giofranchi

Thank you! This seems to be out-of-the-box thinking, and surely not very popular on the board… But you already know I tend to agree with your line of thought. Cheers, Gio

Maybe… But that’s actually the way FFH has operated for most of its existence… Of course there have been ups and downs… But overall their returns from equity investments have been very satisfactory! Moreover, recently they have begun changing their strategy, investing more funds with whom they reckon to be great managers: I remember at last year FFH dinner that both managers from Bank of Ireland and Eurobank were present, and Prem Watsa praised their abilities and said how much it made him feel comfortable to partner with such reliable people. Thomas Cook and Kennedy Wilson surely are other notable examples. I think today FFH equity portfolio is rightly balanced between a basket of deeply undervalued securities (a la “cigar butts”) and a few names they have great confidence in thinking they have top management and very bright future prospects (high quality companies). Cheers, Gio

For instance, I think I have recently found a wonderful piece of real estate downtown Milan, which might serve me very well for many years to come, both as a new better house for me and my family and as my own private office. The price is a true bargain because the counterpart is currently distressed and therefore a forced seller. I am positive it is a purchase that will both enhance the quality of my life and my family’s and turn out to be a reasonably good financial investment. Now, you can plan as much as you want… But to foresee when such an opportunity might arrive imo is almost impossible… Instead, you must be ready to act promptly and seize it. If I were fully invested and the price of my stocks were depressed, I would be faced with a dilemma I don’t want to face: should I sell my stock investments at the worst time possible… Or should I let the real estate opportunity go? This is just an example of what might happen… because it is actually happening to me right now! ;) Unfortunately, I guess we all know worst things than this might happen… :( Gio

Yes! Probably I would do something like you suggest! But I wouldn’t wait for a price below BVPS… I would start using a part of my cash reserve at 1.15 x BVPS, and keep buying as the price trends down… If the price recovers swiftly, instead, I will sell some… Gio

Ah!... Very difficult to say! Anyway, they are the best investors out there… Let me answer with Marks’ tennis analogy: the professional wins by being aggressive, the amateur wins by being defensive… One thing I am sure about: neither Buffett nor Watsa nor Munger nor Klarman would ever put themselves in the situation of being forced to sell their investments… Because imo the ability to hold on to your investments for as long as you please is key to investment success… Life might be strange and full of surprises… I remember Munger saying: “We have already been cash-strapped… And we don’t ever intend to go there again!” As far as “opportunities meeting their criteria” are concerned, I think it is not that easy: because position sizing matters too. If I hadn’t a very large investment in FFH, I would be buying it today. Instead, I am waiting for some price correction to add to my already large position. Gio

Ah!... But that would have been impolite and presumptuous! Far from me! Cheers, Gio

Ok! You are right! :) Gio

I know! That's why I have written: ;) Gio

But when I think about my cash reserve, I am happy about the optionality it gives me in regards to what the price of my investments will do, more than the price level of the general market. A concentrated portfolio like mine tends to be much more volatile than the general market, and opportunities to use my cash reserve intelligently come quite often! I surely don’t have to wait for the market to crash to make use of my cash reserve. I always have some cash reserve, but the amount of cash I hold can vary quite significantly, quite often, and quite suddenly! Gio

On the contrary: if you read again “Margin of Safety”, you'll find out that to Klarman the true opportunity cost is suffered by those who don’t have buying power when a great investment opportunity comes around. Because, if the market declines, the value of their whole portfolio will most probably follow suit. Instead, the opportunity cost suffered by those who hold cash is there for everyone to see: 9 years of compounding at 16%, instead of 9 years of compounding at 20% (just a numerical example of course!). Gio

Ok... ThenI will warn Klarman that what he has written is meaningless… Though, I think I am already guessing how he might answer: “Lad, the numbers are not all that important… I was just trying to convey an idea through a numerical example!” ;) Cheers, Gio

Liberty, It was just to explain a bit better why I don’t like much The Brooklyn Investor’s posts on the price level of the general market, and the reason I don’t understand why he devotes so much time thinking (and writing!) about it. Cheers, Gio

Sure! But if you consider the 1% currency movement today, I am up 5%! ;D Therefore, 3.7% currency move, 1.3% underlying securities. Gio

Even more plausible imo are the following numbers: Person A: compounds at 20% for 9 years, -30% in year 10 Person B: compounds at 16% for 9 years, -3% in year 10 Again person B will finish the 10 years period with the most money. By the way… The equity of my firm is already up 4% in 2015! It doesn't seem my cash reserve is dampening results too much! ;) Gio

I was only trying to explain why I hold a cash reserve. I was not saying to hold it is the right thing to do. Cheers, Gio

Liberty, I know we think differently about cash, but imo it remains an hedge against uncertainty… We never know what might truly happen to our businesses… let alone the general market and the overall economy!… To hold some cash imo gives us staying power, even when something completely unexpected occurs… And I believe sooner or later it will! Remember what Klarman writes in “Margin of Safety”: who ends up with more money? He who compounds at 20% for 9 years then loses 15% in year 10, or he who compounds at 16% for 10 years? The second one, of course… despite the fact the first one enjoys a better performance 90% of the time! Therefore, imo the question is not whether to hold or not to hold some cash reserve… Instead, it is: how much cash should I hold? And I am not convinced that to answer that question the level of the general market is something I should not pay at least some attention to… After all we do not invest in a vacuum, and the companies we invest in do not operate in a vacuum! On the contrary, if you believe that holding a cash reserve is only a waste of resources, I don’t see what’s the point in spending so much time thinking about the relevance, or the lack thereof, of the level of the general market. Gio

Maybe… nonetheless I much preferred to read his stuff when he concentrated on analyzing owner-managers! ;) Cheers, Gio

Gio

10yr US Treasuries Yield down to 1.80%: it looks like FFH's bonds portfolio is making a lot of money in 2015! :) Cheers, Gio

Why should you devote so much time to something you believe to be basically useless? ??? Gio

Hi Sanjeev, Just bought 2 tickets for the dinner + presentation! I hope to spend a wonderful evening with you and other board members, just like I did last year! ;) Cheers, Gio

My pleasure! ;) Cheers, Gio

The Ajit Isaac Lecture Video https://fundooprofessor.wordpress.com/2015/01/12/the-ajit-isaac-lecture-video/ Gio

The answer is the same: if Actavis is successful in implementing very effective changes, in cutting unnecessary costs, and exploiting economies of scale the new organization will enjoy, their purchase of Allergan might turn out to be a good deal. Instead, as a passive investor only I believe they are overpaying for Allergan’s assets. But that implies the healthcare private market is much more undervalued than its public counterpart… Of course I don’t know, because I know nothing about the healthcare private market, but it seems a bit strange to me that among publicly traded healthcare companies true bargains are rare, while they abound among private healthcare companies… Although I agree that EM might actually be another story and a much juicier opportunity! Gio

Probably for the reason I have tried to explain: when you make 10 to 20 acquisitions, small and large, in little more than 5 years, and you have levered up to make those acquisitions… the whole picture gets a little bit confused… or at least gets more difficult to see clearly… If, instead, those acquisitions had been made through the use of VRX’s free cash alone, the situation would be much easier for me to understand, and I would feel much more confident today. Why? Because that free cash itself would be the only track record I’d require. On the other hand, I am perfectly aware of the fact there is simply no way of closing so many deals in such a short period of time, relying solely on free cash flow… Yet, the uncertainty imo still remains… Gio