Author Topic: What are you buying today?  (Read 1246361 times)

Packer16

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Re: What are you buying today?
« Reply #2920 on: May 01, 2018, 04:53:46 AM »
I may need to duck and cover after posting this, but I bought some Biglari Holdings today.

I know, Sardar is the worst partner money can buy, but this is just a short-term trade on the assumption that the 20%+ drop in the price of BH is due mostly to the company getting dumped from the Smallcap 600 index. Reading reports of the annual meeting that was held last week, it doesn't look like Sardar dropped any unexpected bombs that would explain the cratering stock price (the dual class stock structure was a foregone conclusion). Volume in the stock today was about 30 times normal volume, which is probably due to index funds selling.

In any case, the next couple of weeks will either make me some money or teach me an expensive lesson.
Is it really that cheap though?

$1.05bn investments, take out $270m for deferred taxes and debt and you have net investments of $780m. Add in $500m valuation on fast food biz (12x normalized earnings), $50 first guard (12x normalized earnings) and a $0 for Maxim. Using a 2m share count (to prevent double counting as repurchased stock is included in investments), you get a total value of  $1,330m. Take 20% off that for the Biglari greed discount and you have a valuation of $1,072m. Current market cap is $875m.

This looks a little cheaper than it should, but is it really worth getting involved in for such a small discount?

BH is like buying a minority interest in a privately held business with no dividends.  Stakes in these business routinely sell at 40% & up discounts depending up when an exit event (death) will cause some change.  In this case, Biglari's age actually increases the discount.  I get all the contrary to CoBF logic but I would rather bet on Valeant where if the upside occurs you know what you will get.  If you have to wait 50 years (Biglari's LE) to get fair value for BH's assets, assuming they do not decline in value, is this a good investment?  Now if, BH declares a dividend or does something to return cash to shareholders this discount would be reduced considerably.

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gfp

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Re: What are you buying today?
« Reply #2921 on: May 01, 2018, 05:36:40 AM »
Is the current market cap $875m ?

I may need to duck and cover after posting this, but I bought some Biglari Holdings today.

I know, Sardar is the worst partner money can buy, but this is just a short-term trade on the assumption that the 20%+ drop in the price of BH is due mostly to the company getting dumped from the Smallcap 600 index. Reading reports of the annual meeting that was held last week, it doesn't look like Sardar dropped any unexpected bombs that would explain the cratering stock price (the dual class stock structure was a foregone conclusion). Volume in the stock today was about 30 times normal volume, which is probably due to index funds selling.

In any case, the next couple of weeks will either make me some money or teach me an expensive lesson.
Is it really that cheap though?

$1.05bn investments, take out $270m for deferred taxes and debt and you have net investments of $780m. Add in $500m valuation on fast food biz (12x normalized earnings), $50 first guard (12x normalized earnings) and a $0 for Maxim. Using a 2m share count (to prevent double counting as repurchased stock is included in investments), you get a total value of  $1,330m. Take 20% off that for the Biglari greed discount and you have a valuation of $1,072m. Current market cap is $875m.

This looks a little cheaper than it should, but is it really worth getting involved in for such a small discount?

DanielGMask

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Re: What are you buying today?
« Reply #2922 on: May 01, 2018, 06:04:25 AM »
If you can buy 5% of Biglari Holdings for $100 that would be a bad investment and you'd pass because you don't trust the CEO? Of course not - it's probably the best investment opportunity of your life. If it's cheap enough you buy it. The correct way to think about it is: at what price would you buy it? Labeling all stocks (or newspapers, countries, religions ..) as either good or bad and then discarding the latter group is just shortsighted. There should always be room for nuance.

You’ll find two kind of persons in your life, those you enjoy and those you don’t. For business’ you’ll find those that are trustworthy and those that are not. Avoid the second no matter of price and you’ll never find yourself in a position you may regret.

If management (founder, CEO, etc..) is not trustworthy I don’t even look at the numbers. And no, I don’t think that Biglari will be the opportunity of a lifetime at any price because the CEO may make this a bad investment no matter the price.
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Ballinvarosig Investors

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Re: What are you buying today?
« Reply #2923 on: May 01, 2018, 06:12:31 AM »
Is the current market cap $875m ?

I may need to duck and cover after posting this, but I bought some Biglari Holdings today.

I know, Sardar is the worst partner money can buy, but this is just a short-term trade on the assumption that the 20%+ drop in the price of BH is due mostly to the company getting dumped from the Smallcap 600 index. Reading reports of the annual meeting that was held last week, it doesn't look like Sardar dropped any unexpected bombs that would explain the cratering stock price (the dual class stock structure was a foregone conclusion). Volume in the stock today was about 30 times normal volume, which is probably due to index funds selling.

In any case, the next couple of weeks will either make me some money or teach me an expensive lesson.
Is it really that cheap though?

$1.05bn investments, take out $270m for deferred taxes and debt and you have net investments of $780m. Add in $500m valuation on fast food biz (12x normalized earnings), $50 first guard (12x normalized earnings) and a $0 for Maxim. Using a 2m share count (to prevent double counting as repurchased stock is included in investments), you get a total value of  $1,330m. Take 20% off that for the Biglari greed discount and you have a valuation of $1,072m. Current market cap is $875m.

This looks a little cheaper than it should, but is it really worth getting involved in for such a small discount?
Oops, typo in my calculations, $685m looks more accurate. Hmm.

StevieV

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Re: What are you buying today?
« Reply #2924 on: May 01, 2018, 07:33:45 AM »
If you can buy 5% of Biglari Holdings for $100 that would be a bad investment and you'd pass because you don't trust the CEO? Of course not - it's probably the best investment opportunity of your life. If it's cheap enough you buy it. The correct way to think about it is: at what price would you buy it? Labeling all stocks (or newspapers, countries, religions ..) as either good or bad and then discarding the latter group is just shortsighted. There should always be room for nuance.

Well, that is true.  There is a price at which I would buy BH. 

But, as a practical matter, I think it is almost a certainty that I won't buy the stock.  The discount at which BH would be attractive to me is so large, that I can't imagine the stock price would get there.  In my mind, it is too hard for investors to succeed when management has their interests in mind, to invest in a one where they don't.

vinod1

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Re: What are you buying today?
« Reply #2925 on: May 01, 2018, 07:41:59 AM »
I may need to duck and cover after posting this, but I bought some Biglari Holdings today.

I know, Sardar is the worst partner money can buy, but this is just a short-term trade on the assumption that the 20%+ drop in the price of BH is due mostly to the company getting dumped from the Smallcap 600 index. Reading reports of the annual meeting that was held last week, it doesn't look like Sardar dropped any unexpected bombs that would explain the cratering stock price (the dual class stock structure was a foregone conclusion). Volume in the stock today was about 30 times normal volume, which is probably due to index funds selling.

In any case, the next couple of weeks will either make me some money or teach me an expensive lesson.

“If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes.”

“Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management, and d) a sensible price tag.”

Both Buffett quotes.

I don’t think Biglari is an investment you should feel comfortable owning long-term, nor Sardar a trustworthy partner!

I think people are interpreting Buffett way too literally. His Korean stock purchases clearly do not meet the criteria above as well. But Buffett still did that trade and made it a point to highlight that.

treasurehunt has a rationale for why the business could be mispriced due to structural factors, understands management factor and seems to think there is enough margin of safety to make a profitable trade. That to me is the essence of value investing. Whether it works or not is a separate issue.

Vinod

I quoted Buffett because I agree with the quote, completely! If you put your money in the hands of somebody that’s not trustworthy you’re on a ride you shouldn’t be. That to me is the essence of a bad investment, whether it works or not.

All I am saying is, by being less dogmatic and our returns would be much better.

If you draw a line in the sand and say if there is a question of management integrity, you would not invest. I can understand that. We all have to draw the line somewhere.

When Buffett invested in Korean stocks, he had no idea about the management. The margin of safety is so high, he can ignore it and still expect good results.

There are many approaches that work in investing. No need for a value investing Jihad on the one right approach.

It is not like what Buffett says is the scripture. There is always more nuance.

What you quote makes perfect sense. I agree too. But you also need to understand the context and where it is applicable.

Here a person is not investing in a business with the intent to hold long term. Walter Schloss did alright with a different approach.

I would buy BH too if the discount to IV is large enough. It is not there for me.

Vinod


« Last Edit: May 01, 2018, 07:43:33 AM by vinod1 »
The fundamental algorithm of life: repeat what works. –Charlie Munger

DanielGMask

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Re: What are you buying today?
« Reply #2926 on: May 01, 2018, 08:08:10 AM »
I may need to duck and cover after posting this, but I bought some Biglari Holdings today.

I know, Sardar is the worst partner money can buy, but this is just a short-term trade on the assumption that the 20%+ drop in the price of BH is due mostly to the company getting dumped from the Smallcap 600 index. Reading reports of the annual meeting that was held last week, it doesn't look like Sardar dropped any unexpected bombs that would explain the cratering stock price (the dual class stock structure was a foregone conclusion). Volume in the stock today was about 30 times normal volume, which is probably due to index funds selling.

In any case, the next couple of weeks will either make me some money or teach me an expensive lesson.

“If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes.”

“Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management, and d) a sensible price tag.”

Both Buffett quotes.

I don’t think Biglari is an investment you should feel comfortable owning long-term, nor Sardar a trustworthy partner!

I think people are interpreting Buffett way too literally. His Korean stock purchases clearly do not meet the criteria above as well. But Buffett still did that trade and made it a point to highlight that.

treasurehunt has a rationale for why the business could be mispriced due to structural factors, understands management factor and seems to think there is enough margin of safety to make a profitable trade. That to me is the essence of value investing. Whether it works or not is a separate issue.

Vinod

I quoted Buffett because I agree with the quote, completely! If you put your money in the hands of somebody that’s not trustworthy you’re on a ride you shouldn’t be. That to me is the essence of a bad investment, whether it works or not.

All I am saying is, by being less dogmatic and our returns would be much better.

If you draw a line in the sand and say if there is a question of management integrity, you would not invest. I can understand that. We all have to draw the line somewhere.

When Buffett invested in Korean stocks, he had no idea about the management. The margin of safety is so high, he can ignore it and still expect good results.

There are many approaches that work in investing. No need for a value investing Jihad on the one right approach.

It is not like what Buffett says is the scripture. There is always more nuance.

What you quote makes perfect sense. I agree too. But you also need to understand the context and where it is applicable.

Here a person is not investing in a business with the intent to hold long term. Walter Schloss did alright with a different approach.

I would buy BH too if the discount to IV is large enough. It is not there for me.

Vinod

I agree with you except on the part “I would buy BH too if the discount to IV is large enough...”.

It’s very different to invest in something you have no negatives about management’s integrity, even though you may not know anything positive either (Korean stocks), to investing in something you already know several negatives about management (Biglari). That’s thumb sucking and it has nothing to do with being dogmatic.

There are several companies where to invest, people should avoid companies where management is not trustworthy.
You should follow me on twitter @ManSalceda

John Hjorth

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Re: What are you buying today?
« Reply #2927 on: May 01, 2018, 10:15:47 AM »
I may need to duck and cover after posting this, but I bought some Biglari Holdings today.

I know, Sardar is the worst partner money can buy, but this is just a short-term trade on the assumption that the 20%+ drop in the price of BH is due mostly to the company getting dumped from the Smallcap 600 index. Reading reports of the annual meeting that was held last week, it doesn't look like Sardar dropped any unexpected bombs that would explain the cratering stock price (the dual class stock structure was a foregone conclusion). Volume in the stock today was about 30 times normal volume, which is probably due to index funds selling.

In any case, the next couple of weeks will either make me some money or teach me an expensive lesson.

Valid posts about BH from several fellow board members here - but not based on the time horizon applied by treasurehunt for this move. To me, it's more like SharperDingaan buying DB back in September 2016.
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villainx

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Re: What are you buying today?
« Reply #2928 on: May 01, 2018, 10:33:50 AM »
I think if there is an adequate margin of safety, why not?  The only thing to be weary of is forgetting the margin of safety and focusing on - if the trade works out - hey, I made a bunch of money by investing in a company with questionable management when it dropped by x%; that means I should invest in companies with questionable management and or I should invest in companies after it dropped x%. 


John Hjorth

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Re: What are you buying today?
« Reply #2929 on: May 01, 2018, 01:13:31 PM »
Added to BAC, C & JPM today.
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai