giofranchi

Very nice, Gio. How did your investment portfolio do? 20% Liberty... Not as good as you, but not bad either... As you know I hold a large percentage in cash! Cheers, Gio Nice job, Gio. Although I disagree with you on a lot of your posts/views re: intelligent investing and macro matters, I contend that your rock solid approach to investing will likely have you returning well above the average investor for a long time. And 20% is a great return, btw. The average person would kill for such a return. Thank you, txlaw! :) Two things: 1) Regarding macro: my only "macro" idea is that debt matters. It cannot grow to the sky, and sooner or later must be dealt with. If this idea is wrong, I guess neither Fairfax nor Oaktree (by far my two largest investments!) will do better than the overall market... Instead, if this idea is right, they both have a very real chance to do significantly better than the market in coming years. 2) About intelligent investing, please feel free to tell me anything you don't agree with what I am trying to do: I respect your point of view very much, and I am here most of all to listen to people who are investment savvy and disagree with me! Cheers, Gio

Very nice, Gio. How did your investment portfolio do? 20% Liberty... Not as good as you, but not bad either... As you know I hold a large percentage in cash! Cheers, Gio

In the last few days BH’s stock price has brought the increase in BV for my company in 2014 to +32.42%. A prosperous 2015 to all! :) Cheers, Gio

I just wanted to add a comment about why I attach such a relevance to a great track record sustained over many years: It is not because the past matters to investors… It clearly doesn’t, and all that matters to investors is the future instead. But it is because I think we really don’t know how and why very few people achieve extraordinary results in business (or in any other human endeavor for that matter). I certainly want to see a business strategy that I understand well and like. And I want management to communicate it openly and clearly, and to implement it judiciously and competently. But… from that to extraordinary results… who really knows??… My reasoning is simply that those very few who have achieved extraordinary results in the past, and sustained them for a very long time, are more likely than other people to achieve extraordinary results in the future too. Gio

Zorrofan, Probably you are right. I don’t really know… I give lots of weight on past track records, when I decide who I want to partner with, and who I don’t want to. I might be too demanding and too much fixed on this requisite, but I think it is the best recap of the "qualities" of any owner-operator that’s at our disposal. Of course, I don’t require only a great track record, nor I require only to understand well and approve the business strategy going forward… Instead, I always require both. I might still like Lancashire’s strategy and how they keep communicating and implementing it… But imo the track record was Brindle’s… Therefore, 50% of what I require just became missing, when Brindle left the company. And I decided to shift my capital into businesses where I am comfortable both with the past (track record) and with the future (communication and implementation of present business strategy). Gio

I didn’t expect Brindle’s sudden departure from Lancashire… I was utterly unprepared and had to accept a (meaningful) permanent loss of capital. On the other hand, I got lucky with Altius, and exited my position before the stock price fell. (I still like Altius business model, and I think they will do fine over time). Cheers, Gio

It is difficult to say how successful SNS might become through franchising in coming years… Maybe NBL is right… Maybe rando is right instead… But imo this misses the point: to build wealth over time you don’t really need to enjoy fantastic cash flows, in other words you don’t need a monopoly… Of course, if you have a monopoly, your process of building wealth gets much quicker! A monopoly is a wonderful thing to have!… But almost by definition very few people in this world have one… Right? Another way to build wealth, albeit surely a much slower one, is to have a business which generates not very high but predictable and steady cash flows, and to invest those cash flows shrewdly. This is what I am trying to do myself with my own company, and what I think Biglari is doing with much greater success. Please consider that to say SNS will succeed in opening 239 new franchisee units in the next few years, and to say SNS will generate predictable and steady cash flows, are two very different things. To the first one I wouldn’t even know which probability to attach, to the second one, though not a sure thing, I would certainly attach a very high probability. That’s why I have never invested in SHLD… because, where are the predictable and steady cash flows?! Cheers, Gio

Thank you for posting this. I love tennis, and I think I can say I am still a good tennis player! ;) Gio

Thank you very much for the detailed explanation! I am sure this year will prove to be the exception, while last year the rule! ;) Cheers, Gio

Of course, how much you can learn should be a very large part of how much you would enjoy any job... Therefore, my suggestion about cash flow and hours worked is still valid only if you can think the learning experiences would be roughly equivalent! Personally, the most important things I have learnt have always been self-thought... But surely a good job with a good mentor can be helpful! Probably, my point of view is always the one of the entrepreneur, and not of the employ who wants to build a career... Cheers, Gio

Three questions: 1) How much will be your cash flow in job 1 and in job 2? 2) How much of your time will you have to devote to job 1 and to job 2? 3) Which is linked to question n.2, how much time will you have at your disposal for investing the cash flow you are going to generate, if you choose job 1? How much if you choose job 2? And, of course, given the fact this is a job, not a business, question n.4: 4) Which job would you prefer doing for the next few years? I think about career choices much like I think about business and investments: I’d want to maximize cash flow, to minimize the time devoted to operating responsibilities, and to maximize the time at my disposal for investing the cash flow I am going to generate. The only difference is that with a job, as much as you succeed in minimizing the time spent working for your employer (the time I call "devoted to operating responsibilities"), it will always be a significant portion of your working day… therefore, you should enjoy doing it! ;) Good luck! Gio

The equity of my company is up 30% this year. Gio

This is interesting... Why? What has happened? Thank you, Gio

I think the world is full of people who live their business life like they should be living their personal life instead, and who live their personal life like they should be living their business life instead… I have always found it quite sad… Anyway, from all these criticisms of yours rest assured that I have taken away at least one lesson: Biglari must be watched closely, and each one of his business and investment decisions must be scrutinized with great attention… Luckily, in this regard BH should be easy enough to monitor! In each coming year I would expect no more than: a) 1 or 2 major stock market investments; b) 1 or 2 purchases of whole businesses; c) 1 or 2 significant strategic decisions for the businesses already owned. Furthermore, Biglari seems to like writing very extensively about business and investment decisions. Therefore, there will always be plenty of material to judge the soundness of his involvement in a few “big” ideas. As I have said, I expect no more than 5-6 “big” ideas each year (probably less!), and I think I will encounter no trouble in analyzing them thoroughly and in arriving at my own informed opinion. If and when I start to doubt the quality of Biglari’s business and investment decisions, I will sell my investment… without even bothering to ask why they have so much deteriorated… ego, arrogance, or whatever the true reason might have been! ;) Gio

This is the way you see it. The way I see it is simply the cost of doing business, when you don’t have control. If you think Biglari has sown the seeds for great financial rewards in future years, seeds that have been real costs for the past two years!, you surely don’t want someone you have never heard before shaking the business and claiming he knows how to run it better than Biglari… At least, I am sure I don’t want it! ;) Gio

Ah! Ok... Thank you very much! ;) Gio

Sorry, sometimes I am really very slow to understand… but can someone please explain to me in plain English, in a very easy way to grasp the concept, why do you all think that what Biglari has done with AIRT is so condemnable? Thank you very much in advance! ;) Gio

As I have already explained, BH stocks before the rights offerings were trading at 1.3 x BVPS… Now they are trading at BVPS… There is a difference, isn’t there?! At 1.3 x BVPS maybe Biglari can find superior investments than the repurchasing of BH stocks. At BVPS, instead, BH stocks become a much more compelling choice, and one very difficult to beat! This, of course, doesn’t mean BH stocks at 1.3 x BVPS weren’t a good investment before the rights offering!! Gio

Yes!… Meaning the probabilities someone is so idiot to spoil a great machine for building wealth are imo very low… Just like the probabilities the most honest and capable of the operators, who finds himself struggling with a dying business, finally achieves good results for his shareholders are also very low… I understand what you mean… But in my experience ego in very successful individuals is a fact of life… I personally know a lot of CEOs whose companies have been doing very well for a long time… And knowing them personally, I have come to realize they all are self conscious… Some of them are able to disguise it much better than others… That is basically all the difference I could find… Most of all, I don’t see how ego could affect business results, if it doesn’t get reflected in poor business decisions! That’s why I have always said I’ll keep watching Biglari’s business decisions very closely, and try to understand if they make sense or they don’t. Actually, the only reason I have an investment in BH is because I like Biglari’s business and investment choices! To the point that, if I could I would copy what he has done so far! I am definitely not in love with him! Believe me! As soon as I disagree on some meaningful choices of his, I am gone! ;) But I won’t say goodbye to something I like very much so far, simply because I fear that in the future Biglari’s ego might lead him to make poor business and investment choices… I’ll be satisfied to take the evidence as it comes. Cheers, Gio

Not true. I have never invested in bad businesses. I hope I never will. Sears imo is a bad business. And Lampert cannot defend his shareholders form this simple yet inevitable fact. Nor could Dell. BH imo is a good business. I only hope everyone sees the difference between struggling in a dying business and idiotically spoiling a good wealth building machine like BH is. Gio

1) Sincerely, I don’t see BH losing money. Nothing that makes a profit is worth less than BV: today BH is selling for BVPS and it will surely make a profit… therefore, the downside imo is very limited. Of course, if you are right, BH won’t grow as much as I expect… As I have said Biglari might indeed have some serious character flaws, but if you truly believe Biglari is a con artist... well, then we know business, we think about business, and we do business in completely different ways! I have nothing else to add. 2) Not at all. Imo the job done until now opening franchisee units has been very satisfactory. 3) Well, I surely don’t know what you mean by “the lexicon of a value investor”… In my businesses I take into consideration new initiatives each year, it is necessary to do so in order to stay competitive, I value the investment required and what future rewards might be, and then decide to proceed or look somewhere else. Biglari is doing the same, and thinks the licensing business might yield good results. Thinking about that business, again I agree with him. And again, you probably think about business differently… 4) Far from being the exception, the situation Biglari is facing with CBRL is much more common than you seem to believe. And he has faced similar situations before. What Valeant recently faced with Allergan comes to mind: the management of Allergan accused and tried to alienate to other shareholders Valeant’s management, just like the management of CBRL has done to Biglari. CBRL’s stock price has outperformed simply because its management, while trying to alienate Biglari, has followed his advices!! 5) Prices have not declined, costs have not gone up… how have you come to the conclusion that margins are falling?! 6) I think I have already commented on rights offerings. Regarding insurance, again we think about business differently: I like the business model, evidently you don’t. 7) You might be right… We will see! So, now you think I am biased because I wrote “I will sell it, or at least part of it”, instead of “I will sell it. Period!”… ahahah!!!! This cannot be truly serious… Is it a joke??… I guess you know exactly what will happen in the next 3 years, and how things will look like 3 years from now… well, I don’t!… And that’s the only reason why I have left open the possibility to still own some BH, even if my points from 1) to 7) might not come true as I expect today… Cheers, Gio

Probably, it is just me that don’t get this straight… Therefore, I would really like to understand what Biglari did with AirT that is so much condemnable… If you could help me understand the situation better, I would really appreciate it! Well… It seems everyone is abandoning the boat… I am inclined to believe you all are right about Biglari… So why am I willing to give him the benefit of the doubt? Because I like the business and its future prospects very much! And I think only an idiot would spoil such great opportunities for building wealth… And Biglari might be arrogant, with some serious ego issues… But I still don’t think he is an idiot! I don’t see the clear potential for growth expressed in my points from 1) to 7) in any other business that I know of… And I think that, if truly I am dead wrong and Biglari proves to be a terrible owner/manager, 3 years from now points 1) to 7) simply won’t have occurred, and BVPS won’t have grown much… This is truly my worst case scenario for BH… Maybe I always see BH through too rosy a pair of glasses… I don’t know! We will see! ;) Cheers, Gio

Look, all I am saying is I think I can judge business results better than I can foresee them! Especially if the foreseeing is based upon some vague and supposedly flawed character traits… Therefore, this is what I am monitoring during the next 2 to 3 years: 1) Number of franchisee units opened (I would like to see at least half of the 239 promised in the latest AL to be actually opened in the next 3 years); 2) The licensing business: though very recently started, I think it has the opportunity to contribute to earnings in the next 2 to 3 years, in other words I want to see that business becoming profitable 2 years from now; 3) Same Store Sales at SNS: I don’t expect them to continue growing each quarter, and it would be enough to see them steady, not deteriorating from today’s level; if they keep growing, better still!; 4) Investments: I want to see Biglari finally sitting on CBRL's board of directors, or otherwise gradually selling BH’s investment in CBRL; I would also like to see at least one other major investment in the same industry (this, of course, also depends on how the markets behave: if they stay at today’s high levels for the next 2 to 3 years, I understand it might not be easy to find a truly enticing opportunity for a major investment…); 5) Insurance: I want to see at least another acquisition in this area, one which truly starts to generate meaningful float; 6) Maxim: I want to see a satisfactory solution to this investment (either if it works out fine, or if it doesn’t); 7) I would like to see more rights offerings, in order to keep adding to my investment in BH at very attractive prices. I strongly believe that, if 3 years from now points 1) to 7) are satisfactorily met, BH will have increased its value a lot (even after paying a generous incentive to Biglari)! Therefore, I will keep my investment. Otherwise, I will revisit my thesis on BH, and probably sell it, or at least part of it. Now tell me: what am I rationalizing? ??? Gio

This is how I see it: If the return on my investment is positive but unsatisfactory, I agree with you: it will only be good luck! On the other hand, if I make many times my money in the next two decades, it will probably be part good luck part good reasonings (as it is always! ;)). Cheers, Gio

Shouldn't he behave rationally at all times regardless of his ownership stake? Nice comeback! Sorry, evidently I have not expressed myself correctly… I was answering to the idea Biglari’s final goal is to make BH a private company, probably buying out all other shareholders at a depressed price… Therefore, when he finally gets a large enough percentage of the company, that is how he will act… First, to me this idea is nothing but speculation. Second, as I have said, I think he will behave rationally and understand his chances to get on the Forbes 400 list are much higher maximizing the per share value of a public company than doing anything else in this world! ;) Gio