LRE.L - Lancashire Holdings Ltd

[thefatbaboon]

I'm quite surprised the stock is not off more.  Perhaps there were rumors of this before and it was a contributing factor to the weakness since the beginning of the year.

 

 

[tombgrt]

Well it's still the same company with one major contributor to it's success removed. All other executives, the cathedral deal, etc. all remain. It's silly to think that all success is due to Brindle. It's a team effort and results depend on more than plain leadership. By now there should be a good culture in place.

Will Brindle keep an equity stake in LRE? If so you can bet your money that he will make sure that LRE does ok.

 

In that light I think it's silly to liquidate your complete 25% portfolio position in a matter of hours Gio. Weren't you compelled by valuation as well? Do you believe results will suddenly change? If so why exactly? Do you not think there is still a lot of value remaining from the cathedral acquisition?

 

If you owned BRK and Buffett died, would you sell it as well? What about Fairfax?

And the most important question: How does this influence your opinion on your other "management-focused" holdings?

[one-foot-hurdles]

Well it's still the same company with one major contributor to it's success removed. All other executives, the cathedral deal, etc. all remain. It's silly to think that all success is due to Brindle. It's a team effort and results depend on more than plain leadership. By now there should be a good culture in place.

Will Brindle keep an equity stake in LRE? If so you can bet your money that he will make sure that LRE does ok.

 

In that light I think it's silly to liquidate your complete 25% portfolio position in a matter of hours Gio. Weren't you compelled by valuation as well? Do you believe results will suddenly change? If so why exactly? Do you not think there is still a lot of value remaining from the cathedral acquisition?

 

If you owned BRK and Buffett died, would you sell it as well? What about Fairfax?

And the most important question: How does this influence your opinion on your other "management-focused" holdings?

 

As outsider investors, we have to ask, whats going on behind the curtains for the founding CEO to retire unexpectedly? We are not talking about an unexpected death here. As for Buffett, investors have been aware of his succession plans well in advance. 

[writser]

To be fair Gio you act consistent with your view of the company. Most people (including me) would find a rationale for holding on anyway. On the other hand I think it's dubious that you invest 25% of your portfolio solely based on your judgement of one guy you hardly know and sell everything within a few hours of one press release.

[peter1234]

What makes this transition difficult to understand is that it is unexpected and unconventional:

- Founders usually do not retire ever or in their early 50s

- If they do retire, then often through sale of company

- Or they take over as Chair and then later take a board seat

- If they own a large stake, they will want to do everything to preserve its value. This includes transition planning and communication.

- If they intend to hold their stake, they usually say so.

 

Nevertheless, Mr. Market doesn't seem to worry much today.

[giofranchi]

To be fair Gio you act consistent with your view of the company. Most people (including me) would find a rationale for holding on anyway. On the other hand I think it's dubious that you invest 25% of your portfolio solely based on your judgement of one guy you hardly know and sell everything within a few hours of one press release.

 

Well, I understand it might be dubious! I understand it very well! But I have done this many times before. Last time with Leucadia.

I would do this with FFH too, if Mr. Watsa were to retire. And it also is a 25% position in my portfolio.

Of course, 25% positions are more the exception than the rule. Let me explain why LRE was such a large position:

1) In my portfolio I have many businesses that can grow and compound capital over time. I also wanted a cash machine: a business that is very profitable, but cannot grow quickly, and therefore distributes most of its earnings to shareholders.

2) Lancashire is very tax efficient in distributing its earnings.

3) Lancashire will be very profitable whatever the economy and/or the market do.

4) In the stock market it is extremely difficult to find 1 + 2 + 3. I have asked many a time to show me a machine as good at 1, 2, and 3 as Lancashire, but no alternative idea came up.

 

If I could have invested 8% in 3 different businesses with Lancashire’s characteristics, I would certainly have done so!

 

All this, of course, had ONE essential premise: TIME. Time is my biggest competitive advantage. And I want to be invested in businesses led by outstanding people for at least a decade, two decades are even better!

 

In other words, Lancashire yesterday for me had characteristics very difficult to find elsewhere, and was very predictable too. Today it has become much harder for me to predict… when predictability is gone, I am gone too... no matter how large a position an investment was! ;)

 

Gio

 

[twacowfca]

Of course, I would like to know what twacowfca thinks about this most unexpected (at least on my part…) development.

 

Thank you in advance,

 

Gio

 

 

Richard has built such a good company that he hasn't had much to do recently.  He's gotten bored. Having a very well run company with niches that are nicely profitable that can be run well by the managers is not a bad thing. I think we will be pleased with their Q1 results reported in a couple of weeks.

 

I think the board wished Richard would have stayed on longer and made a gradual transition, but he decided to make a clean break.  Alex and Paul have been running the day to day operations very well without Richard's having to micromanage. Paul, their Chief Underwriting Officer, Learned his craft at AIG's London operations when Richard was their chief risk officer.

 

Lancashire is in good hands with Richard's understudies. :)

[tombgrt]

Not surprised at all to hear this twacowfca, thanks. Let's hope others are spooked out of LRE by this development so that we can see a lower price!

[giofranchi]

Richard has built such a good company that he hasn't had much to do recently.  He's gotten bored. Having a very well run company with niches that are nicely profitable that can be run well by the managers is not a bad thing. I think we will be pleased with their Q1 results reported in a couple of weeks.

 

I think the board wished Richard would have stayed on longer and made a gradual transition, but he decided to make a clean break.  Alex and Paul have been running the day to day operations very well without Richard's having to micromanage. Paul, their Chief Underwriting Officer, Learned his craft at AIG's London operations when Richard was their chief risk officer.

 

Lancashire is in good hands with Richard's understudies. :)

 

I have no doubt you are right. And I agree first quarter results will be exceedingly good.

The reasons I invested in LRE are two: 1) Mr. Brindle, 2) Its unique characteristics.

I have never expected reason n.1 to disappear so soon. I must admit I never saw this coming.

I will keep watching LRE, but now I simply must acknowledge my thesis was wrong.

 

Thank you, twacowfca! I am very grateful for all your answers and points of view. I am deeply obliged to you. :)

 

Gio

 

[jay21]

Of course, I would like to know what twacowfca thinks about this most unexpected (at least on my part…) development.

 

Thank you in advance,

 

Gio

 

 

Richard has built such a good company that he hasn't had much to do recently.  He's gotten bored. Having a very well run company with niches that are nicely profitable that can be run well by the managers is not a bad thing. I think we will be pleased with their Q1 results reported in a couple of weeks.

 

I think the board wished Richard would have stayed on longer and made a gradual transition, but he decided to make a clean break.  Alex and Paul have been running the day to day operations very well without Richard's having to micromanage. Paul, their Chief Underwriting Officer, Learned his craft at AIG's London operations when Richard was their chief risk officer.

 

Lancashire is in good hands with Richard's understudies. :)

 

Correct me if anything I say is wrong.

 

The way I have always thought about LRE is more like a trading operation than an insurer.  Each analyst covers an area or multiple areas and looks for dislocations in the markets.  When they find a good idea, they raise it to "the committee" (i.e. the daily meetings I believe they have) and upon approval, they pounce.

 

The most important part of the process should still be in tact without Brindle.  Maybe "committee" won't run as smoothly/well without Brindle, but the first part of the process seems to me where the outsized returns are. 

[vinod1]

What is more concerning is a founder/owner/operator giving a 2 week notice out of the blue. If it was due to health or family reasons, then it is completely understandable, but if not, it is likely there is more to this - Brindle not getting along well with others from new acquisitions; he sees something negative and does not want to tarnish his record; he wants to start a new company from scratch that competes with Lancashire, etc.

 

It would be useful to know how Brindle has quit his previous positions and if he has any non compete provisions with Lancashire for any period of time.

 

Vinod

[vinod1]

I have just closed my entire position.

 

Without Mr. Brindle I am not interested.

 

It was a 25% position.

 

All in all since my first investment in LRE I have lost some money.

 

I will watch from the sidelines and see how this develops: if Mr. Maloney truly is a worthy successor to Mr. Brindle, I might get interested again and reinvest in LRE.

 

Now I have a mountain of cash and no idea. :(

 

Gio

 

Gio,

 

Very impressive! Sticking to the original rationale (and plan) for an investment is difficult especially for a very large position like yours.

 

Vinod

[giofranchi]

Correct me if anything I say is wrong.

 

The way I have always thought about LRE is more like a trading operation than an insurer.  Each analyst covers an area or multiple areas and looks for dislocations in the markets.  When they find a good idea, they raise it to "the committee" (i.e. the daily meetings I believe they have) and upon approval, they pounce.

 

The most important part of the process should still be in tact without Brindle.  Maybe "committee" won't run as smoothly/well without Brindle, but the first part of the process seems to me where the outsized returns are.

 

In my experience businesses don’t work that way.

I might be wrong. And I truly hope I am. But, despite Mr. Barnard and Mr. Bradstreet are world class at what they do, I would sell FFH, if Mr. Watsa weren’t at the helm. The same is true for any business that I know of, LRE included.

 

I have never dealt with businesses that don’t depend on a person. I am sure they might exist (Coca Cola?). But they are very difficult for me to understand. And I cannot be sure LRE is among them.

 

Whenever I feel predictability is threatened, I sell.

 

Gio

 

 

[CorpRaider]

Wow.  Two weeks notice this soon after two major acquisitions does not comport with my expectations for reasonable professionalism in management.

[gary17]

Gio - perhaps this is an opportunity to consider Berkshire if you are looking at compounders

I'd say Berkshire would look much the same without Buffett at the helm.  In fact I think the T's might do a good job moving forward. 

 

Disclosure: no position.

 

Correct me if anything I say is wrong.

 

The way I have always thought about LRE is more like a trading operation than an insurer.  Each analyst covers an area or multiple areas and looks for dislocations in the markets.  When they find a good idea, they raise it to "the committee" (i.e. the daily meetings I believe they have) and upon approval, they pounce.

 

The most important part of the process should still be in tact without Brindle.  Maybe "committee" won't run as smoothly/well without Brindle, but the first part of the process seems to me where the outsized returns are.

 

In my experience businesses don’t work that way.

I might be wrong. And I truly hope I am. But, despite Mr. Barnard and Mr. Bradstreet are world class at what they do, I would sell FFH, if Mr. Watsa weren’t at the helm. The same is true for any business that I know of, LRE included.

 

I have never dealt with businesses that don’t depend on a person. I am sure they might exist (Coca Cola?). But they are very difficult for me to understand. And I cannot be sure LRE is among them.

 

Whenever I feel predictability is threatened, I sell.

 

Gio

[writser]

I have never dealt with businesses that don’t depend on a person. I am sure they might exist (Coca Cola?). But they are very difficult for me to understand. And I cannot be sure LRE is among them.

 

Whenever I feel predictability is threatened, I sell.

Gio

 

Isn't a company that depends on a single person always more unpredictable?

[original mungerville]

I am out at a loss as well. I was putting a lot of weight on Brindle being there long-term. I think results will continue to be good for a year or two and then with the founder gone I think there is potential for a decline over time now.

 

 

 

[giofranchi]

Isn't a company that depends on a single person always more unpredictable?

 

writser,

sorry, today I don’t feel like discussing the philosophical underpinnings of investments too much…

 

Let’s just say I feel more comfortable judging the traits that distinguish a great entrepreneur, than forecasting how many thousands of liters of fluid Coca Cola will sell next year, and the year after that, and so on for the next two decades…

 

Please, look for me tomorrow and I will be ready again to engage in our philosophical dispute! ;)

 

Gio

 

[original mungerville]

I have never dealt with businesses that don’t depend on a person. I am sure they might exist (Coca Cola?). But they are very difficult for me to understand. And I cannot be sure LRE is among them.

 

Whenever I feel predictability is threatened, I sell.

Gio

 

Isn't a company that depends on a single person always more unpredictable?

 

No. The average person has a career of 40 years with low probability of death relative to other vagaries of businesses in general which have higher probabilities than the probability of death. And 40 years is a long-time. Even 20 years - buying into a company at the mid-point of someone's career is a long time - certainly longer than your outlook on investments and as long or longer than Buffett's average holding period. So no, mathematically no way. Pretty simple.

[giofranchi]

I am out at a loss as well. I was putting a lot of weight on Brindle being there long-term. I think results will continue to be good for a year or two and then with the founder gone I think there is potential for a decline over time now.

 

original mungerville,

never again heed what Gio has to say! After all, maybe, frommi’s idea was not such a bad one! ;)

 

But… I just like investing too much! … Yes, I know … Now I almost sound like an addict! ;D

 

::)

 

Gio

 

[writser]

@ Gio Sure, I don't want to rub salt in the wounds. Sorry if it felt that way.

 

@ Mungerville: I'm not just talking about dying, also about the possibility of retiring, choosing another career, losing passion for your job, your child getting sick or any other random circumstance. I'd think that after a career of 20 years the odds of such a thing happening in the next decade is on average a lot higher than the odds of KO or IBM changing their business model. So if you want predictability I would choose the latter. I could very well be mistaken though.

[james22]

I will watch from the sidelines and see how this develops: if Mr. Maloney truly is a worthy successor to Mr. Brindle, I might get interested again and reinvest in LRE.

 

If the stock drops significantly on the news, would you be willing to buy back in before Maloney has proven himself, Gio?

 

How about LUK?

[giofranchi]

If the stock drops significantly on the news, would you be willing to buy back in before Maloney has proven himself, Gio?

 

How about LUK?

 

No james22,

until I have doubts, price doesn’t matter to me. Same with LUK.

 

Gio

 

[Williams406]

Wow.  Two weeks notice this soon after two major acquisitions does not comport with my expectations for reasonable professionalism in management.

 

My thoughts exactly. I can somewhat understand if Brindle has gotten bored watching a machine that can run well without him, if that's the case here. But he is the key player in building this company and I fail to understand why he couldn't be patiently bored for a few more months in the interest of a more orderly transition that doesn't create uncertainty. Doing it this way forces any outside minority shareholder to consider the possibility of another explanation much less benign. This move seems very disrespectful to Lancashire shareholders at best.

[gary17]

If I had to guess he was forced out by the board ; they just made it sound nice.