BH - Biglari Holdings

[Txvestor]

Just as a general heads up I thought I would mention that the 10b5-1 purchase plan by Biglari Capital has run its course.  62,000 shares have been purchased (the amount they filed for) and the lower prices this week coincided with the end of Sardar's buying.

 

Well, I think also large investors like Gabelli might have sold some… Gabelli clearly wasn’t happy about the results of the AM, right?

 

Gio

 

In the near term the market is a voting machine, in the longer term it is a weighing machine. It is clear that the shareholder base is quite divided. Those that trust Biglari and voted for him will increasingly bear the burden of his actions, for they have for whatever reason let them go unchecked.

By the time it is apprent that business fundametals are deteriorating(if that is infact what is happening) then in this case the share price will likely reflect that well ahead of time as there is not a shortage of savvy large holders on one side or skeptics on the other. The jury will remain out on this for some time to come.

[giofranchi]

By the time it is apprent that business fundametals are deteriorating

 

Well… To trade below BVPS means the market is expecting the business to lose money going forward… Shifting from business results that have been exceptional so far to losing money… That’s quite a change! And sincerely not a reasonable one to expect… Anyway, shares are already trading below BVPS… so, what’s the downside here?

 

If instead, like I believe, fundamentals are improving, with the Maxim turnaround on its way to become profitable and the S n S franchise effort on its way to pay off, I much prefer a low stock price to an higher stock price. My businesses generate meaningful cash flow each month: a low stock price gives me the opportunity to put that cash flow to good use, an higher stock price doesn’t.

 

Most of all because imo recent share price movements have nothing to do with business results. Want to know why Gabelli might be selling his shares? Simply because Biglari hasn’t answered his letters! ;)

 

Cheers,

 

Gio

 

[writser]

Well… To trade below BVPS means the market is expecting the business to lose money going forward… Shifting from business results that have been exceptional so far to losing money… That’s quite a change! And sincerely not a reasonable one to expect…

 

That's just not true. It means the market is expecting BH to underperform, not to lose money.

 

Anyway, shares are already trading below BVPS… so, what’s the downside here?

 

So shares trading below book don't have any downside? Again your argument doesn't make sense.

 

And finally, if you much prefer a lower stock price, why do you spend an hour per day praising Biglari?

[giofranchi]

Well… To trade below BVPS means the market is expecting the business to lose money going forward… Shifting from business results that have been exceptional so far to losing money… That’s quite a change! And sincerely not a reasonable one to expect…

 

That's just not true. It means the market is expecting BH to underperform, not to lose money.

 

Well… It depends what you mean by “underperform”… If you mean it will do worse than the discount rate the market is applying to stocks today, you might be right. Then you have to guess what that discount rate is: many think the stock market is so high because the alternative, the bond market, yields almost nothing… To me that translates into a very low discount rate applied to stocks these days… Maybe not losing money… but expecting almost no earnings at all!

 

So shares trading below book don't have any downside? Again your argument doesn't make sense.

 

Of course anything could happen! But of course I meant that even a dramatic deterioration of results, starting from what the business performance has been until now, wouldn’t justify the share price trading much below BVPS.

 

And finally, if you much prefer a lower stock price, why do you spend an hour per day praising Biglari?

 

And of course I don’t have to answer silly questions!

 

Cheers,

 

Gio

 

[peridotcapital]

By the time it is apprent that business fundametals are deteriorating

 

Well… To trade below BVPS means the market is expecting the business to lose money going forward… Shifting from business results that have been exceptional so far to losing money… That’s quite a change! And sincerely not a reasonable one to expect… Anyway, shares are already trading below BVPS… so, what’s the downside here?

 

If instead, like I believe, fundamentals are improving, with the Maxim turnaround on its way to become profitable and the S n S franchise effort on its way to pay off, I much prefer a low stock price to an higher stock price. My businesses generate meaningful cash flow each month: a low stock price gives me the opportunity to put that cash flow to good use, an higher stock price doesn’t.

 

Most of all because imo recent share price movements have nothing to do with business results. Want to know why Gabelli might be selling his shares? Simply because Biglari hasn’t answered his letters! ;)

 

Cheers,

 

Gio

 

It is not uncommon for diversified holding companies to trade below book value. Just look at Loews. It trades at 80% of tangible BVPS and yet is a very good company with a multi-decade record of value creation. Investors give it a discount because it is made up of a bunch of unrelated businesses, without synergies, some of which are doing well and others that aren't. The market is not saying Loews will be unprofitable going forward. Investors simply prefer other better, more focused places to invest. I'm not arguing that BH should trade below BVPS, but it trades where it does for many of the same reasons and will likely continue to do so.

[giofranchi]

It is not uncommon for diversified holding companies to trade below book value. Just look at Loews. It trades at 80% of tangible BVPS and yet is a very good company with a multi-decade record of value creation. Investors give it a discount because it is made up of a bunch of unrelated businesses, without synergies, some of which are doing well and others that aren't. The market is not saying Loews will be unprofitable going forward. Investors simply prefer other better, more focused places to invest. I'm not arguing that BH should trade below BVPS, but it trades where it does for many of the same reasons and will likely continue to do so.

 

peridotcapital,

 

Loews business results during the last 6 years simply have not been comparable to BH’s. And BH has traded far above BVPS many times during the last 6 years.

When I say there shouldn’t be much downside below BVPS, even if business results at BH deteriorate significantly, it is because they have been excellent so far. Not so at Loews!

 

Of course no one sees Biglari who keeps finding investment opportunities which double every 2-3 years and BH’s stock price which keeps trading below BVPS, right?

Now tell me: do you see Biglari finding investment opportunities which double in 5-6 years and at the same time BH’s stock price selling well below the level it is selling today?

Yet, twice the time in doubling is what I mean by significant deterioration of business results.

 

Gio

 

[peridotcapital]

It is not uncommon for diversified holding companies to trade below book value. Just look at Loews. It trades at 80% of tangible BVPS and yet is a very good company with a multi-decade record of value creation. Investors give it a discount because it is made up of a bunch of unrelated businesses, without synergies, some of which are doing well and others that aren't. The market is not saying Loews will be unprofitable going forward. Investors simply prefer other better, more focused places to invest. I'm not arguing that BH should trade below BVPS, but it trades where it does for many of the same reasons and will likely continue to do so.

 

peridotcapital,

 

Loews business results during the last 6 years simply have not been comparable to BH’s. And BH has traded far above BVPS many times during the last 6 years.

When I say there shouldn’t be much downside below BVPS, even if business results at BH deteriorate significantly, it is because they have been excellent so far. Not so at Loews!

 

Of course no one sees Biglari who keeps finding investment opportunities which double every 2-3 years and BH’s stock price which keeps trading below BVPS, right?

Now tell me: do you see Biglari finding investment opportunities which double in 5-6 years and at the same time BH’s stock price selling well below the level it is selling today?

Yet, twice the time in doubling is what I mean by significant deterioration of business results.

 

Gio

 

I did not say L and BH have had similar business results, and I also did not say that BH should trade at 80% of tangible BVPS like L does. My point is that if you look at L business results, you would not conclude that it should trade at the price that it does (L's BVPS has been rising, just not at a high rate). I suspect BH investors (myself included) will similarly look at BH over time and conclude that the price it fetches does not rationally reflect its own business results. That is the case today, given that it trades around 1x BVPS). Bottom line, we are far more likely to make money due to BV growth than multiple expansion, given the holding company structure. And I'll be fine with that.

[giofranchi]

Biglari Holdings: 2015 Annual Meeting Notes - Steak & Shake Q&A

 

 

Gio

biglari-holdings-2015-annual-meeting-3.pdf

[DavidVY]

The whole Biglari debate reminds me of the hedge fund Hermitage that went into Russia. He figured that he could account for insider theft and self-dealing. You just don't deals in public companies w/Russia. Corruption is just too high.

 

Buffett has said many times that you need to account for their motives. I bought into the Biglari story, but his self-dealing has gotten worse and worse. He's found loopholes to increase his compensation, has a huge ego, and only pays lip-service to shareholder interests.

 

Their is no doubt he is a talented businessman, but him taking a % of Book Value growth at the end of each year is a big no-no. Originally it was capped at 10MM, now its uncapped.

[TheValueDude]

SnS is doing a free steakburger when you buy $25 in gift cards.

 

Gotta give him this much... the man loves his float.

[BTShine]

SnS is doing a free steakburger when you buy $25 in gift cards.

 

Gotta give him this much... the man loves his float.

 

That is smart.  Isn't it something like 10% of gift cards go unused?  That pays for the free burger.  Then the float is free for however long it lasts.

[giofranchi]

These are imo the things to look at:

1) The Maxim turnaround

2) How BH’s investment in CBRL develops

3) The rate at which new franchise units open (I want to see 20-25 per year)

4) What use Biglari finds for BH’s $130 million in cash

5) S n S operating earnings that, after the investment in the franchise effort and in Maxim, go back to a normal level

If 1) to 5) are successful, BH today is extremely cheap.

Probably not so, if Biglari fails in one or more of those five points. Then, as I have always said, I will admit I was wrong, and will change my mind.

 

Cheers,

 

Gio

 

[giofranchi]

The great thing about BH right now is that they do not need all five of these to work out, they need something like just one of them to work out very well as long as points 5 and 4 (and to a lesser extent point 2) do not turn disastrous.  They do not need all of them to work out, they need any of them to work out for the investment to work out at this price.

 

Yes! Of course you are right.

 

But you know I am investing in BH because I think Biglari’s business acumen is a better predictor of success in 1) to 5) than his character flaws are a predictor of failure.

 

Many people instead think otherwise.

 

Therefore, I want to monitor his successes and failures closely. And to admit I was wrong, if failures exceed successes. That’s it!

 

Also, they have over $350 million cash to deploy - not the $130 million you mention.  They have $130 million as cash directly on the parent company's balance sheet.  About $70 million in cash in the Lion Funds.  Biglari also has to deploy, at some point, the $135 million from the prepaid forward contract.  So $130 plus $70 plus $135 is what Biglari has to deploy.  Plus whatever cash the operations are spinning off.

 

Yes, sorry! My figure was completly wrong!

 

Cheers,

 

Gio

 

[gfp]

Well at least there is some visibility for the Indy Car sponsorship (still not a fan of this type of spending) -

 

http://www.foxsports.com/motor/story/david-letterman-late-show-indycar-steak-n-shake-graham-rahal-042815

[giofranchi]

This is the most comprehensive filing about Biglari’s compensation I have seen so far. Imo it is very clear and very well put together.

 

Cheers,

 

Gio

Biglari-Compensation-April302015.pdf

[awindenberger]

Hi everyone, I just came across this board a couple days ago and can't stop reading it. A lot of interesting information here regarding BH.

 

I've especially enjoyed NBL0303's valuation on BH from mid-March. My thought process on this investment has been similar to his, except that he explains it much more eloquently and convincingly than I could.

 

I would love to read some of Biglari's old Lion Fund annual letters. What would be a way for me to gain access to them?

[mcmaaaaath]

Hi everyone, I just came across this board a couple days ago and can't stop reading it. A lot of interesting information here regarding BH.

 

I've especially enjoyed NBL0303's valuation on BH from mid-March. My thought process on this investment has been similar to his, except that he explains it much more eloquently and convincingly than I could.

 

I would love to read some of Biglari's old Lion Fund annual letters. What would be a way for me to gain access to them?

 

The majority of them are attached to posts on this thread, I believe in the last ten or so pages or replies.

[gfp]

here are a few

lion_fund_2001_annual_report.pdf

lion_fund_2002_annual_report.pdf

lion_fund_2003_annual_report.pdf

[gfp]

and 2008 -

Lion_Fund_2008_annual_letter.pdf

[awindenberger]

here are a few

 

Thanks so much!

[tombgrt]

Off-topic but found it interesting and worth mentioning:

 

I will certainly not be sad for him if he get ultimately fired.

 

Ahahah!!

You want to fire Federer just because he has become a billionaire at 33 swinging a tennis racket?! ;D

 

Your answer might be: Biglari is no Federer.

 

Then I ask you again what I have asked some posts ago: show me the track record of a stock market investment professional which is better than Biglari’s since 2000.

 

Until now no one has answered. ;)

 

Cheers,

 

Gio

 

Without significant leverage - Allan Mecham at Arlington Value.  With significant leverage - Ericopoly.  Cheers!

 

Well apparently Sanjeev answered you already but I'm reading this a bit late and would like to add a few... Especially if you add in Biglari's BH years, these did at least better:

 

- Keith Smith aka Packer16: 38%/year in the last decade ('03-'13);

- James East aka JEast: 22.4%/year from '03-'13 with his fund;

- Mohnish Pabrai: 1100% cummulative from 2000-2013 with really shitty returns in crisis;

- Norman Rothery aka NormR: 514% cummulative from '01-'14 with his Stingy Stocks and I suspect he did at least as well with his personal picks;

- Francis Chou: 10.6%/year for the last 15 years, 11.9% since inception with his main fund;

- Uccmal: No idea, but crazy high as well;

- Francisco Garcia Parames at Bestinver (gone now): had at least 20%+ returns for 10+ years with Bestinfond, their largest fund;

- Tepper, Einhorn, Loeb, Ackman, Icahn, Black, ... Not going to check all returns but there should be some winners there.

- etc etc etc

 

These are just those I know about at this time. I'm confident I'm forgetting at least a handful of very well known investors and another handful of boardmembers.

 

The first 6 plus the 2 Sanjeev mentioned are all at least readers of COBF, most are active members. They should remind one of the Superinvestors of Graham-and-Doddsville.  :)

 

 

Btw, on Allan Mecham for you Gio: Great investor. He had the sensibility for example to go almost all in in BRK when it was at the lows a few years ago. Also an infrequent poster here if I'm not mistaken. He was also recently called the 400% Man (see the topic on this board).

 

[giofranchi]

Well apparently Sanjeev answered you already but I'm reading this a bit late and would like to add a few... Especially if you add in Biglari's BH years, these did at least better:

 

- Keith Smith aka Packer16: 38%/year in the last decade ('03-'13);

- James East aka JEast: 22.4%/year from '03-'13 with his fund;

- Mohnish Pabrai: 1100% cummulative from 2000-2013 with really shitty returns in crisis;

- Norman Rothery aka NormR: 514% cummulative from '01-'14 with his Stingy Stocks and I suspect he did at least as well with his personal picks;

- Francis Chou: 10.6%/year for the last 15 years, 11.9% since inception with his main fund;

- Uccmal: No idea, but crazy high as well;

- Francisco Garcia Parames at Bestinver (gone now): had at least 20%+ returns for 10+ years with Bestinfond, their largest fund;

- Tepper, Einhorn, Loeb, Ackman, Icahn, Black, ... Not going to check all returns but there should be some winners there.

- etc etc etc

 

These are just those I know about at this time. I'm confident I'm forgetting at least a handful of very well known investors and another handful of boardmembers.

 

The first 6 plus the 2 Sanjeev mentioned are all at least readers of COBF, most are active members. They should remind one of the Superinvestors of Graham-and-Doddsville.  :)

 

 

Btw, on Allan Mecham for you Gio: Great investor. He had the sensibility for example to go almost all in in BRK when it was at the lows a few years ago. Also an infrequent poster here if I'm not mistaken. He was also recently called the 400% Man (see the topic on this board).

 

Thank you… but that was not what I had asked.

 

What I had asked, instead, is an easily provable track record from 2000 until 2014. Because in that timeframe both 50% declines of the S&P500 are included.

 

If you take away one of those declines… that’s not what I have asked.

 

If you write returns that I cannot easily verify… that’s not what I have asked.

 

Cheers,

 

Gio

 

[tombgrt]

Well apparently Sanjeev answered you already but I'm reading this a bit late and would like to add a few... Especially if you add in Biglari's BH years, these did at least better:

 

- Keith Smith aka Packer16: 38%/year in the last decade ('03-'13);

- James East aka JEast: 22.4%/year from '03-'13 with his fund;

- Mohnish Pabrai: 1100% cummulative from 2000-2013 with really shitty returns in crisis;

- Norman Rothery aka NormR: 514% cummulative from '01-'14 with his Stingy Stocks and I suspect he did at least as well with his personal picks;

- Francis Chou: 10.6%/year for the last 15 years, 11.9% since inception with his main fund;

- Uccmal: No idea, but crazy high as well;

- Francisco Garcia Parames at Bestinver (gone now): had at least 20%+ returns for 10+ years with Bestinfond, their largest fund;

- Tepper, Einhorn, Loeb, Ackman, Icahn, Black, ... Not going to check all returns but there should be some winners there.

- etc etc etc

 

These are just those I know about at this time. I'm confident I'm forgetting at least a handful of very well known investors and another handful of boardmembers.

 

The first 6 plus the 2 Sanjeev mentioned are all at least readers of COBF, most are active members. They should remind one of the Superinvestors of Graham-and-Doddsville.  :)

 

 

Btw, on Allan Mecham for you Gio: Great investor. He had the sensibility for example to go almost all in in BRK when it was at the lows a few years ago. Also an infrequent poster here if I'm not mistaken. He was also recently called the 400% Man (see the topic on this board).

 

Thank you… but that was not what I had asked.

 

What I had asked, instead, is an easily provable track record from 2000 until 2014. Because in that timeframe both 50% declines of the S&P500 are included.

 

If you take away one of those declines… that’s not what I have asked.

 

If you write returns that I cannot easily verify… that’s not what I have asked.

 

Cheers,

 

Gio

 

 

Oh sure, some like Packer and JEast missed the early 2000's decline in their proven track record. But guess what? It was an amazing time to be a value investor and almost all those guys had strong returns, even during the drop in '00. Hell, Biglari himself doubled his fund in '00-'01, likely in big part because of that tailwind for value investors. Without those returns his returns were nothing extraordinary in comparison to the ones we mentioned here.

 

And for the track records:

 

- Packer's returns are verified by Norm when he interviewed him for an article;

- James East http://www.acipartnership.com/about_us.php ;

- Mohnish - public and easily findable;

- Norm http://www.ndir.com/SI/articles/0214.shtml ;

- Chou - public and easily findable;

- Uccmal - well I guess we have to trust him on his word;

- Parames - public and easily findable;

- hedge fund guys - public and easily findable;

 

 

 

As philly value said

 

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. 

 

Point being that there are a lot of value investors who did really well during that time frame, even if you include the crises. There is always someone better. So jup, nothing really special... Let's see how his track record keeps up in the next 10 years.  8)

 

[giofranchi]

By the way, Biglari’s investment returns are a cumulative 14.5x since 2000. Even Pabrai, imo the best of your list, doesn’t compare favorably.

 

I don’t know how to verify Tepper, Einhorn, Loeb, Ackman, Icahn, nor Black since 2000, but I know they ask to be paid more than Biglari. The whole discussion, as almost always…, came as a consequence of some comments about Biglari’s compensation agreement. Therefore, even if Tepper, Einhorn, Loeb, Ackman, Icahn, and Black actually did better than Biglari since 2000, which I strongly doubt, they shouldn’t be considered… because they all are even more “greedy” than Biglari! ;)

 

Gio

 

[giofranchi]

So jup, nothing really special... Let's see how his track record keeps up in the next 10 years.  8)

 

You are not really serious, are you? A 19.5% CAGR since 2000 is “nothing really special”…?! You must be joking! ;)

 

Cheers,

 

Gio