BH - Biglari Holdings

[writser]

Once again, this is not rational.
I have repeated over and over again that I look for 2 things:
1) a great entrepreneur
2) a business that gives him/her steady and safe fcf
And I have always said that I require BOTH.
When Brindle resigned, Lancashire was no longer what I look for. Period.

The real take away, that evidently you have missed, is this one:
Notwithstanding all the work and hours I had put into the effort of understanding Lancashire, as soon as it was no longer what I look for, I sold.

I didn't miss that. I said it was a consistent approach - but not rational. Every business is worth a price, with or without a great CEO at the helm. You value Lancashire at a couple of billion with mr. Brindle but at zero without him. Such a black-and-white approach will lead you to make stupid decisions like selling a 25% portfolio stake in a single morning regardless of price. What your costs were or if you averaged down doesn't matter: I hope you even made money. I just think the thought process is flawed. Your past results are irrelevant in that context. I didn't judge the results.

The comparison with a dream house doesn't make sense to me. You are saying you would buy that regardless of the asteroid risk because you love it, right? That doesn't make it a good investment though !! If you are looking to buy real estate solely to make money you'd be impersonal about its location and if several contractors warn you the foundations might be rotten you'd rather buy something else. Especially if your previous mansion just collapsed .

[giofranchi]

I didn't miss that. I said it was a consistent approach - but not rational. Every business is worth a price, with or without a great CEO at the helm. You value Lancashire at a couple of billion with mr. Brindle but at zero without him. Such a black-and-white approach will lead you to make stupid decisions like selling a 25% portfolio stake in a single morning. What your costs were or if you averaged down doesn't matter: I hope that you even made money. I just think the thought process is flawed. Your past results are also irrelevant in that context.

writser,
it clearly is not so… I simply found a better place for my capital… what I think might turn out to be a better place… As I have always said, I might be wrong!
I ask you the same question I have asked Tom:

why should I accept only 2), if I can get somewhere else both 1) and 2)?

Of course my past results are not irrelevant at all… because my thought process hasn’t changed!

The comparison with a dream house doesn't make sense to me. You are saying you would buy that regardless of the asteroid risk because you love it, right? That doesn't make it a good investment though. I hope that is not the way you consider your stock picks. If you are looking to buy real estate solely to make money you'd be impersonal about its location and if people from the neighbourhood warn you the foundations are rotten you'd rather buy something else.

Well, not only I read every post by detractors… if you have noticed, I also try to answer as many as I can… because the process of writing the answers to those posts helps me very much to understand if they are prophesizing an asteroid, or are true warnings about rotten foundations… I hope this answer is plain enough to let you understand which conclusion I have reached till now.

Gio

[writser]

it clearly is not so… I simply found a better place for my capital… what I think might turn out to be a better place… As I have always said, I might be wrong!

Back in April you mentioned you suddenly had a boatload of cash and no good ideas. You also said that you wouldn't buy back Lancashire at that point - regardless of price. As far as I am concerned that is not "finding a better place for your capital". It is also not a case of "why accepting only 2) when you can get 1) and 2) somewhere else".  I would call that "dumping a huge position at any price".

[Charlie]

I always thought that the real reason Gio gets comfortable with Biglari is because as an Italian he was used to Berlusconi. 

[giofranchi]

writser,
the problem is you are judging a thought process… without knowing it!
So, now let me try to summarize it as best as I can:

I buy businesses to hold them as long as possible.

I run two businesses every day.

This activity doesn’t let me jump in and out of stocks frequently.

I wouldn’t be able to muster the required confidence, and therefore I would make many mistakes.

If you buy and hold, to get satisfactory results, you must choose well.

JNJ, KO, WMT, etc. most probably won’t do.

My idea of choosing well is small to medium caps, with still great potential for growth.

They are risky: LRE is no JNJ, KO, WMT… LRE was founded the year I founded my company…

Then, how to reduce the risk? Two ways:
a) To be always very conscious about the price I pay
b) To require also an outstanding owner/manager

In fact, I require 1), 2), and 3): an outstanding owner/manger, steady and safe fcf, a good price.

If I’d invest in JNJ, KO, WMT, 1) would clearly not be a requisite.

Adding that requisite, and concentrating on small to medium caps, which are inherently riskier, I hope to achieve better results, running almost the same level of risk.

I am not saying my thought process is good for you, or anyone else. There are plenty of ways you certainly might do much better! And, probably, if I quit running my businesses, and I concentrate only on trading, I might become richer, faster!… But I love what I do. Some additional percentage points at the end of the year are no good reasons for a change…

Gio

[giofranchi]

it clearly is not so… I simply found a better place for my capital… what I think might turn out to be a better place… As I have always said, I might be wrong!

Back in April you mentioned you suddenly had a boatload of cash and no good ideas. You also said that you wouldn't buy back Lancashire at that point - regardless of price. As far as I am concerned that is not "finding a better place for your capital". It is also not a case of "why accepting only 2) when you can get 1) and 2) somewhere else".  I would call that "dumping a huge position at any price".

Almost the very same day I sold LRE, I also bought LMCA, GLRE, TPRE, and more ALS.

They might not have been great ideas, because 3) was not truly a bargain price… Yet, I preferred GLRE at 1.2 x BVPS with Einhorn to LRE at 1.4 x BVPS without Brindle… Is that so difficult to understand?

Gio

[giofranchi]

I always thought that the real reason Gio gets comfortable with Biglari is because as an Italian he was used to Berlusconi. 

Berlusconi had done exceptionally well for his shareholders, while he ran his companies… When he became a politician, two things happened:
1) He wasn’t able to do almost any good to his country
2) His companies’ performance started disappointing
Evidently, in politics those who predict asteroids win!

Gio

[premfan]

Hello Gio,

You seem like a great businessman and a rational investor.  Hence I don't see why you seek approval and validation in your approach. Continue compounding and living the dream. Forcing people to see the world in your view is a recipe for argument and useless semantics.  If your desire is to be a teacher or future investment guru then results speak louder than words. I would encourage you to build a public track record. This would satisfy your urge to preach your thoughts ( via shareholder letters).

It seems to me the context of the majority of your posts is teaching. You enjoy explaining your investment process. I bet you would write brilliant shareholder letters. Maybe investigate how to get in the public domain. This would build you credibility and a platform to teach to your followers.

premfan

[cobafdek]

Gio, sorry to say but you are the master of platitudes.

Platitudes?  Perhaps.  But platitudes embedded within 24-carat prose are no longer platitudes. 

In a similar vein, emoticons are generally annoying.  Yet, somehow, when wielded by Gio, they are no longer annoying.  It all adds up to what is Gio-style.

I, too, look forward to shareholder letters by Gio.

I can't tell who is winning this debate.  All I know is I don't want it to end.  Keep it up everyone, and pass some more popcorn.

[txitxo]

  Come on, guys, lay off Gio. I think that the strategy he is following is quite rational.

   Most people here will agree that no matter how many copies of Security Analysis are sold every year, there is only a small fraction of investors in the world who can consistently generate alpha during long periods of time. And only a handful of those can work the magic with very large amounts of money. Look at what Buffett has done when looking for successors. He could have hired a small army of smart, highly rational people out of college, and then train them to invest using his style for 20 years. But that does not work. Great investors are born, not taught, and their skill is extremely scarce.

  Gio's approach is to carefully identify a subset of them, the so called owners-managers, and then make sure, after thorough analysis, that the vehicles they use (their companies) are not too expensive. That's a very solid investing approach, almost guaranteed to significantly beat the market in the long term with a fraction of the work (and the distress) required by other methods. Gio says that he just  behaves like a businessman, etc. That's his story, but in the end, what the numbers say is that he is buying consistent, diversified, long term alpha at cheap prices.

 It therefore makes sense, using his framework, to sell when Brindle retires. Independently of how expensive or cheap the company is, there is no guarantee the new team will produce the same long term returns.

    Regarding BH, yes, Biglari is likely to keep generating significant alpha in the future. But his long term track record indicates that most of that overperformance will go to his pocket, and not the shareholders'...