thepupil Posted March 24, 2015 Share Posted March 24, 2015 10% over 3 yr rolling S&P is a little different than 25% over 6%. Then let’s hope GMO and others are dead wrong about the S&P500 future returns! ;) Biglari can have a banner year and take a large % of shareholder capital (as he did the past few years). Except that Biglari’s performance has been extremely solid and consistent for 15 years now! As I have said, he might not deserve a rich compensation in the future, if investment results deteriorate (for instance, one exceptional year followed by three mediocre or poor years, like you seem to suggest…), but he surely deserves it now! Simply because he achieves better results than the rest and gets paid less. Outperforming the S&P over 3 yr rolling periods with multiple billions is special and very likely deserves 10% of the out-performance. Except that I don’t care how much capital is under management. All I care about are results. Biglari and Groveland: Scylla and Charybdis. I completely disagree. Gio I'm just providing reasons that BH's structure and T&T's are not comparable; perhaps a better way of putting it is if you do compare them, one comes out as far more friendly. T&T's benchmark is more relevant and rigorous (since they manage a portfolio of S&P 500 constituents), their percentage take is more appropriate for permanent non-redeemable capital (10% vs 25%), and it is earned over multiple years (which reduces the asymmetry and optionality of one year results paying the manager a heap of money). BH may be a great investment despite the high fees on permanent capital. I've almost bought the thing several times, but the discount hasn't quite gotten big enough for me to embrace it. NBL's great analysis has me thinking the discount is bigger than my cursory analysis suggested so I may buy it, but it will be despite what I think of Sardar not because of it. Somewhat off topic Gio, given your love of FIH, PSH, and BH and the like, have you ever calculated the weighted average fees as a % of your capital that you are paying in all these locked up fee heavy permanent capital vehicles? Link to comment Share on other sites More sharing options...
giofranchi Posted March 24, 2015 Share Posted March 24, 2015 Somewhat off topic Gio, given your love of FIH, PSH, and BH and the like, have you ever calculated the weighted average fees as a % of your capital that you are paying in all these locked up fee heavy permanent capital vehicles? Well, if I understand what they are doing, and I am sure I could never replicate it by myself, I usually ask myself: am I paying the right amount, or am I overpaying? In my business I examine offers every day, and I answer that question as follows: if the one I like the best technically, also costs less than the average competition… well then that’s enough for me! Might not be very scientific… But it usually works well and yields satisfactory results in the long run! ;) Can I replicate what BH, PSH, and FIH do? 1) I have no franchise business (and I like franchise businesses very much!), 2) I could never get activist on any investment of mine (but I understand why great results could be achieved that way!), 3) I could never invest in India (yet India has 1.2 billion people, whit a GDP comparable to that of 35 million people in Canada; a very young population on average, instead of poor demographics in developed countries; a very low level of overall debt, instead of high debts in developed countries; and a pro-business government for the first time in 70 years!). Gio Link to comment Share on other sites More sharing options...
thepupil Posted March 24, 2015 Share Posted March 24, 2015 Somewhat off topic Gio, given your love of FIH, PSH, and BH and the like, have you ever calculated the weighted average fees as a % of your capital that you are paying in all these locked up fee heavy permanent capital vehicles? Well, if I understand what they are doing, and I am sure I could never replicate it by myself, I usually ask myself: am I paying the right amount, or am I overpaying? In my business I examine offers every day, and I answer that question as follows: if the one I like the best technically, also costs less than the average competition… well then that’s enough for me! Might not be very scientific… But it usually works well and yields satisfactory results in the long run! ;) Can I replicate what BH, PSH, and FIH do? 1) I have no franchise business (and I like franchise businesses very much!), 2) I could never get activist on any investment of mine (but I understand why great results could be achieved that way!), 3) I could never invest in India (yet India has 1.2 billion people, whit a GDP comparable to that of 35 million people in Canada; a very young population on average, instead of poor demographics in developed countries; a very low level of overall debt, instead of high debts in developed countries; and a pro-business government for the first time in 70 years!). Gio ok, fair enough. I would just want to quantify how much the gross performance of those on average would have to be to make a certain return if my strategy was investing in a bunch of those types of vehicles. I invest in a few of these types of things and that's the first thing I think about. I am certainly going to pay X in fees, so how much do I need to expect them to make to justify me owning this. For example, I pay stupid high shareholder unfriendly fees (something like 1&20 over a low libor based hurdle WITH NO HIGH WATER MARK) to the managers of Tetragon Financial, but I don't need them to make a big % in order to earn a nice return: it trades for 55% of book and pays a 6% growing dividend. Link to comment Share on other sites More sharing options...
DanielGMask Posted March 24, 2015 Share Posted March 24, 2015 I'm amazed of the lenght of this thread. I have missed great companies before and I may be repeating that omission again with this one, but I don't like what I see and I certainly don't agree with the compensation agreement even though there are several people rationalizing why it's ok. Anyway, everybody should read this magnificent exposition: http://boards.fool.com/this-was-posted-on-sumzero-today-and-i-remember-29101767.aspx?sort=threaded Link to comment Share on other sites More sharing options...
giofranchi Posted March 24, 2015 Share Posted March 24, 2015 Also what I do is to pay more attention to net results than overall results. Companies like GLRE, TPRE, and PSH are very transparent about net results. Gio Link to comment Share on other sites More sharing options...
tombgrt Posted March 24, 2015 Share Posted March 24, 2015 Tombgrt - do you consider Todd & Todd's performance fee at berskshire theft of shareholder money? Tombgrt - do you consider Todd & Todd's performance fee at berskshire theft of shareholder money? Ah! That is a good question! ;) Gio Well it's not as bad as at Biglari (And he's getting that compensation because he set it up that way, not because he did that well.) but yes, generally I think it is legal theft. I don't believe any manager, no matter how talented, should be paid many tens of millions, let alone billions, to invest money that is not theirs. Scalable jobs (artists, football (European) stars, investment managers, top CEO's with outsized bonusses, ....) take the idea of capitalism too far and are generally very unfair for society as a whole. That is my personal opinion and I know many will disagree. Of course I realize that this is how the system works and that change is very unlikely as you will always find people willing to pay up. Tombgrt - do you consider Todd & Todd's performance fee at berskshire theft of shareholder money? 10% over 3 yr rolling S&P is a little different than 25% over 6%. Biglari can have a banner year and take a large % of shareholder capital (as he did the past few years). Also, Todd and Ted are managing a pure investment portfolio. Taking a percentage of investment gains is different than taking a % of the change in book value of a business. The S&P has an ROE of like 15%. Making an ROE that exceeds 6% is nothing special and doesn't deserve a fat incentive fee on permanent capital. Outperforming the S&P over 3 yr rolling periods with multiple billions is special and very likely deserves 10% of the out-performance. Biglari and Groveland: Scylla and Charybdis. Exactly. Also, the whole structure is absurd and reeks of conflicts of interest. Link to comment Share on other sites More sharing options...
gfp Posted March 24, 2015 Share Posted March 24, 2015 I'm not sure, but if there is another it is likely Bojangles, which will probably IPO sometime this year. Nobody else is close to that kind of streak in the US. Update in yesterday's filing - http://www.sec.gov/Archives/edgar/data/93859/000092189515000697/defa14a07428007_03232015.htm Thank you! Is there another restaurant chain with 25 consecutive quarters of increased same store sales in the US? Gio Link to comment Share on other sites More sharing options...
giofranchi Posted March 24, 2015 Share Posted March 24, 2015 http://boards.fool.com/this-was-posted-on-sumzero-today-and-i-remember-29101767.aspx?sort=threaded A piece of advice: anyone who has a strong and very well-reasoned criticism towards Biglari is very welcomed, but should stop calling him “Big Liar”… By this time it is just not possible to take seriously a person who keeps calling Biglari that way… It clearly shows he is attacking Biglari the person, because he has no clue how to attack Biglari’s results! If you want to attack his business results, very well! Do all you can to convince me! If I have lost some piece of information along the way, I want to know which! If you think results in the future might go south, very well! Tell me why! I truly want to understand! But, please!, stop calling him “Big Liar”!! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
mcmaaaaath Posted March 24, 2015 Share Posted March 24, 2015 Tombgrt - do you consider Todd & Todd's performance fee at berskshire theft of shareholder money? Tombgrt - do you consider Todd & Todd's performance fee at berskshire theft of shareholder money? Ah! That is a good question! ;) Gio Well it's not as bad as at Biglari (And he's getting that compensation because he set it up that way, not because he did that well.) but yes, generally I think it is legal theft. I don't believe any manager, no matter how talented, should be paid many tens of millions, let alone billions, to invest money that is not theirs. Scalable jobs (artists, football (European) stars, investment managers, top CEO's with outsized bonusses, ....) take the idea of capitalism too far and are generally very unfair for society as a whole. That is my personal opinion and I know many will disagree. Of course I realize that this is how the system works and that change is very unlikely as you will always find people willing to pay up. Tombgrt - do you consider Todd & Todd's performance fee at berskshire theft of shareholder money? 10% over 3 yr rolling S&P is a little different than 25% over 6%. Biglari can have a banner year and take a large % of shareholder capital (as he did the past few years). Also, Todd and Ted are managing a pure investment portfolio. Taking a percentage of investment gains is different than taking a % of the change in book value of a business. The S&P has an ROE of like 15%. Making an ROE that exceeds 6% is nothing special and doesn't deserve a fat incentive fee on permanent capital. Outperforming the S&P over 3 yr rolling periods with multiple billions is special and very likely deserves 10% of the out-performance. Biglari and Groveland: Scylla and Charybdis. Exactly. Also, the whole structure is absurd and reeks of conflicts of interest. You guys may be interested to know that Carl Icahn pays his son Brett and another lieutenant a combined 15% of returns above a 4% hurdle. The two are splitting about $360m this year. http://www.forbes.com/sites/nathanvardi/2015/03/05/brett-icahn-stands-to-make-183-million-at-dads-investment-company/ Link to comment Share on other sites More sharing options...
rkbabang Posted March 24, 2015 Share Posted March 24, 2015 A piece of advice: anyone who has a strong and very well-reasoned criticism towards Biglari is very welcomed, but should stop calling him “Big Liar”… By this time it is just not possible to take seriously a person who keeps calling Biglari that way… It clearly shows he is attacking Biglari the person, because he has no clue how to attack Biglari’s results! If you want to attack his business results, very well! Do all you can to convince me! If I have lost some piece of information along the way, I want to know which! If you think results in the future might go south, very well! Tell me why! I truly want to understand! But, please!, stop calling him “Big Liar”!! ;) I haven't and won't go around calling him "Big Liar", but it IS his personal integrity which I have serious questions about not his investment results. That being the case, attacking his integrity, his greed, and his honesty is the entire point of the case against him. No one doubts that he will make a lot of money, what is in doubt is to what extent the outside shareholders will share in the gains long term. Because I don't trust him I believe the current compensation plan and corporate structure is only the beginning of the ways he will dream up to fleece his shareholders. Maybe I'm wrong and you are correct that once he "has enough" he will tone down all of these shenanigans and be content to profit along with his shareholders not from them, but I'm no longer willing to bet on it. Link to comment Share on other sites More sharing options...
timmerjames Posted March 24, 2015 Share Posted March 24, 2015 Thanks tombgrt for the response...was just wondering if it was a philosophical issue for you. Honestly, I don't know what the right number is but I can say without a doubt I much prefer the current compensation structure to the typical issuance of stock options and grants to every tom dick and harry in the company for doing nothing more than just showing up for work. Most stock buybacks from companies just go towards the dilution of the stock options. Link to comment Share on other sites More sharing options...
Tim Eriksen Posted March 24, 2015 Share Posted March 24, 2015 Just curious about the Lion Fund's annual returns. Anybody know what the Lion Fund did in 2009? In the 2007 AR of the Lion Fund you can find Biglari’s investment performance since inception. Then on the recently published letter by the independent directors of BH you can find Biglari’s investment performance since 2009. That leaves 2008 out. But, given the large amount of the Lion Fund’s capital invested in S n S, I guess BH’s stock price in 2008 could be a good estimate (-12.1%). Of course, those are out of this world numbers! I repeat: given his 15 years track record, Biglari deserves dual-class shares that put him in full control of BH, and deserves to be paid what he is asking. Things might change in the future… I hope they won’t! ;) Cheers, Gio 2008 performance for Lion fund was -28.1%.Lion_Fund_2008_annual_letter.pdf Link to comment Share on other sites More sharing options...
giofranchi Posted March 24, 2015 Share Posted March 24, 2015 2008 performance for Lion fund was -28.1%. Thank you! :) Gio Link to comment Share on other sites More sharing options...
frugalchief Posted March 24, 2015 Share Posted March 24, 2015 SNS & Maxim sponsoring an Indy car... http://motorsportstalk.nbcsports.com/2015/03/24/rll-adds-steak-n-shake-for-five-races/ On another note, didn't The Lion Fund try to buy shares of a baseball team in Indianapolis about 10 years ago? Link to comment Share on other sites More sharing options...
thepupil Posted March 24, 2015 Share Posted March 24, 2015 SNS & Maxim sponsoring an Indy car... http://motorsportstalk.nbcsports.com/2015/03/24/rll-adds-steak-n-shake-for-five-races/ On another note, didn't The Lion Fund try to buy shares of a baseball team in Indianapolis about 10 years ago? I don't know anything about Biglari's involvement, but the stock you are probably talking about is Indians Inc. a Walker's Manual OTC collector's item w/ a 5 figure share price; not many publicly traded minor league baseball teams out there. EDIT: here it is: http://www.ibj.com/blogs/4-the-score/post/3606-tribe-stockholders-shut-out-biglari Link to comment Share on other sites More sharing options...
BTShine Posted March 24, 2015 Share Posted March 24, 2015 Smart to spend money on a partnership that's close to Letterman's heart. Brings the SnS brand top of his mind. Maybe he will be more likely to work it into his comments on his late night show. Link to comment Share on other sites More sharing options...
Txvestor Posted March 24, 2015 Share Posted March 24, 2015 Just curious about the Lion Fund's annual returns. Anybody know what the Lion Fund did in 2009? In the 2007 AR of the Lion Fund you can find Biglari’s investment performance since inception. Then on the recently published letter by the independent directors of BH you can find Biglari’s investment performance since 2009. That leaves 2008 out. But, given the large amount of the Lion Fund’s capital invested in S n S, I guess BH’s stock price in 2008 could be a good estimate (-12.1%). Of course, those are out of this world numbers! I repeat: given his 15 years track record, Biglari deserves dual-class shares that put him in full control of BH, and deserves to be paid what he is asking. Things might change in the future… I hope they won’t! ;) Cheers, Gio 2008 performance for Lion fund was -28.1%. If Sardar's returns, fees, and character are stellar, then capital will beat a path to his door. He is certainly entitled to set his hedge fund fees like anyone else. As always people will pay for performance. If he is really that good, then he would/should have no problems attracting capital on his terms. Where this all goes horribly wrong is when he goes against the will of the majority of his BH shareholders(as demonstrated by the compensation vote), and transfers company funds into his hedge funds for his personal benefit. There are other considerations/decisions that the BH board has taken that can be argued are not in the shareholder's interest eg the licensing agreement. NBL calls these arrangements a toll. Gio welcomes that as him gaining control, for others they make BH uninvestable and everyone seemingly has an opinion about it. For my part I think SB is an ethically challenged but talented entrepreneur. I have thus invested a lot less than I otherwise would. However the fact that these actions represent an unwelcomed/unapproved transfer of value and control from CURRENT shareholders to SB has not been convincingly refuted by anyone on this thread. In all honesty, Groveland have proven themselves unworthy of gaining control of the enterprise for many reasons, and I find this unfortunate, for I think for the right kind of activist with some track record this could represent a real opportunity. I'm hope the margin SB wins by sends a clear message. Link to comment Share on other sites More sharing options...
frugalchief Posted March 24, 2015 Share Posted March 24, 2015 There are some gems in TLF '07 & '08 letters ya'll posted today. Thanks for sharing that. Anyone have '00 - '06? Or '09-current? There were a few things he talked about in those letters that he still practices today, which only helps reconfirm my conviction in him. Considering he talked about it 8 years ago and during the great recession. Link to comment Share on other sites More sharing options...
frugalchief Posted March 25, 2015 Share Posted March 25, 2015 The fun parlor game I've been playing in my own head is to imagine what other press releases Biglari can do over the next two weeks. For starters, they will very likely discuss the fact that Biglari began buying shares of Cracker Barrel at $40 per share four or so years ago and Cracker Barrel's shares are now trading near $160 per share. That seems like one of the things coming down the pike. There are could be more interesting announcements/press releases too. I've thought the same, especially once the 25th consecutive quarter press release came out. Speculating, but these would put the nail in the coffin of the proxy IMO: New acquisition of a large (larger than First Guard and Maxim), profitable operating business (one would think he has something in the works...maybe) Disclosure of that confidential stock purchase and unrealized gains on it (not sure on SEC req. for disclosing that) Link to comment Share on other sites More sharing options...
gfp Posted March 25, 2015 Share Posted March 25, 2015 How about a letter asking nicely that people vote Blue? http://www.sec.gov/Archives/edgar/data/93859/000092189515000710/defa14a07428007_03242015.htm Link to comment Share on other sites More sharing options...
giofranchi Posted March 25, 2015 Share Posted March 25, 2015 The Lion Fund 2006 AR. Cheers, Gio PS If anyone has the ARs from 2000 to 2005, please post them! It would be greatly appreciated! :)2006_Lion_Fund_AR.pdf Link to comment Share on other sites More sharing options...
pdoak Posted March 25, 2015 Share Posted March 25, 2015 Since the normal franchise units currently opening cost around $1.5 million to $2 million NBL, Could you please let me know where you got this number from? Is it your estimate? Could you give a little more color on this? Thanks Vinod Sure - the number is not really an estimate, but more like my best inference from many different sources, of what a franchisee must spent to construct and open a new Steak n Shake franchise unit. That number is drawn from the franchise disclosure documents and other places. That may seem like a lot, but it is actually less than many comparable type restaurants (though there are some chains that have a lower cost than that too). This is also significantly less than what a Steak n Shake unit used to cost, pre-Biglari, apparently, when it was over $2.5 million to open a new unit. Vinod, NBL In the 2010 Chairmen's letter, the following is mentioned re franchise unit costs: The new layout provides the theater in which we can showcase the production of made-to-order steakburgers and hand- dipped milkshakes to entertain guests. Now, a franchisee can open an efficient, beautiful unit for about $1.5 million. My projection is that revenues emanating from each unit will doubtless surpass the $1.5 million mark, which combined with our current operating margin would yield an attractive return on investment for the franchisee. We shrank the former box size from about 4,200 square feet to nearly 3,200 square feet but kept the same number of seats in the dining area. The former model was simply inefficiently designed. The new prototype is a display of our uncompromising dedication to the pursuit of excellence. Inflation will have increased that number since 2010 but $1.5m seems to be in the right ball park. Link to comment Share on other sites More sharing options...
giofranchi Posted March 25, 2015 Share Posted March 25, 2015 2008 performance for Lion fund was -28.1%. On the LF 2008 AL we can read: Over the last 9 years, The Lion Fund has achieved a rate of return of 13.6% compounded annually. Think of it: in those 9 years, which witnessed the S&P500 being cut in half twice, Biglari still managed to achieve a CAGR of nearly 14%! Isn’t it amazing?... I mean: it is very hard to imagine a more difficult situation for stock market investors than those 9 years… The only thing that comes to mind truly is a new Great Depression scenario!... Yet, The LF delivered a result that would be extremely good under very favorable circumstances too! I think such a result is indeed the final proof you shouldn’t worry too much about what the general market does nor about macro! ;) Just to put that in perspective, Berkshire achieved a CAGR in market value of just 6.2% during the same 9 years… And I don’t know of anyone who did better than The LF. Could some board member point to a money manager with better results during those 9 years? Cheers, Gio Link to comment Share on other sites More sharing options...
philly value Posted March 25, 2015 Share Posted March 25, 2015 As difficult as the 2000-2008 timeframe was it was a pretty fruitful time for value investors [particularly the 2000-2007 part, 2008 performance will exclude some]. I don't have access to the numbers but I'd be pretty certain Baupost, for example, did much better than 13%/yr over that timeframe, and their various funds were only down ~10% in 2008 AFAIK. Given his small asset base at the time, I'm not sure that 13.6% over that 9 year period means quite that mutch. Obviously still very good, but not necessarily legendary. Link to comment Share on other sites More sharing options...
giofranchi Posted March 25, 2015 Share Posted March 25, 2015 I don't have access to the numbers but I'd be pretty certain Baupost, for example, did much better than 13%/yr over that timeframe, and their various funds were only down ~10% in 2008 AFAIK. Maybe... But I don't have their numbers either... Therefore, I don't know... Though "much better" seems a bit excessive to me! ;) Gio Link to comment Share on other sites More sharing options...
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