Author Topic: BH - Biglari Holdings  (Read 1314829 times)

wescobrk

  • Hero Member
  • *****
  • Posts: 670
Re: BH - Biglari Holdings
« Reply #90 on: March 07, 2013, 04:57:24 AM »
Are you factoring in the incentive comp on 15% cagr? Shareholders will probably receive closer to 12%.


wescobrk

  • Hero Member
  • *****
  • Posts: 670
Re: BH - Biglari Holdings
« Reply #91 on: March 07, 2013, 05:12:43 AM »
Incidentally, Buffett would have received about 3 billion if he had sardar's agreement for, in his words, a subpar year.
Granted he had that agreement when he had the hedge fund but a public company with permanent capital is different and the fact that the average roe for a corporation is 10-12% means there is quite a bit of compensation above the 6% hurdle for even an average company.

giofranchi

  • Hero Member
  • *****
  • Posts: 5509
  • Twitter: @giovfranchi
    • Master School Politecnico di Milano
Re: BH - Biglari Holdings
« Reply #92 on: March 07, 2013, 05:33:45 AM »
Are you factoring in the incentive comp on 15% cagr? Shareholders will probably receive closer to 12%.

Increase in BV per share by definition is the increase in equity divided by the number of shares outstanding, after all costs are subtracted. It follows that a 15% CAGR in BV per share is by definition after incentive comp. You might view it as rightly due, or you might judge it much too high, anyway incentive comp is just another cost, right?

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

rmitz

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 502
Re: BH - Biglari Holdings
« Reply #93 on: March 07, 2013, 05:49:30 AM »
Sardar may get no respect from the peanut gallery but he still has a following of a microcosm among those that pride themselves of being value investors. And that's all he needs honestly. If he's measuring himself against himself and his past (and this, I believe, is the most objective way of measuring oneself) he's done quite well. In 2000's he was barely worth a million (from selling his first venture) and fast forward to 2013 and he's worth a multiple of that, has his own springboard and he's not completely off-track from where he wants to be.

Granted, he is not as humble as Warren Buffett, I'm sure he thinks that he doesn't need to be. In some ways, he's the antithesis of Buffett in that Biglari choses to be hostile (think proxy fights) where Warren chose to be humble (think keeping same leadership). Sardar has got it all figured out in his head and so far he has made out well personally, even while his stock continues to languish for over 3 years (which is a story unto itself).

Two things.  1) Buffett was not always Mr. Nice Guy.  2) The best measure of a man is the size of his bank account?  I reject that entirely.

udravi

  • Newbie
  • *
  • Posts: 13
Re: BH - Biglari Holdings
« Reply #94 on: March 07, 2013, 06:25:28 AM »
Incidentally, Buffett would have received about 3 billion if he had sardar's agreement for, in his words, a subpar year.
Granted he had that agreement when he had the hedge fund but a public company with permanent capital is different and the fact that the average roe for a corporation is 10-12% means there is quite a bit of compensation above the 6% hurdle for even an average company.

I own a few BH shares and have been following this debate.
I am by no means an expert, but excessive compensation is a problem at a vast majority of companies.

If I understand correctly, Sardar's incentive compensation is limited to 10 million USD. If nothing else he won't get overcompensated if he underperforms.

wescobrk

  • Hero Member
  • *****
  • Posts: 670
Re: BH - Biglari Holdings
« Reply #95 on: March 07, 2013, 06:44:23 AM »
I am by no means an expert, but excessive compensation is a problem at a vast majority of companies.

If I understand correctly, Sardar's incentive compensation is limited to 10 million USD. If nothing else he won't get overcompensated if he underperforms."

That's true but it was originally proposed 5% hurdle and no cap. That 10 million cap isn't inflation adjusted and Sardar has hinted it will be removed. You need to factor in the probability of it being removed because it's a matter of when not if.

wescobrk

  • Hero Member
  • *****
  • Posts: 670
Re: BH - Biglari Holdings
« Reply #96 on: March 07, 2013, 06:46:27 AM »
I think he's doing a brilliant job but losing one fourth of gains above the hurdle is a very big adjustment to make for net returns is my only point.

WideMoat

  • Jr. Member
  • **
  • Posts: 63
    • Wide Moat Investing
Re: BH - Biglari Holdings
« Reply #97 on: March 07, 2013, 07:31:45 AM »
Leaving aside the compensation scheme, I have been less than impressed by the growth in BV (per share) under Biglari's rule.  (Acc. to the BH proxy, this is a "reasonable, albeit conservative proxy for gain in intrinsic value.")

At 9/24/08, BV was 284m (with 28.66m shares out, or 1.43m shares split-adjusted). 
At 9/30/09, BV was 292m.
At 9/29/10, BV was 249m.
At 9/28/11, BV was 280m.
At 9/26/12, BV was 349m (with 1.43m shares out).

Given those results, it strikes me as excessively optimistic to expect BH to return 15% per annum on BV (even before incentive comp).

In addition, given the size of the CBRL stake, and Biglari's expressed desire to hold for the long term, BH shareholders will effectively need CBRL to grow its market price p.s. (now at 1.84b) at 15% per annum, to get those results.  That strikes me as even more optimistic than the first.

premfan

  • Sr. Member
  • ****
  • Posts: 394
Re: BH - Biglari Holdings
« Reply #98 on: March 07, 2013, 08:03:49 AM »
Are you factoring in the incentive comp on 15% cagr? Shareholders will probably receive closer to 12%.

Increase in BV per share by definition is the increase in equity divided by the number of shares outstanding, after all costs are subtracted. It follows that a 15% CAGR in BV per share is by definition after incentive comp. You might view it as rightly due, or you might judge it much too high, anyway incentive comp is just another cost, right?

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

Gio, it seems like you are anchored in your assumptions of biglari. As a boardmember and former owner of the company i was here first hand during the incentive fiasco. If you havent already  reviewed the archives please do. If biglari holdings increases BV at 15 percent you as a shareholder gains about 10 percent BV and he profits the rest. So to realize shareholder gain of 15 percent BV he would need to average 20 percent BV per year. I have read all the lion fund letters when i requested them from biglari's receptionist and he averaged in the mid teens in return with a much lower capital base. 

constructive

  • Hero Member
  • *****
  • Posts: 973
    • My Seeking Alpha articles
Re: BH - Biglari Holdings
« Reply #99 on: March 07, 2013, 08:23:10 AM »
If biglari holdings increases BV at 15 percent you as a shareholder gains about 10 percent BV and he profits the rest. So to realize shareholder gain of 15 percent BV he would need to average 20 percent BV per year.

Gross BV Increase        Compensation (25% over 6%)       Net BV Increase
         11.33%                                 1.33%                                  10.0%
         15.0%                                    2.25%                                 12.75%
         18.0%                                    3.0%                                   15.0%
         20.0%                                    3.5%                                   16.5%