Author Topic: BH - Biglari Holdings  (Read 1312212 times)

ItsAValueTrap

  • Hero Member
  • *****
  • Posts: 1945
    • Blog
Re: BH - Biglari Holdings
« Reply #620 on: July 23, 2014, 07:35:36 PM »
Finally--and oh man did this go longer than I had intended--being an asshole and elbowing out certain shareholders seems to have gotten other managers rich. John Malone is one example (and no, I'm not intending to compare the two). Cable Cowboy covers story after story about how Malone wrestled control through opaque corporate structuring maneuvers that strategically siphoned the best assets into subsidiaries that he had a higher probability of understanding/controlling than the predecessor structures. Here's the quote (emphasis added).

In Malone's case, investors were presented a choice.  Unfortunately for them, they were defaulted into the bad choice and nudged in that direction.  But... at least they had a choice.  With Biglari, shareholders aren't getting a say in these special deals, the corporate aircraft (including a G650 which is the hottest corporate jet you can get), etc. etc.

Sometimes things don't end so well with that type of management.  They might go on to do something really screwed up.  If you own a basket of these things, perhaps shareholder return will be mediocre once you factor in all of the blow ups.
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. " -Buffett

my blog


giofranchi

  • Hero Member
  • *****
  • Posts: 5509
  • Twitter: @giovfranchi
    • Master School Politecnico di Milano
Re: BH - Biglari Holdings
« Reply #621 on: July 23, 2014, 11:38:03 PM »
[Actually, to edit, the case where he isn't aligned with you is the Fairfax hedging scenario.  Watsa believed that hedging was the right strategy, and did it.  Biglari is incented not to do such a strategy -- even if he believes that it's the best strategy for shareholders -- because it impacts his income.  Incentives are tricky, which is why there is value in working with someone who you can trust to act in shareholders' best interests, not their own.]

So, now Mr. Biglari is also accused to be short term oriented, and not to think for the long term good of BH… Because, if he believed hedging were a good strategy to maximize BVPS over the long term, and if he were long term oriented, why shouldn’t he be hedging?! The higher BVPS over the long term, the richer he’ll be! No... he doesn’t hedge, because BH’s operating businesses are the best hedges anyone can find: probably, fast-food franchising does better in a recession than during economic prosperity.

1. He bought a small fraction of a company, then began taking over your company using money that is rightfully the shareholders'.  This isn't in the shareholders' best interests.
2. He renamed the company and added a licensing fee if he's ever terminated, so as to solidify his control and get paid for failure.  This is not in the shareholders' best interests.
3. He did this while lying to shareholders about what he was planning to do.  He could have simply stayed silent.  Instead, he decided that acting deceitfully was the best way to manipulate shareholders to doing what he wanted.  This is not in shareholders' best interests.
4. He is issuing rights, which will both cost you money in issuance costs, and accelerate the time it takes for the company to get big enough that its returns fall.  This is not in shareholders' best interests (though it makes Biglari's paydays bigger.  Coincidence, I guess.)

1. What do you mean “using money that is rightfully the shareholders’”?… Money he made the shareholders pay him for his services, and that you don’t think he deserved?… Clearly, I don’t understand this compensation problem…
2. Yeah… Control is a problem… But the fact is I want him to have full control over BH as soon as possible! I know what it is like to run a company without full control, I know what is like to run a company with full control: if you want great results, go for the latter all the times! Another way to get full control, for instance, is to introduce a second class of super voting shares… and that is also a much criticized practice by detractors… who evidently have never run a business in their whole life!
3. Lying… I guess because in the beginning he said he would not be paid for his services… right? Is that what you mean? Well, those shareholders he “lied” to went on to make a lot of money! Then they could have cashed in anytime they wanted and said goodbye! If those are the consequences of “lying”, well then lie to me all the time, please! Anyway, I might agree with you: that was a mistake… made by a very young entrepreneur, who had never run a public company in his life before, and who found himself all of a sudden with lots of responsibilities… Let me ask you: do you still remember what you were doing, and which kind of responsibilities fell upon you, when little over 30 years old? Are you sure, if you had been in Mr. Biglari’s shoes, you would have made no mistakes?
4. I made money the first time he issued rights, I am quite convinced I will make money this time again.

Anything multiplied by zero is zero.  So, if he makes you 25% this year, 25% next year, 25% for the next ten years, then you lose -100% because he does some unethical thing that costs shareholders, then your outcome is zero, despite the good years.

Then, I had understood well… But I don’t see why in year 21, after 20 years of great performance, of building a very successful company, all of a sudden he should dream of making “some unethical thing” that wholly destroys the work of a lifetime… Maybe I simply don’t get it, but do you think it would be rational? ???

I haven't spent a lot of time looking at it, and don't want to.  That said pretty well every company coming out of the great recession is more profitable than it was before.  Welcome to low interest rates, rising employment, and an improving economy.

I really don’t see what low interests, rising employment, and an improving economy (doubtful!!) might have anything to do with improving same stores traffic, or with getting new and very profitable franchising agreements… Richard, do you run a company? Has the “improving economy” done anything for you the last three years? Not for me!! ;)

Yeah, this is interesting to me, because I wouldn't invest in a Kozlowsli or Jeff Skilling company, despite the fact that they had great records.  Maybe that isn't rational, though I think there's something to be said for the argument.  I would guess that there's a correlation between people taking advantage of shareholders in small ways, and taking advantage of them in large ways.  Also, I think there's other options, like Watsa and Buffett that I'd prefer.

I think you didn’t invested with Mr. Kozlowsli nor Mr. Skilling because you didn’t understand what they were doing… you couldn’t answer these questions:
a) How much of their success was luck?
b) What things have they done to achieve success?
c) Can they replicate those things going forward?
d) Which are the possible obstacles that might arise going forward?
e) Are they aware of those potential problems?
f) How could they deal with those problems?
g) Etc.
I would say the inability to answer those questions in Mr. Kozlowsli’s and Mr. Skilling’s cases is the true reason why you and I didn’t invest in their businesses. At least, I am sure that is the reason as far as I am concerned! Can I answer those questions in BH’s case? I think I can. :)

Gio
« Last Edit: July 23, 2014, 11:55:56 PM by giofranchi »
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

Parsad

  • Administrator
  • Hero Member
  • *****
  • Posts: 8654
Re: BH - Biglari Holdings
« Reply #622 on: July 23, 2014, 11:58:30 PM »
Gio,

Respectfully, I believe you and others will do nothing but find excuse after excuse for Sardar's behavior.  I don't even bother with these debates anymore, because there will always be a subset of people who say I harbor past grudges, just as there will always be people who will justify any conduct if it makes them a buck!

I've been involved with a company recently, where the CEO has been a disgrace in terms of self-entitlement and he constantly blames others for his failures, both in terms of the company's operations and his own compensation.  The only reason people ignore Sardar's failures in corporate governance, compensation and ethics is because he has been successful on the company operational side. 

That success gives him the opportunity to write his own check, while shareholder's gleefully ignore other troubling symptoms.  But that's ok if you guys want to ignore those symptoms or lapses...just let go of the charade of excusing his behavior and simply embrace the fact that you want to make a buck regardless of the CEO's ethics.  There's no shame in that...but forget about trying to explain to us over and over how his conduct is misunderstood. 

I invested in SED International...I knew Sham had not properly disclosed certain charges against him, but I still bought shares because I thought they were cheap...but I'm not going to sit and argue on the SED thread on how great his ethical conduct is.  If you think Biglari Holdings is a good investment or is cheap...great!  But stop the BS...and please stop calling him Mr. Biglari...it's driving me nuts!   ;D 

He's not Buffett, he's not Watsa, he's not even Mohnish Pabrai!  You can take what those three say to the bank.  You can't bank on what Biglari says!  Cheers! 
No man is a failure who has friends!

Parsad

  • Administrator
  • Hero Member
  • *****
  • Posts: 8654
Re: BH - Biglari Holdings
« Reply #623 on: July 24, 2014, 12:10:45 AM »
Biglari Holdings aircrafts...fractional and non-fractional.  Cheers!

http://registry.faa.gov/aircraftinquiry/Name_Results.aspx?Nametxt=BIGLARI&sort_option=5&PageNo=1
No man is a failure who has friends!

giofranchi

  • Hero Member
  • *****
  • Posts: 5509
  • Twitter: @giovfranchi
    • Master School Politecnico di Milano
Re: BH - Biglari Holdings
« Reply #624 on: July 24, 2014, 12:26:16 AM »
Gio,

Respectfully, I believe you and others will do nothing but find excuse after excuse for Sardar's behavior.  I don't even bother with these debates anymore, because there will always be a subset of people who say I harbor past grudges, just as there will always be people who will justify any conduct if it makes them a buck!

I've been involved with a company recently, where the CEO has been a disgrace in terms of self-entitlement and he constantly blames others for his failures, both in terms of the company's operations and his own compensation.  The only reason people ignore Sardar's failures in corporate governance, compensation and ethics is because he has been successful on the company operational side. 

That success gives him the opportunity to write his own check, while shareholder's gleefully ignore other troubling symptoms.  But that's ok if you guys want to ignore those symptoms or lapses...just let go of the charade of excusing his behavior and simply embrace the fact that you want to make a buck regardless of the CEO's ethics.  There's no shame in that...but forget about trying to explain to us over and over how his conduct is misunderstood. 

I invested in SED International...I knew Sham had not properly disclosed certain charges against him, but I still bought shares because I thought they were cheap...but I'm not going to sit and argue on the SED thread on how great his ethical conduct is.  If you think Biglari Holdings is a good investment or is cheap...great!  But stop the BS...and please stop calling him Mr. Biglari...it's driving me nuts!   ;D 

He's not Buffett, he's not Watsa, he's not even Mohnish Pabrai!  You can take what those three say to the bank.  You can't bank on what Biglari says!  Cheers!

 ;D ;D ;D

Sanjeev,
I call everyone Mr./Mrs. + his/her surname… Ahahahah!!!!

Ok, then, I will stop it here…

Just want to point out that my idea is more general. It goes beyond the discussion about BH. And it is simply this: try to base an investment on whose “words could be taken to the bank”, and whose words instead cannot, and you won’t be right much more often than if you flip a coin. Try, instead, to base an investment answering those questions from a) to f) in my last post, and you might end up doing a bit better than if you flip a coin. ;)

When you try to judge people’s character, simply too many subjective things get in the way… And it is extremely difficult to think and judge rationally. Instead, when you try to judge the quality of a business, the actions and the decisions taken by management (instead of their character), things stay on a much more impersonal level. And that imo leads to better choices.

Cheers,

Gio
« Last Edit: July 24, 2014, 01:17:00 AM by giofranchi »
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

giofranchi

  • Hero Member
  • *****
  • Posts: 5509
  • Twitter: @giovfranchi
    • Master School Politecnico di Milano
Re: BH - Biglari Holdings
« Reply #625 on: July 24, 2014, 12:32:38 AM »
the corporate aircraft (including a G650 which is the hottest corporate jet you can get)

Well, I know Mr. Biglari Sardar  ;D is trying to expand the franchise abroad. For this reason the ownership of a jet might be a sound investment… We will see! My hope is he doesn’t use the jet for personal reasons… That would truly be an unjustified waste of shareholders’ money! (As if I didn’t know lots of CEOs who use the corporate jet for personal reasons… ::) )

In Malone's case, investors were presented a choice.  Unfortunately for them, they were defaulted into the bad choice and nudged in that direction.  But... at least they had a choice.  With Biglari, shareholders aren't getting a say in these special deals

I don't think this is true: shareholders always have options. They simply can cash in, selling the rights they receive and using the proceeds elsewhere.

Gio
« Last Edit: July 24, 2014, 12:37:18 AM by giofranchi »
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

Parsad

  • Administrator
  • Hero Member
  • *****
  • Posts: 8654
Re: BH - Biglari Holdings
« Reply #626 on: July 24, 2014, 01:05:58 AM »
the corporate aircraft (including a G650 which is the hottest corporate jet you can get)

Well, I know Mr. Biglari Sardar  ;D is trying to expand the franchise abroad. For this reason the ownership of a jet might be a sound investment…

Much better!  Cheers!
No man is a failure who has friends!

tombgrt

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1943
Re: BH - Biglari Holdings
« Reply #627 on: July 24, 2014, 02:27:03 AM »
the corporate aircraft (including a G650 which is the hottest corporate jet you can get)

Well, I know Mr. Biglari Sardar  ;D is trying to expand the franchise abroad. For this reason the ownership of a jet might be a sound investment…

Oh yes, a $65M jet is a great way to spend money to expand a business with a $700M market cap...

writser

  • Hero Member
  • *****
  • Posts: 1883
Re: BH - Biglari Holdings
« Reply #628 on: July 24, 2014, 02:39:24 AM »
Does he actually own a G650? I don't see that in the FAA registry - looks like he 'only' timeshares three older Gulfstream models and a Cessna.

Maybe he's planning to buy one, that would explain the rights offering ;) .
« Last Edit: July 24, 2014, 02:46:35 AM by writser »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

giofranchi

  • Hero Member
  • *****
  • Posts: 5509
  • Twitter: @giovfranchi
    • Master School Politecnico di Milano
Re: BH - Biglari Holdings
« Reply #629 on: July 24, 2014, 03:34:42 AM »
Oh yes, a $65M jet is a great way to spend money to expand a business with a $700M market cap...

Well, you are right… It doesn’t certainly seem to be a sound investment. ;)
Once again, I try not to judge every single investment decision… Some will be good, others will be poor… Overall I think results will be satisfactory.

Instead, as I have already said, I would be quite disappointed if that corporate jet were used for personal reasons.

Gio
« Last Edit: July 24, 2014, 04:56:45 AM by giofranchi »
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