LRE.L - Lancashire Holdings Ltd

[giofranchi]

I think Richard will be enjoying the fragrance of Spring flowers on walks by a lake while his Lab fetches sticks thrown far out into the water.  Then, he may do something very different.  :)

 

Thank you very much, twacowfca!

And, please, let us know as soon as you hear some interesting news from Mr. Brindle. ;)

 

Cheers,

 

Gio

[james22]

Is it better to choose the horse or the jockey?

 

www.vcconfidential.com/files/kaplan_horse_jockey_april_2006.pdf‎

[moody202]

Is it better to choose the horse or the jockey?

 

www.vcconfidential.com/files/kaplan_horse_jockey_april_2006.pdf‎

 

Jockey.....he'll generally find the right horse !

 

BTW...I cant' follow the link....errors out!

[Liberty]

BTW...I cant' follow the link....errors out!

 

Remove whatever characters are after .pdf in the URL bar of your browser after you click on the link and it sould work. Alternatively, you can cut & paste the link from the board and that should work too. Not sure why just clicking on it doesn't work, but I had the same problem.

[twacowfca]

Is it better to choose the horse or the jockey?

 

www.vcconfidential.com/files/kaplan_horse_jockey_april_2006.pdf‎

 

A good jockey can make a big difference riding a horse that hasn't reached its potential, but far less difference on a proven champion that's been ridden well.  :)

[james22]

BTW...I cant' follow the link....errors out!

 

Sorry about that.

 

Google "Should Investors Bet On The Jockey Or The Horse?" - the first return will link to the report itself.

 

...nonhuman capital assets form very early in a firm’s life. Identifiable lines of business and important physical, patent, and IP assets are created in these firms by the early business plan, are relatively stable, and do not change or disappear as specific human capital assets turn over. These arguably constitute the “glue” that holds firms together.

 

These findings also are relevant for the critical resource theories. The early emergence and stability of nonhuman assets are consistent with those assets being critical resources. The instability of the human assets suggests that to the extent that the initial critical resource is a specific person, the “web of specific investments built around the founder(s)” itself becomes the critical resource relatively early in a firm’s life.

[giofranchi]

Is it better to choose the horse or the jockey?

 

www.vcconfidential.com/files/kaplan_horse_jockey_april_2006.pdf‎

 

Why should it be either one or the other? I want and demand both!

Give me:

1) A great owner-manager to partner with,

2) A predictable, and therefore good, business (have I ever expressed interest in SHLD?),

3) A fair price,

4) A 15 to 20 years time horizon.

I don’t ask for anything more, but I won’t except anything less either.

It is a very big world, and if I can find at any point in time 5 to 10 ideas that satisfy both 1, and 2, and 3, and 4, I am confident enough I have done a good job.

 

Gio

 

[giofranchi]

When all the 4 requirements above are satisfied, I can have patience and conviction. And I consider patience and conviction among the most important things to have in investing. :)

 

Gio

 

[frommi]

Its really a pity that not every year is like 2008! :D

Ok, since this is the LRE thread, is LRE really a great business? From what i read so far the only reason the run an insurance business is because of the float and the possibility to invest a lot of that into equities.

But i have not found one where the management does that as aggressive as Buffet, why is that?

The problem i have with LRE is their huge bond portfolios, that may be good when the market turns down now, but what after that or when it doesn`t and interest rates surge because of the improving economy?

I am under the impression that the bond bull market of the last 30 years has ended last year, and thats exactly the point where LRE`s stock started falling. So perhaps LRE is just correlated to interest rates and i don`t want that.

[Liberty]

Ok, since this is the LRE thread, is LRE really a great business? From what i read so far the only reason the run an insurance business is because of the float and the possibility to invest a lot of that into equities.

 

Most insurers would probably blow up if they tried to invest in equities in any significant way. It takes a good investor at the helm, so few insurers even try.

 

A few rare specialty insurance businesses can make decent returns from underwriting profits. Check out RLI for example. The problem is that these usually can't grow too much because the niches that they find usually aren't very big, so they tend to return a lot of capital to shareholders (dividends, special dividends, buybacks). That's the LRE model afaik.

 

RLI could be so much better if someone like Buffett or Gaynor invested the float... I wish Markel would buy them if they ever become cheap (which they pretty much never are)...

[no_free_lunch]

I am under the impression that the bond bull market of the last 30 years has ended last year, and thats exactly the point where LRE`s stock started falling. So perhaps LRE is just correlated to interest rates and i don`t want that.

 

LRE makes their money on the insurance, by having a low combined ratio.  According to their AR, the average duration of fixed income & cash was 1.6 years, hardly correlated or even affected by interest rates.  An increase in interest rates would simply raise the return on their fixed income.

[james22]

Why should it be either one or the other?

 

For the same reason you invested 25% in Lancashire rather than 8% in three different businesses with Lancashire’s characteristics?

 

Given the extreme difficulty finding in the market your four requirements, I just believe (assuming the research is correct and the importance of the owner-manager is overrated) there might be an opportunity buying predictably good businesses after the market reacts negatively to a great owner-manager leaving.

 

These requirements may prove equally productive (if only slightly less difficult to find):

 

1. A predictably good business (based on early established nonhuman capital assets)

2. A better than fair price

3. A ten year time horizon (however stable, I do assume some culture drift).

 

While I generally prefer the few alternatives that meet your four requirements (BRK, MKL, GLRE, TPRE), I am adding to LUK on this basis.

 

And convinced that Lancashire might play such a unique role in my portfolio that no alternatives exist (thanks in great part to your posts here, Gio), I will consider LCSHF if it falls more significantly.

[frommi]

I am under the impression that the bond bull market of the last 30 years has ended last year, and thats exactly the point where LRE`s stock started falling. So perhaps LRE is just correlated to interest rates and i don`t want that.

 

LRE makes their money on the insurance, by having a low combined ratio.  According to their AR, the average duration of fixed income & cash was 1.6 years, hardly correlated or even affected by interest rates.  An increase in interest rates would simply raise the return on their fixed income.

 

What a waste of capital! :D

Thanks for pointing that out, i am really interested in putting money into LRE.L, especially now that Brindle is gone. Perhaps they rethink their portfolio allocations in the future.

This must sound crazy for someone like Gio, but for me this creates an opportunity, where there is selling pressure thats not really dependend on the business. Nobody knows why Mr. Brindle took his head, it could be anything. It can just be something personal that has nothing to do with the business at all.

[giofranchi]

What a waste of capital! :D

Thanks for pointing that out, i am really interested in putting money into LRE.L, especially now that Brindle is gone. Perhaps they rethink their portfolio allocations in the future.

This must sound crazy for someone like Gio, but for me this creates an opportunity, where there is selling pressure thats not really dependend on the business. Nobody knows why Mr. Brindle took his head, it could be anything. It can just be something personal that has nothing to do with the business at all.

 

frommi,

each of us has his/her own way to do business. Yours and mine are just two different ways…

 

I have no doubt twacowfca is right and LRE will go on being a great company. If you are interested il LRE, go on reading the posts on this thread: you will realize they don’t waste capital (the exact opposite!), they won’t change radically their portfolio of investments (I guess they won’t change it at all!), and they will go on making a lot of money!

 

What Mr. Brindle has created is a great and very unique business. :)

 

Gio

 

[giofranchi]

Why should it be either one or the other?

 

For the same reason you invested 25% in Lancashire rather than 8% in three different businesses with Lancashire’s characteristics?

 

Given the extreme difficulty finding in the market your four requirements, I just believe (assuming the research is correct and the importance of the owner-manager is overrated) there might be an opportunity buying predictably good businesses after the market reacts negatively to a great owner-manager leaving.

 

These requirements may prove equally productive (if only slightly less difficult to find):

 

1. A predictably good business (based on early established nonhuman capital assets)

2. A better than fair price

3. A ten year time horizon (however stable, I do assume some culture drift).

 

While I generally prefer the few alternatives that meet your four requirements (BRK, MKL, GLRE, TPRE), I am adding to LUK on this basis.

 

And convinced that Lancashire might play such a unique role in my portfolio that no alternatives exist (thanks in great part to your posts here, Gio), I will consider LCSHF if it falls more significantly.

 

This is a very sensible strategy, and one I think will produce very satisfactory results.

 

But, you see, I have put a great partner at n.1 purposely, not by chance… It is a great partner that truly gives me conviction in a business. Because in times of trouble – and if you have a 10 years time horizon any business might encounter troubles and will have somehow to cope with them! – I find very helpful to know someone truly reliable is thinking how to solve them and working brilliantly towards that goal. A 10 years time horizon is possible only because a great managing partner makes it so. Without him/her I would lose faith in a business, or in my analysis of it, almost as soon as the first difficulties present themselves…Without a great managing partner, “a 10 years time horizon” would be only words, or, even worse, a lie I’d be telling myself.

 

Hey! But that’s me and only me! After all, it is very well known I am a perfect coward! ;)

 

Gio

 

[frommi]

 

Hey! But that’s me and only me! After all, it is very well known I am a perfect coward! ;)

 

 

Thats just human nature, not your fault :). I am thinking the whole weekend about buying some index puts for protection, so perhaps you are not alone.

[giofranchi]

Thats just human nature, not your fault :). I am thinking the whole weekend about buying some index puts for protection, so perhaps you are not alone.

 

I don’t think being conservative when others show frothy behavior is “human nature”. I think it is the opposite! Right now I am generally cautious for 2 reasons:

1) I don’t find any true bargain among the businesses I follow and I am interested to invest in,

2) I see frothy behavior almost everywhere (even here in Italy… and, if we get optimistic in Italy, that’s the true sign when you should start worrying seriously! ;D).

 

But I was referring to a completely different thing. And far more important imo! I was referring to the conviction we can muster about the businesses we invest in. If we are in earnest for the long term, to be sure a business is in very capable hands remains an indispensable prerequisite imo. Because in the course of the next 10 years our conviction will be put to the test over and over again.

 

You might say you don’t really care about the long term. Fine. Yet, the long term truly is your best ally. Because the market is most inefficient in estimating the true worth of those businesses that can sustain high growth rates of value creation over the course of many years.

 

You might very well jump in and out of stocks, but by so doing you lose one of the most precious ally of yours. ;)

 

Gio

 

[frommi]

No Gio, i care about all time horizons. I just don`t like losing money, even when its temporary. I have now around 10 years experience in technical analysis and timing and i don`t throw that away. It just works a lot better when combined with fundamentals and i am already seeing a payoff in the combination with an outperformance of 6% in the last 6 month and 80-90% of my picks going up 1-2 weeks after buying.

[giofranchi]

No Gio, i care about all time horizons. I just don`t like losing money, even when its temporary. I have now around 10 years experience in technical analysis and timing and i don`t throw that away. It just works a lot better when combined with fundamentals and i am already seeing a payoff in the combination with an outperformance of 6% in the last 6 month and 80-90% of my picks going up 1-2 weeks after buying.

 

Well, that sounds good!

Nonetheless, I was not talking about buying some index puts for protection… I hope this is clear. ;)

 

Gio

 

[james22]

But that’s me and only me!

 

Set aside price from your requirements and we are not far apart.

 

At a fair price, I too require:

 

1. A great owner-operator

2. A predictably good business

3. A fifteen to twenty year time horizon

 

At a better than fair price, I require only:

 

1. A predictably good business

2. A ten year time horizon

 

Admittedly you wouldn't consider (and I might even prefer) the latter.

[james22]

After all, it is very well known I am a perfect coward! ;)

 

Hey, I could never invest 25% in a single position (with the possible exception of BRK below 1.2 P/B, of course)!

[gary17]

Long term is the best allay but could also be worst enemy if the evaluation is flawed due to unforeseen issues...so best protection is still the price paid. Here I think market timing or technical analysis or whatever helps . The only thing we have to protect us from risk of being wrong is not time, but price.

[giofranchi]

Long term is the best allay but could also be worst enemy if the evaluation is flawed due to unforeseen issues...so best protection is still the price paid. Here I think market timing or technical analysis or whatever helps . The only thing we have to protect us from risk of being wrong is not time, but price.

 

Unfortunately, that is very difficult. Because it is what everyone is trying to do.

 

I will stick with 1 + 2 + 3 + my best ally: time. :)

 

Btw, 3 is price! ;)

 

Gio

 

[jay21]

Why should it be either one or the other?

 

For the same reason you invested 25% in Lancashire rather than 8% in three different businesses with Lancashire’s characteristics?

 

Given the extreme difficulty finding in the market your four requirements, I just believe (assuming the research is correct and the importance of the owner-manager is overrated) there might be an opportunity buying predictably good businesses after the market reacts negatively to a great owner-manager leaving.

 

These requirements may prove equally productive (if only slightly less difficult to find):

 

1. A predictably good business (based on early established nonhuman capital assets)

2. A better than fair price

3. A ten year time horizon (however stable, I do assume some culture drift).

 

While I generally prefer the few alternatives that meet your four requirements (BRK, MKL, GLRE, TPRE), I am adding to LUK on this basis.

 

And convinced that Lancashire might play such a unique role in my portfolio that no alternatives exist (thanks in great part to your posts here, Gio), I will consider LCSHF if it falls more significantly.

 

LUK is even slightly different because the old guard picked the current asset mix and the successor (the allocation of human capital).

 

Gio, do you not take those factors into account?

[giofranchi]

LUK is even slightly different because the old guard picked the current asset mix and the successor (the allocation of human capital).

 

Gio, do you not take those factors into account?

 

Of course I do! And I like LUK! Just waiting a little bit longer… ;)

 

Gio