giofranchi

Started reading it today (actually, listening to its audiobook). I enjoyed both "Fooled by Randomness" and "The Black Swan". Hope this one is as good as the first two! :) giofranchi

I generally don’t like to see much debt on the balance sheet of a P&C insurance company. Like you said, I think that good insurance companies can borrow money (gather float) trough their operations at very cheap rates. Great insurance companies can even borrow money for free! That’s one important advantage (among many) they enjoy on other money management vehicles. Why then pile up debt, on which they must pay substantial interests? A little debt might be justifiable, but I would like to see it remain a relatively small percentage of equity. giofranchi

AP, thank you very much and welcome to the board! This board is just great: when I don’t know something, and it happens very often, I only have to ask, and someone, who is much more knowledgeable than me, answers!! :) So, I will take advantage of it, and ask you some more questions: 1) Do you share Frank’s doubt that they might be reporting an inflated value of proprietary capital? Or do you think that management is honest and trustworthy? 2) From 1984 until 2000 proprietary capital showed a gross IRR of 27%: do you know what growth in NAV/share it translated into? I understand that salaries and bonuses might take away a big chunk, but it is hard for me to believe that, after achieving a 27% gross IRR, NAV/share hasn’t at least increased in between 15% and 20% annually… Am I being too naïve here? Could salaries and bonuses really amount to so much money?! ??? 3) I understand that the comparison with FFH’s portfolio of investments might not be applicable. But what about Mr. Buffett? It has been many years now that he is much more interested in “big elephants” than the stock market. And he constantly looks for private businesses to purchase. Can we make the argument that, among private businesses, Onex’s universe is larger that Mr. Buffett’s (because they are dealing with much less capital), and therefore their task is easier? 4) Finally, on succession: has Mr. Schwartz ever communicated his plans to shareholders? Do you see him retiring soon? If that were the case, is there someone younger, who has already proven himself, and who could replace Mr. Schwartz at the helm of Onex? Thank you again! giofranchi

Of course, compensation might be an issue. But the 15% yearly increase in Proprietary Capital per Share surely is after fees. At least judging from page 6 (short-term track record) and page 21 (long-term track record) of the presentation, results seem to have been quite consistent, if not predictable. Anyway, I am just beginning to read and study about ONEX. ubuy2wron, you seem to already know the company quite well: do you think it is worthwhile on my part spending some time to understand it better? Thank you, giofranchi

Onex is trading at Proprietary Capital per Share. It is always surprising to me that a company, whose stated goal is to increase Proprietary Capital per Share in excess of 15% per year (see the presentation), might actually trade at Proprietary Capital per Share. What am I missing here? Let’s see: 1) It might be that Onex is over-promising. But this certainly doesn’t seem to be the case: under the expert lead of Mr. Gerald W. Schwartz, its founder, Chairman, and CEO, Onex has produced a 29% IRR since inception in 1984. Now, take a look at slide n.20 of the presentation: usually, they are 75% invested and keep 25% in cash. A 29% IRR, therefore, generated a 22% yearly increase in Proprietary Capital per Share. So, they are actually under-promising, if compared to their historical track-record. 2) Ok, a track-record is not enough: it might have been just plain good luck (not very likely, because it is tough to be sustained only by luck for 28 years!), or it might be an obsolete way of doing business, one that cannot hope to replicate the same good results in the future. Well, this doesn’t seem to be the case either. Please, take a look at slide n.22 of the presentation: Proven and Sustainable Process, Disciplined Investing (Value mindset, Strong franchises) + Active Ownership. What’s not to like about it? 3) By now they might be working with too much capital. Proprietary Capital is $4.8 billion and AUM are $15 billion: while certainly not a small amount of money, it is comparable to the $24 billion portfolio of FFH, and it is not even close to what Mr. Buffett has to manage. 4) Maybe the outstanding manager who founded the company and made it grow is leaving soon, and so results will inevitably suffer. Mr. Schwartz is 71 and, even though no longer young, could certainly go on leading Onex for the next 10 years. If someone knows Onex well and has followed this company for some time, I ask you again: what am I missing here? Why is the market giving me the opportunity to partner with Mr. Schwartz at Proprietary Value per Share, when there is much evidence of the fact that he will be able to make it grow at a rate that exceeds 15% per year long term? In other words, why is the market giving me the opportunity to lock in a 15% CAGR of my hypothetical investment in Onex for the foreseeable future (next 10 years)? Thank you very much in advance. Link to the presentation: http://www.onex.com/Assets/Downloads/2012%20Onex%20Investor%20Day%20Presentation.pdf giofranchi

Well, I cannot argue with that! … On the contrary, I fear I sound like an idiot, when I try to share my thoughts in English with you! :( Although all my reading nowadays actually is in English, it will never be my mother language… I don’t really think an entrepreneur should necessarily be the founder of a company. Look no further than Mr. Henry Singleton, as an example from the recent past, or Mr. John Malone, as an example of today. They both acquired the great majority of their companies, but also implemented the right strategies to make those companies more profitable, and to make them grow. Many a time they were also directly involved in supervising the daily operations of those companies. They understood which changes were desirable, and had the strength and the perseverance to carry them out. As far as I know, they both should be reckoned examples of great entrepreneurs. giofranchi

Very sound advice! Thank you, txitxo and hellsten (the bag of chocolate or fruit part is also much fun! ;D ) giofranchi

Sincerely, I wish I were so much of an idiot as Mr. Biglari is!! ;D Last year he increased investments 50%, BV per share 25%, investments grew from $6.9 million in 2008 to $378.6 million in 2012, SNS customer traffic is continuing to improve (albeit at a slower pace), and operating earnings per store are continuing to increase handsomely, the pursuing of the SNS franchising is also bearing fruits, with the first 40 international restaurants to open next year throughout the United Arab Emirates. No, to me he doesn’t sound like an idiot at all… Instead, he most certainly sounds like a bragging, arrogant, and overconfident entrepreneur… But here, of course, we must once again remember the difference between investors and entrepreneurs: the most successful investors tend to be intellectuals, very deep thinkers, while the most successful entrepreneurs tend to be… well, bragging, arrogant, and overconfident! Their bragging, arrogance, and overconfidence stems directly from all the energy and unrelenting persistence they put in each effort of theirs, and, consequently, from all the outstanding goals they achieve. The problem is that most entrepreneurs are fooled into thinking that energy and unrelenting persistence are all that really matters… So, they overlook culture, and most often remain ignorant and unsophisticated… Now, say what you want about Mr. Biglari, but I think nobody can label him as “ignorant” or “unsophisticated”. Instead, put together knowledge with energy and unrelenting persistence, and what you get is a hell of a businessman! That being said, I must admit that my judgment of Mr. Biglari might not be entirely rational… Mr. Biglari has created the “platform” that best resembles what I am also trying to do with my own firm. And, maybe, sometimes I unconsciously think: “If he fails, operating on a much larger scale and being in a much safer position than me, why should I succeed instead?”. That is an irrational thought, I know. But no one is entirely rational all the times, right? :-[ giofranchi

Thank you, Oracle! :) giofranchi

Hello ASTA! Whoever invests and has real skin in the game knows that we are all dealing with uncertainty, because we are all dealing with the future, and nobody knows what the future might have in store for us! Right? So everyone’s view should be regarded and examined with the utmost respect. Arrogance doesn’t belong here! At least that’s my firm belief. Furthermore, your portfolio makes perfect sense! And, if I should make a guess, I would say that it will perform very well! Unfortunately, I have got a psychological restraint that doesn’t let me behave like a copycat investor 100%: I call it “the businessman negative bias towards what he doesn’t understand”. :( I like to partner with Mr. Watsa, but I would never invest in RIM, just because Mr. Watsa did so. I like to partner with Mr. Einhorn, but I would never invest in GM, just because Mr. Einhorn did so. I like to partner with Mr. Malone, but I would never invest in Sirius, just because Mr. Malone did so. Etc. Why? Because I think I can forecast with a sufficient degree of confidence what the annual return on my firm’s investment in FFH might be for the next 10 years. The same is true for GLRE and LMCA. On the contrary, I have no clue about RIM’s, GM’s, and Sirius’s long term future earnings. They are either beyond me (RIM and Sirius), or I know I have not done my homework (GM). Same thing applies to BAC: I understand and I truly believe that BAC is “statistically” very cheap, but I have not really done any due diligence on BAC, so I am psychologically frozen, and I cannot invest… It surely is a weakness of mine! Thank you for the link to the interview about Exor. And I hope you don’t mind me having answered to your message publicly. You should write more frequently on the board! ;) Best regards, 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

Charles Gave on Cuckoo times. giofranchi Daily+12.7.12.pdf

I am curious about EXOR: could you elaborate a little bit? Is it just a matter of the meaningful discount to NAV it is trading at, or do you also really like what you see? Thank you, giofranchi

FFH, OAK, LRE, LMCA, BRK, BAM… and a MOUNTAIN of cash! I am much more interested in emerging from the next few years with my purchasing power intact, than in getting rich. To get rich, there will be plenty of time afterwards. :) giofranchi

I havent thought of it in this way before, but it makes perfect sense when you think about it. Well, I guess FCF is the best kind of float: you are free invest it, without the need to ever give it back! :) The larger and more durable the moat, the larger and more predictable the FCF. At least, that’s how I have always thought about the operations of my business. giofranchi

From the Value Investing World blog: http://www.valueinvestingworld.com/2012/12/professor-sanjay-bakshis-presentation.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ValueInvestingWorld+%28Value+Investing+World%29 giofranchi

+1 And yes! Thanks again twacowfca, as always very useful and detailed information. giofranchi

Great infographic, Sportgamma. Thank you! giofranchi

Yes! Thank you for posting! giofranchi

If business is not profitable, better be disciplined and let it go, right? http://www.reuters.com/article/2012/12/05/liberty-starz-idUSL1E8N58YE20121205?feedType=RSS&feedName=financialsSector&rpc=43 giofranchi

Mr. Russell Napier on deflation. I have read his book “Anatomy of the Bear: lessons from Wall Street’s four great bottoms” and I have found it to be well documented and well written. giofranchi sobering-stuff.pdf

muscleman, I think that during the Q3 2012 conference call they said to have increased reserves by $43 million (if I remember well) for the quarter, to cover all the claims they expect to pay during the next two years, due to the commercial motor liability contracts. Those contracts are now in run-off. So, yes, I agree those losses could be seen as a one-time charge. But, be careful: GLRE writes short-tail contracts, so it seems to me that every underwriting decision they take, if it is a bad one, could lead to a “one-time charge”… Sum together all those “one-time charges” and you can lose a lot of money! I think they must improve the underwriting side of the business. And the underwriting worries me much more than the investments. giofranchi Got it! Thank you! What do you mean by "run-off"? Yes. They are all short-tail. When I ask if this is one-time charge, I checked the history of the composite ratio, and they look ok to me until this quarter, so I wonder if this is the only contract that they decide is bad. In the CC, they mentioned that they believe all other contracts are in good standing. An insurance is in run-off, when it stops writing new contracts, and just manages (invests) the float it has collected during the years, until all claims are paid out. Yes, until recently they did well enough with their underwriting strategy. I guess the problem with the absence of a long dated and proven track record is precisely this: as soon as something bad happens, you start worrying, because you don’t have history to help you put the present mistake into the right perspective. Anyway, I still like GLRE and I think they can do very well in the future. giofranchi I see. Thanks a lot! Is there any way to get more detailed understanding of the economics of these contracts? Unfortunately, if there is a way, I am not aware of it… :( That’s why management is my n.1 concern, whenever I consider purchasing shares of an insurance company. Because you have to trust them 100%, both their abilities and their integrity. I won’t invest in an insurance company, even if it is trading at 0.5xBV, if I don’t know its management very well and don’t have full confidence in them. giofranchi

BeerBaron possesses the uncanny (and very uncommon!) ability to communicate big ideas with small (but very clear!) sentences. It seems to me the hallmark of every great investor! Or is it just the alcohol in all the beers you drink...?! ;D ;D ;D Just joking! I am most certainly a fan of yours! :) giofranchi

muscleman, I think that during the Q3 2012 conference call they said to have increased reserves by $43 million (if I remember well) for the quarter, to cover all the claims they expect to pay during the next two years, due to the commercial motor liability contracts. Those contracts are now in run-off. So, yes, I agree those losses could be seen as a one-time charge. But, be careful: GLRE writes short-tail contracts, so it seems to me that every underwriting decision they take, if it is a bad one, could lead to a “one-time charge”… Sum together all those “one-time charges” and you can lose a lot of money! I think they must improve the underwriting side of the business. And the underwriting worries me much more than the investments. giofranchi Got it! Thank you! What do you mean by "run-off"? Yes. They are all short-tail. When I ask if this is one-time charge, I checked the history of the composite ratio, and they look ok to me until this quarter, so I wonder if this is the only contract that they decide is bad. In the CC, they mentioned that they believe all other contracts are in good standing. An insurance is in run-off, when it stops writing new contracts, and just manages (invests) the float it has collected during the years, until all claims are paid out. Yes, until recently they did well enough with their underwriting strategy. I guess the problem with the absence of a long dated and proven track record is precisely this: as soon as something bad happens, you start worrying, because you don’t have history to help you put the present mistake into the right perspective. Anyway, I still like GLRE and I think they can do very well in the future. giofranchi

Maybe it is true… But I also think that the so-called “accumulation of wealth” goes hand in hand with the accumulation of knowledge. Knowledge in its broadest meaning: psychology, (financial) history, accounting, strategic thinking, game theory, economic analysis, statistics, also science & technology, even fractal geometry!! (I am reading “The Fractalist: Memoir of a Scientific Maverick”) are all useful and worthy subjects to delve deeper and deeper into. I find this constant process of self-improvement to be extremely fascinating. The outcome, growing richer and richer, isn’t bad either! ;D giofranchi