WideMoat

Thanks for the write-up. The debt situation is the piece I would like more clarity on; they will need to refinance in the next year or two, what will the likely terms be? If they could replace with longer term financing, that material risk dissipates. Given that capital seems available now at attractive rates, why would management not sprint to lock it up?

Third sentence seems key--you say, "I would sell if tax concerns didn't matter." Seems like you are getting twisted in the wind by a host of other factors. Certainly I would argue that your other hedge proposals add incremental risk for your existing position rather than decrease it. If you hedge with a different underlying, you need to make a judgment about future correlation to your current "problem" position. The last sentence seems precisely wrong. The one thing you need is to hedge this stock specifically. Reducing exposure is the way to do this, via full sale, partial sale, long put options in that stock, collars, etc.

Volatility on TLT is very high right now, so those TLT puts would be expensive to hold outright, unless volatility stays high for the duration. Also the bid/ask is wide on the long dated puts, so use limit orders. Looks like the tightest bid/ask on the close for the January 2021 put series was the 150 strike, 4.5/5.95, with 5 last trade. That's a 22% implied volatility, 23 delta. A higher probability trade on entry would be an at the money put spread.

Har, har, Liberty--your sense of humor... "On August 31, 2000, FRM filed Form 8-K with the Securities and Exchange Commission, which disclosed that FRM contemplated distributing to its shareholders one share of MFC common stock for each one share of FRM's 1,800,000 shares of outstanding common stock at the close of business on November 1, 2000 (the record date)... The MFC shares were distributed on January 23, 2001... After January 23, 2001 FRM has had no further interest in MFC and it owns no shares of MFC stock... After the spin-off, FRM was recapitalized privately by the FRM Control Group (described below) purchasing 34,200,000 shares of common stock for $3,258,000 ($0.095 per share). By retaining only $10,000 in cash in FRM, the shareholders' book value for the 1,800,000 shares outstanding was less than $.01 per share. By fixing the price that the new Control Group paid for their 95% ownership at $.095 per share, the existing shareholders realized an increase in book value from about $.01 per share to about $.091 per share and the shares of the new FRM Control Group were diluted from about $.095 to about $.091 per share... Murray Stahl and Steven Bregman, Chairman and President of the Company, respectively, are the principal persons in the FRM Control Group, which includes the other persons who purchased the shares for the consideration stated below." If your calculator is still available, could you compute the compounded return from $0.095 per share? Then, v. the S&P? Thanks.

Yes, same.

Another interesting wrinkle is the size. If the filing is correct, 640700 shares is 6407 contracts. The only monthly put strike with an open interest that high would seem to be the May 200's, expiring in two days, which are currently in the money. If he owns those, it is not clear what he would have sold against it, since the other put strikes have such low open interest.

They are getting C shares (or K shares if you prefer). "...Series C common stock that, except as otherwise required by applicable law, entitles the holder to no voting rights..." "...In addition, our chairman, John C. Malone, beneficially owns shares representing the power to direct approximately 48 % of the aggregate voting power in our company, due to his beneficial ownership of approximately 96% of the outstanding shares of Liberty Series B common stock as of January 31, 2016." [10-k]

"Involuntary bankruptcy"... currently being litigated, Georgia Northern Bankruptcy Court.

Just looking at the open interest in the Jan 2017 series (600 call contracts and 1200 puts), it would be tough to make the case. You could create a FLEX option, the minimum size is 150 contracts. You can definitely find a market at the right price, what did you have in mind?

I am baffled that everyone values their investments at cost. And conveniently without offering a rationale for that choice. To wit, what is a fair multiple for a royalty stream on a financial asset manager? Certainly it has to be higher than the average multiple on operating earnings of asset managers in general. Folks around here seem to think that Franklin's after-tax PE of 11 is too cheap. Wisdom Tree has a 32 PE; Virtus 23; Diamond Hill 16. And those are the multiples after paying for SGA, marketing, interest, and taxes. At any rate, a 20 multiple on a royalty stream of an asset manager doesn't strike me as expensive. Certainly not with bond rates and equity prices where they are today.

The Q says: "On July 1, 2015, The Lion Fund II, L.P. completed a tender offer for common stock of Biglari Holdings. The Lion Fund II, L.P. purchased 616,312 shares at a purchase price of $420.00 per share in cash. As a result of the tender offer, Mr. Biglari beneficially owns approximately 49.5% of the outstanding common stock." Although there is some humor in this inaccuracy, I wonder whether it should be read instead as prophecy.

I'm working in this one right now. The only observation I would make based on your commentary is that the low margin business can have a reasonable ROIC--if it is well managed. Trader Joe's serves as evidence, though they have very high inventory turns in their most successful stores. As an aside, their naming and marketing choices thusfar have not been overwhelming (365?). Perhaps their execution can rise above humble beginnings, but mark me skeptical.

Based on Biglari's public comments, it would seem more likely that he would issue equity via a rights offering, than to buy back any more of his equity.

The tools that I have immediately available don't have six month price performance data. If you take YTD price performance for large cap US stocks, today the strategy would put you in Anacor Pharma (up 337% YTD), Skechers (155%), Netflix (110%), Dexcom (82%), Intrexon (81%), Amazon (74%), Incyte (72%), and Jetblue (70%). The strategy would have you revisit these stocks in 1-6 months' time. If you take 13 week price performance for US stocks above 1.16B market cap, the strategy would put you in Anacor (up 95%), Intra Cellular Therapies (86%), Lexicon Pharma (85%), Exelixis (70%), Sucampo Pharma (66%), LendingTree (61%), DBV Technologies (56%), Abiomed (54%). I own none.

The majority of Baupost's assets are not disclosed here. Their aggregate AUM is probably around $28 billion, so this $6 billion equity portion will not move the needle as much as you suggest.