The Leucadia Way

In the 2006 Chairman's letter, Leucadia's management team laid out their "rules of the road"--the particular manner in which they run their company.

1. Don't overpay, no matter what the madding crowd is up to.

2. Buy companies that make products and services that people need and want and provide them as cheaply as possible with consistently high quality. Lower cost and higher quality is a never-ending task.

3. Earnings sheltered by NOLs are more valuable than earnings that are taxed!

4. Compensate employees for performance and expect hard work and honesty in return.

5. Don't overpay!

Those familiar with Buffett's two rules of investing--where rule number one is to not lose money and rule number two is to never forget rule number one--will see a similarity in points 1 and 5 above.

While that's not where the similarities end, this post is meant as a "foundation post" that I'd like to refer back to in a general way later on--so I'll let you make connections if you want in the comments section.

One thing worth pointing out here, is what Leucadia does when its management team views everything as overvalued. From the 2004 Chairman's letter:

"Our investment philosophy is bimodal, either we invest in high return opportunities or have the money in the bank or under our mattresses."

Thus, while they like to buy "assets that are out of favor and, therefore, cheap" ... then "work very hard at improving their performance until they are the most efficient and productive in their market segment," when there are too many people competing for even those investments, they'll step aside--or, according to their philosophy, should.