BH - Biglari Holdings

[tombgrt]

They aren't as greedy on a relative basis and they sure as hell didn't do it in the same sneaky way!

 

 

What exactly is Biglari's return from '08 until now according to you? it's nowhere near 20% if I'm not mistaken (what is about needed for a 14.5 bagger over 15 years).

 

[giofranchi]

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.

 

In 2002 the S&P500 declined -22.1% and even The Lion Fund lost -10.1%.

 

Biglari's best year ever has been 2013.

 

Gio

[giofranchi]

sure as hell didn't do it in the same sneaky way!

 

That’s what I have always been open to admit… Where others see sneaky behavior, I see an organization that is adapting and changing: as investments are growing and becoming more and more relevant to overall results, I don’t blame Biglari for modifying his compensation agreement… But I admit I might be wrong! And I guess we will have to wait and see…

 

What exactly is Biglari's return from '08 until now according to you? it's nowhere near 20% if I'm not mistaken (what is about needed for a 14.5 bagger over 15 years).

 

I lack the information about Biglari’s investment results from January until August 2009. Otherwise, it is a 19.5% CAGR sustained for 15 years.

 

Gio

[tombgrt]

Gio, are you merely talking about his stock returns from '09-'15? Because I was (logically imo, it was a measure for Buffett after all with brk) looking at BH instead?

[giofranchi]

Gio, are you merely talking about his stock returns from '09-'15? Because I was (logically imo, it was a measure for Buffett after all with brk) looking at BH instead?

 

Yes! Only talking about Biglari’s stock market investments returns!

 

Because the great majority of Biglari’s compensation has come and will come from stock market returns.

 

Gio

 

[giofranchi]

What exactly is Biglari's return from '08 until now according to you? it's nowhere near 20% if I'm not mistaken (what is about needed for a 14.5 bagger over 15 years).

 

I lack the information about Biglari’s investment results from January until August 2009. Otherwise, it is a 19.5% CAGR sustained for 15 years.

 

Gio

 

Anyway, from January until the beginning of August 2009 the S&P500 was up more than 9%... Therefore, I doubt Biglari's overall performance could be negatively affected by those 7 months.

 

Gio

[ValueHippie]

The difference from Biglari to other hedge fund managers is, that he has access to permanent capital. So I don't think he should charge such high fees from BH. I am totally fine if he gets paid well for his performance.

 

[giofranchi]

The difference from Biglari to other hedge fund managers is, that he has access to permanent capital. So I don't think he should charge such high fees from BH. I am totally fine if he gets paid well for his performance.

 

GLRE, TPRE, PSH, FIH, IEP, etc. all have permanent capital.

 

Gio

[Guest Dazel]

 

 

Gio,

 

it's no secret that i agree with you most of the time...and I have never had any economic exposure to any of the company's mentioned in this thread (including the very successful steak'n shake so...i do not have skin in the game for disclosure. But this is an educational board.

 

Have you ever heard of Mr. Buffett and Mr. Munger's "no asshole rule"? It's not one they publicize very often...

 

I have no judgement as i do not know Sardar...but the market and many  (Sanjeev) are clear in what they think of what has happened at BH...and that scares guys like me away even though there clearly seems to be value. As a Ben Franklin follower you know what he believed in and how Munger has tried to emulate him. The "honesty is the best policy" line is not there to make everyone good people in business, it is there to let business leaders know that "it is the best policy" for business as that trust over time allows better access to deals, market perception etc...

 

IF I were Sardar's best friend...I would let him know this and encourage him to restructure appeasing shareholders and lower his fees. I would guarantee  you he would immediately be richer (stock would soar) more than making up for the drop in fees and

giving him unlimited access to capital. As you have pointed out his record speaks for itself. I see this as a huge opportunity for BH...I would be a buyer if it happened even after the share spike. We are all here to learn from our mistakes...and if Sardar shows this he could become legendary at his age.

 

best of luck,

 

Dazel

 

Dazel

[giofranchi]

Thank you Dazel,

and it is no secret you are among the board members I have the most respect for.

 

You know another thing I admire a lot about Biglari? He is extremely well read. I think I spend a lot of my working time reading… but probably very little compared to what Biglari does. I was surprised when I heard him quoting Security Analysis by heart… Something I could never do! (I must admit I have never read the whole book… just lots of passages). And he reads not only about value investing: I remember I have read “Creativity” because he had suggested it, and I have found it to be a great book! These are just two examples.

 

Don’t you think Biglari knows the “honesty is the best policy” line? Don’t you think he believes to be honest? Don’t you think that a compensation agreement significantly lower than the average competition, both for the operating side and for the investment side of the business, could be deemed honest?

 

He changed his compensation agreement… And that is a problem… But BH is evolving quickly… In 2008 investments were worth $6.9 million, at the end of 2014 they were worth $766.6 million. For the first two years operating earnings were much more important than investment earnings, the reverse is true today. Therefore, I ask: when such a large change happens in a company, a change in compensation for its CEO is something to be so much despised?

 

I admit I have great difficulty in answering that question… Because on the one hand I like agreements carved in stone… but on the other hand, if I put myself in Biglari’s shoes, I am not sure I wouldn’t have done exactly what he has done… And, of course, no one likes to think of himself as a dishonest person!

 

Cheers,

 

Gio

 

[coc]

Gio, I say this was 100% sincerity, but if you have not read it already, I highly suggest you read and relate The Parable of the Scorpion and the Frog to this situation. It may help a little with your cognitive dissonance. Just look it up on google if you aren't familiar.

[giofranchi]

Gio, I say this was 100% sincerity, but if you have not read it already, I highly suggest you read and relate The Parable of the Scorpion and the Frog to this situation. It may help a little with your cognitive dissonance. Just look it up on google if you aren't familiar.

 

From Wikipedia:

The fable is used to illustrate the position that no change can be made in the behaviour of the fundamentally vicious.

 

In your opinion then Biglari is “fundamentally vicious”… Have you ever met him? Have you ever talked to him? Have you ever spent some time with him? I refrain from giving such kind of judgements of people with whom I spend a large part of my life with…

 

Gio

 

[innerscorecard]

One of the things that is most worrisome to me about Sardar Biglari (although I do not believe it is by itself conclusive) is that some people who seem to know him better than most (Parsad, Gabelli) have denounced him. On the other hand, others, like some of the current directors, who came from companies with which Biglari Holdings was at first in an adversarial position, could be some evidence of the opposite.

[Greg]

Whose bread I eat: his song I sing.

~ German Proverb

[giofranchi]

One of the things that is most worrisome to me about Sardar Biglari (although I do not believe it is by itself conclusive) is that some people who seem to know him better than most (Parsad, Gabelli) have denounced him.

 

I agree: that is worrisome… and also the reason why I am ready to admit I might be wrong and change my view on BH. I’ll watch BH as an hawk and I’ll take notice if business results start to disappoint. I will be much more demanding of Biglari than any other person I invest with: no irrational business decision will be tolerated.

 

Much work, but I think it might be worth the effort.

 

In the end, though, only business results will eventually change my mind. Certainly not a parable, nor a proverb!

 

By the way, the last time I checked Gabelli still owned 195,024 shares! ;)

 

Cheers,

 

Gio

 

[DavidVY]

@Gio- Sardar Biglari is Persian. I don't think you've have enough cultural experience w/this culture.

 

This is a culture based on lying, deception, being two-faced and self-dealing.

 

Take a look @ Daniel Yergin's the Prize- specifically regarding BP/Gulf Oil Joint exploration in the Persian Gulf ( you do realized why they call it the Persian gulf, right? Because that was where oil was first found in the Middle East). The persians will negotiate a contract, sign it, smile and collect THEN demand another (large) upfront payment whenever they feel like it. This is a historical example

 

Not much has changed. Culturally they are the same. If you have any doubts, come to Los Angeles 1 day and speak to vendors, contractors, lawyers or doctors. Persians are very tough clientele. Its beyond the individual- it is cultural.

 

Munger in his biography (on a similar cultural gap) was speaking about Indonesia and Suharto.

Suharto say to Munger (off the top of the dome)- "We have very good business here in Indonesia"

Munger, "But there is constant fraud and corruption in your public companies

Suharto, "What you call corruption, I call Asian Family Values"

 

/end rant

[giofranchi]

@Gio- Sardar Biglari is Persian. I don't think you've have enough cultural experience w/this culture.

 

This is a culture based on lying, deception, being two-faced and self-dealing.

 

DavidVY,

I think that’s a generalization… And one thing I am sure of: you cannot invest nor do business basing your judgements on generalizations.

 

You know what will happen if your generalization applies to Biglari as well? Sooner or later he will charge BH’s shareholders more than the average competitor for his services (right now he is charging far below the average competitor).

 

That will not be a generalization, it will be evidence. And, as I have always said, I will take the evidence as it comes.

 

Cheers,

 

Gio

 

[innerscorecard]

@Gio- Sardar Biglari is Persian. I don't think you've have enough cultural experience w/this culture.

 

This is a culture based on lying, deception, being two-faced and self-dealing.

 

Take a look @ Daniel Yergin's the Prize- specifically regarding BP/Gulf Oil Joint exploration in the Persian Gulf ( you do realized why they call it the Persian gulf, right? Because that was where oil was first found in the Middle East). The persians will negotiate a contract, sign it, smile and collect THEN demand another (large) upfront payment whenever they feel like it. This is a historical example

 

Not much has changed. Culturally they are the same. If you have any doubts, come to Los Angeles 1 day and speak to vendors, contractors, lawyers or doctors. Persians are very tough clientele. Its beyond the individual- it is cultural.

 

Munger in his biography (on a similar cultural gap) was speaking about Indonesia and Suharto.

Suharto say to Munger (off the top of the dome)- "We have very good business here in Indonesia"

Munger, "But there is constant fraud and corruption in your public companies

Suharto, "What you call corruption, I call Asian Family Values"

 

/end rant

 

Sardar Biglari was born in Iran/Persia, and his family background is obviously very Persian, with his parents connected to the prior royal regime. But he is a US citizen and has lived here since 1984, since he was seven years old.

 

It is as if we would say John Chen is fundamentally untrustworthy because of the clearly massive culture of corruption in China (actually in his case, it would be corporate self-dealing and/or corruption in Hong Kong). In fact, just writing this out makes this particular concern seem absurd.

 

(Some people wouldn't deign to even answer your concerns, as it is literally racial discrimination - but I personally wouldn't hesitate to take such factors into account if they made sense - if, for example, Sardar Biglari was actually an Iranian national who had spent his adult life in Iran and who we are now dealing with. But that isn't the case here. Now, if we did find evidence that Shawn Biglari or Ken Biglari had corrupt or unsavory connections in the US, Iran or elsewhere, that would be a big red flag to me, as the character of one's family - especially when they are paid a lot of money by a company to consult - are quite relevant to me. But mere ethnicity, or even place of birth, without other factors, doesn't mean a lot to me.)

[giofranchi]

(Some people wouldn't deign to even answer your concerns, as it is literally racial discrimination - but I personally wouldn't hesitate to take such factors into account if they made sense - if, for example, Sardar Biglari was actually an Iranian national who had spent his adult life in Iran and who we are now dealing with. But that isn't the case here. Now, if we did find evidence that Shawn Biglari or Ken Biglari had corrupt or unsavory connections in the US, Iran or elsewhere, that would be a big red flag to me, as the character of one's family - especially when they are paid a lot of money by a company to consult - are quite relevant to me. But mere ethnicity, or even place of birth, without other factors, doesn't mean a lot to me.)

 

I agree.

 

Moreover, I don’t understand what’s the point in saying such a thing: the market is pricing BH so low precisely because it already agrees Biglari might not be reliable. Imo the so-called “Biglari discount” is already priced in. Today’s valuation simply cannot be explained any other way.

 

Finally, I suggest the reading of [amazonsearch]Crazy Is A Compliment[/amazonsearch] by Linda Rottenberg, founder and CEO of Endeavor: she has worked successfully with entrepreneurs all over the world… And yes! In the Middle-East too! ;)

 

Cheers,

 

Gio

 

[coc]

Gio, I say this was 100% sincerity, but if you have not read it already, I highly suggest you read and relate The Parable of the Scorpion and the Frog to this situation. It may help a little with your cognitive dissonance. Just look it up on google if you aren't familiar.

 

From Wikipedia:

The fable is used to illustrate the position that no change can be made in the behaviour of the fundamentally vicious.

 

In your opinion then Biglari is “fundamentally vicious”… Have you ever met him? Have you ever talked to him? Have you ever spent some time with him? I refrain from giving such kind of judgements of people with whom I spend a large part of my life with…

 

Gio

 

Please actually read the Parable and give it some thought. It will take you a few minutes. Don't rely on Wikipedia. The point of the parable is not to call anyone "fundamentally vicious" but it does address your question as to, perhaps, with Biglari would do things that don't make "rational" sense - things counter to his best interest. I have thought about the scorpion's final words many times.

 

To answer your question, I met the man briefly once but most of my judgments of him come from following his actions for many years, speaking with those who have interacted more closely with him, and seeing him in action many times at annual meetings. In any case, beside my point.

[giofranchi]

Please actually read the Parable and give it some thought. It will take you a few minutes. Don't rely on Wikipedia.

 

I have done so. Nothing to add.

 

The point of the parable is not to call anyone "fundamentally vicious" but it does address your question as to, perhaps, with Biglari would do things that don't make "rational" sense - things counter to his best interest.

 

That’s exactly what I am saying: the first time I see a truly “irrational” business choice, I am gone!

 

To answer your question, I met the man briefly once but most of my judgments of him come from following his actions for many years, speaking with those who have interacted more closely with him, and seeing him in action many times at annual meetings. In any case, beside my point.

 

That’s absolutely not beside the point. But, if you think Biglari behaved irrationally during those years you have watched him, we simply judge business development and results differently.

 

Gio

 

[Gopinath]

Gio,

 

I actually talked to Sardar Biglari and Phil Cooley personally in BRK annual meeting. Actually, both were really nice and asked me to come to next annual meeting as I was not able to make it to this year. We talked about investments landscape and software consulting in India.

 

There were absolutely no one went and talked to them. There were lot of people around us didnt even even know who he was when I talked to them. They were asking me after the fact who I was talking to.

 

There are lots of assumptions about him based on recent history and a natural comparison with Buffett. That's probably not a best way to judge people and business developments.

 

Attached is the picture that I took with them.

[giofranchi]

Thank you for sharing your thoughts, Gopinath... and the picture! ;D

 

Cheers,

 

Gio

[innerscorecard]

Haha, did you just bump into them? Very interesting.

[awindenberger]

Gio, I say this was 100% sincerity, but if you have not read it already, I highly suggest you read and relate The Parable of the Scorpion and the Frog to this situation. It may help a little with your cognitive dissonance. Just look it up on google if you aren't familiar.

 

From Wikipedia:

The fable is used to illustrate the position that no change can be made in the behaviour of the fundamentally vicious.

 

In your opinion then Biglari is “fundamentally vicious”… Have you ever met him? Have you ever talked to him? Have you ever spent some time with him? I refrain from giving such kind of judgements of people with whom I spend a large part of my life with…

 

Gio

 

Please actually read the Parable and give it some thought. It will take you a few minutes. Don't rely on Wikipedia. The point of the parable is not to call anyone "fundamentally vicious" but it does address your question as to, perhaps, with Biglari would do things that don't make "rational" sense - things counter to his best interest. I have thought about the scorpion's final words many times.

 

To answer your question, I met the man briefly once but most of my judgments of him come from following his actions for many years, speaking with those who have interacted more closely with him, and seeing him in action many times at annual meetings. In any case, beside my point.

 

I think we can all agree that the way in which Sardar went about getting his incentive compensation in place was poor.

 

However, its pretty clear from his start at the Lion Fund that Sardar feels that this is the fairest way to be compensated for his work. Its extremely similar to the setup Buffett used with his partnerships, which built up his stake to the point where he could be the controlling owner of BRK when it came around. Biglari got the opportunity to control an entity he liked way before he had enough capital to fully do so, so the incentive compensation agreement is the way for him to own a larger part of this entity over time.

 

Because of the fact that he now has the compensation set up the way he likes, I don't believe that he will take any further actions in the future that would result in further reductions to the respective returns of shareholders vs himself. If anything, I think that at the point where his ownership stake in the company has growth enough, it will be more beneficial to him to remove any compensation for himself, as the resulting stock price increase would make up for the lost future income on his end. But at this point, this simply isn't the case, and so Sardar wants the current agreement in place so he can profit fairly (in his mind as least) from the value he's creating for shareholders.