giofranchi

racemize, sorry... but I don't believe you!!! ;D giofranchi

Anyone who has done the exact opposite of what Dent has recommended the past 12 years probably has made boatloads of money. Look at this list: The Great Crash Ahead (2011) The Great Depression Ahead (2009) The Next Great Bubble Boom (2006) The Roaring 2000s Investor (1999) The Roaring 2000s (1998) The Great Jobs Ahead (1995) The Great Boom Ahead (1993) Our Power to Predict (1989) If his next book is giddy and bullish, sell. I really don’t care about Mr. Dent or his forecasting track record. All his article is pointing at are the 3D (debt, demographics, and deleveraging) that also Mr. Rosenberg always refer to (or Mr. Shilling). It is not who is talking, but what he is saying. Do you think that QE will effectively fight and solve the 3D? Like Packer rightly pointed out it did in Sweden during the 1930s? Fine! Then we will have inflation. But I don’t care who will be right and who will be proven wrong. I only care about ideas, and if I understand and agree with them, or vice versa. giofranchi

FrankArabia, will FFH make money on its CPI-linked derivatives? I really have no clue! But FFH is by far my largest holding. I think that P&C insurance companies, if they underwrite profitably and are led by a great investor, can really be cash-flow machines! I am perfectly comfortable with Mr. Watsa’s strategy, because I think we were forced into a low-return world, and that caution is warranted here. But, even if I didn’t agree with Mr. Watsa current investment strategy, I would buy FFH holding at book value nonetheless. My firm has two businesses and I have a lot of managerial work to do every day. I don’t have the time to shift capital confidently from one bargain to the next. If you can, and you are skilled in doing so, I understand that FFH may not be of great interest to you: for instance, ERICOPOLY is up 100% this year and racemize is up 60%+… who cares about FFH, if you can achieve their returns! My job, instead, is simply to extract as much cash as I can from the operations of my firm, and to use it to buy great businesses at good (or very good!) prices. That’s all I try to do. And FFH is as great as any business I know of. giofranchi

I think page 16 of Mr. Watsa's 2010 Annual Letter may shed some light on this topic. giofranchi

Well, of course you might be right! I know much more people who are in the inflation camp, than people who are in the deflation camp. And, as far as the differences between America and Japan are concerned, you surely are right! But what about the 1930s? They clearly were different times… But probably in the 1930s they were looking back at the 1870s and they were assuring themselves: “Well, those were different times!”. I like to study history (in particular the history of the financial markets), and usually I don’t like to come to a conclusion which is not proved by history. Anyway, FFH’s CPI-linked derivatives are just a protection: small downside, if inflation is going to be the bigger problem, great upside, if the vice versa is going to happen. Right? giofranchi

For anyone who might be interested. giofranchi mwo091012.pdf

Giofranco, Agree with you re FFH, BRK, L How are you holding gold? Physical gold? ETF's? FWIW, my capital allocation 40% cash (probably more than I like- I am a chicken-my plan is to continue to dollar cost average into ideas) 60% equity (UNH, ALS, FFH, BRK, BAC/AIG, LUK, small amounts of SHLD,L, PEY, SU, RNK, BMO, HCG) biaggio, actually, my portfolio is as follows: 25% FFH, pretty much unloved by the market right now! 43% long equities: owner-operated companies that are selling at or below book value (I also own LUK), the companies less loved by the market right now! 24% short equities: a bunch of small and medium cap, over-leveraged and cyclical stocks, the companies most loved by the market right now! So… it is really a suffering!! :( 8% Gold: Xetra-Gold, because: “Xetra-Gold is a no par value note denominated in gold issued by Deutsche Börse Commodities GmbH. Xetra-Gold is an exchange-traded security in the form of a bearer note that grants the investor the delivery of gold. Every single bearer note grants the investor the right to demand the delivery of one gram of gold from the issuer. The issuer holds a corresponding amount of physical gold and a limited amount of account gold with a precious metals company. The fact that Xetra-Gold takes the form of a security makes it fungible and as easy to transfer as a share.” I look at Xetra-Gold as the easiest way to own physical gold. I might be wrong, but imho gold nowadays is the safest of currencies: I just prefer to own gold, instead of cash denominated in Euro. Some days ago an interview with Mr. Ray Dalio was posted, and someone commented: have you ever heard Mr. Dalio suggesting something “actionable”? Well, in fact it is very rare indeed… but at least his suggestion to own 10% of gold is definitely actionable! Isn’t it? giofranchi

Surely you're joking Mr. Liberty! ;D ;D ;D Judging by the depth of your posts, you surely must be an accomplished investor! And thank you for your kind answer! giofranchi

For anyone who might be interested. giofranchi Daily+9.17.12.pdf

25% FFH 43% long equities 24% short equities 8% Gold giofranchi

Liberty, I like your posts and respect your opinion very much. So, I would really appreciate, if you could elaborate a little further on the reasons why you dislike Loews Corp. I have written about my view on L, and I would also add that I consider an investment in L below book value a good way to have an interest in the Oil&Gas industry, through Diamond, Boardwalk, and HighMount (which are good companies). But, if you have time and patience, I would love to know the view of someone, who clearly is a very thoughtful and accomplished investor, and who happens to disagree with me. Thank you very much! giofranchi

twacowfca, I am intrigued by your description of LRE's very skilled operations. Maybe, this is not the right place, but please would you explain a little more in depth what you mean by “conservative investing and intelligent capital management”? Could you also share with us why you think that LRE is good value right now? Thank you! giofranchi

rimm_never_sleeps, I could not agree with you more! giofranchi

berkshiremystery, my firm’s portfolio is very concentrated, as concentrated as yours!, but I would never put all eggs in just one basket… anyway, if I did, that basket right now would be FFH! ;) What I really like about Mr. Rodriguez is the great emphasis he puts on history. An investment thesis should be tested and proved by history, otherwise it is just speculation. Mr. Rodriguez has said many times that, at the beginning of his career, he had the chance to ask Mr. Munger three things that would help him to develop his skills as a money manager, and Mr. Munger replied: “Study history, study history, study history.” That’s why my favourite lines from his latest commentary are the following: The Fed Chairman recently expressed the opinion that he does not view unemployment as structural. However, he is using this “All In” approach to shock the economic system. This reflects something other than normal times. He believes if the Fed gets interest rates low enough for a sufficiently long period, the recovery will finally gain traction. This is pure speculation. I view this approach as highly dangerous, misdirected and untested. giofranchi

My advice would be to concentrate much more on the quality of management. If you can identify high quality management, usually the quality of written premiums follows suit. giofranchi

The latest from Mr. Robert Rodriguez, for anyone who might be interested. giofranchi all-in-commentary-9-2012.pdf

I know that most of you don't like investing in funds. But the Brooklyn Investor is very good, and I would read his latest idea. giofranchi Special_Opportunities_Fund_SPE.pdf

Mr. Alan Abelson's point of view on QE3, for anyone who might be interested. giofranchi Two_Cheers_for_QE3.pdf

Mr. David Rosenberg's point of view on QE3, for anyone who might be interested. giofranchi David_Rosenberg_BernanQE_Plays_With_A_New_Deck.pdf

Gavekal's point of view on QE3, for anyone who might be interested. "Ultimately, we believe QE3 will be counterproductive. The chances of higher investment have fallen and the likelihood of wholesale capital misallocation resulting in a future financial crisis has increased. What the US economy needs (and the global one for that matter) is the confidence provided by a predictable future – not more cheap money." giofranchi Daily+9.14.12.pdf

Well, as always I think that “culture” and “history” are very important. I have quoted Mr. Munger many times before, and I will do it again: "I don’t think General Motor should have wiped out the shareholders. That was a huge failure of management. If you think about it, Berkshire is a collection of failed businesses, that are gone. And here it is, this wonderful thriving place! As our businesses failed, our shareholders did not fail. We adapted. We took the money out of the failing businesses and bought other businesses. General Motors did not pass that test. They destroyed their shareholders…" Imho, that “culture” is what makes the safest of businesses, and L has showed to possess it, and to apply it on a value basis, for 50 years. Moreover, it has always been an owner-operated company, and that reinforces its very low risk profile. As far as “history” is concerned, if you include the dividends, the S&P500 has returned circa 9% annualised for the past 50 years. Far less than L has achieved. Not only L is ahead of the market on a 50 years basis, but it is ahead also on a 25, 10, and 5 years basis. That “culture” and that “history” tell me there is a very low probability L shall not continue to be profitable in the future. And, as long as a company doesn’t lose money, and as long as a company is selling below book value, I don’t really care about future earnings or future growth. At June 30, 2012, L’s book value per share was $49,31, while yesterday the share price closed at $42,69: that’s a 13,4% discount to book value per share. For a company with a wonderful “culture”, that returned 14% annualised for 50 years… it really looks like a no-brainer to me! I think L looks cheap also on an p/e basis: L: p/e = 13,1b / 1,17b = 11,2; 14% annualised return for 50 years, S&P500: p/e = 16,55; 9% annualised return for 50 years. That’s not to say that L is the best bargain out there! Far from me! AIG and BAC are even better. But, if you like L’s “culture”, and if you like L’s “history”, and if they speak loud to you about L’s future, well, then I guess L today is really good value! Two more things: 1) CNA is clearly not a very well run insurance company. Anyway, it is showing some improvements. Even though slowly, it is getting better. And, if it gets on track with its peers, the potential for higher earnings is very substantial. 2) Jonathan, Andrew, and James Tisch are in their late 60s, and they could go on compounding L’s capital at least for the next 10 years. They also have a family culture that I like, because it raises the probabilities that someone worthy will succeed them. They have already accomplished it in the past with great success: L is a second generation family company. Finally, Yes, my firm owns L. giofranchi

L has published a new Company Overview. For anyone who might be interested: http://ir.loews.com/phoenix.zhtml?c=102789&p=irol-index giofranchi

I haven't followed FFH's numbers closely for a while, but I think that you have to look at all those versus the equity number. If you have around 8B of equity for 24B of total assets, this means that a relatively small shock to the total assets could wipe out a large fraction of the equity, and they need to maintain a certain equity ratio for their insurance obligations. Someone else please correct me if I'm wrong. It is clear that even relatively small movements in the value of FFH’s portfolio could have a big negative effect on its equity, but that would imply Mr. Watsa is actually worried about investments results, right? So, all the hedges he put in place are part of his investment strategy. You could argue that a leveraged portfolio is riskier than an unleveraged one, and that’s why hedges are warranted. But, if you take away the $8 billion in cash, investments / equity is 200%, in line with most insurance and reinsurance companies. Take, for instance, Markel Corp., another holding of mine: it has total investments (less cash & equivalents) of $7,9 billion and equity of $3,6 billion. So, investments / equity is 220%, in line with FFH. It also has $2,2 billion invested in stocks. So, for MKL stocks / equity = 60%, while for FFH stocks / equity = 47%: FFH’s exposure to stocks seems lower than MKL’s. Nonetheless, MKL has no equity hedges in place. Please, correct me, if my reasoning is wrong. giofranchi

Yes! Very good indeed! Thank you racemize! giofranchi

Most probably Parsad is right! He surely knows much more than anyone on this board about FFH. Anyway, the numbers I see are: $24 billion of total investments, of which $10 billion are in bonds and $8 billion are in cash, while just $3,8 billion are in stocks. So, even if FFH is holding $18 billion in cash + bonds, is it possible that Mr. Watsa is hedging those $3,8 billion in stocks for contingent insurance losses? giofranchi