tend to trust people, instead I trust (or distrust) their process, their “modus operandi”. If I can understand what they are doing and why, I am able to judge if they will be successful, or if they will fail. And in my experience satisfied, fulfilled, and therefore rich people are much more reliable than unsatisfied, unfulfilled, and therefore poor people. Well, the 2010 and 2011 letters to shareholders are full of interesting insights into their ways of doing business, investing, and growing the Fosun platform. Some examples: I also like the strategy of relying on their “three growth engines, namely industrial operations, investment and asset management”, to pursue their goal of becoming “a premium investment group with a focus on China’s growth momentum”. Mr. Guangchang stresses many times the idea of helping and facilitating the introduction of global brands into the Chinese market, “combining China’s growth momentum with global resources”: And again: He also seems to understand the usefulness of insurance float: I also like their focus on gradually shifting from cyclical business to more non-cyclical, consumer related assets: They can also boast very renowned international partners: Mr. John Snow, former Treasury Secretary of the United States is advisor to the Board, the Carlyle Group works with them in choosing global brands to invest in and introduce to the Chinese market, Prudential has became Fosun’s first international LP. I have checked their web-site, and it is full of information: besides very exhaustive semi-annual and annual presentations, they also publish a monthly newsletter, to better and more frequently communicate with shareholders, keeping them in touch with the advancements in their strategy. I guess they realize it is important to gain the trust of foreign investors, and they put emphasis on being as easy to understand and follow as possible. Finally, I think they are doing all the right things to keep on growing and compounding their capital for a very long time. Imho, they are doing all it takes to be ever more satisfied, fulfilled, and therefore rich people! That’s a very good reason to give them a chance! That being said, it doesn’t mean I will invest in Fosun next Monday morning… but I will surely keep them on my radar! They are very young, and therefore there will be plenty of time to partner with them! One final thought: if there is a way to capitalize on China’s growth, today Fosun is the best way I am aware of. giofranchi

Sportgamma, I agree with all you have written. And I really think you have done your homework on Exor remarkably well, and it will surely turn out to be a great investment! ;) Cheers! giofranchi

7-yr BV CAGR = 55.3% 7-yr NPV CAGR = 21.1% http://media.corporate-ir.net/media_files/IROL/19/194273/Fosun_International_2011_annual_result_presentation_EN_final_20120413.pdf giofranchi

Thank you very much hellsten! I didn’t know of Fosun International, but it seems quite interesting, and I will surely look into it. giofranchi

Hi Sportgamma, it is always a pleasure to exchange ideas with you, as with many others on this wonderful board. Thank you all! But I don’t look at the operating companies at all! I like LUK and LMCA, and a few other companies, because they are in the business of “buying $1 dollar bills for 50 cents”, without all the weaknesses inherently embedded in the mutual or hedge fund business model. And, among all the endeavours of mankind “to buy $1 dollar bills for 50 cents”, as far as I know, will be the safest way to accumulate wealth for a very long time to come. Because, to paraphrase Mr. Taleb, it is the most anti-fragile business I know of. From page 67 of “Antifragile: Things That Gain from Disorder”: “Consider, as a thought experiment, the situation of an immortal organism, one that is built without an expiration date. To survive, it would need to be completely fit for all possible random events that can take place in the environment, all future random events. By some nasty property, a random event is, well, random. It does not advertise its arrival ahead of time, allowing the organism to prepare and make adjustments to sustain shocks. For an immortal organism, pre-adaptation for all such events would be a necessity. When a random event happens, it is already too late to react, so the organism should be prepared to withstand the shock, or say goodbye. We saw that our bodies overshoot a bit in response to stressors, but this remains highly insufficient; they still can’t see the future. They can prepare for the next war, but not win it. Post-event adaptation, no matter how fast, would always be a bit late. To satisfy the conditions for such immortality, the organisms need to predict the future with perfection – near perfection is not enough. But by letting the organism go one lifespan at a time, with modifications between successive generations, nature does not need to predict future conditions beyond the extremely vague idea of which direction things should be heading. Actually, even a vague direction is not necessary. Every random event will bring its own antidote in the form of ecological variation. It is as if nature changed itself at every step and modified its strategy every instant.” That’s exactly my idea: Coca-Cola, or any other business that has been very successful for a very long time, is striving to become the “immortal organism”, the business of “buying $1 dollar bills for 50 cents”, instead, is “nature”. Of course, even nature itself isn’t immortal, and it might come a time when no more bargains will be there to be found… but, sincerely, I think it will possibly be my grand-grand-nephew’s problem! It is kind of funny that, when I worry about how long Mr. Buffett will be at the helm of BRK, the most common response is the following: “we will deal with the succession problem 10 years from now!”. And Mr. Buffett is 82. Now, Mr. Malone, instead, is just 71… why should he leave Liberty Media anytime soon?! In the article I read yesterday I found this most amazing feat: “Liberty made more than a half billion dollars in loans to Sirius XM nearly four years ago. Taking advantage of Sirius XM's immediate need to refinance debt in a very tight credit market, Liberty was able to earn 15% interest on the loans. In addition to the high interest rate, Liberty was also able to buy a 40% equity stake in Sirius XM for $12,500. The investment also granted Liberty the authority to approve cash certain expenditures in excess of $10 million. That $12,500 investment is currently worth more than $7 billion at current Sirius XM share prices of $2.75-$2.80.” Some time ago I read “The Greatest Trade Ever” about Mr. John Paulson. Well, that book must certainly be rewritten, because no one ever created so much value as Mr. Malone has done with Sirius XM! If the numbers are true, and I have no way to ascertain that, Mr. Malone is in the business of “buying $1 bills for… 0.00018 cents”!! And that was just 4 years ago! My assumptions regarding Liberty Media: Mr. Malone will lead us for the next 10 years, and he is right now at the very top of his game. Of course, my assumptions could be proven wrong today, or tomorrow: “When the facts change, I change my mind. What do you do, sir?” Keynes. One last thought about Exor: their largest investment by far is FIAT. I don’t know how they operate, but I doubt they invested in FIAT opportunistically… They will surely be in FIAT as long as FIAT exists. FIAT right now might be a fantastic trading opportunity, but do you really think it is a good long-term holding? To jump into FIAT, when it is dramatically undervalued, and then get out, when its share price approaches fair value, might be a very rewarding use of capital. But that’s not what they are going to do. giofranchi

Very funny!! ;D …But too pessimistic! I don’t believe that is true at all. Vice versa, I see a bright future for the US. :) Cheers! giofranchi

Thank you ASTA! I know that Bestinver has a meaningful position in Exor. I will look for the interview on their website. It seems you have already done your homework on Exor: can you tell me their track record on a 5, 10, and 15 years basis? I have checked very quickly, and all I could find was the increase in NAV during the past 3 years. Not enough for me! Also because the management team seems relatively new, and therefore unproved (Enrico Vellano became CFO in 2006, Alessandro Nasi became Vice President of Business Development of CNH in 2008, and Mario Bonaccorso joined Exor in 2007). If I cannot project earnings at least 5 years into the future, with some sort of confidence, I almost never invest. Even if the price looks very cheap. giofranchi How would you project earnings for the next 5 years at Liberty Media or Leucadia for that matter? When you value Exor, the weight should go to analyse how they manage value (Gio, I also recommend that you read Valuation, Measuring and Managing the value of companies, by McKinsey CG). In regards to management, I would put more weight into J. Elkann and S. Marchionne as they are truly the ones in charge. Elkann has been on the board of Fiat since he was 21 years old (he is an engineer, such as yourself Gio). I don´t think I have seen an Xth generation (I think 4th in his case) descendant in a family business who is as competent as him. He also seems to be have a very humble personality (there is an anecdote about him working at a Fiat factory in Birmingham and even the family he stayed with were unaware of his family background). A few points: 1. Take a look at the transactions and structural changes that Elkann and Marchionne have implemented after they took charge and form an opinion on the quality of their decisions for Exor shareholders. Look at the spin-offs, the acquisitions, buybacks and simplification of capital structure. 2. Giovanni Agnelli & C. owns 59% of ordinary shares and 39% of preferred shares in Exor and J. Elkann has managed to gain total control of Giovanni Agnelli & C. Ask yourself if the fortunes of J. Elkann is aligned with the rest of the Exor shareholders. 3. Compare what Fiat has done since 2008 with, for example, Pegout. 4. Take a look at Fiat, Fiat Industrial, SGS and C&W. You could look at the track records on a 5, 10, and 15 years basis. You can also review S. Marchionne´s 5 year plan for Fiat and what the expected price per share should be if they accomplish 70% of their goals and look at how sensitive it is to scale efficiencies. 5. Look at the valuation and think about what you find to be the appropriate corporate discount for Exor. Thank you Sportgamma, actually I have read “Valuation”, among many other books about valuation. However, with the only possible exceptions of “Accounting for Value” by prof. Penman, and “Value Investing” by prof. Greenwald, I find all those books on valuation to be intellectually very interesting, but practically of little help. The reason is that I almost never try to value a company: instead, I am only interested in coming up with a conservative figure for what might possibly be the return on my investment for the next 10 years. And that is never easy, of course, but, as far as Liberty Media and Leucadia are concerned, I am quite comfortable with my assumptions. They are based on an extended and well-documented track-record, with a management that could go on performing very well for the next 10 years. Most important of all, I think I understand what the management of both Liberty Media and Leucadia did in the past, and what they are still doing today. It is this “understanding” that gives me the required confidence to partner with them, even more than their historical track-record. Not so with Exor… not even close! When I asked Christopher1 what he thought about Exor, he answered: “I rarely invest in Italian companies… I have seen too many bad things happen in the past…”. I couldn’t agree more! That being said, I really do not have an opinion regarding Exor. I don’t know the company and I don’t know its management. I know that almost everyone on this board boos Mr. Biglari, but I think that in his latest letter he wrote at least one thing that can be appreciated: "Our approach to purchasing stocks is to concentrate capital into very few concerns. We focus our attention and capital in an attempt to increase returns yet concomitantly reduce investment risk. Therefore, we limit our appraisals and allocations to businesses we can rationally assess, immersing ourselves in understanding a business rather than attempting to study many shallowly. As a consequence, our range of investments may be narrow, but within it we must be supreme. Analysis that is a mile wide and an inch deep is fool’s gold." Likewise, I don’t pretend to know every bargain that is available (Exor trading at 0.5 x NAV might certainly be a very good bargain!). What I am positive about is that I prefer to know Liberty Media and Leucadia well, then to know Liberty Media, Leucadia, Exor, etc. approximately. giofranchi

Mr. Ray Dalio on ValueWalk: http://www.valuewalk.com/2012/12/ray-dalios-bearish-2013-outlook-austerity-coming-qe-losing-efficacy/ giofranchi

The latest presentation from Mr. Gundlach: http://www.docstoc.com/docs/138374979/12-11-12-To-Catch-A-Thief-webcast-Slides---FINAL giofranchi

New article about Sirius and Liberty Media on Seeking Alpha: http://seekingalpha.com/article/1056331-how-many-sirius-xm-shares-will-liberty-media-sell?source=feed giofranchi

Ross, thank you very much again! Useful and much needed information! giofranchi

Well, I sell call options and so far so good!! ;D No, really, I don’t consider selling call options to be such a dangerous business… if you know what you are doing, have a well-conceived plan, and the discipline to stick to it. Anyway, both GLRE and LRE deal with risks. In the insurance industry they are going to make money, if they are better than others in assessing risks, otherwise they will lose money. That’s why I am much more confident in LRE’s future underwriting performance: because, if there is a person who is good (actually, the best!) at assessing risk, that person is Mr. Brindle! GLRE, on the contrary, is not proven. But I trust Mr. Einhorn’s judgment very much. And I think they have the luxury to underwrite very conservatively, because of Mr. Einhorn’s skills as an investor. Mr. Buffett said that, if he were to start it all over again, he would buy a small insurance company and grow from there: my firm has not enough capital yet to follow his advice, but surely I can partner with people who are doing so. :) giofranchi

Well, what you pointed out is recent share price performance. And actually it seems to have been not bad, but neither stellar. Return on invested capital, on the contrary, looks very good to me: Onex Partners I, 2003-2006, Net IRR = 39%, Onex Partners II, 2006-2008, Net IRR = 11%, ONCAP I, 1999-2005, Net IRR = 33%, ONCAP II, 2005-2011, Net IRR = 12% From the notes: Net IRR is based on total investments and represents returns earned by third-party Limited Partners in the Funds after payment of performance fees, management fees and expenses. Those are recent results and look very good to me. Furthermore, OCX Proprietary Capital per Share increased 16% in 2009 and 17% in 2010, both exceeding their 15% stated goal. giofranchi

Thank you, accutronman. That's nearly a perfect summary of Lancashire and where they are going. The only thing I might add, as expressed before, is that their long term record of producing virtually identical returns covers more than two decades if Lancashire is viewed as an extension and fulfillment of Brindle's career at Lloyd's. :) Usually, I don’t pay attention to price targets, but I agree that the summary of Lancashire is well written: short, but very clear and useful. :) Thank you, giofranchi

Well, AP, your answers ARE my analysis!! ;D They were very clear and useful! Thank you for sharing your knowledge with us and congratulations for your successful investment in Onex! giofranchi

Gio, I get comfortable with the P/TBV when I compare Bidvest to it's food service peers. I just did a quick and dirty look on reuters comparing price to BV and TBV . Here is what I found (P/BV) (P/TBV): Bidvest- 3.15x 5.38x Sysco- 3.81x 6.13x Nestle- 3.37x 11.3x Food service companies are not going to have high TBV numbers like insurance, banks, oil and gas, and holding companies. Make no mistake, Bidvest is a food service company; the company started to vertically integrate their food service business and has since expanded into new lines of business, but new lines of business and ~50% of their revenue comes from the food service business proper. Bidvest should be valued at P/E (I choose 13.5x) or P/Cash Flow (I choose 10x). A good indicator of the Bidvests intrinsic value may come from the unsolicited bid they received (and rejected) last year for their food services unit of 4 Billion US. Remember the food service unit makes up only 50% of their revenue. At the time Bidvest was trading for 6.2 Billion for the entire company. Since then their food service revenue is up 18% and the majority of their food service revenue comes from Europe: http://bidvest.com/ar/bidvest_ar2012/images/pg38_2.png What is going to happen when Europe begins to grow again? CAGR of declining from 21.3% in the last 21 years to 13% for the last 10 years is something to consider. I don't expect to make 21% for the next 20 years, but I am confident they can maintain a long term growth rate of 15%. Keep in mind the last five years were the worst economic climate for Bidvest since they were founded: http://financialresults.co.za/2012/bidvest_audited2012/images/charts.jpg Bidvest still managed to grow HEPS at 10.2% which means the preceding five years they where growing at approximately 16% which I expect. By the way, the 3 year eps growth rate is 15.6% so if you exclude 2008 and 09 (negative growth) they maintained an ~16% growth rate over the last decade. Bidvest is my largest investment because the company has a clear path to continue to compound at 15%. Their focus is on the recession resistant food service business, and they have proven to be experts at entering new markets. Bidvest is expanding around the world doing what they know best, food services, then adding organic growth to EPS through vertical integration and cutting costs. I like to keep an eye on the stock price and buy at 13x or below. Last fall the price touched $36 (P/E of 10x). There are opportunities to pick up shares at great prices when the stars align and the Rand falls to the dollar at the same time BVTJ.J comes under pressure on the JSE. In October I added twice at 46 then 44 and change. Ross, great answer! I knew I was looking at Bidvest from the wrong perspective! And I will surely invest and partner with Mr. Joffe: I am reading his letters to shareholders and they are great! I just want to make sure that I won’t overpay. Among the metrics they emphasize in the Group financial history there is cash generated by operations, but I could not find free cash flow. I will look for it, but do you know which percentage of earnings generally translates into fcf? In other words, is Bidvest a capital intensive business or not? I can see that in 2012 Earnings yield has been 8.1%: can it be said that also fcf yield has been around 8%? With a distribution yield of almost 4%, that would leave still a lot of money for Mr. Joffe to invest in acquisitive growth. Thank you again, giofranchi

jay21, actually no! I don’t know NICK… why don’t you start an investment idea thread on that company? I am always curious, when great people to partner with could be found, and when their abilities are temporarily disregarded by the market! :) Now I will check it out! Thank you, giofranchi

Ross812, I really like Bidvest and Mr. Brian Joffe! Still I have got some doubts: on a P/E basis, with a 6.74% earnings yield and a 3,21% dividend yield, it clearly doesn’t seem to be overvalued. But on the AR2012 you can find that net tangible asset value per share is 4,270 cents, while the stock last close was 21,876 cents. It seems to be trading at 5 times net tangible asset value per share… Is it correct? If so, how do you justify it? HEPS growth seems to have declined from a 21.3% CAGR during the last 21 years to a 13% CAGR during the last 10 years. Also the growth in net tangible asset value per share seems to have declined from a 19% CAGR during the last 21 years to a 10.5% CAGR during the last 10 years. I am surely missing something here! Could you please explain? Thank you! giofranchi