Drokos

My only knock on Greg is his BRK holdings (or lack there of), which is a big issue to me. $16m a year cash salary but his BRK holdings are less than $3m??? Ajit has $100m+ of BRK. Is he really going to protect the business as much as someone with 98% of their net worth in BRK? I know he owns (or owned) a stake a BHE but it doesn't give me much comfort to have a leader that has skin in only one subsidiary. Hopefully I am missing something.

What broker are members using to purchase PSHZF? TDAmeritrade is now no longer allowing purchases of the security (saying they dont allow purchases of foreign ETFs) so I am only allowed to close and not add to my position. It also looks like InteractiveBrokers doesn't recognize the security.

I don't see why there is any buyback criticism. They have repurchased ~20% of the shares outstanding over the last three years. If they wanted to close the gap they could obviously do a $100-500MM tender at 10-15% discount to NAV, but they certainly couldn't get it filled at the current 35% discount. I'd much prefer they continue slowly repurchasing everyday and keep accumulating at a 35% discount rather than trying to rush it and pay higher prices to get it done quick. I couldn't be happier with their capital allocation as a long-term shareholder.

Couldn't agree more. Turning it off after March 10th after buying shares at $226 in January is bizarre. BRK is in worse share than we think with the pandemic if he was worried about stockpiling the <$1 billion he would have spent in late March if he even just maintained the embarrassingly slow pace of buybacks from Q4/Jan-Feb. Very concerning.

Unfortunately there are no real investors (all insiders, retail investors, and index funds) in the stock, so no one is going to force management and the board to clean up their act. Will be interesting to see what the internal review says, but I expect the board to protect management (and themselves) and not disclose anything major.

Tim, it is pretty bold of you to throw around "slander" for someone calling this a holiday weekend bad news dump (which it was). This 8-K could have been filed monday, tuesday, or wednesday morning. It only takes an hour to draft (yes even with legal review and the SEC typesetter formatting process). Lets not forget that this is the same company that had its CEO, COO and board member resign on April 30th, but conveniently didn't disclose it until May 6th because there was a shareholder event on May 4th/5th. They have a history of intentionally gaming disclosing times. Combined with the absolutely poor capital allocation track record, I think any skepticism, criticism, or complaints about management are completely warranted.

What an embarrassing transaction. Management(Steve?) continues to show their complete incompetence. A great sweet heart deal for a friend. I know real estate investors in Lexington that would have paid much more for that deal, it's a shame they didn't maximize the value for shareholders.

Pretty remarkable to think that new management has made the old pre-Moore management team look good.

Wow, what an absolute scam. You're right though, not sure if you should be upset with Moore or give him credit for convincing the rest of the board that his "crapshacks" were some gold-mine, one of a kind business opportunity. At this point, can anyone honestly say with a straight face that current management is better than the old management? The self-dealing and value destruction has continued, the only difference is now management calls themselves value investors and tries to write folksy annual letters.

I think there is a distinct difference between industry risks ("shooting in the parking lot", allegations of over-serving, etc) and shady/unethical management actions such as loaning money to the CEOs relatives, related party transactions, purchasing residential houses, etc. Investors signed up for the first risk, I am not sure they knowingly signed up for the second.

Short report. With this plus the Bombshells news, I'd say its uninvestable and I'd be curious to hear if some of those praising the CEO will change their mind: http://bitly.com/2JsWCNC RCI Hospitality (RICK): Overvalued Roll Up with Hidden Related Party Transactions, Conflicts of Interest, SEC Violations, and 50%+ Downside Executive Summary: Retail investors enamored with RCI’s new capital allocation strategy have driven shares up over 300% to extremely overvalued levels and shares now trade at more than double their historic multiples. RCI’s roll up strategy uses new acquisitions to hide the fact that its base business is declining. Analysis of actual results from all 45 announced transactions since 2005 shows the average multiple paid is ~8x EBITDA, not the 3-4x that management claims. In addition, newly discovered related party transactions, SEC violations, conflicts of interest, and hidden purchases call into question the leadership of management and the board. Shares would need to fall more than 50% to trade in-line with historic multiples, even before a discount for mismanagement and poor stewardship. Numerous governance red flags have been uncovered, including management’s use of the company as a personal piggy bank: RCI has been known for poor corporate governance due to its fleet of corporate jets and excessive car allowances, but numerous new egregious actions have been uncovered, including: • RCI made loans to its CEO that were not disclosed in SEC filings. • CEO funneled RCI corporate business to a lawyer that he was personally indebted to. • One of RCI’s Independent Directors is the brother of a senior executive, a violation of SEC requirements for independent director. • One of RCI’s Independent Directors frequently takes on legal work for RCI, but RCI has never disclosed the related party transaction. • CEO was arrested for domestic assault. • CEO’s relative defaulted on a loan received from RCI. • RCI’s failed Los Angeles club was partnered with a convicted criminal who had partied with RCI’s CEO at the Super Bowl & Mardi Gras in months ahead of the formation of the JV. RCI’s partner was already behind on rent before RCI joined the JV & the club was shut down within a year of opening. • RCI inexplicably owns 3 residential houses in Houston • RCI sent donations to CEO’s children’s private school through a shell company. • RCI owned (and may still own) a 338-acre ranch in Texas. • RCI Board allowed the CEO’s employment contract to lapse until his divorce was finalized. Business Analysis: RCI’s roll up strategy masks its declining base business, and actual acquisition multiples are double management’s claims. • Valuation – Shares are worth $13-17 and have 50%+ downside. The stock is currently trading at more than double its long-term historic average on a P/S, P/E, & P/B ratio. • M&A Strategy – A detailed analysis of all transactions since 2005 shows that RCI’s pretax return on investment is less than 13%, no where near the 25-33% that management claims. • Bombshells –Management has previously attempted 10 non-strip club ventures. All have ended in failure. After 3 years Bombshells has yet to land a single franchisee, Head of Franchising left after one year, & food sales are already declining. • History Repeats – Last time RCI drew this much retail attention the shares crashed from $28 to less than $4 within a year.

Bombshells location shut down after 100+ arrests, shootings, DUIs, etc. I guess this kills the Bombshells growth story: https://bigrickinvest.blogspot.com/2018/06/bombshells-crime-factory-shut-down-by.html “Harris County District Attorney Kim Ogg calls Bombshells a “crime factory.” “This is one of the worst offenders in Harris County,” said Sean Teare, chief of the vehicular crimes unit. “Anything that you can think of in the past 3 1/2 years has occurred here. “We are talking about a person being shot to death in the parking lot. We’re talking about a number of other shootings that have occurred here. Aggravated robbery… aggravated assaults… sexual assaults.” The DA’s office had been monitoring the Bombshells at the I-45 near Fuqua location for several weeks after investigators noticed several DUIs, assaults and injuries were traced back to the restaurant. “We have documented well over 100 arrests and that’s not even close to the number of calls that the Houston Police Department has received about this establishment,” Teare explained.

Thanks for the update. I continue to have interest in the story but a few concerns make it uninvestable to me, even if shares were to trade down to a more reasonable 1-1.5x book value. Admittedly, I haven’t reviewed the 10-K or the exhibits yet, but I was a little disappointed with the letter. Heavy on the folksy fluff, light on the substance or long-term plan: 1) The business is essentially a $15m investment fund/conglomerate with >$2m in operating expenses (~13% annual management fee). I don’t see how we can expect any net outperformance with that kind of drag. If assets grew to $100m, this wouldn’t be as big of a drag, but how do we get there? Even growing assets at a 20-25% will take a decade or two to get there. Would be nice to see management at least acknowledge they understand it is an issue. 2) I assume management is not willing to disclose the terms of their arrangements with the hedge funds, which unfortunately makes it impossible to understand what the upside is in that business segment. The profit share could be 1% of the performance fees or 50%. I would have also expected to see the AUM of each fund disclosed annually. 3) HVAC business – would like to hear more about what was the cause of the disappointing results. This business seemed questionable from the start. It was pitched as a high ROI lay-up type business opportunity, and now it is losing money? That’s a huge swing, and would seem to warrant a more substantial explanation. I wish Mt Melrose was spun off as a REIT or MLP and I could directly invest in Jeff.

Too much cash to put to work at consistently high rates. Canadian pharma market is not that big. If he doesn't buy Paladin back, or some large assets off of Valeant, it will take them 5+ years to put all that money to work on good deals. The cash will just be sitting idle for so long the total shareholder return wont be very impressive. If I had the opportunity to buy in at book value of Jonathan starting a company with $50m of cash, I would do it all day. The same opportunity at $1 billion is not quite as appealing. His first ~$50 million will be put to work at very high returns, but there are only so many deals. The weighted average return will be significantly dragged down if you are trying to put $1 billion to work.

Steer clear. Never come across a more disfunctional and clueless public company.