giofranchi

Proof of this should be the fact that since 2000 OAK has increased AUM at a CAGR of 14.5%, while distributing more than 80% of earnings. :) Gio

Another change today: 36% Fairfax Financial 17% Liberty Media 17% Biglari Holdings 14% Oaktree Capital 16% Cash Vinod, Liberty, You see what I mean when I say I don’t think investing should be something static? In a matter of just 4 trading days I have practically halved my cash reserve. And now I think I will gradually build it up again! ;) Gio

Yes! I thought I knew what your answer would be. And it sounds logic and safe enough. Though I never do such things… What I can surely say is: if you change your mind on the merits of BH as a long term investment, I will be glad to buy your shares! ;) Gio

A “Biglari discount”???… I have never even thought about investing in a company which is led by a person who might cause the market to discount its true worth… And I would have never invested in BH if I hadn’t thought a “Biglari discount” was nothing but a complete nonsense! Imo the exact opposite is true! This being said, imo your entry price will prove to be an excellent investment choice in the coming years. ;) Gio

An activist manifesto by Carl Icahn Gio Carl-Icahn-Nov182014.pdf

As a long time observer and infrequent contributor to this groundhogs day type of thread. This might be the best post. As this same discussion rages to 2019 I will frequently refer to this post as a example of rationality. Well done sir. Couldn’t agree less!! ;) Gio

Well, just look at same store traffic before and after Biglari took over the management of the company! You surely know how much difficult it is to grow quarter after quarter for 5 years in a row, right? ;) Gio

Yeah! I know the theory… And I also agree with it 100%! ;) Gio

Well, Buffett suggests the following: For an insurance company which is able to increase float for many years into the future underwriting profitably, float is as valuable as equity, if not more. This would put FFH FV at more or less 3 x BV. If you calculate the discounted value of FFH BVPS twenty years from now, assuming a CAGR in BVPS of 15% and a discount rate of 9%, you get 2.92 x BVPS0 (which is BVPS at year 0, or today). Of course, this is not to say the market will ever price FFH at such an high multiple! ;) Gio

In fact, I hope this never happens. ;) Let me explain: I think I am good enough at identifying great entrepreneurs, good businesses, and at taking advantage of low prices… But I know I am not good at all at taking advantage of high prices! I mean, I want to own a business like Fairfax for the next 20 years… While a high stock price might tempt me to do something stupid (or at least that I am not comfortable with). It’s just something I feel to be out of my circle of competence (think of Buffett holding onto KO in 1999-2000…). Gio

That is only on a GAAP basis… True Management Fees were $750 million in 2013, and true Incentive Income was $1.03 billion in 2013. Gio

??? Gio

mateo999, I take your criticism seriously, because you have evidently talked to many potential franchisee… But let me tell you that I totally disagree with your statement above. As much as I admire many COBF members, I don’t know of a single person I would feel safe to replace Biglari with… Not only among COBF members, but in general! I also don’t agree with your suggestion of bringing in another CEO to run SNS: that business under Biglari’s lead has performed wonders! I couldn’t be more impressed! And I am confident that, if, like you say, the franchise unit commitments should prove to be ephemeral, Biglari will recognize the problem and act accordingly (probably just letting them have somewhat higher margins!). Gio

How could it be any different? If they terminate the rights offering, no new shares will be issued, and therefore they will receive no funds. Gio

Thank you, I will... but with very low expectations... Italy remains a difficult place to do business... :( Gio

Another (small) change today: 36% Fairfax Financial 17% Liberty Media 17% Biglari Holdings 10% Oaktree Capital 20% Cash :) Gio

I know think my worries about the high taxes I pay in Italy on OAK’s distributions were excessive. With an IRR of 20% sustained for 20 years and with new funds coming in each year (probably the money management industry will go through a drastic consolidation process, that will put out of business the many, while strengthening the very few), OAK might be able to increase its NAV at 15% compounded annual AND distribute the majority of its earnings. What truly matters is their ability to increase AUM at high CAGR, which has almost nothing to do with the distribution of fees and incentives. During the conference call for Q3 2014 Kirchheimer had the following to say: And I would add: despite also the fact we are fast approaching the part of the cycle in which OAK has usually encountered the most difficulties in increasing AUM. If I am wrong, please correct me. ;) Gio

The second part is much more difficult than the first... So, let me reiterate my view: the first time I see Biglari doing something I wouldn’t do, if I were in his stead, that’s when I will start thinking he cannot be trusted. Gio

Hi Pete, pretty epic good luck!! ;D ;D What am I thinking about Fairfax? Or about other investments of mine? I will try to answer both questions: Fairfax: the multiple expansion is probably over. But I think from now on they might be able to make money both if the cycle goes on and if the cycle folds and starts going the other way. If the cycle goes on, I like their insurance operations, their investments in wholly owned businesses, and I like their bond investments: I mean, just look at 10 years government interest rates, Japan 0.44%, Germany 0.71%, Spain 1.84%, Italy 1.96%, UK 2.02%… US 2.28%?? Doesn’t make any sense to me! If the yield on US 10yrs bonds gets to the level of Italy or Spain, Fairfax’s bonds portfolio will make a lot of money. If the cycle folds, in addition to the list above I also like their deflation and stock market hedges. Other investments of mine: Biglari Holdings at 1.04 x BVPS doesn’t make any sense to me, and I like the fast food industry as somewhat counter cyclical. Oaktree Capital is worth at least $70 if this cycle goes on, much more if this cycle were finally to fold, being at least as counter cyclical as Fairfax. Cheers, Gio

I have just changed the asset allocation of my firm’s portfolio this way: 36% Fairfax Financial 17% Liberty Media 17% Biglari Holdings 8% Oaktree Capital 22% Cash First, I am a moody guy… ;) Second, I think that Packer’s argument makes a lot of sense! Taxes be damned! I remember Buffett saying something like this: if you have a great business, led by a great entrepreneur, and bought at a good price, and you don’t want to hold it for tax reasons… just let me know, I will be very glad to relieve you of such a burden! 12 times earnings imo is a very good price for an high quality business like OAK. You see? How could any statistical analysis take into consideration such a move?! It cannot. Gio

Well, that single time out of 100 ruined Ben Graham’s investment experience for at least 10 years… And he has written very clearly about the anguish he felt… If such a thing happened to the teacher of us all, it might happen to anyone… At least, that’s my thought! ;) Gio

Most of all I think it is a great fallacy to believe good investment results can be achieved only being 100% invested all the time. Icahn has great investment results, while being concerned that a major market correction might soon come our way: http://www.reuters.com/article/2014/11/17/us-investment-yearend-icahn-idUSKCN0J127Y20141117 And cash might be a drag on results 99 times out of 100, but the single instance in which it truly matters might represent the difference between anguish and peace of mind. So, great investment results + peace of mind always, or even better investment results + a very remote probability of anguish? To each one the answer he/she prefers. Gio

Ahahahah!!!!... It is a great business, led by a great entrepreneur!... Much easier than the meaning of life, or the existence of God! ;) Yes! My allocation would change. But I like to read “fantasy” novels… I don’t invest in a “fantasy” world! ;D ;D I am sure my holdings will experience volatility, irrespective of what the general market does. And that’s a big reason why I hold some cash: to take advantage of downside volatility. If FFH were at $380, LMCA at $25 and BH at $250, all the volatility they would experience would be on the upside! ;) Gio

In my opinion SVM is right, but only in theory… In practice different time frames always leave it subject to criticism. I try to explain what I mean: Just as we know that maximization of earnings this year and the next might require actions that won’t necessarily maximize earnings 20 years from now, maximization of earnings 20 years from now might require actions that won’t maximize earnings 50 years from now, and so on… Grantham showed this perfectly in a former letter of his, in which he explains why our use of agricultural land might not be sustainable, and he says SVM cannot explain nor support a sustainable use of agricultural land… Well, I don’t quite agree: SVM might very well explain and support a sustainable use of land… It just requires a time frame of 100 years to do so… Therefore, both us and our children should be willing to accept lower earnings, in order to devise strategies that maximize our grandchildren’s earnings… Strategies that anyway might not be the best ones to maximize their children’s earnings… And so on… Gio

I agree, both with the "always remembering Napoleon!" part, and with the "leaving this milestone in the dust" part. :) Gio