giofranchi

Twacowfca, Great post as always! :) I think I will start gradually rebuilding a new position in Lancashire: in my quest of finding businesses that would do well in a recession and stock market crash, Lancashire surely has a place. And now that I have watched it without the lead of Brindle for some time, I am convinced that its management is doing a great job. And could go on hopefully for a long time! Cheers, Gio

Paul, Insurance and fastfood franchising are two wonderful businesses to own in a recession, and the ones I have are led by opportunistic entrepreneurs who might take advantage of a difficult environment and will have the cash to do so. This is all I can tell. Will they thrive? Who knows, right? But that's not the point, the point is: find the companies and the entrepreneurs you think might do well in a difficult environment and invest in them. Hold cash if you can find none. Cheers, Gio

Never promise! ;) The point is: if they won't thrive, no one will. If they won't make sound judgments with their cash, no one will. Or, if you know someone who will, well then invest in his/her company! What else are we talking about? Gio

Moreover, who are the haves and who are the have-nots today? I would put both Klarman and Watsa among the haves, wouldn't you? Yet, I believe that in a market crash they would benefit enormously... Similarly, I would put Marks among the haves today... But he too in a market crash would benefit a lot! Biglari is another that would benefit in a market crash: people would go back to eat more cheaply, therefore fast-food operations would do very well, and he has lots of cash to take advantage of opportunities. As you see, I am concentrated in 3 equities, which as you say might behave like a single equity in a market crash... But from a purely business perspective I believe all 3 will thrive in a difficult environment. So, would you say because I am all in equities I don't realize what I am doing like Ackman? And what if Ackman chooses his investments the same way: the haves of today, which will have even more, should a market crash come? Gio

Thank you ni-co, What you meant is now clearer, to me at least! Let me ask you a question: is yours a financial worry, or is it a "true business" worry? I mean: I am very well aware of the fact stock prices could get crushed in the next 2 to 3 years, but what about the revenues and the earnings of a business that generate lots of cash today and is debt free? Do you see them decrease dramatically in a long recession? Take Allergan, for instance, do you think people might stop spending for their beauty? Gio

I don't understand why you say this. Imo great businesses are not very much affected by recessions or even depressions: Carnagie Steel increased its earnings during each year of the depression in the 1890s, Standard Oil weathered the Great Depression very well, Berkshire sailed through the 1970s as a walk in the park, with its stock price which always kept increasing, Apple didn't even notice the Great Recession... Etc. Imo what matters today is looking for those businesses which might be very well positioned to take advantage of any dislocation in the markets that might come our way: high quality businesses, which generate healthy levels of free cash flow no matter what the economy does, with little or no debt, and lots of cash at hand to take advantage of opportunities. It seeems to me that's the kind of companies Ackman is focused on, with the added benefit of implementing changes required to make their operations more efficient! Gio

I think often Ackman's involvement alone will cause a stock to spike. An extreme example would be Allergan where the price was $116 before he started buying and was above $160 once VRX and Ackman made it public. By being invested in his fund you can benefit from this instead of replicating his holdings once a large part of the gain was already made. By the way: there are many studies which show how anyone could have achieved extraordinary investment returns copying Buffett's decisions after they had been disclosed to the public... Yet, I don't know of anyone who made lots of money that way, while I know many people (me included!) who made lots of money investing in Berkshire! ;) Cheers, Gio

link01, You definitely seem a very clear thinker about business matters in general! Therefore, I am a bit surprised by your question... In most kinds of business what you say "keeping your prices low (or lower than your competitors)" is practically all that really matters... Surely it is the most important thing in the restaurant business! And Biglari knows this very well. BH franchise revenues migth suffer if and only if the operations of the restaurants which generate those franchise revenues stop to be run at prices lower than their competitors. Therefore, imo your question is simply answered: those stores that can't control their costs & operate ultra efficiently have no reason to go on existing. It migth seem a bit brutal... But there is truly nothing anyone can do about it... Surely I don't see Biglari fighting against reality. If reality upsets old franchisees, so be it... History is full of people who couldn't adapt and kept fighting reality... The outcome has always been the same! Gio

Definitely! Q4 underwriting results are even better than overall 2014 results, which are better than 2013 results, which were considered an outlier at the time! If something goes wrong, even if only for a couple of years, Fairfax will have many ways to make money, beginning with their insurance operations that are becoming more and more reliable and profitable. Cheers, Gio

You might be perfectly right! The strategy you suggest is simply not the one for me, but I understand it might work just fine. By the way, I think that both GLRE and TPRE are very good investment vehicles. I have chosen PSH over them right now simply because with 48% of my portfolio invested in FFH, I have enough of insurance exposure! ;) Cheers, Gio

Q4 2014 Conference Call Transcript Gio OAK-Transcript-Q4-2014.pdf

Gio

Third Point Q4 2014 Letter Gio Third-Point-Q4-2014.pdf

Liberty, What you say is right of course! But I don't see why what "non-permanent" capital does should affect "permanent" capital. After all they are invested through different vehicles, aren't they? In other words PSH is not subject to redemptions. Gio

I look at PSH more as an holding company than a fund. It is true they don't have any operating business... But it is also true they concentrate their investments in just a few names they know very well and hold for the long term... To hold for the long term doesn't mean to hold "forever"... And that's why they don't have any wholly owned business. Imo they hold an investment until they see the opportunity to implement changes in order to achieve outsized returns. Then they sell and go looking for the next business that is underperforming because of mismanagent. It is not clear, to me at least, which vehicle is more valuable: an holding company with wholly owned businesses, or a vehicle which is built to do what PSH does. To have a permanent stream of cash is useful indeed, but, once the business has been "fixed", incremental return on capital cannot stay as high as when changes are successfully implemented. Selling and looking for the next business which needs the same treatment, might not be a bad idea after all. :) Gio

As I have tried to explain, I don't think about PSH as a vehicle to be traded in when the discount to NAV is large, and out when the discount has shrunk. Though of course that could be one way to look at it! ;) Gio

Ok! Even better! :) Gio

Handy, Compensation is the one Ackman asks to any other client of his: I guess it should be the classic 2 and 20. His results net of fees and expenses imo justify such a generous compensation. As far as taxes are concerned, I have held Third Point Offshore for two years and was very pleased with its fiscal regimen. PSH is based in Guennersey, just like TPOU, therefore I don't expect any difference. Cheers, Gio

Merkhet, Of course you might be right... But Singleton never struck me as very interested in accumulating wealth... Though a fantastic engineer + capital allocator, it doesn't seem to me he had a "Buffett" personality... Instead, he had more of a "Munger" personality... Or a "Franklyn" personality... Very interested in many things other than the accumulation of personal wealth. Though I like his personality very much, I don't blame either someone whose first goal is the plain and simple accumulation of personal wealth! Furthermore, in business you can never tell: I remember Watsa saying to FFH shareholders the company won't ever be sold, because he controls it through the ownership of class B shares... Evidently, even someone as widely respected as Watsa looked for control and got it through the issuance of a double class share. I remember Munger referring to Buffett during the first years at the helm of Berkshire as "a serial acquirer"... Surely Biglari is very ambitious and thinks about his own personal wealth very much! But I still think he will behave rationally: today his convenience lies in buying as many BH stocks for the lowest price possible, at one point his convenience will lie in making the value of his stocks increase as much as possible. That his interests coincide with mine might just be a coincidence due to the fact we have the same age. ;) Gio

I like to think that, should a market correction come, the first half of my portfolio, BH, PSH, and OAK, might be hedged by the second half, FFH. In other words, I let FFH hold all the cash and all the hedges on my behalf. Cheers, Gio

Well, if your aim is to get control by direct ownership, buybacks are simply not a strategy imo. Buybacks should be the right reaction to how the share price is behaving. If it is too low, it might make a lot of sense to buy back shares. But this is not something you truly could plan... The share price could remain too high for a very long period of time! And in the meantime, without a double class share, and without control through direct ownership, you risk losing the company... Or at least you risk losing the freedom to make all the decisions you think are the best! Furthermore, how much of Teledyne did Singleton own when he started managing it? Gio

Today I have used my cash reserve to invest in Pershing Square Holdings. I think it has many characteristics that I like in this environment: 1) First of all I think Ackman has learnt an hard lesson about investing in low quality businesses... And from now on he will concentrate on businesses that generate steady free cash flow, with low or no debt. Given the overall environment, that's where I want to be invested too. 2) His activism is much like investing with a catalyst... Another thing I like and look for these days! Not only his targets generate healthy levels of fcf, but (if Ackman is successful) the market will also see new strategies that get implemented to further increase those levels of fcf, and will revalue those companies accordingly. 3) I like very much his way of concentrating capital in just 3-4 ideas each year: it gives him the time needed to pursue and implement the right changes, and gives me the possibility to follow and try to understand each major decision of his. If I find the thesis of his next very large investment too risky or too difficult to understand, hopefully I will be able to get out without losing much capital, and to watch from the sidelines. 4) With $18 billions of AUM (6.5 of which are now permanent capital) Ackman has the firepower to push for changes in any kind of medium and large cap companies. His universe of possible investments is huge, he is only 48, and therefore could go on compounding at high rates of return for many years to come. 5) The share price is trading around NAV, therefore I am not paying a premium due to Ackman's 2014 stellar performance. Gio

I have used my cash reserve today. Partly I have bought more FFH, partly I have bought more BH. Mostly I have used it to buy a new investment. Right now my portfolio allocation is: 48% FFH 22% BH 15% OAK 15% fourth investment Cheers, Gio

Oaktree announces Q4 and whole year 2014 results http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjY5NTQ0fENoaWxkSUQ9LTF8VHlwZT0z&t=1 Gio

I had already expressed the view that, if I were in Biglari's shoes, I would have sold CBRL. ;) Therefore, another good decision imo! :) Cheers, Gio