Parsad

Last year, a bunch of us gathered at the bar in the hotel (Marriott Suites O'Hare) attached to Carlucci's, just before the Pabrai Funds AGM. I think it would probably be a good idea to do that again this year. Let me know who would be interested in meeting around 1:30pm-2:00pm. Cheers!

Munger makes very good points here. In terms of economic crisis, I believe comparing March of 09 to the Great Depression is like comparing apples to oranges. I mean, really, has anyone heard of people working for food in the past year? I can't say what the Great Depression was like, obviously, but judging by the stories from the people that lived through it, it seemed to be much more painful than what happened in the past year. Although, who knows, without the massive intervention, we might have seen people working for food in 2010. We were well on our way if it wasn't for the coordinated intervention, quantitative easing, Fed windows, and the various programs put in place (TARP, housing tax credits, extended unemployment benefits, etc). The outcome would have been very similar if not for the many programs that the populous is highly critical of today. http://www.voxeu.org/index.php?q=node/3421 At the height of the crisis, the inital five months from June 2008 to October 2008, no one in their right mind would have thought that the outcome would have been as fortuitous as it has been...this is lucky! Count your blessings we didn't see the 100-year storm! You have some people working for food, but most don't because their unemployment benefits were extended almost 24 months. The deleveraging process isn't over...we still may see alot of people drifting from state to state looking for work, as it will take years to get unemployment back to the lows of 2006-2007. Cheers!

Steak'n Shake is one of the sponsers of the NBA Indiana Pacers and WNBA Indiana Fever. Cheers! http://www.indystar.com/article/20100825/BUSINESS/308250002/1003/Steak-n-Shake-partners-with-Fever-Pacers

Sanjeev, I don't see why you call Sprott a nut. You advocate long term returns and you beat him on the head for 2008, one year out of 30? Out of 30 years, he has made 20% net for his investors compounded after copious fees for: 1) his managed accounts (read stock market superstars) 2) his Canadian equity fund (19% IRR since 1997 as of last month, close to 13 points ahead of the TSX) 3) his hedge fund is also up 20% annually since 2000 Some of his funds have been launched a few years ago and/or are not managed directly by him. Watsa has had several years of terrible performance and very large leverage. He came out of it but quite possibly could not have (look at his debt to equity ratio just a few years back at FFH...). A lot of your comments I agree with but your cheap unjustified shots at Sprott don't make any sense. Hi Frog, As I mentioned to Broxburn in another post, the "nuts" comment was tongue in cheek. Sprott has a heavy vested interest in gold and commodities, and I have no interest in them whatsoever...the "nuts" comment was a tongue in cheek shot at that. Cheers!

Headlines were bad but reality was not ugly -- peak to trough GDP decline of 1-2% is nothing compared to historical periods of stress. C'mon Munger, Bill Gross was writing about the death of equities, 3000 hedge funds went under (one-third of all that existed), the credit markets were completely...and I mean completely...seized! The debacle with the credit markets was as bad as anything experienced in the early days of the 1929 market crash. It took one hell of a coordinated effort around the world to start to loosen things up, otherwise we most definitely would have been looking at another Depression. Buffett called it "an economic pearl harbour!" Prem expected a one in 50 or 100 year storm...we got the 50 one! I remember the sentiment around value investors...you couldn't get them to buy stuff...WFC at $9, GE at $6, Costco at $39...nope! Friggin' Starbucks was selling at $8! Literally everything had stopped! Go back and look at the drop in rail traffic and cargo volume between 2007, 2008 and then 2009...it was a cliff-like drop in the 4th Q 2008. The diehard investors were scared sh*tless! If you click the last few pages on the "General Discussion" page on this site, it will take you back to about February 2009 when this board was launched. You can read some of the posts, articles and stories on there. There were only a handful of boardmembers who were buying right at the bottom. And sentiment was even worse back around August through October of 2008 when the credit markets seized. Anybody who thinks that period wasn't damn ugly is fooling themselves. Cheers!

It's one thing to take issue with his macro views, but to label him "nuts" is more suitable for a sound bite on Fox News, than an informed discussion. Hi Broxburn, The Sprott comment was tongue in cheek. I thought I put a smiley face on the end of that exclamation point but I guess I didn't. He's a gold and commodity bug, which is the complete opposite of what I would do, thus the "nuts" comment. Cheers!

In n Out is pretty good but I agree that the patties are almost like McD's. Have to disagree with you on White Spot although it is a favourite of many Vancouverites - I still can't figure out why. Earls and Milestones serve up better burgers, imo. Vera's used to be good. My personal favourite is Moderne Burger in Vancouver West - you should check it out. I've been to Moderne a number of times. Good burgers and their fries are really good. I think the burgers taste good at Moderne because of the atmosphere...kitchsy diner feel...kind of like Sophie's Cosmic Cafe for breakfast...the food is pretty good, but the atmosphere makes it taste better than it really is. Vera's has very tasty burgers, but their fries are awful. I hate those places with small fries...other than the old-fashioned McDonald's fries...probably the best thing they've ever made. Although I read a blog by a very famous food critic who said he could not live without a Filet-O-Fish! I had the lamb burger and fries at Balthazar's in Manhattan. Very good burger, but the fries were crazy good! The best sliders I've ever had are the Kobe Beef sliders at Trevor's Kitchen Bar & Grill in Toronto. Hands down the best sliders you are going to taste! I know it's not a burger, but I had a fantastic Nathan's All Beef hot dog while watching the Vancouver Canadiens minor-league baseball team play last night. Juicy, crisp, flavorful, nice amount of salt and a terrific soft hot dog bun. Ok, I think this is getting crazy! Cheers!

What are 3 of the top performers in the stock market in North America over the last 30+ years? Buffett, Watsa, Sprott. Buffett : His exposure to stocks as a percentage of assets is not super high Watsa : Fully hedged Sprott : 3/4 in precious metals and precious metal stocks, some shorting of financials/retailers/etc Buffett just completed the largest equity purchase in Berkshire history - Burlington Northern Santa Fe! Yes, he took it private, but he still paid market prices. Prem just finished buying all of his public subsidiaries at market prices. Again, they are private now and their valuation is not open to the whims of Mr. Market, but he still paid market prices and the long-term outcome of his investment is completely predicated on the price he paid. Sprott - Well, he's just nuts! Incidentally, outside of his hedge fund which was hedged, didn't all of his other funds get absolutely killed when commodity markets corrected back in 2008? I think they were all down a minimum of 35%, and all the way up to 65% in 2008. Cheers!

Hi Viking, Things were pretty damn ugly from September 2008 to March 2009, yet the world didn't end. When it comes to the US' future...I'm most definitely an optimist. How can you not be? The United States is the cradle of innovation...other countries may make it better, but the US makes it in the first place. We've (even though I'm Canadian) been in worse places in the last twenty years...9/11 comes to mind...yet what did the US do? The country completely united, not unlike us Canadians during the Winter Olympics, and that's a very powerful thing. They will come out of this better and stronger! Cheers!

No, it just means people are cocooning because it's cheaper. After every downturn in the economy this happens. Depending on the degree of downturn, the greater the level of impact. Remember when areas of Time Square were completely boarded up in the 70's? Or the downturn in the California economy after the late 80's/early 90's real estate crash. The same thing happend, although not quite as obvious, in San Jose and Silicon Valley after the tech wreck. When the tap gets turned off and the lights come on, everyone goes home from the party...and usually with an unpleasant headache and bad breath! ;D Cheers!

Stocks bounced sooner, faster than I expected (and if truthful -- sooner, faster than virtually everyone else expected for that matter). We were pretty close. From our 2008 Annual Letter, written to partners during February 2009: One final note on equity prices today. Just this week, the Dow Jones Index hit a 12-year low. This has happened only two times before…from 1921-1932 and 1962-1974. After 1932, the Dow was up +60% within two years. After 1974, the Dow was up +70% within two years. As horrible as the news feels these days, valuations for stocks are probably the most attractive we have seen in our investing life. In many sectors, they are probably the cheapest we will see in our remaining lifetime. Without a doubt, stocks and corporate bonds provide extraordinary value at the present time. As investors, we could not be more ecstatic! Now let me make one thing clear, because I've had to answer this question over and over since I said that I thought large-cap stocks provide considerable value. In particular Munger, pay close attention to this: I am not saying that stocks are as cheap as they were during the credit crisis, or that there is blood in the streets, or that stocks are as cheap as the Great Depression's bottom, or that the credit crisis' bottom was as low as the bottom during the Great Depression! ;D All I said was that large-cap stocks offer considerable value relative to the alternatives...treasuries, munis, corporate bonds, commodities, other categories of the stock market, emerging stocks. And that particular stocks, many of which are large caps, are cheaper than they were during the credit crisis. That's it! I'm not saying that you should be fully invested, that you will make a killing from here, that stocks won't get cheaper, nothing of the sort. Only that some large-cap stocks offer very good values. I do disagree with one point, and only hindsight will provide the answer with any certainty, is that we will not see the lows of March 2009 in North America. I think Europe could face severe headwinds and Japan is in a very difficult position, but I don't think the United States itself is in quite the dire situation that many people are crying about. - Yes, they are in the midst of an enormous deleveraging process that could take years. - Yes, unemployment is at a level that affects consumer and business sentiment, and will take many years to get back to levels seen in 2006-2007. - Yes, the US needs to get its fiscal house in order at every level...federal, state, municipal, consumer...and it won't happen without compromise and sacrifice. - Yes, huge commercial losses are yet to come, and FNM and FRE will probably have to be nationalized or certain aspects of their business severely curtailed. - Yes, housing has yet to stabilize. But I think the US has done a much better job than Japan ever did at hacking away at the bad loans and restructuring financial institutions. They will also work their way through the backlog of housing inventory faster than could be expected based on the massive amount of inventory they were originally dealt. Corporations, the backbone of the economic system, are in better shape to handle future shocks to the system (which will come). Interest rates eventually will have a stimulatory effect as the yield curve continues to flatten...banks will have to start to loosen up their lending...30 year mortgages will be cheaper than renting...buying homes will be cheaper than building from scratch...institutions, especially insurers and pension funds will have to reach for yield and will allocate their large cash pools into other asset classes, including equities and real estate. The economic cycle never ends...it just becomes contracted or protracted depending on the stress in the system. Cheers!

Hawks, not sure how my name got in that list, but I hope it's there 20-30 years from now! ;D I think the sentiment is what it is BECAUSE none of us know where the bottom is. I'm usually early in and early out...sorry, I'm not good at timing the market. The problem is that we are almost two years out now from the bottom of the 2008 drop, and a year and a half out from the bottom of the February/March 2009 drop. I think investors are generally anchored to the last bottom. For people who lived through the Great Depression, the bottom was around April of 1932 and they were anchored to that for the next three generations! This time, the anchor and a fairly significant one, was the first week of March 2009, when the Dow hit 6600. That is going to be tough for investors to let go of, even the more experienced value investors. Guys like David Rosenberg et al, keep making us think we are going back there. Maybe we are, maybe we aren't. All I know is that the lows of April 1932 were never, ever seen again...not in the last 78 years! The top of July 1929 wasn't matched again for another 25 years, but people were so afraid they completely missed the bottom...which lasted all of 2 months! And getting back up to the top from the bottom would have been a 700% return over those 22 years. As I said then, I don't think we will see 6600 on the Dow again. We may see 8500, but we won't get down to 6600. At the end of 2008, Walmart was making about $13.4B. At the lows in February/March 2009, Walmart's market cap fell to $170B or a multiple of 12.7. At the end of 2010, Walmart will have earned over $15.5B in its last four quarters, and it's market cap today is $189B or a multiple of 12.2! So during the absolute worst of the credit crunch Walmart had a higher multiple than what it has today...would you buy more or less of it if the price fell from here? Common sense would dictate you would buy as much as you friggin' can! Keep some powder dry...focus on valuation and intrinsic value. Don't leverage, don't gamble and buy things you aren't afraid to hold for years. Uphoria and fear are two symptoms of a manic-depressive market. We enjoyed uphoria last year and fear is now rampant again. Both are needed to sell newspapers, but they make awful investment weather vanes! Cheers!

In and out has incredible burgers... I don't know, the patty itself tastes very plain to me...almost like a McDonald's patty. We have a family run burger joint in vancouver called Whitespot that's been around for about 60 years. Their burgers and shakes are terrific! You can get a fantastic burger (my favorite actually) at a local chain of restaurants called "Earls"...they are the best burgers I've eaten anywhere. The Red Robin burgers are pretty good for mid-priced. Steak'n Shake burgers are quite good for a cheap, fast-food burger. I can eat an In & Out burger, but I think the appeal has more to do with the burger culture and following around it. Anyway, that's what my unsophisticated taste buds say. ;D Cheers!

Funny thing is that taste has little to do with economic success. Look at McDonalds! All about execution. Even In & Out is about execution. I don't think their burgers taste that good, but they get the customer in and then literally out. I think Steak'n Shake burgers taste better than In & Out. Haven't tried Five Guys yet...they have a couple of locations here now but they are in the burbs. Cheers!

William Hanley, from the Financial Post, gives a terrific 80th Birthday salutation to Warren. Cheers! http://www.financialpost.com/opinion/columnists/Happy80th+Buffett/3427225/story.html

Parsad, did you two just happen to cross paths at the 2000 AGM or did you meet online prior and plan to meet ? Because i have been going to the AGM for about that long as well and while I met a lot of people just seems like a crazy coincidence lol given the thousands that have been coming to cross paths with Sardar out of all the people there. No, I ran into him there (2001 AGM), just like I ran into Mohnish. Even this year, at Andy Kilpatrick's party, Sardar was just standing around with Phil. With all the notoriety, you would think there would have been hoardes of investors surrounding him, but there weren't. He keeps a pretty low profile in Omaha. Most people wouldn't know who he is unless they had seen a photograph of him. Cheers!

When is the meeting? Any extra time to meet for dinner or a drink? Hi Watsa, Usually, there's a bunch of young managers/investors who meet before the AGM in the hotel bar attached to Carlucci's. I'll be there if they are doing anything. I'll find out what time it is and if they are meeting this year, and then post it on the board. Cheers!

I have another question, how did you meet him 10 years ago? And did you ever invest in the Lion Fund? I met him in Omaha during the Berkshire AGM ten years ago. He was a young guy then, with only a couple of years under his belt at the Lion Fund. No, I never invested in the Lion Fund, but I would have if I was an accredited investor back then. Believe it or not, I really like the guy! It's like a good friend who suddenly went rogue, and is doing something probably not in his best interest or others. The one thing I liked about Sardar was that he kept a low profile in Omaha. You had so many managers handing out their cards or looking for rich Berkshire shareholders to turn into clients, but Sardar just kept to himself. He's somewhat introverted, so that's partly it, but he wasn't gladhanding or giving out cards everywhere. Every interaction I had with him was pleasant. Even when we discussed the whole compensation package this year in Omaha, he was always completely pleasant and well-demeanoured...even when it became heated! I don't like his decision at all, but I can't take away from what he did in the past either, or how friendly he had been to me all those years. To me personally, it's a God-awful shame, because he had the stuff to be one of the great ones! Still can, but most definitely not with the same shareholder base...they've been scared off! Cheers!

I think instead of eliminating conflicts of interest, the new compensation structure probably increased them considerably. Remember, he also has the right to buy back Biglari Capital for one dollar. So until then, all operating expenses, etc are being paid for by Biglari Holdings, not Sardar. It's just an awful decision and it's created such a mess...partly because the board doesn't have the balls to say no and they seem to be conflicted on their duty to shareholders or to Sardar. He's a determined guy, so this will get pushed through one way or another. It would make a fantastic case study. I've always said that, and it becomes a better one with all the recent events. Cheers!

And here is what I came up with: 1) A very skilled actor/writer who basically copies word for word the verbiages, paraphrases, sentences, paragraphs and even WEBSITE of Warren Buffet. He even tries to sound like Buffet... this stuff is very frightening as he is not originally from the mid-west, believe me. I agree with you on this, but there are alot of investment managers who try and do the same. Hell, we manage a fund based on the "Original Buffett Partnership". Buffett is the bastion for value investing, naturally investors are going to try and emulate him. By the way, Sardar is from San Antonio. 2) An individual who knowingly is shoving a compensation structure which is completely unfair and unheard of down the throats of innocent shareholders. Totally agree with this. That's why we sold all of our shares. We also tried to get him to back down from the compensation plan. 3) An individual who was able to blind the eyes of shareholders by effectively exuding a buffetesque like vibe until the time when he reached control. Then he showed his true colors by trying to take over a permanent base of capital which was paid in over many decades by long-term shareholders and make it his forever! I've known Sardar for ten years. There was nothing in my previous years of interaction with him that would have ever lead me to believe he would implement the type of compensation plan he did. Name change I could see him doing at some point...the compensation plan...nope! If it walks like a duck, quacks like a duck...it's probably a duck. He did alot of walking and quacking that was pretty consistent for many years. It was only in the last six months that things really changed. 4) Someone who as an investor was not able to raise that much money for a Hedge Fund if he had such a great track record and really attributed his stock picking success to three situations: A) Friendly's Ice Cream - Buyout Craze, I believe total profits to Lion Fund were $1.8M Please keep your hats on this is not a crazy amount of money. B) Western Sizzlin - I am sure many of you have done the analysis of the actual growth in book attributed to RIGHTS OFFERINGS as opposed to organic growth in value, if you havent it will surprise you. Nothing spectacular but even I overlooked it initially. C) SNS - The Jury is VERY much still out, taking control of any value play during the period in question would have produced significant results. I bought some shares of DTG during the same period just as a gamble because it looked cheap, spent a total of $16,400 and watched it grow to over $700,000 in that period. A) Wrong! $3.7M. B) The real change at WEST was to recapitalize the business and reallocate the cash flow. He was a success on all counts with a very mediocre restaurant franchise. C) I think SNS is a huge success, considering it would have entered Chapter 11 six months later. Now I want to make one more important point. When I discovered Biglari and SNS in late early 2009, I truly thought I had found an incredible investor and for a while was sold hook line and sinker. I bought shares of SNS and even made some good money, that is how I found this board (never posted on a board in my life). But when the sh** the fan I was so devastated that I had to re-evaluate everything about this guy and I think many of you here need to really think about what has occurred. It's just a total shame on so many levels and its way more than Chutzpah, its Shady pure and simple. I think most of us have. Like I said, I've known him for ten years and I've been an investor in various companies since 2006. We had a huge investment in Steak'n Shake. We are very disappointed. We were also the only shareholder to write a letter to the board of directors when the name change happened. Other shareholders overwhelmingly approved it! And we still don't know how much leverage in the Lion Fund is being used to influence his votes on the upcoming proxy. There are so many variables here.. Biglari just decided to turn into buffet with one liner press releases and a one page website. Honestly, I am just not sure if he has what it takes to run a public company. I would say the bulk of the Lion Fund is now in BH. Cheers!

Parsad - you sounds like you want to be a shareholder again! I truly want to own Steak'n Shake again. Just not with Sardar getting his compensation package or the name change. I love that chain...I think they can do 2000 stores one day, as they've said they will try and hit. I'll be at the Pabrai Funds meeting in Chicago next month, and I plan on hitting a couple of Steak'n Shakes again. I've still got all of my free shakes coupons! ;D Cheers!

When buffet did "workout" scenarios as he liked to call them he went in slowly and would take his time prior to "working them out". You're talking about stuff we actually know about. What about the stuff Buffett did with his portfolio that we don't really know about. For example, he sold off JNJ because he needed the cash elsewhere, but he went back in and bought it back. I'm sure he's held stuff that he had plans for, but if the scenario changed, he adjusted. Back to S&S, I am still of the opinion that the only thing he really did was cut Capex. The net income figures today are not that much better than they were a few years ago under previous management even with high capex. Take a look at the ten previous years of history at SNS: http://financials.morningstar.com/ratios/r.html?t=BH&region=USA&culture=en-US If that wasn't a company headed for the abyss, I don't know what was. Take a look in particular at what Biglari took over in 2008-2009 and the earnings, operating cash flow and free cash flow. Yes, he took an ax to capex, but it was necessary otherwise they would have defaulted on their covenants. Also, take a look at page 4 of the 2009 SNS Annual Report attached. In particular, notice the same store sales and traffic numbers. Finally, take a look at page 46 of the annual report. Compare the capital structure of the company on the balance sheet between the year he took over and the year after...extraordinary! Cheers!

Good pick! Unfortunately, there is no way to influence management on what to do with the cash, as they control the company pretty much. It is cheap though. Cheers!

Parsad, While I partially agree I believe that if this was the case Biglari could have just accumulated a 5.01% position and not a 6% position. From a capital allocation perspective it seemed as though he wanted BH capital allocated in this position. We have no idea. He may have tried to contact the board and they showed resistance. We don't know. But I don't see him taking a position in a company he admired where he would have to make it public, only to sell the stock a few months later. I don't like what he did with the name change or the compensation package, but let's not sell the guy short either. Also to invest in this manner (either I get a tender or I don't) will never work, last I checked he is not an activist investor he is a value investor?!? They are not exclusive. Buffett was both early on. Biglari's role models are Icahn and Lampert. To me this just further evidences his lack of actual success as an investor. Aside from reducing Capex @ SNS I have not been impressed one bit. (A 40m$ fund which attributes all its gains to the rise of one stock run by a skilled writer does not translate into a good investor) I have all his Lion Fund annual reports till 2009...he's most definitely a good investor. But I would say his strength is his determination. Again, I'm one of the people who is least amused by what happened at Biglari Holdings. At the same time, what he did to turn around Steak'n Shake, including the assistance of his friends, executives and employees, was stunning...pure and simple! Did anyone else think doing a full tax analysis of the company's past tax filings was a good idea? Nope, but they raised enough money in one quarter to stave off defaulting on their covenants. By the second quarter, they had put up $25M in underperforming restaurants for sale and hacked operating costs (excluding capex)! By the third quarter, they had stabilized same store sales and started gaining some traction. Less than one year later and the company was enjoying double-digit traffic increases. Even now you can see how same store sales are in the upper quartile of all restaurant chains. It was one of the fastest turn arounds I had ever heard or seen. Cheers!

Bill Fleckenstein discusses a topic we touched on last year...the likelihood of stagflation rearing its head this time. It was my guess from the beginning and I think it will be what we face for the next few years. Cheers! http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/cost-of-this-time-down-stagflation.aspx