Packer16

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. Packer

The interest limitation is not applicable to REITs & now you only have to pay taxes on 80% of the dividends as they are pass throughs independent of income. The tax benefit alone should enhance value quite a bit. Packer

But what is going to drive rates higher? The only thing that drives rates higher for longer is inflation. What drives inflation? Shortages of either people or materials. I do not see either & just more capital being created with little destroyed which would cause shortages. The interesting thing is that although the 10-yr rate has risen the 20-yr rate has been flat. So we have a flattening of the curve versus a shift upward which tells me that Fed policy is bucking what the market wants to do. Packer

+ 35.5% USD. Five biggest gainers are: Autohellas (+93.4%), General Communications (+93.1%), Lotte Chilsung Pfd (including spin-off consideration) (+73.2%), KIH Pfd (+57.2%) & Gray Television (+51.6%). Five biggest losers: Swick Mining (-25%), Gear Energy (-24.1%), Deasang Hold Pfd (-5.4%), sebang Pfd (-3.1%) & Hyundai HCN (-2.1%). Overall a good year with natural resources lagging significantly. If oil prices stay where they are or go up hopefully the stocks will increase next year. Packer

Merry Christmas to all & thanks for the great discussion & Sanjeev for running the best investment board in the world. Packer

Happy Thanksgiving to all! I am thankful for CoBF for all the friends I have met throughout the years & the great advice/feedback y’all have provided. Packer

As to interest rates, the 10-yr now is lower than 2009. In 2009 the 1-yr ranged from 2.65 - 3.55% and now it is 2.34%. If you think interest rates are going up, ask yourself why? Interest rates are not mean reverting like stock prices. They go in long waves & we are still in a downtrend trend caused by IMO a lack of inflation & a surplus of capital. So what is the inflation thesis that is going to drive up interest rate or what is your capital destruction thesis that drive a capital shortage? How do these compare to the status quo scenario. Remember for the last 2 crashes we had (2000 to 2002 & 2008), interest rates were 6-7% and 5% respectively. These were great magnets for the money invested in the stock market with 7-8% expected returns. Today this magnet does not exist unless something changes. Packer

I did say & meant little data in comparison to Damodaran not no data. He also does not discuss the implicit assumption of little growth & whether this is actually true. I agree there is slower growth but what specific growth rate would make his hypothesis untrue. He does not state implicit assumptions then test them versus actual data. He talks about temporary changes in interest rates, making an implicit assumption that rates are somehow going to go up, & calculates the effect of this temporary rate change. Packer

Mr Hussman rather than making a case for scarcity, tries to tie the reason for low rates to lower growth than in the past but the reality is growth is positive and accelerating currently. He does not even address the issue of large capital generation due to economic growth & how that effects interest rates or the fact that the demand for fixed income securities is going to be greater due to the aging of the population. IMO Mr. Hussman is wrong & will be wrong as he only has his theories without much actual data. On the other side you have Mr. Buffett and Prof. Damodaran with tons of historical data which tells a compelling story. With Hussman you have a story with sparse data. Who would you choose? The question of margin of safety depends upon what benchmarks you are using for valuation. If you are using historical ones, then your valuation may be to low for the current environment. B. Graham has a similar issue in the early 1950s when he could not understand how securities were valued in the later 1950s vs the metrics he used from the 30s & 40s. I am done also as you either agree with Hussman, Arnott, etc. or Buffett & Damodaran based upon the data. Packer

The interesting thing is none of the low ERP folks have addressed the interest rate issue and all the names you mentioned have a vested interest in investing is something in other than stocks as the assets they manage are not stocks and the fees they earn are far in excess of money they have made investing for their own accounts. BTW the fees they charge are in excess of index funds by large amounts. You are correct about low ERP but in the late 1960s and the 1990s & the 2007 case interest rates were considerably higher on the order of 5 to 8%. If you looks at Damodaran's data, the issues occur when the forward based ERP (based upon an implied ERP from forward looking FCF) is in the range of 3% (as it was in 1960s and 2007) and 2% (in the late 1990s). Currently it is close to 5%, so we have a way to go. Being a bear in the US market has generally been a losers game, so IMO you need to find a signal for an overvalued market relative to bonds, this occurred when the implied ERP was less than 3%. You may be right about an overvalued market but your conclusion is based upon the assumption of mean reverting interest rates to the average rate over the time period for which your valuation metric is being measured. My observation about interest rates is the opposite of what is implied in the market is overvalued hypothesis, they trend. If you look at history interest rates trend with inflation & inflation is dependent upon shortages. If you can make a case for widespread persistent shortages and thus inflation & mean reverting interest rates, these guys would be correct but they have not made such as a case. If you have heard one I would like to hear it. Packer Packer

I have read this thread and I think there are a few frame issues. First, most if not all the indicators of an expensive market are based upon periods of time when interest rates were much higher so IMO using much of this data becomes less relavent in today's environment because your choices are different, in terms of returns investing in low risk fixed income. Also, the idea of being able to predict expected returns is powerful but illusive as the historic track records in helping asset allocation has been poor (see Grantham's & others LT predictions). Also, what data do you have for a zero ERP? As far as I can see this does not exist but support of an ERP in the 4 to 6% forward looking ERP does exist from Damodaran on his NYU site & the historic ERP is in this range. Packer

Thanks guys that worked great. Packer

I really like Mike Lewis' storytelling ability but when he turns it to political ends to justify beaurocracy with no data on cost benefit & makes broad generalizations & assumptions with a clear bias then he IMO has become a political hack. His dislike of Trump has turned into hatred filled with malice, pride & an attitude of some beurocrat knows best & the assumption the Trump is wrong all the time. Every administration has its strengths & weaknesses & only showing one side IMO is a result of Lewis' Trump Derangement Syndrome. This may be more of a commentary of how storytellers like him far from bringing us together use there talents to tear us apart. Very sad. Packer

Between files in different workbooks. Packer

Does anyone know the syntax for linking cell between Google sheets? TIA. Packer

Indexing is the best solution for most of the "no-nothing" investors portfolio & probably for the most others who do not have an edge. It provides low cost exposure to the growing equity markets. In terms of valuation, IMO we are not over valued as the ERP is 4.7% (see Damodaran's home page) at discount to the historical average of 6.2% (see link to Damodaran page). At market tops (late 1960s and 2000), the ERP was closer to 3% (late 1960s) or 2% (late 1990s). The only reason stocks appear expensive is the assumption that interest rates will revert to the historical mean of 5% versus 2.5% today. If you chop 2.5% off 4.7% you get 2.3% which is quite low. So the question is do you think interest rates will stay at 2.5% (market fairly valued) or will they go to 5% (market expensive)? IMO interest rates will stay low as the forces that got us here (excess capital creation with no large capital destructive event (war, famine, epidemic)) are likely not going to change. Packer

This is also true of earn-outs. You miss the target and you get an income gain from not paying out the earn-out. This in part is why earnings are meaningless. There is an interesting article in latest FAJ that shows that there is no correlation between stock returns and earnings misses or overperformance. Packer

Joel, Given your return pattern you may want to use a small cap value benchmark like Vanguard Small Cap Value as it has a similar pattern of returns as you have. Packer

Thanks that work. Packer

Thanks. However, the following syntax still returns an error: =GoogleFinance("CURRENCY:NOKUSD", "price") Packer

I am trying to get Googlefinance to return the currency exchange rate value. Packer

Has anyone pulled in currency values from Google Sheets? I have used the following syntax & got an error: =GoogleFinance("CURRENCY:NOK", "price") TIA. Packer

There are some publicly traded FF franchisees like Carrols & Meritage. However with these business you have better operations (shown by margins) & with Carrols the RoFR on BK franchisees in some states. So they are not comparable to your situation. Carrols buys franchises at 3.5 to 4x EBITDA that typically have margins in the mid single digits so that translates into a revenue multiple of 0.25x. Without the real estate or some non-operating asset, 2x sounds high, esp. with break-even profitability today. One adjustment you have to make to some of the private market data is owner's comp & money made in cash "on the side". I have seen the low valuations but many assume the owner is will willing to work for below market wages for the level of responsibility. So the Carrols transactions that are disclosed include this comp adjustment in them so IMO they are cleaner. One additional questions on future cash flow is minimum wage. If the restaurant is located in one of these to be higher minimum wage states like New York you need to account for that in projected margins. Packer

The 6% is based upon the expected of stocks at the time of BPLs formation, 1960, not the risk-free rate which was closer to 4% per "Warren Buffet's Ground Rules". The point of the return on do nothing money is still applicable but to equities not fixed income. Packer

Sounds like a tough situation. If you like the business you have & they are growing why not hold onto them until they stop growing or are really overpriced despite the growth. I would use a valuation technique that includes the growth in multiple like P/E = (2g + 8.5) formula from Graham to evaluate if the stock is more overpriced than the market. If you want cash raise it from current savings but realize the opportunity cost of cash today is still pretty high compared to history. Packer