giofranchi

Thank you Ross, I would like to know your mind on four topics: 1) What do you see in AXP that prompted you to make it the largest holding in your portfolio? 2) I don't know LKQ: another large position of yours. Why? 3) BRK is a small position. What concerns you at this point? 4) Finally, TJX is a wonderful compounder: why do you think they have been so successful in a very tough environment for retailers? Cheers, Gio

I was and I was wrong. We all learn from our mistakes. And I don't think my investment in Softbank contradicts the four basic lessons I have learnt from the VRX experience: 1) It is very difficult to judge a business that grows revenue through acquisitions using debt. Of course, I am not against acquisitions: I still think an operator who is both a good entrepreneur and a good investor is preferable to one who is only either a good entrepreneur or a good investor. And I still think a business that can grow both organically and through acquisitions is preferable to a business that grows only organically. Yet, a business must show solid and growing net earnings to reinvest in acquisitions. As I have said, Masa Son already has nearly $6 billion of net earnings that he must park somewhere each year, and now that Sprint is becoming FCF positive those net earnings will probably increase. Therefore, I don't think my investment in Softbank contradicts lesson n.1. 2) Valuation must be fair on a GAAP basis. Prices that seem fair only when compared to non-GAAP metrics, while looking astronomical on a GAAP basis, are fraught with dangers. The price of Softbank stock today goes from fairly valued, if you just put a multiple on the earnings of its operating businesses, to clearly undervalued, if you use a SOTP analysis considering the value of its investment assets too. Therefore, I don't think my investment in SoftBank contradicts lesson n.2. 3) A manager should be proven in both good times and bad times. He/She must have a long enough track record to have successfully survived tough times. Masa Son is at the helm of SoftBank since the mid '90s, has survived both the dotcom bubble burst (life threatening for a tech company) and the financial crisis of '08. Therefore, I don't think my investment in SoftBank contradicts lesson n.3. 4) The proverbial "fat pitch" is very rare: generally, don't invest too much in any single company, but keep a reasonably diversified portfolio of stocks. Our good friend ScottHall, and one of the best investor I know, was invested in VRX at the same time I was... If I remember correctly... Nonetheless his stock portfolio returned 20%+ in 2015! He wisely chose to hold a reasonably diversified portfolio of stocks. As I have said, SoftBank is a small percentage of my portfolio: enough to give an interesting boost to my future returns, if everything goes according to Masa Son's plans, while still not risking much, if something goes wrong instead. Therefore, I don't think my investment in SoftBank contradicts lesson n.4. Cheers, Gio

In your case the SOTP would be zero: Stocks worth $1 million - $1 million of debt = $0. In the SOTP made by Delani Investors, instead, we have: Value of operating businesses - debt = $74 per share (already > $0) + value of investment assets = $152. Interests on Softbank's debt are serviced by the EBIT of their operating businesses, and on top of that there is the value of their stocks portfolio. What's wrong with that? When I ask for a loan, my bank looks at my income and on top of that at two other things: the value of my real estate and the value of my stocks portfolio. I see at least two differences: 1) SoftBank has made nearly $6 billion of earnings in 2016, and is selling at a reasonable 14x multiple: VRX had almost no GAAP earnings. 2) Masa Son has a much longer track record than Pearson and has already survived a terrible crash when the dotcom bubble burst. Anyway, I agree: SoftBank is a risky investment and therefore it remains a small percentage of my equity investments. If everything goes according to what Masa Son is planning and saying, it will add to my returns meaningfully. If things go wrong instead, I am not risking much. Cheers, Gio

Half their debt is in Sprint. Therefore, if Masa Son is successful in engineering a merger of Sprint with T-Mobile, their debt could be practically cut in half. From a Net Debt EBITDA Multiple of 4.4 to a Multiple of 2.2, which I think should be easily manageable. Am I wrong? Cheers, Gio

Thank you again! Cheers, Gio

Thank you for your perspective, Scott! Always very useful. Cheers, Gio

Thank you Dennis! Your point of view is always very useful. Why do you believe a SOTP analysis is not the right way to value the company? For me it is a small position anyway: if it turns out right, very well then. Otherwise, I am not risking much. Cheers, Gio

Maybe lighten up on a long just in case. Dennis, You see serious issues here at this point? If so, would you mind sharing them? Thank you! Gio

Why now? It seems to me that SoftBank has never been on a sounder footing since the acquisition of Sprint. There are also new rumors a merger between T-Mobile and Sprint might come soon: http://www.cnbc.com/2017/02/17/softbank-eyes-sprint-t-mobile-deals.html And Sprint has finally started generating some positive FCF and is still improving. Meanwhile, SoftBank remains very cheap on a SOTP basis. Am I wrong? Cheers, Gio

I am not sure I understand... Why do you say so? Cheers, Gio

Probably because I have no strongly held views in technology. I prefer to have exposure to BABA, ARM, and a myriad of other businesses, than to have exposure to BABA alone. In other words I prefer a basket approach. Is SoftBank a sort of basket in technology put together by Masa Son? If so, that's fine with me! While reading "Alibaba - The House That Jack Ma Built", I have found what Jack Ma has said about Masa Son to be very interesting. Please, find it in attachment. Cheers, Gio

I have opened a relatively small position in SoftBank. I think of it as a "technology index fund of the East". And it is the best way imo to get a piece of both Alibaba and ARM, two great companies. Compared to a SOTP valuation its share price is still very cheap. Of course, there is the debt issue: but much of it is in Sprint and Sprint is starting to make a positive EBIT and it will probably grow and improve it from now on. Second, there is SoftBank's public stocks portfolio, which is about the same size of its debt. Therefore, Masayoshi Son says that SoftBank is effectively net debt zero. Cheers, Gio

Thank you for this. Just makes it all the more ridiculous. I was relatively understanding of the partial move post-election to reduce duration and hedges. I did the exact same thing until we got more clarity on tax reform which had the potential to be a BIG change in my thesis. As time has passed, it appears tax reform won't happen quickly and won't be anywhere near as big as most Republicans would like, so I've added mine back. Fairfax, on the other hand, went ahead and sold all of their bonds and killed their hedging program in the middle of a tightening cycle with valuations at their 3rd most expensive ever while corporate profits are significantly off their 2014 highs...all because of a change in president? How important is public policy? (JPM 2015 AL) Cheers, Gio

+1! Cheers, Gio

Yeah! That's basically the reason why I am still holding it. We'll see! Cheers, Gio

Agreed 100%! Last year again they lost money with their equity investments. It’s hard to believe… I still like the business model of course, and I still like management (they have done a great job on the operating side of the business in recent years). But insurance without good investment capabilities is clearly unsatisfactory: they should prove they can be good stock pickers again. Cheers, Gio

Thank you for posting! Very interesting presentation! Cheers, Gio

By "off of sugar" which percentage of carbohydrates in your diet are you referring to? Those days in which I stay below 40% are the ones when I eat no bread, no pasta, and no desserts... Cheers, Gio

Arch Capital has posted another year of great results: http://ir.archcapgroup.com/file.aspx?IID=103577&FID=38013344 BVPS $55.19 +15.8% in 2016, ROE 10.9%, CR 89.9%, P/B 1.69. It is pricy, therefore it remains a small position in my portfolio. Cheers, Gio

Abbott Labs’ Stock Offers a 20% Return http://www.barrons.com/articles/abbott-labs-stock-offers-a-20-return-1486790352 Cheers, Gio

CR 92%, BVPS +8%, CAGR in BVPS last 5 years 11%, P/B = 1.51. I continue to hold MKL comfortably enough. Gio

Strong Q4 2016 results: http://seekingalpha.com/news/3241986-cvs-q4-revenues-12-percent-earnings-14-percent-shares-2-percent-premarket Selling for little more than 13x forward earnings, while still growing sales and earnings at a very healthy rate, CVS looks very interesting. Can someone sum up the bear thesis? Cheers, Gio

I am out again... The "Soda and Junk Food" trend really bothers me: and almost 45% of PSH's capital is invested in MDLZ, QSR, and CMG. If the "Soda and Junk Food" trend gets momentum in the coming years, I think all of them will suffer... or at least they probably won't grow enough to justify their current valuations. I believe also SBUX might suffer, and also SBUX should go on growing at an healthy rate to justify its present share price: I wanted to reduce my portfolio's exposure to the "Soda and Junk Food" trend, and decided to sell PSH while keeping the SBUX investment. It was a small position and I replaced it with a small position in XBI. Cheers, Gio

Very glad to hear that! And I agree 100%. Cheers, Gio

The image in attachment is from "Onward". Do you think it is just rubbish or simply not true? Cheers, Gio The first part about their beans maybe true. But as I said above the roasting is more important than the beans themselves. You can start with the best beans and ruin them in the roasting process. You can say that you roast the beans longer than others, and it may even be true (some companies are probably worse), but you can't hide the burnt taste. Of course most people who go to starbucks for their Mocha-caramel-pumpkin-spice-raspberry-hazelnut latte with extra sugar and whipped cream aren't going to notice the quality of the coffee. But I usually drink my coffee or espresso black with nothing added and I notice the burnt taste immediately. Ok! Thank you! Cheers, Gio