giofranchi

I am reading the FELP thread. The timing was almost perfect and therefore some good luck might have been involved. Nonetheless, I am really impressed by the amount of very carefully executed work Picasso has put into this idea! Really amazing! I know I would never be able to dig so deeply and masterfully into any stock market idea. Picasso, next time you start a thread and notice I am not following, please send me a wake up call through DM!!? Cheers, Gio

Picasso, Is there a thread about FELP? If so, I would like to read it and understand your reasonings about the company. If not, where could I find more information? Thank you! Gio

The equity of my company has increased 16% this year. 12% from operating results + 4% from investments. I have also paid out a 1.5% dividend. Since 2010 the BV of my company has increased at a CAGR of 17.3% (dividends excluded). 2017 operating results should be solid: in 2016 we have signed a contract for monitoring the structures of hundreds of residential buildings in Northern Italy and the seismic retrofitting of a few. Last year we have signed a contract with Salini-Impregilo for some seismic analysis of the structures of the new metro in Lima (Peru), a relationship that has worked well this year and will go on in 2017. In 2016 we have also signed contracts with Autodesk and Oracle University to provide specializing courses that are very much sought after by engineers and architects: they should add meaningfully to both our top and bottom line in 2017. On a sour note a good contract with Italcementi will come to its end next year... Overall, though, I expect operating results to be quite satisfactory in 2017. I invest the free cash of my company in the stock market (funds that I still have at my disposal after all the investments for growth in my company have been made): results in between 5% and 10% will be more than enough to achieve my goal of compounding BV at 15% annual for many years to come. Last year and this year have been disappointing. Cheers, Gio

I agree 100%. Cheers, Gio

+1, especially when you're making me imagine Buffett balls deep. It's been tiring to listen to most investors focus on high quality businesses. The "ROIC" epiphany is all the rage of late. It's like if Buffett or Munger had a quote "the sky is blue," investors would suddenly build "mental models" around the sky being blue. Munger made the comment that the best business in the world can keep reinvesting at high rates of return. Isn't that common sense? Instead we have a bunch of investors searching for high ROIC stocks trading for 40-50x earnings because they'll earn the ROIC over the long-term. I think what's worse is that good quality businesses are tiny in number compared to the entire public security universe. So you just end up filtering out tons and tons of interesting situations that can just as easily double or triple within a couple years. All in the name of not getting your hands dirty. Plus Buffett has to talk to the lowest common denominator. He made one "balls deep" comment when he said he knew he could compound 50% with a million. There are a bunch of threads on here with people losing their minds on how he can't possibly mean that. Or another where he jokes about buying GM at $33 and people are thinking he's buying out GM. So yeah I think Buffett should keep talking to the lowest common denominator because useful tips aren't useful to the 1% of investors who can figure it out on their own and they can be potentially damaging tips to the other 99% that go balls deep in the wrong situations at the wrong time. Picasso, Of course you are right 100%. But don't forget that not everybody in this forum is a stock picker. Instead, there are some business owners, me included, whose goal is to keep increasing the free cash their businesses generate year in year out, and simply look for intelligent ways to invest it. We devote the great majority of our working life to running our businesses the best way we can, and simply don't have the time to find stocks so much undervalued that could be 3x or 4x investments in 1 year. Like you and dyow are doing. My goal is to find businesses that have performed very well in the past and which I have come to judge might go on performing quite well in the future. So that I have the conviction to keep investing in them the FC my businesses generate. You might say I should invest in a low cost ETF that aims at replicating the S&P500... and I actually invest in some ETFs... but I also like to invest in single companies, because it teaches me a lot about how business in general is evolving, which trends are important, how good leaders are behaving and which are the decisions they are making. Furthermore, if those businesses with long track records of performing better than the general market might sustain their outperformarce for the next 5 years, well that would be the frost on the cake! They will never be multibaggers in one year, but that doesn't mean a discussion about DIS, NKE, or SBUX is completely useless and unjustified. It might not interest you and dyow, but it could interest people like me and others on this board. Cheers, Gio

Ok, I thought you had already used them and found them uncomfortable... We have never done any work in Venice, but have worked with Studio Altieri and Favero&Milan Ingegneria which are among the largest engineering companies based in Veneto. They are also partners in our University Consortium and Master School at the Politecnico of Milan. I love Jovanotti too! Cheers, Gio

Thank you BP6, If I have understood correctly, the main risks you see are: 1) Their stock picking performance will continue to generate very poor results, 2) They are financing the acquisition of Allied in a way that won't maximize shareholders' return. You said you have discussed a lot about FFH with people you trust and who know FFH very well. And you have come to the conclusion there is something wrong at FFH. Do you see other risks beside 1 and 2? I am really interested to understand if people who know FFH very well see risks that I might have overlooked. Cheers, Gio Gio, Your summary of my comments are not entirely accurate however I will try my best to respond to your questions. My conclusion to sell a portion of the shares in FFH that I have held for 16 years was made after consideration of a number of factors however bottom line my ability to simply ``trust in Prem`` is not what it once was. I did not say that FFH`s stock picking will continue to generate very poor results. I do not know what the future holds neither does the FFH team or any poster on this board. I did say that Prem owes his shareholders a detailed explanation of his exit strategy for 3 of his largest losing equity positions (Blackberry, Eurobank, Resolute Forest). Others may disagree with this—that`s okay. I will not reiterate the numerous concerns that have been written about by other posters however they all factored into my decision. In addition however I have become concerned with the following items: 1) FFH`s leverage was often discussed as the reason for the equity hedges. I accepted this explanation. What disturbs me is that FFH did not take advantage of a sell-off in the preferred share market to lower their leverage by buying back the preferred shares in the market at well below their issue price. The various FFH preferred share issues were done at $25 per share and yielded about 5% at issue. They all traded down substantially to levels as low as $11-12 per share earlier in the year due to the drop in bond yields. Despite having the authority to buyback these shares in the open market FFH chose not to do so. I don`t know about you but issuing shares at $25 and buying them back at $11-12 seems like a good trade to me. 2) Prem continually touts the longevity and experience of the management team as a key positive for FFH. This was great when the team was in their 40`s however they are now approaching their 70`s. It is time for Prem to also articulate the succession plan for all the key members of the management and investment team. As one individual I know says—``when Brian Bradstreet retires I will sell all of my FFH shares``. Prem has agreed to stay on until at least his 75th birthday. Great---what about the rest of them. I do not believe we can count on all of the key members to stay around as long as Buffett and Munger have done at Berkshire. 3) Board governance is also an area I have some concerns with. The lack of diversity and new blood (and in my view Ben Watsa does not count) on the board cannot be overlooked. 4) What is the Eurolife acquisition really about. As we all know—life insurance is a vastly different business than property and casualty insurance. It`s okay if FFH is now diversifying into life insurance but tell us that. I suspect that FFH`s Eurolife investment was simply another capital raising exercise for Eurobank disguised in another form. 5) The conference call to discuss the Q3 2016 results was held on November 4, 2016. At that time Prem was still extremely concerned about the US and global economies and as a resulted maintained the equity hedges and deflation protection. One week later---after the US election---FFH announces that everything is all right with the world and reduces the equity hedges by 50% because of Trump`s election win in the US. Simply put---I call bullshit on that explanation. I could go on however I will stop here. I trust you get a sense that my decision to sell is well thought out and based on a detailed analysis of the issues as I see them. Hopefully these comments assist you in deciding what to do with your FFH shares. As Uccmal said in an earlier post---what Prem has created at FFH is amazing. I could not have done it. He is to be applauded for what he has accomplished. Despite this I can no longer give him a pass when there are a series of issues at FFH that I have grave concern with which are not being addressed to my satisfaction. BP6 Excellent post. I disagree with some of it, but excellent nonetheless. Probably the single thing making me most bullish on FFH is all the old guard shareholders throwing in the towel! I intend to hold my shares for a very long time and compound at a decent rate. My main concern for that thesis is succession. I have sold some shares for two reasons: 1) To open a position in JPM: I am late, but if Mr. Dimon is right about an "American Renaissance" in business, I think the next 5 years might be very good for the whole financial sector. And JPM imo is the best among big banks. 2) To increase cash: I have used FFH until now as a "good substitute for cash". Now I don't think that thesis is defensible anymore. FFH remains a meaningful position in my portfolio. Cheers, Gio

I am not so sure... Have you ever found an insurance company which was able to "engineer" a CR in between 100% and 102%? In my experience, either you get a good underwriter (CR of 95%) or you get a bad one (CR of 105%). And if I had to choose, I would like FFH to keep underwriting profitably, even if that would mean to grow its float more slowly. Cheers, Gio

Would you explain? I ran 7 km and they were just fine. They practically never moved. I have found them to be very comfortable. What do you mean you cannot move around with them? They connect with my 7 Plus iPhone very seamlessly, as soon as I open their case and I put them on I start listening to whatever I was listening on the phone. Finally, the design is very cool (as always with Apple). Cheers, Gio

Hi Viking, Thank you for shedding some light on your experience with the board, your financial goals, and your personal life. I surely like your posts very much! Merry Xmas to all board members and enjoy your holidays! Cheers, Gio

I am using my first pair of AirPods: fantastic product! Essential gadget for anyone who likes listening to great music while running or to informative audiobooks while walking. And, of course, a wonderful Xmas present! Cheers, Gio

+1 Gio

I like anything that makes me think Prem is still very motivated to do well and grow the company. Will we ever witness a 5 years period in which: 1) Bond returns are strong, 2) Equity returns are strong, 3) Underwriting returns are good? Of course I cannot tell, but I am sure we won't if Prem, Mr. Bradstreet, Mr. Barnard, etc have lost the drive to achieve great results. Though I don't know if this new Africa fund is a good idea or a not so good one, at least imo it shows that FFH's management is still eager to work hard and (hopefully) do well. We'll see! Cheers, Gio

Yes! They certainly do! Thank you. Cheers, Gio

I agree: I like North America, large cap cos, strong balance sheets, lots of fcf, great brands. Cheers, Gio

I don't think they need an edge in India. The demographic story is compelling enough to justify the investment imo. (Just look at the money AMZN is spending in India!) Cheers, Gio

Could you explain? Another FFI, this time called FFA? India I understand and like. In Africa what is their edge? Cheers, Gio

I have opened a position. I know I am very late to the party... But if Mr. Dimon is right, the next 5 years will be very good for the financial sector. And JPM is imo the best among big banks. Cheers, Gio

Thank you BP6, If I have understood correctly, the main risks you see are: 1) Their stock picking performance will continue to generate very poor results, 2) They are financing the acquisition of Allied in a way that won't maximize shareholders' return. You said you have discussed a lot about FFH with people you trust and who know FFH very well. And you have come to the conclusion there is something wrong at FFH. Do you see other risks beside 1 and 2? I am really interested to understand if people who know FFH very well see risks that I might have overlooked. Cheers, Gio

Thank you for sharing your decision! Could you be a little more precise about the risks you see going forward? I am trying to understand if I am missing something really important here. Cheers, Gio

To keep investing in insurance companies, which might perform satisfactorily in a bear market and which by the way are their true circle of competence, while keeping lots of cash, is imo to play defense... Simply they are no longer playing defense against a 1 in 70-80 years event, but they are playing defense like they should be doing at the end of a regular business cycle. That's at least my point of view on their recent moves. Cheers, Gio

Al, don't you think insurance is a good business to be in during a bear market? In 2008 BRK's BVPS decreased much less than the general market because its insurance businesses saved the day. And I don't think FFH is rushing all of a sudden into the stock market: they have taken away the equity hedges, probably because they think a pro-business government in the US might drastically reduce the chance of something very bad and very long hitting the stock market, but they still have nearly $10b of cash. And I guess they will keep the flexibility to take advantage of opportunities that might arise in the future. Should a 30-40% correction in the stock market come, FFH stock price will surely go down with the market, but they might still be in the position to take advantage of lower prices, while their insurance companies might (hopefully) go on generating underwriting profits. Is it such an uncomfortable/risky position to be in right now? Especially with FFH stock price that already is low? Cheers, Gio

I couldn't agree more! Actually they had bought JNJ and WFC... unfortunately they also sold them... I have never really understood why. I remember Watsa commenting about JNJ in 2010: "We like JNJ very much: today it seems nobody wants to hold a company that can gradually but steadily increase EPS 10-15% annualy. JNJ is such a company and we are happy to hold it". Then, just a couple of years later FFH sold its investment in JNJ... Cheers, Gio

Pete, I agree. And basically I think the change is an healthy one and should be welcomed. Many people though disagree. And that's why I would like to know if they see risks that I might have overlooked. What can go wrong? How probable is it? And which will be the consequences on the whole company? Cheers, Gio

Partner24, Since 2011 these are the results: EQUITY (cumulative): $628 million HEDGES (cumulative): -$3112 million BONDS (cumulative): $2950 million CPI (cumulative): -$570 million UNDERWRITING (cumulative): $1333 million It seems to me that, if we are to blame Watsa for something, it is because FFH has been a very poor stock picker in the last 6 years: the idea of a 100% hedged stock portfolio should be that your stocks go 1%-2% higher than the stocks you have shorted. Of course you would expect to make a very meager profit overall, but still a profit... not a loss of -3112 + 628 = -$2484 million. In other words, if FFH had been a good investor in stocks, and equity gains equaled losses from hedges, in the 6 years from 2011 to today FFH would have earned 2950 + 1333 - 570 = $3713 million. Starting in 2011 with an equity of $7.4 billion. Not bad! Watsa has always said he was worried about a 1 in 70-80 years event that could shock the markets... Sincerely, were you sure that event was never to come? I know I was not, and I don't blame him for protecting FFH. Instead, what I would surely like to know are the reasons why they have chosen equities that performed so poorly... Furthermore, those $3 billion of earnings in bonds imo were very much related to their macro views: FFH held onto long term US bonds for at least three years after Buffett started calling them the worst investment. And the reason was they thought yields could continue decreasing because of disinflation in the US and deflation in Europe. Finally, they have picked almost the best time possible to sell those bonds, just before Trump got elected. Another macro call that turned out to be right. This is how I view the recent past. But, as I have said, I would prefer to talk about what lies ahead. Cheers, Gio