BH - Biglari Holdings

[peter1234]

Now he has a reason to go visit Ibiza regularly.

;D

[Vish_ram]

I've a great idea for Biglari to further entrench himself. Like the girl in Wendy's logo, he should put his picture on top of his name. Now he can charge his companies for using his likeness.

 

[Parsad]

I've a great idea for Biglari to further entrench himself. Like the girl in Wendy's logo, he should put his picture on top of his name. Now he can charge his companies for using his likeness.

 

I don't think we are far off from that.  Think in terms of Remington, Dave from Wendy's, Bijan (for those that remember the early 80's), Martha Stewart, etc.  He's literally tying himself into the brand and will eventually pitch them, if not already.  Except, all those people really controlled their companies in ownership stakes.  Cheers!

[Zorrofan]

Don't you think this the typical guy that will enrich himself (further) over the backs of his shareholders?

 

You always talk about people you like to do business with. Do you think this guy's trustworthy? (and why?)

 

But I always just stick to business… I try to listen to what they say about their business strategy and about the process they employ to create value… I try to decide if I like what I hear, or if I don’t… Then I invest if I like it, I look somewhere else if I don’t like it… That’s all!

I try to judge people on how clearly and effectively they think and communicate their business goals, and the means to achieve them.

 

I know very well that “being full of oneself” is a warning sign… But why? Because it might cause someone to lose clearness of vision and to start making bad business decisions! Yet, until there is the evidence someone full of himself like Mr. Biglari truly is beginning to misjudge business opportunities, it is just extremely difficult and uncertain to predict it will happen. That’s why I said that I will take the evidence as it comes: until now I like what I see (from a business point of view) very much! When and if my business point of view changes, I will revaluate BH.

 

I think of it this way:

 

The evidence: Mr. Biglari has built a platform for doing business following the example of BRK, while also trying to follow in Mr. Icahn's footsteps as an activist investor, putting together the best of both worlds.

The speculation: it is going to end badly, because Mr. Biglari is an arrogant fellow.

 

The evidence: since the inception of his Lion Fund, Mr. Biglari’s shareholders have made tons of money.

The speculation: he will enrich himself over the backs of his shareholders, because Mr. Biglari is an arrogant fellow.

 

Well, I just stick with the evidence… And…

When the facts change, I change my mind

 

Gio

 

Gio,

 

Your posts are always most interesting. And you seem to be able to separate emotion from your decision making process - not always easy!!  So I am truly confused by your stance with this company.  i ask this to provoke discussion not discord - how do you reconcile your stance on creating shareholder value with the egregious compensation paid to management of this company?

 

cheers

Zorro

 

 

[gg]

Gio,

 

Your posts are always most interesting. And you seem to be able to separate emotion from your decision making process - not always easy!!  So I am truly confused by your stance with this company.  i ask this to provoke discussion not discord - how do you reconcile your stance on creating shareholder value with the egregious compensation paid to management of this company?

 

cheers

Zorro

 

Zorro,

Let me ask you this -- for the following rates of BH's growth in book value, which lead to scenarios in which you think that Sardar Biglari's compensation is "egregious" ?

 

(a) -2%

(b) 2%

© 6%

(d) 10%

(e) 15%

(f) 20%

[Zorrofan]

http://www.biglariholdings.com/IncentiveAgreement.pdf#zoom=100

 

Company shall pay to Executive, determined as of the last day of

each fiscal year of Company (including any fiscal year in which any of the events set forth in

Section 4(a) occur) (“Incentive Compensation Calculation Date”), incentive compensation

equal to the Incentive Compensation Amount (as defined below) as of such Incentive

Compensation Calculation Date; provided, however, that no duplicate Incentive Compensation

Amount shall be paid to Executive in any fiscal year. The Incentive Compensation Amount shall

be paid to Executive as promptly as practicable after each Incentive Compensation Calculation

Date, and in no event later than 75 days thereafter (the “Payment Date”), subject to Section 6©.

The “Incentive Compensation Amount” means the amount computed (subject to proration with

respect to any fiscal year during the term of this Agreement in which any of the events set forth in

Section 4(a) occurs, determined based on the date of such event) using the following formula

where “x” equals 1.06 (subject to proration for the 2010 fiscal year and any short fiscal year

during the term of this Agreement) with respect to which the Incentive Compensation Amount is

determined, provided that in no event shall the Incentive Compensation Amount payable to the

Executive with respect to any fiscal year exceed $10 million:

(0.25)(New Book Value - ((High Water Mark)(x)))

 

Now, I am old but I don't think I'm senile just yet...Biglari is taking 25% of all growth over 6%. That strikes me as rather excessive. You may be okay with that, but I'm not.  If the benchmark was higher, maybe, but 6% is setting the bar pretty low.  Coke executives gave themselves a huge slice of Coke's future earnings, i wasn't okay with that either. Executive  pay in this country is getting excessive, and as a shareholder that's my money they are taking.

 

cheers

Zorro

[OracleofCarolina]

Yes, but that piece is capped at 10 million(for now :)

 

and Biglari also gets 25% after 6% hurdle rate in the lion funds, which is where most of the CBRL stock resides, last year that was another 14 million

 

So 24 million + 900k salary(i think that's it..for now :)

[gg]

I'm by no means suggesting that there is any scenario here where sardar ends up not being handsomely paid, but it's mostly performance based, which is better than you could say for the majority of other comparably sized public organizations. Of course we'd love to see him work for $1 per year, but that's simply not going to happen. So what is the market rate for allocators with his track record, investing hundreds of millions of dollars? Probably more than what we're paying him. ...

[Myth465]

Guys these guys have consistently said they dont really care what Biglari takes, as long as they make money.

 

What's the issue with this, if they want to place their chips here, then whats the problem. They have a better understanding of the situation then all of us and are 100% comfortable with it. I wish them luck, and will watch with popcorn....

[Dustin T]

Guys these guys have consistently said they dont really care what Biglari takes, as long as they make money.

 

What's the issue with this, if they want to place their chips here, then whats the problem. They have a better understanding of the situation then all of us and are 100% comfortable with it. I wish them luck, and will watch with popcorn....

 

LOL watching with popcorn, that's my position as well. I think Biglari is an interesting capital allocator and think he might produce above average returns, but I'd like to see what Berkshire Hathaway "A" shares would be priced at right now if they had since inception been saddled with a Sardar Biglari style "rake"

[peter1234]

Guys these guys have consistently said they dont really care what Biglari takes, as long as they make money.

 

What's the issue with this, if they want to place their chips here, then whats the problem. They have a better understanding of the situation then all of us and are 100% comfortable with it. I wish them luck, and will watch with popcorn....

 

LOL watching with popcorn, that's my position as well. I think Biglari is an interesting capital allocator and think he might produce above average returns, but I'd like to see what Berkshire Hathaway "A" shares would be priced at right now if they had since inception been saddled with a Sardar Biglari style "rake"

 

Rough estimate: if you take Berkshire's 19.7% cagr over last 48 years and take 25% above hurdle of 6%, you would take mgmt fees of 25%*(19.7%-6%) = 3.4% per year.

 

Compounded over 48 years (1.034)^48 gives you about 5.

 

So Shares would be worth about 1/5.

 

(Of course assuming that Biglari's 10M cap would keep moving upwards and never actually capping performance fees.)

;)

 

[giofranchi]

Gio,

 

Your posts are always most interesting. And you seem to be able to separate emotion from your decision making process - not always easy!!  So I am truly confused by your stance with this company.  i ask this to provoke discussion not discord - how do you reconcile your stance on creating shareholder value with the egregious compensation paid to management of this company?

 

cheers

Zorro

 

Hi Zorro,

let me just ask: how do you look at Mr. Biglari’s compensation?

a) A cost that unfortunately is not cut to the bone

b) Some sort of ominous sign Mr. Biglari is not a great entrepreneur and therefore is going to make big business mistakes in the not too distant future

If the answer is a), I agree with you. And what can I say? As long as BVPS keeps growing handsomely, I will just pretend I don’t know it could grow even faster! ;)

If the answer is b), what can I tell you? As I have already said, I will deal with the evidence as it comes. My crystal ball is definitely broken! ;)

 

I am reading and interesting book: [amazonsearch]Compelling People, The Hidden Qualities That Make Us Influential[/amazonsearch]

The authors suggest the two most important things we communicate to other people, and that they use to judge us, are: STRENGTH and WARMTH. Really compelling people are those who know how to convey both an impression of being strong and an impression of being warm.

Other two findings imo are interesting:

1) Strength and warmth tend to be mutually exclusive… even from a biological point of view: strength is associated with testosterone, warmth with oxytocin: high levels of testosterone and high levels of oxytocin in our bodies are mutually exclusive

2) The Halo Effect: people tend to think that those who are very strong should also be very warm, and vice versa.

Of course, 1) is nature, 2) is only a bias.

I have found many people on this thread believe 2) in reverse: because Mr. Biglari is so poor at conveying warmth, he should also lack strength… well, imo also 2) in reverse is nothing but a bias. ;)

 

Gio

 

[giofranchi]

Guys these guys have consistently said they dont really care what Biglari takes, as long as they make money.

 

What's the issue with this, if they want to place their chips here, then whats the problem. They have a better understanding of the situation then all of us and are 100% comfortable with it. I wish them luck, and will watch with popcorn....

 

I really don’t understand why some people like to make fun of other people’s point of view… I guess it is because it makes them feel right and/or important…

 

I am not here to feel right and/or important… instead, I am here to know and understand other people’s point of view…

 

Let me tell you it is so much easier to know and understand your point of you, if you don’t make fun of mine.

 

Gio

 

[Myth465]

Im actually defending your point.

You have very articulately outlined why you are comfortable with this position at least 5 times, and a few other members.

You consistently have the same questions raised again. You guys appear to know the comp plan inside and out, so its not like you are uninformed.

 

I wouldnt put chips here, but find your reasons valid and informed.

I am asking everyone else why they keep asking you how you have gained comfort when you have a very deep grasp of the situation here.

People thought my Sandridge position was nuts, and the fact is they were right. At some point they left it and just watched the outcome. I dont think owning BH is nuts, but constantly asking how you can hold despite the potential comp issues, is betting a dead horse.

 

There was no sarcasm in my point.

I am fine to watch this play out and see how your thesis works, and also looking forward to hearing you all discuss future updates on BH.

Now I did mock ragu, but thats another subject.....

[giofranchi]

There was no sarcasm in my point.

 

Ok. Then, I have misunderstood… I beg your pardon! :)

 

Gio

 

[gg]

Guys these guys have consistently said they dont really care what Biglari takes, as long as they make money.

 

What's the issue with this, if they want to place their chips here, then whats the problem. They have a better understanding of the situation then all of us and are 100% comfortable with it. I wish them luck, and will watch with popcorn....

 

LOL watching with popcorn, that's my position as well. I think Biglari is an interesting capital allocator and think he might produce above average returns, but I'd like to see what Berkshire Hathaway "A" shares would be priced at right now if they had since inception been saddled with a Sardar Biglari style "rake"

 

Rough estimate: if you take Berkshire's 19.7% cagr over last 48 years and take 25% above hurdle of 6%, you would take mgmt fees of 25%*(19.7%-6%) = 3.4% per year.

 

Compounded over 48 years (1.034)^48 gives you about 5.

 

So Shares would be worth about 1/5.

 

(Of course assuming that Biglari's 10M cap would keep moving upwards and never actually capping performance fees.)

;)

 

 

QUESTION: Where do you think Biglari came up with this idea of taking 25% of the performance above a 6% hurdle rate?

HINT 1: It is the same source from which Mohnish Pabrai modeled his fund's fees, which are....25% of performance above a 6% hurdle.

HINT 2: Asking, like in the comment above, what that Berkshire Hathaway guy's track record would be like if he charged those type of fees to his investors, means that you'll probably get his wrong

ANSWER: The Oracle himself....(but he didn't cap his fee at 10 million)

[Parsad]

Guys these guys have consistently said they dont really care what Biglari takes, as long as they make money.

 

What's the issue with this, if they want to place their chips here, then whats the problem. They have a better understanding of the situation then all of us and are 100% comfortable with it. I wish them luck, and will watch with popcorn....

 

LOL watching with popcorn, that's my position as well. I think Biglari is an interesting capital allocator and think he might produce above average returns, but I'd like to see what Berkshire Hathaway "A" shares would be priced at right now if they had since inception been saddled with a Sardar Biglari style "rake"

 

Rough estimate: if you take Berkshire's 19.7% cagr over last 48 years and take 25% above hurdle of 6%, you would take mgmt fees of 25%*(19.7%-6%) = 3.4% per year.

 

Compounded over 48 years (1.034)^48 gives you about 5.

 

So Shares would be worth about 1/5.

 

(Of course assuming that Biglari's 10M cap would keep moving upwards and never actually capping performance fees.)

;)

 

 

QUESTION: Where do you think Biglari came up with this idea of taking 25% of the performance above a 6% hurdle rate?

HINT 1: It is the same source from which Mohnish Pabrai modeled his fund's fees, which are....25% of performance above a 6% hurdle.

HINT 2: Asking, like in the comment above, what that Berkshire Hathaway guy's track record would be like if he charged those type of fees to his investors, means that you'll probably get his wrong

ANSWER: The Oracle himself....(but he didn't cap his fee at 10 million)

 

Buffett didn't charge 25% above a 6% hurdle at Berkshire...he took a very modest $100K salary...that's it!  Mohnish is also doing the same at Dhando...a modest salary and incentive fee.  There is an enormous difference using such a fee structure at a hedge fund where you can have redemptions and a public company where you are dealing with captive capital...the biggest risk to the manager no longer exists at the public company...that your partners will redeem all of their capital. 

 

Biglari found a nice little way around that by becoming the hedge fund manager to Biglari Holdings...in essence he charges his fee structure on captive capital, as Biglari Holdings will never pull that money.  He couldn't get shareholder approval the other way, so he found a nice simple way around the shareholders.  Cheers! 

[AtlCDore]

Excuse me for jumping in on the conversation.  I don't really know a whole lot about BH as I have not really spent much time on the company.  I do know that Biglari, the person, seems to generate a lot of feelings in people both positively and negatively. 

 

Is it possible that Biglari is like a Ronald Perelman type of character and thus people stay away from the stock because of the feelings he generates?  Perelman seemed to be quite the unsavory type of character and therefore his company (MacAndrews and Forbes comes to mind) always seemed to trade at a discount to NAV.  There was a perception that investors were always going to get screwed by Perelman.  Ultimately, the discount did close and investors did make money. 

 

So is it possible that Biglari may actually be a good investor/operator but because of how he is perceived that his company trades at a discount but it ultimately turns out to be a good long-term investment?

[gg]

Excuse me for jumping in on the conversation.  I don't really know a whole lot about BH as I have not really spent much time on the company.  I do know that Biglari, the person, seems to generate a lot of feelings in people both positively and negatively. 

 

Is it possible that Biglari is like a Ronald Perelman type of character and thus people stay away from the stock because of the feelings he generates?  Perelman seemed to be quite the unsavory type of character and therefore his company (MacAndrews and Forbes comes to mind) always seemed to trade at a discount to NAV.  There was a perception that investors were always going to get screwed by Perelman.  Ultimately, the discount did close and investors did make money. 

 

So is it possible that Biglari may actually be a good investor/operator but because of how he is perceived that his company trades at a discount but it ultimately turns out to be a good long-term investment?

 

This is pretty much EXACTLY how I see it

[giofranchi]

So is it possible that Biglari may actually be a good investor/operator but because of how he is perceived that his company trades at a discount but it ultimately turns out to be a good long-term investment?

 

If Mr. Biglari’s business judgment and choices in the future are of the same very high quality as the ones he has made in the past until now, the answer is yes! Of course!

 

Those who don’t like Mr. Biglari think sooner or later he will make poor business choices. Because, of course, that is the only true reason why you would not want to invest in BH today.

 

Gio

 

[rkbabang]

So is it possible that Biglari may actually be a good investor/operator but because of how he is perceived that his company trades at a discount but it ultimately turns out to be a good long-term investment?

 

If Mr. Biglari’s business judgment and choices in the future are of the same very high quality as the ones he has made in the past until now, the answer is yes! Of course!

 

Those who don’t like Mr. Biglari think sooner or later he will make poor business choices. Because, of course, that is the only true reason why you would not want to invest in BH today.

 

 

The other reason is the reason I choose not to invest in BH today.  I think sooner or later Biglari will choose to screw over his shareholders somehow to greatly enrich himself at their expense. Leaving him very rich and his shareholders ... not so much.  I don't trust him.  I could be wrong and this could be exactly what AltCDore is talking about, but I am not willing to take that risk.

 

 

[Partner24]

Three characteristics of a great manager:

 

- Honest and shareholders oriented (and I mean all shareholders as a whole...)

- Energic

- Competent

 

If there is one that I feel that's missing (IMO), I keep my popcorn in my hands!  ;)

 

 

[giofranchi]

I don't think it works that way.

In business, when something is doing great, the last thing you want is "to rock the boat"... Instead, you just want to keep the status quo and to keep operations undisturbed as long as possible.

In other words to screw his shareholders would be "a very poor business choice".

And usually it is only the last one of a long list of poor business choices!

 

Gio

[Dustin T]

Guys these guys have consistently said they dont really care what Biglari takes, as long as they make money.

 

What's the issue with this, if they want to place their chips here, then whats the problem. They have a better understanding of the situation then all of us and are 100% comfortable with it. I wish them luck, and will watch with popcorn....

 

LOL watching with popcorn, that's my position as well. I think Biglari is an interesting capital allocator and think he might produce above average returns, but I'd like to see what Berkshire Hathaway "A" shares would be priced at right now if they had since inception been saddled with a Sardar Biglari style "rake"

 

Rough estimate: if you take Berkshire's 19.7% cagr over last 48 years and take 25% above hurdle of 6%, you would take mgmt fees of 25%*(19.7%-6%) = 3.4% per year.

 

Compounded over 48 years (1.034)^48 gives you about 5.

 

So Shares would be worth about 1/5.

 

(Of course assuming that Biglari's 10M cap would keep moving upwards and never actually capping performance fees.)

;)

 

 

QUESTION: Where do you think Biglari came up with this idea of taking 25% of the performance above a 6% hurdle rate?

HINT 1: It is the same source from which Mohnish Pabrai modeled his fund's fees, which are....25% of performance above a 6% hurdle.

HINT 2: Asking, like in the comment above, what that Berkshire Hathaway guy's track record would be like if he charged those type of fees to his investors, means that you'll probably get his wrong

ANSWER: The Oracle himself....(but he didn't cap his fee at 10 million)

 

I'm well aware that Warren had a different structure in his original partnership. I didn't mention his partnership only the 40 years WB has been the CEO of a publicly traded company. I'm sure you have an appreciation for the difference. I was mainly pointing out that there is a much higher frictional cost to his pay structure, and it does have consequences for you the investor. We do not know how the incentive structure will change over time but I expect the 10 million cap will increase as well.

 

His pay structure is the biggest reason I'm not invested in BH. I totally understand why some of you are, and I hope you all do quite well. I don't think BH will skyrocket and become outrageously priced. I think it will hover between 1 and 2x book. I haven't written BH off totally, I just haven't seen enough to justify his high pay and the nagging feeling he views the shareholders as leverage and not as a partner.

 

I appreciate Gio's comments on BH most of all. I'm glad there is a bright and capable well reasoned voice pointing out that this might be a heck of an investment. I occasionally come close to diving in myself, but I'm enjoying sitting on the sidelines and eating popcorn for now.

[giofranchi]

His pay structure is the biggest reason I'm not invested in BH. I totally understand why some of you are, and I hope you all do quite well. I don't think BH will skyrocket and become outrageously priced. I think it will hover between 1 and 2x book. I haven't written BH off totally, I just haven't seen enough to justify his high pay and the nagging feeling he views the shareholders as leverage and not as a partner.

 

I appreciate Gio's comments on BH most of all. I'm glad there is a bright and capable well reasoned voice pointing out that this might be a heck of an investment. I occasionally come close to diving in myself, but I'm enjoying sitting on the sidelines and eating popcorn for now.

 

Well, thank you very much Dustin!

I think we also should never forget that Mr. Biglari is required to invest at least 30% of the incentive he receives in BH stocks, and to hold those stocks for at least 3 years.

If more qualitative reasons still leave you skeptical, this at least is something objective that should go a long way in aligning his interests with shareholders’.

 

Another qualitative thing I like is that I find Mr. Biglari to be extremely well read, at least when it comes to investing. As a general rule, I would postulate the following theorem: the larger someone’s library is, the lower the probabilities that person is going to mistreat his/her shareholders are. ;)

 

Gio