giofranchi

I think this is misleading at best… Any entrepreneur, certainly a great one like Biglari, is not against capex per se… Instead, he should steer clear of capex which has very low probabilities to give a satisfactory return on the capital employed. One thing is to open unprofitable new stores (Biglari clearly was and still is against it!), another completely different thing is to use capital to build a global franchise network with very high expected future returns! Operating cash flow is lower because BH incurred lots of costs related to the build up of its global franchise network, and not because it has ever opened new unprofitable stores. I am not saying it will surely be a success… Of course, no one knows… But, as an entrepreneur myself, if I had to choose a project in which to invest right now, it will be either the build up of a large insurance organization in developing countries (like Fairfax is doing), or the build up of a global fast-food franchise network (like Biglari is doing). One thing I believe: if that network yields great results, BH will make a lot of money… No matter what anyone says about Biglari’s supposed character flaws! This is not fair! I am always worried about costs… I simply believe in paying for performance! When there is the true evidence performance has finally deteriorated and Biglari’s strategy has not worked, rest assured I won’t be so much accommodating! ;) By the way, Sanjeev, when will I ever become a lifetime member of the board?… Shall I first sell my investment in BH?? ;D ;D Cheers, Gio

Well, I meant that profitability cannot be lower… Unless you actually incurred some other costs… And those cost were due to building the infrastructure that is necessary to open 239 new units domestic and international franchisees in future years. Well, BVPS has grown at a CAGR of 20% in 2011, 2012, and 2013, while remaining flat in 2014. The stock price performance has been poor? Yes. Should it be conclusive? No. The strategy imo is still sound. I need to change my mind on the quality of the business as a whole, before deciding to get rid of any investment of mine. I have done so many times in the past. I will do it again in the future. And rest assured BH won’t be an exception! The fact is what you say about BH doesn’t convince me: SNS is doing fine and with great future prospects, investments are doing fine, net debt is low, and all those other “accusations” sound always the same… Sincerely, I don’t see what this has to do with rights offerings… Cheers, Gio

I think this could be obvious to all by now… Except for the fact that business is not shaped like you wish or desire! Business is as it comes… and you don’t have any other choice but to react rationally and as smartly as you can! A huge opportunity like Stake n Shake comes your way… And how should your react?… No, thanks… I am too young… I don’t have enough personal money to control the company, or at least to own a large percentage of it… I will wait… Maybe 20 years from now another such opportunity might come my way… Come on!! He just grabbed the opportunity, like I would have done! Probably, without even thinking about control! Gio

Shalab, Have you worked for extended periods of time with Buffett, Watsa, and Biglari?? Come on, this cannot be serious! ;D ragnaisapirate, the story is to gain control, yes! As it should be. My idea simply is, once he owns a large enough percentage of the company, he will behave rationally. Your idea might be different. Very well! Like I have always said, I will take the evidence as it comes. Right now the sole evidence is BH is a wonderful business led by a man whose entrepreneurial ideas and achievements I admire a lot. ;) Gio

Well, you should look at Same-Store Sales results in 2013 and 2014 and consider the Number of Company Stores at Year-End is still lower than it was in 2008… Sales have always increased, costs have basically remained the same… Result: a lower profitability than in 2012?! Surely not!… A lower profitability + domestic and international franchisees who have committed to opening a total of 239 units! I am not saying it will become truth, but I am saying that I like it. And I will judge results as they come. I will surely change my mind if the evidence requires it. But there simply is no evidence, just because 2014 had been sub par! Business simply doesn’t work that way. And if you know BH, you also realize the reasons why 2014 has not been a good year, and you realize those reasons don’t change the soundness of its long term strategy at all! Finally, I don’t agree about rights offerings: my average cost before the rights offerings of the last two years was around 1.4 x BVPS. Today my average cost, after taking advantage of both subscription and oversubscription rights is around BVPS. I like them. They are a great way to increase my investment in BH. And I hope in the future Biglari will make more of them. If he does, I have no doubt my investment will get larger and my average cost will get far below BVPS. Gio

Ok… Now I must admit it… One of my favorite philosophical book of all times is “The Prince” by Niccolò Macchiavelli ;D ;D Gio

They amount to just a few millions, don’t they? Of course I don’t run a public company… Therefore, I am well aware I cannot be familiar to the handling of any situation Biglari might instead find himself to deal with… I try to answer what I can: major strategic business decisions, important financing matters and large investments. If they are sound, I believe the small things won’t have such a meaningful impact. Of course, as I have always said, I would like to see Biglari in full control of BH: I believe petty distractions like AIRT and ISIG would not occur! ;) Gio

Imo we are in a situation in which stock markets are overvalued, and therefore it is difficult for Biglari to find good investments. At the same time BH stock represents very good value today. Therefore, Biglari is buying more BH stocks through the LF. Of course, you may never know how the market would react to a rights offering: before the issuance of rights BH was trading at 1.3-1.4 x BVPS, now it is trading around BVPS. It is clearly cheaper now and it makes sense to use some of BH’s cash reserve to buy back shares. Once again: what would I do, if I were in his stead? Exactly the same thing! On Monday I am buying more BH. :) Cheers, Gio

I am only saying that, if you have a deep passion for what you do, the right path to fulfill your true potential in any endeavor will come much more easily! And if something comes easily, the chances to get at the end of that road are much higher! ;) I think this is only logical and doesn’t mean that you won’t have to practice a lot and work hard… It only means that a lot of practice and hard work won’t be so hard on you as on most other people… And that simple fact might help you get nearer to your true potential, while others give up much sooner! Gio

Of course!... But I guess Slash loves playing guitar nonetheless… at least most of the times! And probably loves it much more than me and you could ever come close to understand… That’s why I agree: such a passion definitely is a trait! Then also Slash is just a human being… and like any human being he is sometimes subject to boredom and laziness! ;) Gio

I agree. But the next question then becomes: what exactly is natural talent? The answer I tried to provide above could be read this way: 99.5% a true passion for doing something and for getting better and better at it, the remaining 0.5% something else that could hardly be defined and which characterizes the genius or the champion. Don’t think that genes don’t matter in the first 99.5%! It clearly is not so! I don’t know why someone gets the burning desire to do something, while the majority of other people never feel the same level of passion for anything… But genes evidently matter! Gio

I think Klarman is a great businessman, and could be even a better one… if only he enjoyed thinking about business dynamics (and that’s what is absolutely required imo! A true passion... think of Buffett saying he would do what he does even for free!) as much as he enjoys doing what he does (finding statistically cheap stocks). To me that sentence of his has always really sounded much more like a defense and even a sort of justification about what he does, than an admission he cannot truly be business savvy. Cheers, Gio PS This is not to say that he would become as successful as Buffett in judging the dynamics of businesses… What I simply mean is you will never know how good you might become at anything, if you don’t sincerely enjoy it very much. Because you won’t devote the necessary effort, if it doesn’t come naturally. Instead, if it does come naturally, and you really get to exploit your full potential, chances are you will end up being better than 99.5% of the population… it obviously won’t be enough to beat Buffett… but it will be enough to live a meaningful an fulfilled professional life! ;)

The Lessons of Oil Gio The_Lessons_of_Oil.pdf

I don’t know what you mean exactly, but rest assured they are paying me for my services! ;) Gio

Sanjeev, Three things: 1) I don’t know Pabrai and I don’t know his new company… Therefore, I cannot judge and I won’t. In my experience control is very important in business. I have always invested with people who have full control over their companies. So far so good. I have full control over my company. So far so good. I don’t see the need to change my view about the relevance of control in business, just because Pabrai doesn’t control his company. Especially because I don’t know Pabrai’s situation in detail; 2) Even if you don’t have full control over your company, one thing is to own 20% of the company, another completely different thing is to own 2-3% of it. If you own 20% of your company, I agree your only thought should be to grow rich through the market price appreciation of its stock. Instead, when you own 2-3% of your company, you should follow a 2 steps strategy: first, you should get to own 20% of your company, second you should grow rich through the market price appreciation of its stock. 3) Now, you surely can do very well simply owning 2-3% of BH and relying on its stock price appreciation… No doubt about it! Yet, it wouldn’t take into consideration Biglari’s ambition… Ambition might differ from person to person. Maybe Biglari thinks of himself on the Forbes 400 list, and maybe Pabrai couldn’t care less… But I don’t judge ambition: imo if ambition is channeled the right way, it could lead to great results; if, instead, it is channeled the wrong way, it could lead to disaster. In the end, therefore, it all comes down to the quality of business and investment decisions Biglari will make in the future: if they are good/great, BH will do very fine; if they are mediocre/poor, BH will surely suffer. As I have often said, I mean to keep watching them very closely, to judge them, and to act accordingly. ;) Cheers, Gio

You could easily exchange Steak n Shake for Cracker Barrel, couldn't you? ;) Gio

Well, actually I have only quoted form a letter Biglari had written in 2007 and said the promise contained in that quote (at least as I can understand it today) had been a big mistake! A promise I would never have made to my investors… Nothing else! ;) As I have said, I will try to examine every action Biglari takes and judge if I would do it or wouldn’t in his stead. In fact, though his organization is much larger than mine, I think the two have more than one feature in common! :) Cheers, Gio

Marks on lessons from oil crash: Gio valuewalk.com-Howard_Marks_On_Lessons_From_Oil_Crash_Russian_Crisis_TRANSCRIPT.pdf

On the contrary, reading those letters with the benefit of hindsight I have found amazing how consistent Biglari is to this day in his reasonings about: 1) The qualities of a franchise business, and how to run it for maximization of cash flow; 2) The qualities of a concentrated portfolio of investments, and how to choose and manage them; 3) The qualities of activism, and how to influence management effectively; 4) enhancefriendlys.com, enhancesteaknshake.com, enhancecrackerbarrel.com; 5) The qualities of rights offerings, and therefore why BH’s shareholders should expect more of them in the future; 6) The qualities of Western’s overall strategy, which was back then precisely what BH’s overall strategy is today. As I have already said in the BH thread, Biglari’s biggest mistake in those days has been an unfortunate promise to work for free! ;) Gio

The process of building a global insurance platform goes on! And I like it very much! :) Gio

Thank you, Sportgamma! Very interesting! :) Cheers, Gio

I don’t agree with that either… BH’s shareholders are compensating Biglari as CEO of the company only for its operating results… I agree that capital allocation is the duty of any CEO… But choosing stock market investments is completely another matter!… Look at it this way: as CEO of my company I may decide the most reasonable thing to do with the free cash my company generates is to put it in the hands of Packer or Eric and let them invest it in the stock market… Certainly I should pay them for their services, shouldn’t I? As we are again on the compensation topic, I will quote the Western Sizzlin 2006 AL to say once and for all what I think about it: TO WRITE, SAY, OR BELIEVE SUCH A THING SIMPLY WAS A BIG MISTAKE! Why?... Simply because it was false! Biglari has never been Western’s largest stockholder… Instead, his investors in the Lion Fund were! He behaved like a Buffett, a Malone, a Watsa, or a Marks, without really owning nor controlling his company… With the benefit on hindsight it was an obvious mistake! To really get to own a large portion and therefore to achieve control over BH, Biglari needed to be paid for his services and still needs to. This is what I believe. Then, we could start arguing if he is getting paid what’s fair or too much… But that’s another story! Gio

Wow! Is it another home run by Murray Stahl & Co.? :) Gio

Thank you Packer! The default counts projected for the 2016-2019 period are really impressive, especially if compared to the historical default counts during the Great Recession… In his presentation Fridson says “Projected Global Default Volume 2016-2019”, but then only refers to the US and Europe in the section “Which Region Offers Best Value?”… What about Japan, China, and emerging markets in general? Cheers, Gio

I guess so. And I guess also Fairfax will be a great beneficiary. Their US government bonds portfolio is making a lot of money now that yields are getting lower and lower. Money that might be redeployed in some distressed debt opportunities once “the fallout” finally occurs. ;) Gio