giofranchi

Ross, maybe… I, on the contrary, have invested in ALS at the beginning of this year, because I always look for two things: 1) "First class management who have clearly demonstrated ability to create value over a long period of time" 2) "Solid cash flows" Not a big surprise, right?! :) Until late last year ALS had only 1). Now it has both 1) and 2). Of course, nothing is sure… but I like to think that “first class management” should really squander “solid cash flows”, for a business, which has both, to be dead money… Except, of course, a “first class management” that squanders “solid cash flows” is an oxymoron. ;) Gio

Yes, I am! … Far from me to “deny you access to information” … ;D ;D ;D ;) ;) Cheers, Gio

The way I assess this kind of risks is always the same: When I like a business, the way I like ALS, and I can purchase it at a FAIR price, I always play the game… but also leave some room to average down: If the “hair-dryer” wins, my investment usually is large enough to yield me a meaningful gain; If the “constant dribble of new wet worry” wins, I still have room and funds to take advantage of a WONDERFUL price. Does anyone know really how to assess this kind of risks with better precision? ??? Gio

Aren’t those 27 words that perfectly describe also another company we often talk about? ;) (Except that other company has enjoyed solid cash flows for some time now!) Gio

The problem I always find with waiting "to get closer to book", in companies with an handsome potential for growth, is that, if for instance we get financing, book will leap forward… Gio

Well, I think that is a bit extreme… I would just say, instead, to be invested in ALS today, you must be comfortable knowing that Kami might not get financed soon. And the waiting could prove still to be a very long one. Better to be prepared for this eventuality and to have thought about its consequences, don’t you agree? ;) Cheers, Gio

Ah! Ok... I understand... Too bad! :( Gio

Gio

I agree. Very good book! :) Gio

hohi, I think the two most interesting numbers are “Fixed Cost/ton saving of USD 16/ton” because Kami is designed to operate at capacity, and “saving of USD 20/ton” because there is far less trucking/rail/transhipment cost to get it to port. If we assume an average operating cost of USD 90-100/ton for competing mines worldwide, those two numbers would put Kami’s costs 36%-40% below average! Not bad! ;) Put that together with Kami’s strategic importance, and I think financing will very likely get done. So, do you think those USD 36/ton savings are plausible, or are they too optimistic? And, if too optimistic, why? Thank you, Gio

Yes! Thank you very much, SD! I think both “facts most are ignoring” are instead very important, and bode very well for the reaching of a successful financing agreement in the not too distant future! :) Gio

I think simple common sense would suggest they will go on trying to put together a sort of financing agreement. This will surely take some more months. Then building will start. By the time production finally begins, iron-ore prices will have finally bottomed. Here we have two possible scenarios: 1) Iron-ore prices start rising again 2) Iron-ore prices remain depressed for many years If 1) is true, I think Kami will be profitable, therefore all people involved will be happy. If 2) is true, we are left with other two possible scenarios: a) Kami’s production costs are lower than average b) Kami’s production costs are higher than average If a) is true, like Kami’s management believes, Kami will be profitable, therefore all people involved will be happy. If b) is true, like ItsAValueTrap believes, Kami won’t be profitable, and will probably be shut down sooner or later. Personally, I believe in 1). I think urbanization will just go on everywhere in the world, and mostly in places like China and India. We will need more and more steel, and as a consequence more and more iron-ore. When the need for something goes up, oversupply is always just temporary. In the meantime, let’s receive free cash from our royalties, and let’s use it to buy new royalties and to develop projects that will lead to new royalties. We already have the CDP only waiting to be exploited! ;) Gio

+1!!! ;D ;D Happy birthday, Sanjeev! :) Cheers, Gio

Gio

"The Emerging German-Russian Axis" by Mr. Charles Gave Gio Daily+6.30.14.pdf

I think ALS is cheap right now even if Kami were truly worthless! Therefore, I don’t pay much attention to ADV. Anyway, I still think you are confusing bad news with its direct consequences… The only bad news for Kami was the recent drop in iron-ore prices. Period. Could it be foreseen? Maybe… But who cares?! ADV’s management didn’t see it coming and that’s history! Kami will probably be delayed for many more months… That’s not to say it won’t be built, eventually! Now what? Cut costs, starting from consultants, as much as possible, and try all you can to secure some sort of financing! Then… hire back your consultants, if you still need them!! That’s just a consequence… and imo the right one! Would you do something different instead?! Gio

And what’s wrong with that? It’s financing they must work on and define now. Until financing is not done, I don’t want to see further costs to pay engineering consultants. Gio

Two key takeaways from the latest piece by Mr. David Hay: 1) Bridgewater thinks expected real returns for stocks have almost never been lower than today 2) Bridgewater thinks expected real returns for stocks and bonds have never been lower than today A curiosity (I would say an appalling curiosity!): Yields on 10-years government bonds in Spain have never been this low since… 1789!!! ::) Gio EVA+6.27.2014_NA.pdf

A really shameful World Cup for Italy… And the second in a row!!… Very bad! :( But I am a tennis player, and I am enjoying Wimbledon right now: I think Nole Djokovic is the best tennis player out there, and the way he plays is simply amazing… though I must admit Rafa Nadal is a wonder athlete, and to defeat him in a 3 out of 5 sets match is almost an impossible task! ;) Cheers, Gio

Ok, so let me try to explain what I mean a little more clearly: I think what Mr. Buffett means is this: do they understand they are stewards of other people’s capital? Do they accept this responsibility seriously? I know a lot of CEOs and a lot of entrepreneurs: practically without any exception entrepreneurs’ chief interest is capital allocation, while CEOs’ chief interest is… something else! Most CEOs have not started their career as capital allocators, otherwise they all would be entrepreneurs!, instead they were technicians, designers, sales and marketing representatives, PR representatives, etc.. They were extremely good at what they did, and sometimes go on thinking that, once they have become CEOs, the success of the business they run still solely depends on their abilities as technicians, designers, sales and marketing, or PR representatives, etc.. This ego-centric view of the business they run has two fundamental flaws: 1) It is incompatible with the idea they view themselves as stewards of other people’s capital 2) It is false Just yesterday, for instance, I met with the CEO of a large engineering firm based in Milan. We talked for an hour, and she was all about this project over here, that project over there, a lot of technicalities, all very interesting things… but the subject of capital allocation she simply never brought up, not even once. Well, you know what? I wouldn’t be interested to invest in her company. When you deal with entrepreneurs, instead, everything changes. They know their most important activity is capital allocation. Therefore: a) In a private company they view themselves as stewards of their own capital b) In a public company they view themselves as stewards of other people’s capital Of course, depending on past results, some ask to be paid less, others to be paid more… But there can be no misunderstanding about what their first and most important responsibility is. What are then the risks with entrepreneurs? I see two basically: First: they start underperforming: look at Mr. Dell, for instance, and the outcome for shareholders was not a favorable one... But at the beginning of this discussion I have said: Second: some entrepreneurs might be truly dishonest people. Of course, I don’t think Mr. Biglari is dishonest. Full of himself and arrogant? Maybe yes. Dishonest? Absolutely not! ;) Gio

Yeah! Thank you! :) The same imo is true both for BH and for ALS. Gio

I think there is a misconception about what I try to do while investing my firm’s capital. I look for great entrepreneurs, not great managers. When I hire someone, I look for a great manager; when I invest, I look for a great entrepreneur. I think the difference is huge. Gio

Well, thank you very much Dustin! I think we also should never forget that Mr. Biglari is required to invest at least 30% of the incentive he receives in BH stocks, and to hold those stocks for at least 3 years. If more qualitative reasons still leave you skeptical, this at least is something objective that should go a long way in aligning his interests with shareholders’. Another qualitative thing I like is that I find Mr. Biglari to be extremely well read, at least when it comes to investing. As a general rule, I would postulate the following theorem: the larger someone’s library is, the lower the probabilities that person is going to mistreat his/her shareholders are. ;) Gio

I don't think it works that way. In business, when something is doing great, the last thing you want is "to rock the boat"... Instead, you just want to keep the status quo and to keep operations undisturbed as long as possible. In other words to screw his shareholders would be "a very poor business choice". And usually it is only the last one of a long list of poor business choices! Gio

If Mr. Biglari’s business judgment and choices in the future are of the same very high quality as the ones he has made in the past until now, the answer is yes! Of course! Those who don’t like Mr. Biglari think sooner or later he will make poor business choices. Because, of course, that is the only true reason why you would not want to invest in BH today. Gio