giofranchi

;D ;D ;D Sanjeev, I call everyone Mr./Mrs. + his/her surname… Ahahahah!!!! Ok, then, I will stop it here… Just want to point out that my idea is more general. It goes beyond the discussion about BH. And it is simply this: try to base an investment on whose “words could be taken to the bank”, and whose words instead cannot, and you won’t be right much more often than if you flip a coin. Try, instead, to base an investment answering those questions from a) to f) in my last post, and you might end up doing a bit better than if you flip a coin. ;) When you try to judge people’s character, simply too many subjective things get in the way… And it is extremely difficult to think and judge rationally. Instead, when you try to judge the quality of a business, the actions and the decisions taken by management (instead of their character), things stay on a much more impersonal level. And that imo leads to better choices. Cheers, Gio

So, now Mr. Biglari is also accused to be short term oriented, and not to think for the long term good of BH… Because, if he believed hedging were a good strategy to maximize BVPS over the long term, and if he were long term oriented, why shouldn’t he be hedging?! The higher BVPS over the long term, the richer he’ll be! No... he doesn’t hedge, because BH’s operating businesses are the best hedges anyone can find: probably, fast-food franchising does better in a recession than during economic prosperity. 1. What do you mean “using money that is rightfully the shareholders’”?… Money he made the shareholders pay him for his services, and that you don’t think he deserved?… Clearly, I don’t understand this compensation problem… 2. Yeah… Control is a problem… But the fact is I want him to have full control over BH as soon as possible! I know what it is like to run a company without full control, I know what is like to run a company with full control: if you want great results, go for the latter all the times! Another way to get full control, for instance, is to introduce a second class of super voting shares… and that is also a much criticized practice by detractors… who evidently have never run a business in their whole life! 3. Lying… I guess because in the beginning he said he would not be paid for his services… right? Is that what you mean? Well, those shareholders he “lied” to went on to make a lot of money! Then they could have cashed in anytime they wanted and said goodbye! If those are the consequences of “lying”, well then lie to me all the time, please! Anyway, I might agree with you: that was a mistake… made by a very young entrepreneur, who had never run a public company in his life before, and who found himself all of a sudden with lots of responsibilities… Let me ask you: do you still remember what you were doing, and which kind of responsibilities fell upon you, when little over 30 years old? Are you sure, if you had been in Mr. Biglari’s shoes, you would have made no mistakes? 4. I made money the first time he issued rights, I am quite convinced I will make money this time again. Then, I had understood well… But I don’t see why in year 21, after 20 years of great performance, of building a very successful company, all of a sudden he should dream of making “some unethical thing” that wholly destroys the work of a lifetime… Maybe I simply don’t get it, but do you think it would be rational? ??? I really don’t see what low interests, rising employment, and an improving economy (doubtful!!) might have anything to do with improving same stores traffic, or with getting new and very profitable franchising agreements… Richard, do you run a company? Has the “improving economy” done anything for you the last three years? Not for me!! ;) I think you didn’t invested with Mr. Kozlowsli nor Mr. Skilling because you didn’t understand what they were doing… you couldn’t answer these questions: a) How much of their success was luck? b) What things have they done to achieve success? c) Can they replicate those things going forward? d) Which are the possible obstacles that might arise going forward? e) Are they aware of those potential problems? f) How could they deal with those problems? g) Etc. I would say the inability to answer those questions in Mr. Kozlowsli’s and Mr. Skilling’s cases is the true reason why you and I didn’t invest in their businesses. At least, I am sure that is the reason as far as I am concerned! Can I answer those questions in BH’s case? I think I can. :) Gio

Thoughts??… Yeah! Sure!… I have bought a LARGE position!! ;D ;D Gio

Richard, I truly think this is not rational… the faster BVPS grows, the more money Mr. Biglari will make… He might be extremely conscious about his business acumen, and sometimes arrogant, and he might charge his shareholders a lot for his services as a manager and capital allocator… but that doesn’t mean his own interests aren’t aligned with shareholders’… It is evident they are! With this I am not sure I understand what's exactly that you mean… As for the stock price… well, we are value investors, aren’t we? We want to look at and pay attention to business results, not stock price fluctuations, right?… At least that’s what we like to say! ;) This again is not rational… the evidence until now is that every company Mr. Biglari put his hands on became much more profitable than it was before. Of course, it might change in the future, and, as I have often repeated, I will take the evidence as it comes. I look for outstanding entrepreneurs, when I invest… I am not looking for “someone to hire”… They are two totally different things. Entrepreneurs and managers: they are two totally different breeds. And looking for outstanding entrepreneurs, I want to see a great track record, I want to understand what they are going to do, and I want them to explain it clearly to shareholders, I want to understand why their great track records might be sustained in the future for many years to come, and I want them to be at the helm of a business which generates steady and predictable cash flow. And, of course, I want them to be large owners of the companies they have built (Mr. Biglari through the LF is a large owner of BH, and he invests at least 30% of his incentive in BH). Character traits, instead, are treacherous… I cannot base an investment on character traits… Think of it this way: lots of men discover only after many years of marriage they actually didn’t know their spouses possessed some truly unbearable “character traits”! And vice versa, of course! You think you can assess Mr. Biglari’s integrity, calling him a liar and a thief, because he achieves hedge-fund results (I mean, the top 0.1% of hedge funds!), and asks to be paid like a hedge fund manager?!… Well, I don’t think you can. Gio

Mmm… I think the logic is different… As you get richer, you start feeling things more under your control, and you grow older… even an aggressive character like Mr. Biglari’s inevitably changes and begins to recognize the importance of the intangible advantages a more relaxed and easy going reputation might bring. :) Gio

Joel, why have you used a 5% hurdle, when in fact it is 6%? Anyway, I don’t understand what’s the point in making this kind of calculation… You know what’s my greatest hope? That I continue paying a lot of money to Mr. Biglari, Mr. Einhorn, and Mr. Loeb for the next 3 or 4 decades!! ;) Cheers, Gio

Richard, Thank you for posting your article, I hadn’t read it before. My answer is simply that I am not concerned at all about the compensation plan: since 2010 BH’s BVPS has grown at a CAGR of circa 21% (from $200 per share at 2010 year end, to $355 per share at 2013 year end), after all incentives were paid. And he has achieved such a result concentrating on his 2 or 3 best ideas… do you still think he should be indexing?! ??? I also invest in GLRE and TPRE, which have compensation plans much similar to BH. Instead, I don’t own neither LUK, nor BAM, nor SHLD, which you suggested. Evidently enough, I think there are many aspects of a business much more important than a compensation plan… And I have no problem at all to pay up for performance. Once again, I am not saying I think I am more rational than other people about BH… I am just saying I will take the evidence as it comes: during the time since you wrote your article the evidence has been overwhelmingly in favor of Mr. Biglari. ;) Gio

They can panic the other way. That's what people did in the late 90s. "Gotta buy now before it goes up more!" The economy has also already adjusted to their cash-hoarding ways. As you suggest, they can spend their cash on things/assets. It's a better problem than worrying about them selling things/assets in order to have cash. I don't think this is meaningful. As you have read on Hoisington Q2 2014 commentary, debts are at all-time high precisely because the PSR is at all-time low. And prices are very high because of monetary policy. In a panic selling will be violent… I am not saying it will happen… far from me! But to say there won’t be indiscriminate selling in a panic is imo a bit delusional… Gio

Maybe… But short/medium term that would only imply low prices are to be expected in the future… because certainly I don’t see low prices anywhere today… Sounds bearish… not bullish… Moreover it implies: 1) They are ignorant to the point of being unaware that cash doesn’t produce anything… Keeping cash idle is like having skills without making the effort of using nor developing them. 2) Trust is broken… We have failed to communicate them the trust needed to do business. Long term both 1) and 2) are imo bearish… not bullish… Gio

--Page 8 July 2014 Commentary Although that refers mainly to real estate developments, the very same “logic to the discount applied to land companies” might have benefitted ALS, when its purchase of the whole CDP was recently closed. Gio

Why do see this one as a positive? Gio

Ahahahah!!! Hey, it is really too flattering! And I don’t deserve that! Anyway, thank you so much! :) Cheers, Gio

Italy??? What is Fairfax going to do in Italy? Dear Mr. Watsa, if I can be of any help, please don’t hesitate to let me know! Sincerely, Gio

Thank you Peter! Too kind of you! But I understand what shalab means. Yet, once again, let’s try to be rational: First: as an entrepreneur I run businesses which require very little or no capital at all… therefore, if I were to receive more capital trough an IPO of my company, I sincerely wouldn’t know how to use it… Second: as an investor I simply don’t think my track record is good enough to manage other people’s money… So basically, besides the fact I don’t welcome the headache a public company would bring, which is true, I also don’t think the business proposition I could offer is interesting enough. ;) Gio

Q2 2014 Letter Gio Third-Point-Q2-2014-Investor-Letter-TPOI.pdf

The work Liberty is doing on this company is just great! And in the end I think he will be justly and greatly rewarded. :) Gio

From the Introduction: The Introduction alone imo is worth the cost of the book! ;) Gio

Well… It was Mr. Buffett who said “a franchise is the best business”… not Mr. Bregman, nor certainly me… I have sometimes disagreed with Mr. Buffett’s view on business matters… and I have always been wrong! ;) Gio

Libs, imo what we all have learnt reading this thread is worth much more than that! ;) Maybe you are right, and the recent jump in price will soon be reversed… anyway, the 2 most important things are still true: 1) a royalty business in some basic necessities of life is a great business, 2) Mr. Dalton is a top of the class owner/manager. As much as I respect ItsAValueTrap’s views and ideas, nothing he has said so far convinced me that 1) and 2) are not true. Of course, if 1) and 2) are true, ALS is cheap today. Gio

Q2 2014 Commentary Gio July2014Commentary_FINAL.pdf

Hi Shalab! I have not said I am rational… Instead, I have just said I will take the evidence as it comes… To be rational, and to take the evidence as it comes, are very different things: the former requires much self-control and clearness of thought… The latter requires only the ability to read numbers… So, where is the catch? Well usually, if you wait for performance to be evident, you might run the risk of losing money (if and when that performance disappoints). But here is where valuation comes into play: today BH’s market capitalization is a low enough multiple of BV that, even if Mr. Biglari starts making unsound business decisions, I don’t believe it will contract much further… Therefore, BH’s stock price actually gives us the luxury to wait for that evidence… In other words, expectations already are that Mr. Biglari is going to make mistakes in the future. Ahahahahah!!! Thank you! But I am not that ambitious… I love what I do… Wouldn’t do anything else… I am lucky enough to be financially independent… I have compounded my firm’s capital at 20% annual for the last 3 years, and this year I am up 10%... Despite my "ex" very large investment in LRE, that has cost me money this year… I know I probably won’t succeed in keeping up such a good performance for long… But I also believe I can do sufficiently well, even without other people’s money… My shareholders are my family… Why should I welcome the headache to accept others? Cheers, Gio

Well, I guess you are right! And I am removing it... ;) Gio

Ok, thank you! I have made money before with this kind of offering... and I look foreward to making money again! ;) Gio

Does anyone know when it will be completed? Thanks, Gio

I know... but I don't think it is the right answer... I think investors in the Lion Fund since inception have made a lot of money... despite Mr. Biglari's peculiarities... that's why imo they are not leaving even though they are charged twice... Of course, I might be wrong. ;) Gio