giofranchi

I agree. And that's why I go on repeating I want him to feel safe and in full control. The sooner the better. IMO though I think market valuation cannot be completely overlooked even by an entrepreneur with a very long term view of value creation: basically, if I were him, I would like to see the market pricing BH as close to FV as possible. The reasons might be many and different, but at least some of them surely are rational. Gio

Sanjeev, I think this is what entrepreneurs do: they are interested in very few businesses they know very well and want to hold for the very long term. If they can, they buy those whole businesses, and get actively involved in their management. They believe those businesses can create much value in the future, and want to maximize their potential. You cannot do that with 20 different businesses... Sincerely, the way Biglari concentrates his efforts on very few businesses at a time, is one of the reasons I like BH so much! ;) Cheers, Gio

I have just bought more. IMO nothing but good news in Q2 2014 results: BVPS has increased 26% during the last 12 months, insurance underwriting is pressured but they are breaking even, and they are reducing business like you want to see in a difficult environment... Share price today has declined 6%... GLRE is a better long term investment than it was yesterday. Cheers, Gio

Ok, let's talk for once about something different than the way Biglari treats his shareholders: what would have you done differently from an operating and a capital allocation point of view? Do you think Biglari has made some serious mistakes during the last 5 years? Gio

You are right; I remembered "hedge fund" from reading the article and I assumed 2&20. In any case, if he can remove the 10M compensation limit, his scheme would only return an annualised 1% more to shareholders than a 2&20 statistically. I did a quick simulation and a 15% raw return is turned into 9.1% with a 2&20 and into 10.2% with Biglari's approach. For 20%, Buffett-like returns, you get 13.3% and 14.2% respectively. But he gets payed based on BV, not on actual performance, I don't know how much leeway he has to manipulate the BV. a lot! txitxo, what do you mean exactly by "he gets paid based on BV, not on actual performance"? Increase in BV is not actual performance?... Of course, I am assuming he is not cooking the books... Yeah!... I know... Like a lot of other people have told me, I might be too naive...!! Anyway, I am not worried about the compensation plan for now. Like I have always said, I will take the evidence as it comes: during the last 3 years BVPS has increased at a very satisfactory CAGR, and I don't see why such a good performance couldn't be sustained in the future. But, if and when increase in BVPS should start to disappoint, and the reason could be clearly tied to Biglari's compensation, I will surely reevaluate my thesis about BH. Btw, Einhorn and Loeb have been doing very well for their investors for almost 20 years now... Even without the use of insurance float, or fcf from wholly owned businesses... Think about the potential now they are putting together float, and should they start purchasing whole businesses too! Cheers, Gio

Bargainman, I understand what you are saying about my way of posting, and I am sorry. Like Mith had already suggested, I will try to answer less often. BH is a 12.5% position in my portfolio. Cheers, Gio

Ok Liberty, I must admit I am exhausted… Therefore, last time: I think he recognizes that over the long term he will be much richer if he builds a successful and thriving enterprise, than if he steals the money and runs away. Are the fundamentals in place for him to build a successful and thriving enterprise? I firmly believe they are. If they weren’t, I could agree with you: the kind of selfish short-term goal everyone accuses him of might be a much more plausible threat. But for what I have seen, BH is too good a business (in fact, much better than BRK in its first years!), and Biglari too good an entrepreneur, to undersell himself like that. We will see. Gio

This doesn’t mean it isn’t bad business. It simply means those who choose it don’t recognize it is bad business. That's why imo you are undervaluing Biglari. Instead, I think he recognizes good business from bad. Gio

Ok, then it is rational to think Biglari would choose to end up like the ex chairman of Enron… worth some millions, when instead he could be worth hundreds of millions; permanently cut off from business, when instead he could be leading a thriving and successful enterprise… ::) As I have said: bad business. Gio

writser, the easiest solution is that you stop reading what I post… isn’t it? If it bothers you so much, why questioning my “thought process” and saying it is “flawed”…?! I really don’t understand! It is you who started talking about this… not me! If I had said I find absurd the thought of believing we could know more than other people about some Japanese companies we haven't even heard the names of until some days ago, just because we have performed some “analysis a la Ben Graham”… then I would agree with you: I might have kindled resentment and caused a futile discussion… But it was not me who attacked your thought process… it was the other way around! The same goes for this whole thread: bears are the great majority of posters. Yet, this is the only critique they are able to find: Biglari is a liar and a thief. If that is the only weak spot bears find, in what otherwise I think is a great investment, what do you expect investors in BH to do, except trying to understand if Biglari truly is a liar and a thief?! Not only… It is not enough for the bears to have accused Biglari of being a liar and a thief once… Somehow, and this is another thing I don’t understand…, those very same bears feel compelled to communicate how much Biglari is a liar and a thief again… and after some weeks once again… and so on and on… It really is puzzling! If you are not interested in BH, just leave this thread alone. Gio

Imo Michael Dell is trying desperately to salvage his company... and it doesn't sound like good business to me... ;) I mean, when you are in dire straits… all bets are off… not because Mr. Dell is a rogue… Not at all! I am sure he is a great guy… It is just because business is that way: once you have put yourself in a corner, it is already too late… and men’s behavior becomes as unpredictable as that of a wounded animal… more or less! ;D Anyway, Mr. Dell is still very rich thanks to a large portfolio of investments that have nothing to do with Dell Inc. … Instead, how Dell Inc. will perform in the future is yet to be seen! Gio

I have macro ideas, which are much like Parsad’s. Anyway, my way of investing is little affected by them. I always have some ready cash at hand. Period. Either it is a cash reserve, or it is new free cash generated by my businesses. In my experience, when I have under performed, it was never due to cash, and always due to the fact my investments did poorly. Instead, ready cash at hand has been useful many times, even in the midst of a bull market, because I run a relatively concentrated portfolio (5 to 10 positions), and opportunities might present themselves when none of my other investments is overvalued nor even fully priced. Probably, my macro ideas make me hold a little bit more cash today, than it would be the case if dark clouds weren’t on the horizon… Gio

Myth, I apologize if this might sound egotistical… but I don’t write for you or for anyone else… I write for myself alone. And to know if I want to hold a business for the very long term, I need to make clear very few things… and to continually put those things to the test… to think about them over and over again… to always keep them under check, and to realize if something has changed as soon as possible… I also like other people to challenge my conviction about those few very important things… and to see if, notwithstanding such a challenge, my conviction is still whole or has cracked… Because this is what’s important to me. Of course, one thing is to think and act for personal interest, a completely different thing is to bother other people. Though I don’t take pride in acting solely for my own personal interest, I can at least accept it, until such a behavior begins to harm other people. My thought is this: well, those who are not interested in what I say… will simply skip all my posts!! Am I making it too easy? Am I instead really annoying you, tombgrt, writser, premfan, etc.? If so, like I have already said, I apologize. And in the future I will post with much less frequency… only when I am sure I am not repeating myself! ;) Gio

I really think you are undervaluing Biglari. Tell me of a single person who has become and stayed extremely rich robbing his/her shareholders… To rob your own shareholders simply is not good business… Therefore, you are undervaluing Biglari. Instead, I think: 1) He will become and stay extremely rich, 2) He knows what’s good business, and what’s not, 3) He will become and stay extremely rich, because he knows what’s good business, and will act accordingly. On the other hand, I also think the fact you don’t like his character and behavior is not a predictive attribute: Someone brought him up, therefore let’s talk a bit about Berlusconi! Could you imagine a bigger assh… than Berlusconi?! He is circa 80 and was accused of having had sex with a girl not yet 18 years old…! No, even Biglari cannot hold a candle to Berlusconi, when it comes to building for oneself an ill reputation and a bad public image! And don’t even think of comparing Berlusconi’s bloated ego to Biglari’s… Biglari might think he is the king of BH… Berlusconi thought he was the new king of Italy! Talk about orders of magnitude! Yet, Berlusconi has become and stayed extremely rich… because he knows what’s good business, and has acted accordingly. Needless to say the share prices of his companies have done very well through the years! ;) Finally, also my own experience in business makes me somehow disbelieve your conclusion about Biglari: I have already had many business partners, some were friendly and kind, others were aggressive and arrogant. Everyone of them, with no exception at all, has proven to be reliable, when things were good and easy, instead has proven to be much less reliable, when things went south. That’s why I put much more weight on the owner/manager’s abilities to stir the boat away from any possible danger and towards any opportunity for profitable growth, than on his/her peculiarities of character. Gio

Hi premfan, Why would I tell you I don’t mind teaching, if it weren’t the truth? Why would I tell you that my businesses don’t require capital, and therefore there is no reason to take them public, if it weren’t the truth? If I ask people’s background, whether they are business owners or traders or something else, it is because I want to understand their point of view. And I think points of view are greatly affected by people’s experience. Do you think they are not? I don’t understand what you mean by “using force”… I thought I was forced into explaining what writser called my “thought process”… I thought I was called the master of platitudes… In other words, I thought mine was just “self-defense”!! ;D ;D ;D No, seriously, if I have sounded arrogant and forceful, I apologize. Cheers, Gio

Listen, Tom… I really don’t want to sound polemic here… I know you are very young and very smart… Period. In my first 10 years as a business owner and manager I think I have added much to the overall well-being of my companies… but I have made lots of mistakes too! And ready cash at hand is what has always saved me, when I happened to make a poor choice. Because it has always given me staying power and a chance to do something new. Ready cash at hand has always been possible because both businesses of mine operate in industries not much subject to change, and because their operations require relatively little capital to be maintained. We don’t enjoy great competitive advantages, therefore margins are low, but what little earnings we have are safe, predictable, and can be invested elsewhere in almost their entirety. And that’s what I mean when I say “steady and safe free cash flow”. Therefore, my experience is simply this: a very good owner/manager can surely make a difference, but even him/her needs a machine that keeps giving him/her new cash. And that machine should function as safely and predictably as possible. I look at the stock market because I know my own businesses will never enjoy scale. Already, if I didn’t invest in the stock market, I wouldn’t be able to use all the capital at my disposal: my businesses simply don’t need it. I look at the stock market to get the scale my businesses will always lack… But, do you find so perplexing that I search in the stock market for those same characteristics that have served me very well until now in my experience as a business owner/manager? Of course you might disagree, but I would call this "circle of competence". ;) Gio

Ahahahahah!!!! You know how the saying goes: you might have a goal, but what’s truly important is that you should enjoy the travel! Ops… guess this is just another platitude of mine! ;D ;D Gio

Ok, if you don’t want to talk about “circle of competence”, I will call it "whatever gives me great conviction in a business future prospects". When we are talking about insurance, management is very important imo. Management is very important in a lot of other businesses as well… (Just out of curiosity, Tom, have you ever tried to run a business yourself? When you say management is not important, is it because you have read that somewhere, or because you are running a business that goes on autopilot, without the need of any strategic decision by you?)... But insurance results in particular are very subject to management’s behavior and discipline. 70% CRs are like 20% annual returns in investing: would you invest in The Baupost Group, if Mr. Klarman were to leave it? The fact I require a great manager (to have great conviction in a business future prospects) doesn’t mean I rely solely on a great manager. I have said many times what I look for, besides a great manager! Otherwise, I would have invested in DELL, in SHLD, and probably in FTP. But I did not. ;) Gio

Ok, let’s put it this way: do you believe in staying inside your circle of competence? What’s the price you are willing to pay for something outside your circle of competence? Difficult to say, right? And what if I say that an insurer which achieves CRs around 70%, once left by the “Master” who has achieved such unbelievably low CRs for almost 20 years, suddenly falls outside my circle of competence? Gio

+1!! And it is great to hear from you again, twacowfca! :) Gio

Sorry, what I meant is this: Each rights offering increases the number of shares outstanding. Yet, in my calculation of a 21% CAGR in BVPS over the last three years I have already considered their dilutive effect and a larger number of shares outstanding at the end of 2013 than at the end of 2010. I don’t know exactly how these rights offerings will effect Biglari’s compensation. Maybe Ragu does and might shed some light on this topic. Gio

--Ben Franklin This might be another platitude… Actually, also Ben was accused by his detractors to be the master of platitudes… at least one thing we have in common!! ;) Of course, for the JNJ, KO, WMT of the world that quote might not be true anymore… Anyway, I think it is clear by now the companies I look at are still much younger, much smaller, and much riskier (of course, they also have imo the possibility of growing much faster). Therefore, both if you look for downside protection, someone who knows all the risks and stirs the boat away from them, and if you look for future success, someone who knows all the opportunities for growth and stirs the boat towards them, I think you'd better demand a very capable and reliable “Master” at the helm. Unfortunately, our knowledge of public companies is somewhat limited. And the only way we could judge a “Master” is by what he has achieved in the past… I know what Mr. Brindle has accomplished since he founded LRE and in the years before its founding… while I know nothing about Mr. Maloney... Gio

no doubt that whenever gio gets actively involved in a thread it elicits a lot of interest! that's especially true when its a stock he has a position in & conviction in (actually, does gio ever have a stock position he doesn't also have conviction in?). his passion, generosity, & unfailing gentlemanly conduct is contagious. look at how the lre thread has all but dried up & withered since he sold & lost interest, despite the oft brilliant commentary from twa. I don't get the same impression at all that gio seeks approval or validation or is interested in forcing people to share his world view. I think he just genuinely enjoys & seeks to learn from the debate between different & often diametrically opposed viewpoints. --Ben Franklin This is the only reason why I like contributing to the board so much: because I have found out that the process of a) writing about an investment thesis of mine, b) receiving feedbacks from many people around the world, with different cultural and working backgrounds, and c) reasoning about their responses and answering back, is a great way to get “clearness” of mind, and therefore conviction about an investment opportunity. Besides this, I really don’t care about approval and validation, I don’t care about public fame or a public track-record, I certainly don’t care about forcing the way I see the world on anyone (I even doubt there is a “way” I look at the world…), and of course I couldn’t care less about teaching platitudes to anyone!! ;) All I care for: 1) To live many joyful moments with the people I love 2) To compound my capital at 15% annual for the next 45 years PS I must admit I also find arguing with people who disagree with me… until they finally agree with me… to be much fun!! ;D ;D ;D Gio

Good piece by David Hay & Charles Gave on "ETFization" Gio EVA+7.25.2014+NA.pdf

Berlusconi had done exceptionally well for his shareholders, while he ran his companies… When he became a politician, two things happened: 1) He wasn’t able to do almost any good to his country 2) His companies’ performance started disappointing Evidently, in politics those who predict asteroids win! ;) Gio