What are you buying today?

[CorpRaider]

BAC-WTA.  Each time I die a little inside.   

[giofranchi]

Just saying...  today's multiple is not a crisis multiple.

I agree Eric.

The fact still remains: in today' market there is no place to hide...  you might either choose to hold cash, or you might choose to buy a business which itself is holding lots of cash and is positioned to perform very well in a difficult environment.

There are no bargains out there (at least that I know of!).

But, if you know a business which is better positioned and more atteactively priced than FFH, I am always interested to know what you think!

Cheers,

Gio

[constructive]

But, if you know a business which is better positioned and more attractively priced than FFH, I am always interested to know what you think!

Being more specific, you clearly seem to want a business which is not just "well positioned" but countercyclical. That requirement narrows the investment universe by 99.9%.

GLRE and TPRE are the only two I know of that are cheaper and have significant equity hedges. Of course you are already aware of them.

[constructive]

If you want your portfolio to be countercyclical, I think the more effective option is to buy well positioned companies and hold the short positions yourself. Otherwise you will need to do things like hold FFH and OAK even when they aren't very cheap, since no other companies can fill their place in the portfolio.

[ERICOPOLY]

Just saying...  today's multiple is not a crisis multiple.

I agree Eric.

The fact still remains: in today' market there is no place to hide...  you might either choose to hold cash, or you might choose to buy a business which itself is holding lots of cash and is positioned to perform very well in a difficult environment.

There are no bargains out there (at least that I know of!).

But, if you know a business which is better positioned and more atteactively priced than FFH, I am always interested to know what you think!

Cheers,

Gio

Well, I would just add that there are alternative techniques rather than just choosing companies.

I think 2x BAC is more likely to earn 20% than FFH in a muddle-through.  Counting the dividends, BAC would generate more than 20% return if trading over $17 in mid-January. 

It's an annualized return in excess of 30%.

But I think FFH will drop 20% from here if there is another crisis that's coming to a head in January, a loss of roughly 27% annualized.

The BAC $17 strike call (Jan 2016) can be written for 55 cents and the proceeds will purchase the $14 strike put for $55 cents.

So maximum leveraged loss is 20% (assuming no dividends to lessen the blow) -- about the same as what I expect for FFH, although that's the maximum that is possible with BAC.

But anyways... there are decent muddle-through returns to be had without risking your entire shirt.

FFH likely doesn't have the same muddle-through returns as 20% by next January, because I think most of the multiple expansion has already happened.

[giofranchi]

FFH likely doesn't have the same muddle-through returns as 20% by next January, because I think most of the multiple expansion has already happened.

I agree. Period.

But I would also add that, when I buy a business, what happens from April until January of the next year is only part of the picture. And multiple expansion is only the frost on the cake.

GLRE and TPRE are the only two I know of that are cheaper and have significant equity hedges. Of course you are already aware of them.

No, I don’t think either GLRE or TPRE are as well positioned as FFH. I don’t think OAK is as well positioned as FFH. I don’t think KO nor other blue chips are as well positioned as FFH.
If we really end-up having deflation, it is true GLRE, TPRE, OAK, and KO will still make some money, but will most probably surprise on the downside.
FFH’s business results, instead, might very well surprise on the upside.

This is very important imo, not because FFH’s stock price will perform better than the rest… If I am invested in FFH today, it is precisely because I am agnostic about stock price movements… I simply don’t know how stock prices will move. Instead, it is important because FFH in that situation might come to possess the wherewithal to buy lots of greatly productive assets at bargain prices. Much more than GLRE, TPRE, OAK, and KO will be able to do.

Carnegie, Rockefeller, Mellon, etc. all have become fabulously rich that way. No one knows if that will happen again. But, even if there were only very slight chances, I want to participate.

Cheers,

Gio

[meiroy]

When the market really crashes reflexivity becomes far more dominant with any problems in the capital structure becoming much more obvious. I would not expect FFH or any such large company to have strong enough buyer of last resort with the interest to keep it significantly over the general market.

[giofranchi]

When the market really crashes reflexivity becomes far more dominant with any problems in the capital structure becoming much more obvious. I would not expect FFH or any such large company to have strong enough buyer of last resort with the interest to keep it significantly over the general market.

You are talking about the FFH stock price. I don’t talk about what a stock price will do in the future.

Instead, I am talking about the billions from its bonds portfolio, its equity hedges, and its CPI-linked derivative contracts.

And about the assets FFH might be able to buy with those billions.

Cheers,

Gio

[no_free_lunch]

I bought a decently sized position in Open Text today.  They do digital document management and are expanding out from there.  It is a well run, fast growing company (15%+) going for about 15-16x fcf.   ROE is about 25%.   It has been mentioned by Donville Kent and Turtle Creek, both of whom have outstanding long-term records.   Stock sold off on a weak quarter and currency effects.  Should be a good long-term hold.

[KCLarkin]

I bought a decently sized position in Open Text today.

I was trying to buy this morning but it bounced before I could get in. Seems to frequently have a sharp gap down and then a sharp rebound. Still down ~6% so I hope to accumulate.