BH - Biglari Holdings

[Greg]

  I was a Steak 'n Shake stockholder before Biglari proxied for board seats.

  In a February 2008 letter, Biglari wrote, "Not only will I refuse extra remuneration for the time I intend to commit, but I also will not accept any stock options. The reason is simple: We are one of the largest shareholders; thus, we plan to make money with you, not off you."

  I believed this and voted for Biglari.

[awindenberger]

  I was a Steak 'n Shake stockholder before Biglari proxied for board seats.

  In a February 2008 letter, Biglari wrote, "Not only will I refuse extra remuneration for the time I intend to commit, but I also will not accept any stock options. The reason is simple: We are one of the largest shareholders; thus, we plan to make money with you, not off you."

  I believed this and voted for Biglari.

 

Biglari made that statement in terms of becoming a board member, not for becoming CEO. I think we can all agree that there is a slight difference in the level of day-to-day workload between the two positions.

[Greg]

Before Biglari said it  "We want to make money with you, not off you." was often said by Buffett.

[shalab]

berger - looks like in the last five years, Biglari has done extremely well with BH but the common share holders haven't done well. Below is the comparison between BH and FRFHF(without dividends). MKL is doing even better

 

http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1465009291801&chddm=498918&chls=IntervalBasedLine&cmpto=OTCMKTS:FRFHF;NYSE:MKL&cmptdms=0;0&q=NYSE:BH&ntsp=0&ei=T0RSV5meHaS7igK--qjwDQ

 

 

  I was a Steak 'n Shake stockholder before Biglari proxied for board seats.

  In a February 2008 letter, Biglari wrote, "Not only will I refuse extra remuneration for the time I intend to commit, but I also will not accept any stock options. The reason is simple: We are one of the largest shareholders; thus, we plan to make money with you, not off you."

  I believed this and voted for Biglari.

 

Biglari made that statement in terms of becoming a board member, not for becoming CEO. I think we can all agree that there is a slight difference in the level of day-to-day workload between the two positions.

[Parsad]

Poor Charlie,

 

Is there a 6% compounding hurdle? Last time I read through the agreement, I was under the impression there was a high water mark, but the LF did not need to make up for 6% hurdles that were not met previously, the LF only had to pass the highwater mark, do 6%, and start accruing incentive fee again

 

My misunderstanding was I thought there was a compounding hurdle.  Without the compounding hurdle I can see how he’s now in carry.  Thanks.

 

No problem. Many investors I've talked to all assumed that the hurdle was compounding. I believe Buffett's hurdle with his partnerships back in the day were also non-compounding.

 

That's not true.  Buffett's hurdle was compounding.  I'm pretty sure Lion Fund was compounding.  As is Mohnish's funds, our funds and many other funds that I know of.  There are also many others that do not compound.  Cheers!

 

I'm almost certain Buffett had a compounding hurdle.  I also believe he had another arrangement without any hurdle at all but would assume some percentage (25% ?) of the downside in exchange for a larger percentage (50% ?) of the upside.  Anyways, my understanding was that Sardar modeled his comp plan off of BPL, that's why I was under the impression it was compounding. 

 

I have enormous respect for people who use the compounding hurdle in their partnerships.  It's nice that some people still want to make money with, not off of, their LPs.

 

I missed your responses until today. I've done some research and couldn't find anything confirming that Buffet's partnerships hurdles were in fact compounding. Thus, I'd love to get your source on that statement. In practice, it wasn't an issue because Buffett delivered massive gains every year.

 

From Buffett's July 1962 Partnership Letter:

 

The. above calculations of results are before allocation to the General Partner and monthly payments to partners. Of course, whenever the over-all results for the year are not plus 6% on a market value basis (with deficiencies carried forward) there is no allocation to the General Partner.

 

Cheers!

[Txvestor]

we shareholders hold the bag in the one that doesn't.

 

Are you a shareholder?

 

NBL,

You've asked the question before and I've responded. I don't

see the point repeating. Nothing's changed.

Pointing out bad investments decisions made by the manager or approaches

that allow his gaming of the shareholder base are what this board

is for. I'm not sure why you are so eager to always discredit discourse

that does this about this particular security.

BTW your long case is one of the more detailed and

well considered pieces I have read on BH and I appreciate your input.

Although I suspect you too have not got a majority of your net worth

with this character.

He has cemented total and absolute control of the company

without paying a premium(arguably at a discount to intrinsic value)

and with shareholder funds and without recent demonstrable

outperformance vs benchmarks which he has set as his comps.

We are now well in excess of 5yrs of underperformance,

and the people that have called him out on that point are

still feeling his wrath. Good luck with your long position.

 

 

[NBL0303]

The five years of underperformance of the share price is actually why I like the stock.  If it had performed well over those years, I very likely wouldn't be interested in it.

 

Txv. - I did not intend to discredit discourse, it was an earnest question.  I didn't know that you had answered it before and you are so negative on BH, which there of course is no problem with, but then you implied that you were a shareholder ("we shareholders").  I was just surprised by that - given your sentiments of the company, it would seem to be a "Pass" for you.  If one feels as you do, then surely you would rather invest in hundreds of other companies - so I was just earnestly confused by the fact that you said or implied you were a shareholder.

[Poor Charlie]

I missed your responses until today. I've done some research and couldn't find anything confirming that Buffet's partnerships hurdles were in fact compounding. Thus, I'd love to get your source on that statement. In practice, it wasn't an issue because Buffett delivered massive gains every year.

 

From Buffett's July 1962 Partnership Letter:

 

The. above calculations of results are before allocation to the General Partner and monthly payments to partners. Of course, whenever the over-all results for the year are not plus 6% on a market value basis (with deficiencies carried forward) there is no allocation to the General Partner.

 

Cheers!

 

If you want more detail Schroeder talks about the BPL incentive arrangements in the footnotes to Snowball (citing various partnership documents as the source material).

[awindenberger]

Shalab,

 

It really all depends on the time frame you use. If we compare returns over Biglari's entire time as CEO at BH (Since Aug 2008), then it turns out that BH outperforms MKL, FRFHF, and BRK.

See my attached chart.

 

berger - looks like in the last five years, Biglari has done extremely well with BH but the common share holders haven't done well. Below is the comparison between BH and FRFHF(without dividends). MKL is doing even better

 

http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1465009291801&chddm=498918&chls=IntervalBasedLine&cmpto=OTCMKTS:FRFHF;NYSE:MKL&cmptdms=0;0&q=NYSE:BH&ntsp=0&ei=T0RSV5meHaS7igK--qjwDQ

 

 

  I was a Steak 'n Shake stockholder before Biglari proxied for board seats.

  In a February 2008 letter, Biglari wrote, "Not only will I refuse extra remuneration for the time I intend to commit, but I also will not accept any stock options. The reason is simple: We are one of the largest shareholders; thus, we plan to make money with you, not off you."

  I believed this and voted for Biglari.

 

Biglari made that statement in terms of becoming a board member, not for becoming CEO. I think we can all agree that there is a slight difference in the level of day-to-day workload between the two positions.

[awindenberger]

I missed your responses until today. I've done some research and couldn't find anything confirming that Buffet's partnerships hurdles were in fact compounding. Thus, I'd love to get your source on that statement. In practice, it wasn't an issue because Buffett delivered massive gains every year.

 

From Buffett's July 1962 Partnership Letter:

 

The. above calculations of results are before allocation to the General Partner and monthly payments to partners. Of course, whenever the over-all results for the year are not plus 6% on a market value basis (with deficiencies carried forward) there is no allocation to the General Partner.

 

Cheers!

 

If you want more detail Schroeder talks about the BPL incentive arrangements in the footnotes to Snowball (citing various partnership documents as the source material).

 

Thanks for that info from both of you.

[awindenberger]

The five years of underperformance of the share price is actually why I like the stock.  If it had performed well over those years, I very likely wouldn't be interested in it.

 

I agree wholeheartedly with NBL on this point. When I was looking at BH about five years ago, I didn't invest at the time because the price/book was up over 1.8. The stock was overvalued, which has led to the subsequent under-performance. Certain of Biglari's moves of course increased the under-performance, but if you look strictly at value/share, the company is worth much more today than it was 5 years ago.

 

 

[Txvestor]

The five years of underperformance of the share price is actually why I like the stock.  If it had performed well over those years, I very likely wouldn't be interested in it.

 

I agree wholeheartedly with NBL on this point. When I was looking at BH about five years ago, I didn't invest at the time because the price/book was up over 1.8. The stock was overvalued, which has led to the subsequent under-performance. Certain of Biglari's moves of course increased the under-performance, but if you look strictly at value/share, the company is worth much more today than it was 5 years ago.

 

Ah, but we arguably know more about Biglari and his methods/approach than we did back then. Whatever you think about him and I realise this board is divided on the topic, we have many more points on which to base that conclusion. The collective result in terms of valuation has been a swing from a Biglari premium to a Biglari discount. Whether deserved or not time will reveal.

[OracleofCarolina]

http://www.sec.gov/Archives/edgar/data/353184/000092189516004883/sc13da107428037_06092016.htm

 

Lion Fund II asking for company documents from AIR T

[OracleofCarolina]

https://www.sec.gov/Archives/edgar/data/353184/000092189516005065/sc13da207428037_07052016.htm

 

Biglari gets out of AIR T for $24.01.

[Ballinvarosig Investors]

Q2 results out - https://www.sec.gov/Archives/edgar/data/93859/000092189516005319/form10q07428007_08052016.htm

 

It's an absolute shambles. Earnings for this quarter have clearly been pushed upwards by the Cracker Barrel investment. The absolutely hopeless management in that company have somehow managed to generate spectacular profits and push the share price to all new highs. How dare they! It's almost like they are trying to spite the hapless Sardar by running a business in order to generate returns for shareholders. Do those idiots not understand that the path to success lies in buying a company jet to fly around the world to make yourself look like a big shot. Or maybe buying a tawdry magazine and getting "hands on" with the editorial content. Then again, we can hardly be expected to understand the big picture. I suppose when you have all those glamour models and jet setting to worry about, the hum-drum activity of managing a restaurant business seems pedestrian. Speaking of the core business itself, it's probably best to not even mention it. Same store sales actually declined last quarter. But hey, who cares about that? We have newer growth. Sexier growth. MAXIM growth ;D

[awindenberger]

I'm happy for the operating businesses to continue meandering along the next few years while CBRL continues to go up and Biglari continues to buy BH shares under $420. Given the price to value discrepancy, the more shares he can buy at these levels, the better.

[NBL0303]

Biglari continues to buy BH shares under $420. Given the price to value discrepancy, the more shares he can buy at these levels, the better.

 

Except that, of course, Biglari has not repurchased a share in over a month despite the fact that the share price has been less than $420 during that entire time and has been as low as $400 during that time.  Yet, no repurchases.

[gfp]

The low last week was 400.03 - as you know, the current block of shares they are working off on the 10b5-1 plan has a cap of $400.  Perhaps after 15,000 or 20,000 total shares have been purchased (13,662 is where we are currently) the cap will go back up to 420 or above.  We'll find out if this poor quarterly result allows JPM to buy a few thousand more shares below 400.

 

I am sure that if trades go off below 400 (or even at 400 if they can get a fill), we will see Form 4 filings a few days later. 

 

Biglari continues to buy BH shares under $420. Given the price to value discrepancy, the more shares he can buy at these levels, the better.

 

Except that, of course, Biglari has not repurchased a share in over a month despite the fact that the share price has been less than $420 during that entire time and has been as low as $400 during that time.  Yet, no repurchases.

[awindenberger]

The low last week was 400.03 - as you know, the current block of shares they are working off on the 10b5-1 plan has a cap of $400.  Perhaps after 15,000 or 20,000 total shares have been purchased (13,662 is where we are currently) the cap will go back up to 420 or above.  We'll find out if this poor quarterly result allows JPM to buy a few thousand more shares below 400.

 

I am sure that if trades go off below 400 (or even at 400 if they can get a fill), we will see Form 4 filings a few days later. 

 

Biglari continues to buy BH shares under $420. Given the price to value discrepancy, the more shares he can buy at these levels, the better.

 

 

 

Where did you see that the current block has a max price of $400?

 

I assumed that the purchases stopped because we were within 30 days of the earnings announcement. I'm guessing they will resume today.

 

Except that, of course, Biglari has not repurchased a share in over a month despite the fact that the share price has been less than $420 during that entire time and has been as low as $400 during that time.  Yet, no repurchases.

[gfp]

Regarding: "Where did you see that the current block has a max price of $400?  I assumed that the purchases stopped because we were within 30 days of the earnings announcement. I'm guessing they will resume today."

---

 

It is evidenced on the Form 4's - the first 10,000 shares purchased under the plan had a cap of 420, then the cap changed to 400.  We don't know how many more shares must be purchased at 400 or below before there is a new cap for the next tranche, but I am willing to bet it is a round number.  There could also be a time component - like, after 3 months the cap can go up, etc.  It can be quite specific as long as it is spelled out in the plan (the specific trading rules of which is not publicly filed) and isn't altered mid-plan.

 

There is no blackout period around earnings since it is a 10b51 plan.  That is one of the purposes of the plan.

[awindenberger]

Thanks for that info. I hadn't noticed the lower "high limit."

 

I wonder why Biglari was willing to pay more first. Wouldn't you want to move up progressively?

[TwoCitiesCapital]

Thanks for that info. I hadn't noticed the lower "high limit."

 

I wonder why Biglari was willing to pay more first. Wouldn't you want to move up progressively?

 

Sounds like it's to impose discipline so you don't blow the whole repurchase up front if the stock is going to decline more. It makes sense to have price targets for each subsequent repurchase that are then evaluated and reset on a semi-regular basis.

[OracleofCarolina]

looks like the Swenson/Biglari working relationship at ISIG is going well.

 

https://www.sec.gov/Archives/edgar/data/875355/000165495416001365/isigform8k20160810.htm

 

[Parsad]

looks like the Swenson/Biglari working relationship at ISIG is going well.

 

https://www.sec.gov/Archives/edgar/data/875355/000165495416001365/isigform8k20160810.htm

 

LOL!  Sardar wins again! 

 

Cheers!

[awindenberger]

Looks like Biglari gave Swenson AIRT, and now he wants Swenson out of his hair for ISIG. LOL