BH - Biglari Holdings

[Jurgis]

Breaking news: BH is acquiring Groveland to be merged into Lion Fund. Swenson will lead S&S franchising in Pakistan. Barkett appointed as Maxim's editor in chief. AIRT and ISIG will be rebranded as Air by Biglari and Biglari Insignia.

 

This a coup for Sardar and his loyal supporters.

 

 

 

 

;D

[gfp]

Well, there is a silver lining to this Groveland stuff for me.

 

I was trying to remember where I got a recent idea from and realized that I happened to notice a company name in the background of Biglari's shareholder presentation where he is making fun of Seth Barkett.  There was a screen shot that mentioned Tix Corporation in the background and I happened to look into the company.

 

[ page 80 of the original presentation - http://www.sec.gov/Archives/edgar/data/93859/000092189515000629/defa14a07428036_03162015.pdf      ]

 

It was/is a tiny company that collects commissions for selling discount tickets to Vegas shows and dinner coupons - Tix4Tonight kiosks and box offices in Las Vegas.  The company was trading at $1.30 per share with 18.3 million shares out and had been buying back stock and paying off their debt (debt was from buying out Baker Street Capital's shares).  CEO owned a lot, NOL's, simple business, etc...

 

So I did some work on it and it looked like most value investors had given up on the name after a few fights and seeking alpha articles, etc.  I accumulated as much as I could in a short period of time without moving the shares past 1.36(not much) - yesterday at the close I added a final 1k and it was the only volume of the day.  This morning they announce a .20 / share annual dividend and unsurprising financial results.  The stock pops 57% on the dividend.

 

So I guess, "Thanks Seth" ?

[Jurgis]

OT

 

It was/is a tiny company that collects commissions for selling discount tickets to Vegas shows and dinner coupons - Tix4Tonight kiosks and box offices in Las Vegas.  The company was trading at $1.30 per share with 18.3 million shares out and had been buying back stock and paying off their debt (debt was from buying out Baker Street Capital's shares).  CEO owned a lot, NOL's, simple business, etc...

 

Great call global!

 

I guess it's worth looking at Baker Street Capital's discards. I owned another one they owned and forced the company to buy back their stock. The stock went up ballistic afterwards. Unfortunately I also sold at similar time when they did.

[LC]

This 1875 in value would be owned by one shareholder (holding two shares) and this whole interaction would have left that shareholder significantly better off.  That shareholder would have spent a total of 750 for 1875 in intrinsic value.

Of course all this "value" is being created by fleecing shareholder B to aid shareholder A.

 

In your example shareholder B spent $750 and is being bought out at $625. Sounds like he got a great deal.

 

Apparently in the land of Mr. Big, value is only created for some shareholders. I guess you have to ask yourself which shareholder are you?

[mcmaaaaath]

LG--- nope. Think of the rights offerings like a stock split. If a stock splits, that doesn't create value nor destroy value for shareholders. This is obvious. This is analogous to rights offerings, which do not create value for any shareholder in and of themselves.

 

However, when trying to calculate the return to holding a stock, you had damn well better adjust for splits. You must also adjust for rights offerings.

Everyone that owned BH stock over the relevant time period had a higher return then would be implied by the share price alone.

 

The only exception would be people who neither participated in the rights offering nor sold their rights offerings. They have received the return of the stock price alone. But I'm sure that was (if anyone) only a tiny fraction of the investors in BH, unless I'm mistaken about the mechanics of selling the rights offerings and its actually very difficult for some reason.

[LC]

Who is making Shareholder B sell?  Is there a gun to their head?

 

I have no idea, all I know is Biglari gave them the option.

 

Many very early Berkshire shareholders (meaning 1960s era) sold at $20 per share or so.  Those were also shareholders who did not get a great deal. 

Are you referring to when Buffett ran down his partnership? IIRC he wrote many letters advising them, even against his better judgement. He also gave them various options about how to structure the distribution. He practically bent over backwards for them.

[Cevian]

I have been a Biglari Holdings shareholder for a while and also participated in the rights offering.

 

This thread has been very useful and I just wanted to share my thoughts in case anyone can help me with my dilemma.

 

I don't dislike or like Sardar, nor am I one of those who is questioning his investment record or whether or not he will be rich and make shareholders rich with him.

 

I'll try to give an analogy of the position I feel like I'm in right now towards Biglari. Please bear with me since the analogy may or may not work.

 

I feel like I'm dating a smart, beautiful girl but one who may be prone to cheating on me. I don't want to leave her yet since she is currently fulfilling my needs  ;) but I know deep inside that this relationship isn't going to last since she doesn't appear to be marriage material and I don't trust her. I'm therefore always on my guard.

 

Let me try to put this in Biglari context:

 

1. Do I doubt Sardar's investment acumen and record? No

2. Do I think he will be very rich? Yes

3. Do I think the shares are cheap at the moment? Yes

4. Do I think they have good corporate governance at the board level? Not at all

5. Do I believe the board is truly independent and can make decisions for the benefit of all shareholders? No

6. Can the board approve strange new structures, compensations, giving Sardar even more control and wealth? Yes, and there is a high likelihood over the next few years.

7. Do they make major such decisions without shareholder approval? Yes

 

The cognitive dissonance is bothering me. For now, one part of my brain (the Gio part  :) ) is telling me to keep my shares and accumulate more at these prices; the other part is telling me to cut loose and get the hell out and sleep easy at night reminding me of Buffett's Intelligence, Energy and Integrity story. These decisions are easy in theory but not in practice when there is real money involved and the shares look cheap.

 

Thoughts? I'm more interested in discussion surrounding points 4 7 above than points 1 to 3 since it looks like those points have had plenty of coverage already.

[peridotcapital]

I have been a Biglari Holdings shareholder for a while and also participated in the rights offering.

 

This thread has been very useful and I just wanted to share my thoughts in case anyone can help me with my dilemma.

 

I don't dislike or like Sardar, nor am I one of those who is questioning his investment record or whether or not he will be rich and make shareholders rich with him.

 

I'll try to give an analogy of the position I feel like I'm in right now towards Biglari. Please bear with me since the analogy may or may not work.

 

I feel like I'm dating a smart, beautiful girl but one who may be prone to cheating on me. I don't want to leave her yet since she is currently fulfilling my needs  ;) but I know deep inside that this relationship isn't going to last since she doesn't appear to be marriage material and I don't trust her. I'm therefore always on my guard.

 

Let me try to put this in Biglari context:

 

1. Do I doubt Sardar's investment acumen and record? No

2. Do I think he will be very rich? Yes

3. Do I think the shares are cheap at the moment? Yes

4. Do I think they have good corporate governance at the board level? Not at all

5. Do I believe the board is truly independent and can make decisions for the benefit of all shareholders? No

6. Can the board approve strange new structures, compensations, giving Sardar even more control and wealth? Yes, and there is a high likelihood over the next few years.

7. Do they make major such decisions without shareholder approval? Yes

 

The cognitive dissonance is bothering me. For now, one part of my brain (the Gio part  :) ) is telling me to keep my shares and accumulate more at these prices; the other part is telling me to cut loose and get the hell out and sleep easy at night reminding me of Buffett's Intelligence, Energy and Integrity story. These decisions are easy in theory but not in practice when there is real money involved and the shares look cheap.

 

Thoughts? I'm more interested in discussion surrounding points 4 7 above than points 1 to 3 since it looks like those points have had plenty of coverage already.

 

Assuming all of your yes/no answers above are correct (I believe they are, personally), for me the question is the following; Given that 1-3 are likely to be true, how likely is it that 4 through 7 will negate that and result in shareholders other than Sardar not doing well?

 

To me, the odds of that are low. Put another way, can Sardar get rich without the rest of us doing well? In my view, this is unlikely if you believe 1) in his abilities, 2) that he will get rich, and 3) that the market for BH stock will be reasonably rational over the long term.

 

Now, it is possible that Sardar does better than we do given the governance issues? Sure. But will the rest of us do poorly, or just not quite as well? Even though the market is not giving the company full credit for its net assets right now, if Sardar continues to buy things in the 40's and have them nearly quadruple in a few years, I think most on this board would agree that the Sardar discount will narrow over time from where it is today.

 

Conversely, if one does not believe in Sardar's abilities and/or does not think the current market discount will ever narrow, then avoiding the stock is likely a good decision.

 

I am in the former camp. I think cash flow, book value, etc will continue to grow at a healthy clip, and the share price will follow suit. Exactly to what degree will in part be determined by governance, etc, but relative to other investments in the market right now, it's hard to not be attracted to the current share price, even factoring in the baggage.

[cobafdek]

This thread has been very useful and I just wanted to share my thoughts in case anyone can help me with my dilemma.

 

I wonder whether this is a dilemma especially and primarily for the portfolio concentrators, those who take Buffett's 20-hole-punchcard analogy seriously.  I solved this dilemma to my satisfaction by becoming a wide diversifier.

 

I've invested in Biglari since Western Sizzlin' days, around the time I read Parsad's excellent interview on the old MSN Berkshire Hathaway Messenger Board.  For many, it was like the Second Coming of Buffett.  I also participated in rights offerings, and my BH position eventually came to about 10% of my allocation.

 

Over the past 7 or so years, I became bored with deep-diving into the weeds of 5-10 companies that comprised 80% of my portfolio, along with realizing my limitations of time and skill in doing such analyses.  Then came the Biglari incentive compensation plan, etc., and I was in the process of selling all of my BH shares over the past few years.  I was heavily influenced by the negative sentiment on this board.  Then came NBL0303's superb and refreshing quantitative analysis.  Now I have no problem keeping BH at a 1-2% position, along with 60-100 other stocks in my portfolio.

 

Re-reading old Graham also furthered the evolution of my portfolio from the Buffett punchcard concentration to old-style quantitative Graham diversification.  For tiny OPMIs like me, nothing has changed in the quality of corporate governance and ethical CEOs even since Graham's extensive revision of his Security Analysis, where he expanded his discussion of this topic in the 3rd edition.  It is neither safe nor wise for me to make such a large allocation to BH (or any other company) when I cannot build a meaningfully large enough position to influence proxy votes.

 

I think a major hurdle for anti-Biglari folks is the magnitude of his fall from Buffett-like stratospheric heights, so that any borderline ethical move he makes is negatively perceived.  But I don't think he has fallen below Graham's threshold, the unscrupulous line.  I think NBL0303 is correct about the average corporation governance and CEO as being of questionable ethics (exorbitant salaries, benefits, options, re-pricing of incentive stock options, etc.)  I don't think Biglari's negatives as different in kind from the average, just different in degree (more flamboyantly brazen and more distasteful).

 

So, while holding my nose, I am comfortable holding a 1-2% position in BH, which I believe is deeply value priced on a quantitative basis.  Just as I hold my nose for all 60-99 other stocks in my portfolio.  And, just to "send them a message," I mark all my proxy cards, for all companies, the opposite of what management recommends.

[giofranchi]

I'll try to give an analogy of the position I feel like I'm in right now towards Biglari. Please bear with me since the analogy may or may not work.

 

I feel like I'm dating a smart, beautiful girl but one who may be prone to cheating on me. I don't want to leave her yet since she is currently fulfilling my needs  ;) but I know deep inside that this relationship isn't going to last since she doesn't appear to be marriage material and I don't trust her. I'm therefore always on my guard.

 

I like your analogy! ;)

 

My perspective is the following: a cheating girl must have consequences, right? The relationship with her at some point must become unbearable, right? Because otherwise, if the relationship keeps being stable and fulfilling… WHO REALLY CARES?!

 

The same is true with Biglari imo: as long as business results justify what I give away as a shareholder, that’s fine with me. But, should business results deteriorate, I am gone!

 

Of course, the great thing about a low stock price is that probably, even with deteriorating business results, it won’t go much lower than this!

 

Cheers,

 

Gio

 

[giofranchi]

Has Franchising Really Caused The Drop In Biglari Holdings Earnings As Groveland Contends?

 

 

Gio

biglari-is-groveland-correct-about-franchising.pdf

[RichardGibbons]

It baffles me that you think the above is a thought experiment.  A thought experiment usually leads somewhere - "If A is true, then B is true, and if C is true which would make D and E true as well."  That sort of thing.  You literally just said, if it is good, then shouldn't he do it over and over again?  Then you just said, "so it would be good if he did it over and over again", ironically, wait for it....over and over again.

 

OK, whatever you want to call it.  You posit a theory. I think about what the world would be like if that theory was taken to its natural conclusion. The world looks silly.  Maybe I should have said reductio ad absurdum.

 

As an example of an actual thought experiment, imagine this: "There are two shareholders in a company and each shareholder has one share and we think the intrinsic value of the company is 2000 and the market cap of the company is currently 1000.  That makes each share of the company worth 1000 and those shares are currently trading at 500.  The company then executes a Rights Offering and each shareholder buys a discounted Rights share at 250.  The company is then worth 2500 (the original 2000 plus the 500 from the Rights Offering), and now the company would have four shares and if the same 50% value discount was applied those four shares would be have a market cap of 1250 or a per share trading price of 312.50.  If one shareholder then decided to get the company to use the 500 proceeds from the Rights Offering and a little cash the company previously had to buy the other shareholder out, and the other shareholder agreed to sell (which of course is what the shareholders who are selling their shares the BH is currently buying are doing) - the selling shareholder would get the 312.50 * 2 so 625 for their shares.  The company would now be worth 2500 - 625 (cost of the buyback) = 1875.  This 1875 in value would be owned by one shareholder (holding two shares) and this whole interaction would have left that shareholder significantly better off.  That shareholder would have spent a total of 750 for 1875 in intrinsic value.  (The 750 is derived from 500 which represents their original purchase price - which I'm assuming they purchased right before the Rights Offering in this example - for the sake of simplicity - so the 500 original purchase price plus the 250 contributed for the Rights Offering - is a 750 total investment).  Thus their original investing calculation was getting 1000 for 500 - after the Rights Offering and share buyback - they actually got 1875 for 750.  Again, the remaining shareholder is much better off - and the trick is that the share price was (A) undervalued to begin with, so once the additional cash came into the picture it was also being discounted and (B) the share price did not go up after the Rights Offering."

 

So he now has value equal to 1875/750 = 2.5 times his investment.  What if Biglari skipped the rights offering, and just bought back the share from that dude.  Hmm, $2000 dollars in value, spend 500 buying back the share, that leaves $1500 in value for the remaining share.

 

So, his share is worth 3 times his investment.  3 > 2.5.  (Note: I don't think this is a thought experiment anymore. We're now getting closer to a proof.)

 

Since you're now really confused why this works, it's because all the accretion in value is coming from the buyback, not the issuance.

 

A careful reader of this thread and Biglari Holdings securities filings would have noted that there actually is no management fee ever.  There is only an incentive reallocation and an incentive agreement based on the growth in tangible book value - but in the Biglari universe there is never a fee based on assets under management.

 

So are you deliberately trying to deceive people here, or do you just not get the math?  Or am I wrong about the incentive agreement?  (I am absolutely not a careful reader of this thread or Biglari security filings.  I haven't read a single Biglari filing since 2010.)  I thought it was something like 25% of the growth in book value over a 5% hurdle.

 

So if total book value is $1, and it grows to $1.50.  (i.e. 50% growth), Biglari makes, like $0.11, enough to buy a sour candy the corner store.

 

If total book value is, say, $1,000,000,000, and it grows to $1,500,000,000 (i.e. 50% growth), Biglari makes $112,500,000, enough to buy all the sour candies at his corner store, plus about 5 Lear jets to carry them around.

 

Of course, he wants you to give him more money to make book as big as possible.

 

A close reader of this thread and of Biglari Holdings' securities filings would have also observed that the Rights Issuance had a tiny tiny cost - as Biglari himself brags about in the annual report letter.  While, yes, indeed, that is a cost - it is 0.2% or something - so not worth bringing up.

 

I guess.  He's wasting your money to do something that's good for him and bad for other shareholders.  If you don't care about because it's only a small amount he's taking and you don't see the other hidden costs, that's fine.  Just don't expect other people to believe that their CEO actively acting against the best interests of shareholders is even a neutral thing, let along a good thing.

 

Though you are, in your own words, auditioning for the role of Most Vocal Biglari Critic, there are much more thoughtful criticisms that could be made - Simon Cowell would not be kind to this audition.

 

Interesting. What are the much more thoughtful criticisms of the rights offering?  I'm curious what I've missed.  (Or do you just mean general criticisms of Biglari, like, "He's a cat person, not a dog person." That's not as interesting.)

 

[giofranchi]

Of course, he wants you to give him more money to make book as big as possible.

 

Richard,

I have already told you, but I will repeat it again: if that’s the reason the rights offerings were done the last two years, then business results will be deteriorating in the future.

And that will change my mind on the BH investment. Not what you, nor anyone else, say…

You say you have not read a single BH filing since 2010… Yet, you write so confidently about BH… Let me ask you a question: have you some thoughts on BH business results in those 4 years from 2011 to 2014? If the answer is yes, do you judge them to be poor, average, good, or EXTREMELY GOOD? (Don’t mean to influence your choice! ;D)

 

Gio

 

[frugalchief]

I have been a Biglari Holdings shareholder for a while and also participated in the rights offering.

 

This thread has been very useful and I just wanted to share my thoughts in case anyone can help me with my dilemma.

 

I don't dislike or like Sardar, nor am I one of those who is questioning his investment record or whether or not he will be rich and make shareholders rich with him.

 

I'll try to give an analogy of the position I feel like I'm in right now towards Biglari. Please bear with me since the analogy may or may not work.

 

I feel like I'm dating a smart, beautiful girl but one who may be prone to cheating on me. I don't want to leave her yet since she is currently fulfilling my needs  ;) but I know deep inside that this relationship isn't going to last since she doesn't appear to be marriage material and I don't trust her. I'm therefore always on my guard.

 

Let me try to put this in Biglari context:

 

1. Do I doubt Sardar's investment acumen and record? No

2. Do I think he will be very rich? Yes

3. Do I think the shares are cheap at the moment? Yes

4. Do I think they have good corporate governance at the board level? Not at all

5. Do I believe the board is truly independent and can make decisions for the benefit of all shareholders? No

6. Can the board approve strange new structures, compensations, giving Sardar even more control and wealth? Yes, and there is a high likelihood over the next few years.

7. Do they make major such decisions without shareholder approval? Yes

 

The cognitive dissonance is bothering me. For now, one part of my brain (the Gio part  :) ) is telling me to keep my shares and accumulate more at these prices; the other part is telling me to cut loose and get the hell out and sleep easy at night reminding me of Buffett's Intelligence, Energy and Integrity story. These decisions are easy in theory but not in practice when there is real money involved and the shares look cheap.

 

Thoughts? I'm more interested in discussion surrounding points 4 7 above than points 1 to 3 since it looks like those points have had plenty of coverage already.

 

I said the same as NBL before seeing his response.  If there are any doubts, sell.  Have extreme conviction about your ideas and if there is any doubt about Board/CEO not doing what you think is best, get out. 

[tripleoptician]

It baffles me that you think the above is a thought experiment.  A thought experiment usually leads somewhere - "If A is true, then B is true, and if C is true which would make D and E true as well."  That sort of thing.  You literally just said, if it is good, then shouldn't he do it over and over again?  Then you just said, "so it would be good if he did it over and over again", ironically, wait for it....over and over again.

 

OK, whatever you want to call it.  You posit a theory. I think about what the world would be like if that theory was taken to its natural conclusion. The world looks silly.  Maybe I should have said reductio ad absurdum.

 

As an example of an actual thought experiment, imagine this: "There are two shareholders in a company and each shareholder has one share and we think the intrinsic value of the company is 2000 and the market cap of the company is currently 1000.  That makes each share of the company worth 1000 and those shares are currently trading at 500.  The company then executes a Rights Offering and each shareholder buys a discounted Rights share at 250.  The company is then worth 2500 (the original 2000 plus the 500 from the Rights Offering), and now the company would have four shares and if the same 50% value discount was applied those four shares would be have a market cap of 1250 or a per share trading price of 312.50.  If one shareholder then decided to get the company to use the 500 proceeds from the Rights Offering and a little cash the company previously had to buy the other shareholder out, and the other shareholder agreed to sell (which of course is what the shareholders who are selling their shares the BH is currently buying are doing) - the selling shareholder would get the 312.50 * 2 so 625 for their shares.  The company would now be worth 2500 - 625 (cost of the buyback) = 1875.  This 1875 in value would be owned by one shareholder (holding two shares) and this whole interaction would have left that shareholder significantly better off.  That shareholder would have spent a total of 750 for 1875 in intrinsic value.  (The 750 is derived from 500 which represents their original purchase price - which I'm assuming they purchased right before the Rights Offering in this example - for the sake of simplicity - so the 500 original purchase price plus the 250 contributed for the Rights Offering - is a 750 total investment).  Thus their original investing calculation was getting 1000 for 500 - after the Rights Offering and share buyback - they actually got 1875 for 750.  Again, the remaining shareholder is much better off - and the trick is that the share price was (A) undervalued to begin with, so once the additional cash came into the picture it was also being discounted and (B) the share price did not go up after the Rights Offering."

 

So he now has value equal to 1875/750 = 2.5 times his investment.  What if Biglari skipped the rights offering, and just bought back the share from that dude.  Hmm, $2000 dollars in value, spend 500 buying back the share, that leaves $1500 in value for the remaining share.

 

So, his share is worth 3 times his investment.  3 > 2.5.  (Note: I don't think this is a thought experiment anymore. We're now getting closer to a proof.)

 

Since you're now really confused why this works, it's because all the accretion in value is coming from the buyback, not the issuance.

 

 

A careful reader of this thread and Biglari Holdings securities filings would have noted that there actually is no management fee ever.  There is only an incentive reallocation and an incentive agreement based on the growth in tangible book value - but in the Biglari universe there is never a fee based on assets under management.

 

So are you deliberately trying to deceive people here, or do you just not get the math?  Or am I wrong about the incentive agreement?  (I am absolutely not a careful reader of this thread or Biglari security filings.  I haven't read a single Biglari filing since 2010.)  I thought it was something like 25% of the growth in book value over a 5% hurdle.

 

So if total book value is $1, and it grows to $1.50.  (i.e. 50% growth), Biglari makes, like $0.11, enough to buy a sour candy the corner store.

 

If total book value is, say, $1,000,000,000, and it grows to $1,500,000,000 (i.e. 50% growth), Biglari makes $112,500,000, enough to buy all the sour candies at his corner store, plus about 5 Lear jets to carry them around.

 

Of course, he wants you to give him more money to make book as big as possible.

 

 

 

A close reader of this thread and of Biglari Holdings' securities filings would have also observed that the Rights Issuance had a tiny tiny cost - as Biglari himself brags about in the annual report letter.  While, yes, indeed, that is a cost - it is 0.2% or something - so not worth bringing up.

 

I guess.  He's wasting your money to do something that's good for him and bad for other shareholders.  If you don't care about because it's only a small amount he's taking and you don't see the other hidden costs, that's fine.  Just don't expect other people to believe that their CEO actively acting against the best interests of shareholders is even a neutral thing, let along a good thing.

 

 

 

 

Though you are, in your own words, auditioning for the role of Most Vocal Biglari Critic, there are much more thoughtful criticisms that could be made - Simon Cowell would not be kind to this audition.

 

Interesting. What are the much more thoughtful criticisms of the rights offering?  I'm curious what I've missed.  (Or do you just mean general criticisms of Biglari, like, "He's a cat person, not a dog person." That's not as interesting.)

 

As NBL0303 noted, his incentive agreements will only pay out if on a per share basis (total BVPS) grows above the hurdle rate. He could try to get $10 billion dollars by issuing 40 million shares at $250/share, but the offering below book actually lowers current BVPS. The only way your analogy works is if he does a rights offering above book value which is accretive to current shareholders on a per share basis. He of course would also now need to be able to utilize this huge sum of money to grow BVPS over his hurdle. It more likely actually impedes him unless he has an accretive utility for such a large sum of cash above his hurdle rate.

 

The rights offering is only good for Biglari if he utilizes the cash in an accretive way on a per share basis on behalf of all shareholders. Your analogy before of just doing a share repurchase would have been better than a rights offering made no sense - one is a way to return cash and one is a way to raise cash for future investment purposes.

Now if he were to use the rights offering to now do share repurchases, that would be accretive for his incentive payments, but it would also benefit current shareholders.

 

Bottom line, if extra cash is beneficial for current investment opportunities, then a rights offering is a cheap way of getting that cash. If Biglari has no good use or chooses a losing investment with this cash, it hurts his incentive payments as it acts as a drag on growth in BVPS. If he adds value in excess of the hurdle, he is rewarded along with current shareholders (albeit a larger percentage for him than the shareholders)

 

[giofranchi]

For those who have not done it yet, I would strongly suggest to read [amazonsearch]The E-Myth Revisited[/amazonsearch] by Michael E. Gerber.

If I know a company which perfectly fits Gerber’s description of an outstanding business, that company is BH.

It is true Biglari has increased his compensation during the last few years, but I repeat what I have already said: as long as we (shareholders of BH) receive superior business results compared to what we give away, that’s fine with me. If things change in the future, I will change my mind.

 

Cheers,

 

Gio

 

[frugalchief]

NBL, I think someone asked you a few posts ago why you thought Air T and Insignia were good investments, but I don't recall seeing you address this. What are people missing when they view this as an indication of Biglari being thin skinned and misallocating capital?

 

bump

 

bump.  And not just to NBL, but has anyone studied these two companies to provide insight?

[Txvestor]

For those who have not done it yet, I would strongly suggest to read [amazonsearch]The E-Myth Revisited[/amazonsearch] by Michael E. Gerber.

If I know a company which perfectly fits Gerber’s description of an outstanding business, that company is BH.

It is true Biglari has increased his compensation during the last few years, but I repeat what I have already said: as long as we (shareholders of BH) receive superior business results compared to what we give away, that’s fine with me. If things change in the future, I will change my mind.

 

Cheers,

 

Gio

 

 

You keep repeating this mantra. Well the truth of the matter is that BH has underperformed the S&P over a 5 yr time frame. Thats the minimum Mr Bigs himself has espoused in the past.

The fact that BH has underperformed the S&P HAS NOT kept a lid on incentive compensation to Mr Bigs, mainly through the shifting of assets from his public vehicle to his hedge fund. The Business results have not kept pace and we are given the reason as business reinvestment.

Shouldn't Mr Bigs be seeing the returns WHEN the shareholders also see them?

It is not entirely clear to me that the incentives are alligned.

It is however entirely clear to me that Mr Bigs has some folks drinking the kool aid.

 

 

[giofranchi]

You keep repeating this mantra. Well the truth of the matter is that BH has underperformed the S&P over a 5 yr time frame.

 

And you keep confusing stock market returns with business results! ;)

 

If, instead, you think business results have not been very good over the last few years, we simply see business differently. Nothing else to add.

 

Cheers,

 

Gio

 

[giofranchi]

It is however entirely clear to me that Mr Bigs has some folks drinking the kool aid.

 

That of course might be true… We don’t run the companies we invest in… We cannot know every minutia of those businesses… We are all subject to misleading management…

 

At least for a while!

 

But I am confident that, given enough time, I recognize irrational choices and poor business results when I meet them…

 

So far I couldn’t be more satisfied with BH’s results. ;)

 

Cheers,

 

Gio

 

[intothebreach]

Some of the members of this board may be able to help me understand something with regard to Biglari's investment performance in the early years of the Lion Fund. The 2003 AR of the LF presents annual performance as follows (consistent with 2001 and 2002 AR for the applicable years):

Year 2001 : 14.0%

Year 2002 : (7.8%)

Year 2003 : 22.0%

 

Then in 2006 and 2007, the results for these same years appear as:

Year 2001 : 30.4%

Year 2002 : (10.1%)

Year 2003 : 28.0%

 

Now I would expect this change to have been explained in either the 2004 or 2005 AR, to which I unfortunately do not have access. The only information I could find is the following language at the bottom of the results page :

 

Starting in 2001, performance was calculated for the partnership as a whole and has been measured by dividing the total increase or decrease in net assets, after expenses, into the weighted average partners’ capital measured at the end of each month. The calculation of returns for the current year as required by GAAP was modified. Nonetheless, we have continued to present our returns consistent with the methodology used in the past. [emphasis added]

 

I suspect the change to have been a required correction due to GAAP or similar, but the last phrase of the above paragraph throws me off.

 

Thanks in advance!

[matts]

NBL, I think someone asked you a few posts ago why you thought Air T and Insignia were good investments, but I don't recall seeing you address this. What are people missing when they view this as an indication of Biglari being thin skinned and misallocating capital?

 

bump

 

I would also like to hear NBL's response to this.

[gfp]

Updated filing shows that the Lion Fund was purchasing shares again a few days ago (Tuesday and Wednesday) when the price dipped below 415.  (purchases disclosed at the end of the filing)

 

http://www.sec.gov/Archives/edgar/data/93859/000092189515000833/sc13da2507428007_03312015.htm

[RichardGibbons]

You say you have not read a single BH filing since 2010… Yet, you write so confidently about BH… Let me ask you a question: have you some thoughts on BH business results in those 4 years from 2011 to 2014? If the answer is yes, do you judge them to be poor, average, good, or EXTREMELY GOOD? (Don’t mean to influence your choice! ;D)

 

Sorry Gio, I haven't been following it closely enough to have a good answer for that.  It's not really worth my time.  Why?  I think he doesn't meet my (not particularly high) integrity hurdle, and I believe in Buffett's "integrity, intelligence, and energy" quote.  Plus, it seems to me that the Fairfax (Fair and Friendly) approach to doing business is likely more effective than Biglari's approach over time.

 

If I sound more confident than I "should" based on my knowledge of the business, it's because the things that matter have been so overwhelmingly egregious to me.

 

All that said, you and I use totally different criteria for investing.  Plus, I might be influenced by regret minimization -- it would be really embarrassing to underperform in this stock after seeing all the red flags waving so brightly.

 

Tripleoptician, you're contorting yourself, mathematics, and probabilities to try to justify an anti-shareholder action by Biglari.  That said, I think you and most readers know that.

[OracleofCarolina]

conference call with Groveland audio file

https://www.proxymosaic.com/mosaic-dialogue/a-conversation-with-groveland-capital/