BH - Biglari Holdings

[gfp]

FWIW, Biglari Capital filed their 13F and it no longer shows that a confidential position has been omitted.  Only change was an addition to the small position in Fastenal (and the BH share purchases that were already public).

 

I wonder if the the confidential language was accidentally omitted this time or he completed a round trip trade in a name that was never disclosed.

 

http://www.sec.gov/Archives/edgar/data/1334429/000092189515001383/0000921895-15-001383-index.htm

[tombgrt]

Buffett hasn't given back any capital? What about the $15 billion he has given to the Gates Foundation? That's $15b at market valuation at time of donation so easily $20b+ now. He would be the richest man in the world if he didn't donate anything until now.

This doesn't matter for his compounding of capital since his vehicle, Berkshire Hathaway, doesn't shrink in size. The beauty is that his donation will continue to grow in value even after he passes away. Also, giving away shares by reducing given shares by 5% annually is very smart.Would definitely do this as well later when I have enough means.

 

And yes, comparing Gates and Zuckerberg to Buffett isn't correct. Apples and oranges. At least compare Buffett to pur sang investors and capital allocators to make it fair. There will always be some hotshot that gets rich quicker, doesn't automatically mean they are better. Also, Buffett could have maybe ran a hedge fund aside from BRK, reinvest his 2&20 in BRK again and be A LOT richer today, but what's the point? In the end, after securing livelong wealth, he was in it purely for the game. Could have paid him in bananas if that was the universal standard of success.

 

I just meant BRK is permanent capital. He isn't returning capital (regular dividends or one-offs)like most hedge funds after they have been successful, thus, his investing universe continues to get very small.

I applaud his many, many billion donation to Gates foundation and to his kids foundations.

 

Oh sorry wescobrk, should have read your post more carefully, you clearly meant it the way you are explaining it now. My bad! ;)

[JRH]

Does anyone on either side really think they're going to be able to convince the folks on the other side that they're wrong in evaluating the integrity of Sardar Biglari? i.e. "Yes, you're correct [Poster532]. I see now that my prior commitment and consistency bias from repeatedly defending my position was a mistake. Thank you for convincing me with your cold hard logic."

 

This is a great question, and I think an interesting answer is that there are probably a lot of people reading this thread, but not posting on this thread, who have changed their minds (could be either direction, at that). I know because I did - I wrote off this opportunity a long time ago on the compensation shenanigans, but recently I have become convinced that the price today more than compensates for the risk. I haven't spent any time talking about BH on this thread, and so I haven't emotionally dug myself in.

 

In fact, that has really drove home why Pabrai's policy of not talking about current investments can be helpful.

[wescobrk]

I'm certainly not predicting when the market will drop, but I would be shocked if we don't have a 8-10% pullback between now and year end.

Maybe it's the rate tantrum or something else.

Can you imagine BH at $320 a share? I already own now but that would be even nicer.

[frugalchief]

Update on Indy car sponsorship.....http://www.indystar.com/story/money/2015/05/16/steak-shake-adds-sizzle-brand-indy-car-deal/27322109/

[Spekulatius]

I'm certainly not predicting when the market will drop, but I would be shocked if we don't have a 8-10% pullback between now and year end.

Maybe it's the rate tantrum or something else.

Can you imagine BH at $320 a share? I already own now but that would be even nicer.

 

While I do think that Sadar is a hard to quantify negative for BH, I learned enough in this thread to buy a few shares at least for a trade, because I do think it is too cheap based on it's asset and the fact that Maxim has a decent chance of working out OK, even though Mr Market's reaction currently implies otherwise.

[wescobrk]

Yeah, who knows, my comment will happen at some point but maybe it's at $400 a share then it drops to $360, obviously the starting point is key.

[awindenberger]

Update on Indy car sponsorship.....http://www.indystar.com/story/money/2015/05/16/steak-shake-adds-sizzle-brand-indy-car-deal/27322109/

 

Very interesting article. I wonder how Biglari and the team quantify the value they receive on this sponsorship deal. Obviously $1mil+ buys a lot of advertising. It's nice to see that Rahal has been racing and finishing near the front!

[giofranchi]

I'm sure I've said this before, but I suppose it bears repeating.

 

Does anyone on either side really think they're going to be able to convince the folks on the other side that they're wrong in evaluating the integrity of Sardar Biglari? i.e. "Yes, you're correct [Poster532]. I see now that my prior commitment and consistency bias from repeatedly defending my position was a mistake. Thank you for convincing me with your cold hard logic."

 

We're all (nominally) value investors here. What would you judge the probability of the above to be?

 

As I have always said, I will take business results as they come.

If they will be worse than I expect, I will change my mind about Biglari. You can be sure about that!

In fact it becomes quite easy, once you stop trying to judge character flaws, and you just concentrate on business results! ;)

 

Cheers,

 

Gio

[frugalchief]

Update on Indy car sponsorship.....http://www.indystar.com/story/money/2015/05/16/steak-shake-adds-sizzle-brand-indy-car-deal/27322109/

 

Very interesting article. I wonder how Biglari and the team quantify the value they receive on this sponsorship deal. Obviously $1mil+ buys a lot of advertising. It's nice to see that Rahal has been racing and finishing near the front!

 

And it'll be up to Rahal to continue doing so to (hopefully) provide some good returns on that investment.

 

I'm curious too, but it's hard to measure, the benefit it will have for Maxim.

 

I'm certainly not predicting when the market will drop, but I would be shocked if we don't have a 8-10% pullback between now and year end.

Maybe it's the rate tantrum or something else.

Can you imagine BH at $320 a share? I already own now but that would be even nicer.

 

I'd be salivating...wait, I am at this price too.  :P  It's tough when I'm fully invested and trying to stock pile cash to buy at these levels.  :-[  As SB said at the annual meeting, "I told you a few years ago to stop bidding up the price." 

[giofranchi]

Please don't misunderstand, I'm not saying he is Buffett, no one is.

Nor will anyone ever be.

The other people he cites in his article have done well but they can't carry Buffett's jockstrap.

The man took a dying bankrupt textile firm from a market cap I think around $10 million into $360 billion!

 

Who said that?!

What about the founder of Facebook? Or the founders of Google? Even Bill Ackman for what I know at 48 is richer than Buffett at the same age...

 

This is not to say they will become richer than Buffett... Just to say that "no one will ever be like Buffett" is not carved in stone! ;)

 

Cheers,

 

Gio

 

Hello Gio,

 

I wasn't very clear in my writing. Thanks for questioning me on it.

I didn't mean from the standpoint of accumulating wealth. Gates has been kicking Warren's ass for twenty years on that. I also don't mean it from the standpoint of a start-up and timing the next technological wave like a Gates or the Google's founders, my sentiment was from pure capital allocation, I don't think we'll ever see another Buffett.

His 73 year track record, that's right, not the 50 year, he started at 11, I don't think can be duplicated.

Again, he never invented anything or disrupted an industry, it was just extremely focused and disciplined.

There is also a time bias it may or may not be easier in the future.

Greenblatt, Ackman, Soros, you can go on and on, their rates of return were impressive for many years but a 70 year track record?

Rockafeller Sr was the richest man ever (share of gdp), I'm not sure the government (at least in the west) will allow another Rockafeller Sr type of wealth, and sure there will be plenty of mega-billionaires in the future, but if you take the durability and his performance, especially at gigantic sums, Ackman and all these other guys give capital back, Buffett has kept it and hasn't distributed it back.

It's enormously easier to compound when you give a large amount of capital back like a lot of hedge fund managers.

Finally, the man quit taking carried interest in 1968!

Another man with a 75 year track record, and more than half of it without carried interest, and without distributing back and therefore his universe got smaller every year?

I'll be dead before someone that can eclipse that.

Your point is taken to never say never, if someone told me in 1962 (when he first started buying) some kid from Omaha would take a near dead textile firm and turn it into $360 billion with a terribly inefficient tax code, I would have thought the guy was on some serious drugs!

 

wescobrk,

I think you have understood what I meant… But let’s just be clearer: think of a person who is as rational and ambitious as Buffett, but with the advantage of having Buffett himself as an example, and therefore with the advantage of avoiding the biggest mistake Buffett has done.

For instance, think of a person who is as rational and ambitious as Buffett, but who doesn’t make the mistake of buying a business like Berkshire was in the ‘60s, and then devoting 10+ years trying to fix it.

What could such a person achieve? Who knows, right?

 

This seems to be the fate of all human records: to seem unsurpassable… until one fine day they are simply overcome! ;)

 

Cheers,

 

Gio

[giofranchi]

Evidently, Malone doesn’t fret much about a pay for performance compensation agreement: in 2014 he has agreed on paying $350 million to his closest CEOs.

 

http://seekingalpha.com/news/2529096-malone-ceos-enjoy-highest-salaries?auth_param=7i5hb:1alj8ru:3af1b1f31436f27120d428235a206706&uprof=25#email_link

 

Cheers,

 

Gio

[stahleyp]

 

 

The idea someone as dedicated and hardworking and successful as Biglari will try to make money for himself without giving a damn for all other shareholders strikes me as both an insult to Biglari’s intelligence and one of the silliest reason a stock could fall so much as BH’s has fallen recently.

 

 

What has he done to prove otherwise?

 

Paul,

I can only say that to be a BH shareholder is not easy. It requires that you come to your own conclusions about what's rational and what's not. For many reasons it is a unique company, therefore not many truly meaningful examples to refer to out there!

 

My advice: if you have the time and the inclination, study BH business results closely, and ask yourself if such successes could be achieved by anyone who is not supremely rational.

 

Cheers,

 

Gio

 

If someone is supremely rational, why does that have to mean he's beneficial to shareholders? Just because a person is rational about building his wealth doesn't mean he's going to be rational about building others' wealth.

 

I'm simply asking for some instances in which he put shareholders over his own interest.

 

 

[InelegantInvestor]

I don't believe anyone has an objection to pay for performance. The real issue is how he achieved his compensation agreement by saying one thing and then doing another, by subverting the will of shareholders, etc. The sideshow of other ridiculousness(corporate name change, imitation of berkshire website and report, licensing agreement) reinforce this as an issue.

 

In selecting a business partner, the ultimate question is "can I trust him to man the register"? Unfortunately, Biglari's actions have left many unwilling to trust him. I believe this will ultimately be his downfall.

 

Evidently, Malone doesn’t fret much about a pay for performance compensation agreement: in 2014 he has agreed on paying $350 million to his closest CEOs.

 

http://seekingalpha.com/news/2529096-malone-ceos-enjoy-highest-salaries?auth_param=7i5hb:1alj8ru:3af1b1f31436f27120d428235a206706&uprof=25#email_link

 

Cheers,

 

Gio

[giofranchi]

If someone is supremely rational, why does that have to mean he's beneficial to shareholders? Just because a person is rational about building his wealth doesn't mean he's going to be rational about building others' wealth.

 

I'm simply asking for some instances in which he put shareholders over his own interest.

 

Because over the long term I don’t think that’s how it works. And I bet Biglari knows that too.

 

In the short run of course you had better put yourself in a position to receive a very good compensation, like Biglari has done, but in the long run you must build value, if you truly want to accumulate great wealth. Because that’s the easiest and safest way by far!

 

In other words, why risking something else, when the most proven path for building personal wealth since Vanderbilt is compounding the equity of a corporation under your control? Especially because, if there is someone who has proven he could succeed in achieving such a goal, that someone is precisely Biglari?

 

Cheers,

 

Gio

 

[giofranchi]

Of course, I think Biglari’s ambitions are… well, huge!!

If I thought he were just someone who wants to steal some millions, buy a large yacht, and retire in some far away island… I then would agree with you and most board members!

And I wouldn’t be interested in BH at all. ;)

 

Cheers,

 

Gio

 

[stahleyp]

If someone is supremely rational, why does that have to mean he's beneficial to shareholders? Just because a person is rational about building his wealth doesn't mean he's going to be rational about building others' wealth.

 

I'm simply asking for some instances in which he put shareholders over his own interest.

 

Because over the long term I don’t think that’s how it works. And I bet Biglari knows that too.

 

In the short run of course you had better put yourself in a position to receive a very good compensation, like Biglari has done, but in the long run you must build value, if you truly want to accumulate great wealth. Because that’s the easiest and safest way by far!

 

In other words, why risking something else, when the most proven path for building personal wealth since Vanderbilt is compounding the equity of a corporation under your control? Especially because, if there is someone who has proven he could succeed in achieving such a goal, that someone is precisely Biglari?

 

Cheers,

 

Gio

 

I think he'll probably compound the equity at fairly high returns...how much of that will actually go to shareholders, well, we'll see. One would think, though, that if shareholders were a concern, there would be at least one or two instances that show he puts shareholders above himself.

[giofranchi]

Unfortunately, Biglari's actions have left many unwilling to trust him. I believe this will ultimately be his downfall.

 

If that is the case, business results will inevitably deteriorate.

I will judge them as they come, and, if I don’t like what I see, I will change my mind about BH.

 

Cheers,

 

Gio

 

[giofranchi]

One would think, though, that if shareholders were a concern, there would be at least one or two instances that show he puts shareholders above himself.

 

He could have awarded himself lots of options, like practically every management on earth does… raising fewer questions, and doing much more damage to shareholders! ;)

 

Cheers,

 

Gio

 

[gfp]

You're still looking for a specific example of sometime he put shareholders interests before his?

 

1. Arranging a 0% management fee and 6% annual compounding high water mark would be an example (compared to industry standard)

 

I don't agree with putting virtually all shareholder capital into the CEO's private hedge fund, but the above fee arrangement certainly counts as an example.

 

2. Choosing to pursue money-losing-up-front projects (SnS franchising, Maxim purchase for $15m knowing it would take at least $40m to see if it worked out or not) for what he believes are attractive long term risk-rewards, even though they cause him to receive no bonus from BH for at least a year and maybe longer (he received $900,000 from BH directly last year).

 

3.  Making the rights transferrable instead of the way some rights offerings are conducted.  So shareholders who don't wish to participate can sell the rights and receive compensation. This way of doing things greatly limits the amount of over-allotment Sardar himself will get, since people who don't want to pony up are selling rights to people who do.

 

 

[Ross812]

I've gone back and forth on BH for a while and became a shareholder today. I am not psyched on Biglari's compensation arrangement or the ridiculous naming license poison pill he pushed through, but there is a lot of value here.

 

Cash at $130M

CBRL at $630M

First Guard at $15M

Maxim at $10M

SNS company owned restraunts - 400M

SNS franchise opportunity - 120M

 

320M in Debt

 

SNS - If I were Biglari, I would eventually sell the company owned restaurants and become a pure franchiser. I think a low ball estimate for the restaurant value is about 1M per store (Calculated here by poster to be 1.5-2M per location). So another 400M there in cash equivalents. After which you are left with 540 franchised stores at 100k in franchise revenue per store (I'm just guessing at this based on the recent AR reporting ~12M in SNS franchise revenue on 124 stores). So the SNS franchise would have revenues of 54M/yr. Let's use a net margin of 17% on revenue (low for a pure franchiser) and get income of ~9M/yr worth about 120M give or take. 

 

So I get a sum of the parts valuation that I feel is conservative of 985M - $475/share.

 

A few things can happen with this investment:

 

1. Biglari is forced out and the raider breaks apart the conglomerate ~ CBRL at 630M and SNS at 500M with 130M in cash would likely be a win for shareholders in the short term.

 

2. Biglari stutters along as he has for the passed few years. SNS costs fall off and the value is realized by the market. CBRL is disposed of at a gain. The only very questionably investment I've seen is Maxim and that is still a coin toss and a 1.5% position for him. Biglari takes steps necessary to maximize cash flow from SNS and invests with no real skill but matches or lags the market returns after his excessive compensation package. Still worth at least 1B.

 

3. Biglari is the second coming of WB. 

 

[giofranchi]

SNS - If I were Biglari, I would eventually sell the company owned restaurants and become a pure franchiser. I think a low ball estimate for the restaurant value is about 1M per store (Calculated here by poster to be 1.5-2M per location). So another 400M there in cash equivalents.

 

I wouldn’t sell them… Instead, I would rent them! Like McDonald does. A hugely profitable business and potentially a great avenue for growth for BH! ;)

 

http://nrn.com/blog/why-mcdonalds-wont-ever-get-rid-its-real-estate.

 

Cheers,

 

Gio

[OracleofCarolina]

love the marketing!

[wescobrk]

Maybe he can bring Letterman into The Lion Fund as a LP.

[gfp]

http://investor.crackerbarrel.com/releasedetail.cfm?ReleaseID=915975

 

Cracker barrel results were good, plus increased quarterly dividend and $3 special dividend