Yes indeed, 8 hr conference looks a bit like those investment bank conferences where they profile their clients' businesses with several short presentations. Hope there will be time to ask questions at the conglomerate level as that is what's most important for shareholders.
We've had positive inflation in every year except 1.
If they are waiting for a 70's style 10%+ they may be waiting for a long time.
But a more important question to management: What is the mindset of gambling on a certain macroeconomic scenario for the long term instead of focusing on the task at hand of making just average money today? Also, I don't buy the commodity argument 100% because several large commodity firms and financials have made at least 10% ROE during this period with what they had. Essentially, I'm arguing there is a big issue of execution and quality risk at Leucadia and would like to hear their reasoning for investing in cyclical, commodity, or junky ventures as opposed to doing something totally different. I.e. what makes them think they have an edge in this field when all the evidence shows they do not.
Let's ask some tough questions - why not make them squirm when they have destroyed so much shareholder value?
- What will you do to improve the share price after 10-15 years of underperforming the S&P500 index?
- When will compensation be reduced to reflect the poor performance caused by the decisions and investments of management since equivalent peer companies have all done much better in the same industries even?
- Why are they investing money in cyclical, poor quality businesses that have such high opportunity costs and even loss of capital risk?
- Will you consider rebalancing virtually every single investment Leucadia has made into better quality investments, even as simple as a stock portfolio of high quality businesses?
Not really. I'm not convinced that a decade of underperformance means anything. Some of the most solid companies have had multiple drops of 50% or more over the years, swinging between discounts and premiums to book value or earnings. However, what does matter is the "inputs". What gives rise to the decision making. Several years ago we had some astute leaders at the helm. 2 years ago, Handler took over and based on parsing his words, I am not at all convinced he has the same aptitude. If he learns it will be good but I have seldom seen such a large gap between mode of thinking and action, lots of catch up to do. When that changes, a reinvestment is warranted. I sold out most of my position around my cost basis and keeping a bit as an option.
I can't post a link here but the day is broadcast online. Visit Leucadia's main website at the bottom click registration.
1. Poor collection of businesses - a less than average investment bank purchased at a premium price. Junky businesses mostly linked to commodities in some way where there are no competitive advantages or innovation to keep returns decent - and overpaid for all of them. Not seeing the light to make big bets on quality opportunities.
2. Less than average management - reputational risk, bad decisions, short-term trader mentality.
3. No buybacks (of course, they have no money) since they are fully invested, believing that their poor performance is actually greatness and that "some day" it will turn around and prove their decision not to give the money back to shareholder was a good one. Probably hubris and arrogance mixed into that.
4. A controlled conglomerate structure that makes it impossible for activists to make noise or take over. Control discount.
Feel free to add to the list, I can think of a few others too....
I mean running a 3rd rate investment bank doesn't seem to be very profitable. Why not just wind up shop take the 3.5 billion in equity and do something intelligent, like buy back 3.5 billion of Leucadia stock or invest in quality companies that actually do things in the real world besides take a commission on raising money (small time change) or issuing reports on companies or trading?
Exactly, Munger said the key to great investors is the ability to evolve. Warren is smarter at 85 then he was at 50 and that's fantastic. Also, every company is a tech company, nobody is making anything in the woods by hand anymore.
Jefferies earnings out: http://www.jefferies.com/CMSFiles/Jefferies.com/files/PressReleases/2015/0917153QFinancialResults.pdf
Not looking great again...run rate at $200 to 250 million per year ex-Bache.
I am not going to say CPP is the sharpest tool in the shed, but if it's a long term investment I'm sure they can wait. Pension plans are the kind of entities that would be even happy with say 3% real return 20 years from now which may be unsuitable for you and I. FWIW, I have buy orders in the 130s hoping for a #$%$ of the bond bubble or a cat disaster, or a negative reserve development as an acute issue that depresses the financial community's appraisal of the stock's price.
I am concerned that they have strayed from their 'Fortress Leucadia' principle stated a few years ago after the financial crisis. I don't see how all this junk investing and seat of your pants, volatile earnings is anything close to a fortress. The quality of a business is determined by the rate of return it achieves on assets and shareholder equity and the consistency of those profits. Leucadia has neither and so I will be the first to admit that it was overpriced by a huge factor when it traded at anything above 1.2x book and hence is now paying the price by reverting to the mean.
It seems Canada pension plan entered at $140/share. Probably it's a valuation issue. I have some buy limits near book value. Don't know if it'll get there but a 50/50 mix between runoff and "live" reinsurance run conservatively seems valuation the only real issue.
As a comparison, Goldman Sachs which is 10x bigger than Leucadia , 'Goldman Sachs has lost $50 million to $60 million on its distressed-trading desk in 2015"
Over and over, they keep losing money..."Banks that underwrite deals typically keep an inventory of the securities they sell so that they can make markets for buyers that want to purchase them in the secondary market. ...The distressed-debt group’s loss for the quarter will reduce Jefferies’ tax bill, making it sting a little less. It will cut after-tax profit this quarter by about $30 million, said one of the people. "
I think it's pretty clear Leucadia stock price has not undergone a temporary quotational loss but a permanent impairment due to the poor quality of the business and management they have assumed after the merger.
"Leucadia wants troubled yet potentially successful companies at their doorstep"
"CEO of Leucadia Richard Handler and President Brian Friedman wrote in a letter to investors that they want Leucadia to be “the one who gets the call.” Leucadia took over Jeffries in 2013. Since the merger, the combined company has seen success in investing in companies that need a little financial backing to get going again"
Here's a thought: Why doesn't he rescue Leucadia as his first 'troubled yet potentially successful company'!!!
Goldman Sachs 'hard' BV excluding $5 billion in G/W & intangibles is $83 billion. Today it traded as low as $80 billion. And they have leader advantage. This is what I'm saying, unless LUK can grow much faster than the biggest and the best, it's still expensive. I mean GS earns 7 or 8 billion every year, LUK earns virtually squat. Where is the fast and nimble advantage we hear so much about?
Perhaps Ian was the one keeping the fans happy. When he left, it really went downhill fast. True, the medical product thing wasn't so hot but that was a small mistake compared to Jefferies. Then they said they would never invest in funds of funds or other "jockeys". Have you seen LUK today? It's nothing but investments in a hodge podge of funds and asset managers. They violated their own rule. Didn't Steinberg say when asked about succession that they'd liquidate or merge? Seems like it was a fast fix at a bad price. Liquidation would have been far superior. Or sticking it in a bank account. Sure, LUK is a store of value, but so is cash in the bank with much less volatility. If there's no motivation to be intelligent and really think what businesses are worth being involved with, why bother hoping on this one? I've reduced my stake by 35%. Wish I had reduced even more before this downturn came after reading Handler's babbling letters it's clear this is a very confused and mediocre leader without much of a direction but with a nice compensation to keep him and only him motivated.
I think Handler wanted to do one of these hot-shot Buffet style swoop in and save the bankrupt organization with an infusion of capital deals while getting into foreign exchange when he saw that their focus on commodities was losing money on a regular basis (i.e Bache). However, unlike Buffett he missed a crucial point - the quality of the business is paramount. What does FXCM actually DO? It's a casino for retail investors to speculate on currencies with large amounts of leverage. Most of the profits no doubt will accrue to the house. Will they come out fine from this investment? I think they'll at least recover their capital and the interest. Will they hit a home run? This I'm not so sure given the nature of the business operation. They have so many investments in general. Why? Is it smart to focus on your 10th idea when you can focus on your top 2-3 best ideas? And it's worse if you make some profit in one venture and lose it in another. At the end of the day you go nowhere.