ragu
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Posts posted by ragu
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I always enjoy reading Dr. Gawande's articles and this one has a similar under tone to investing.
http://www.newyorker.com/magazine/2017/01/23/the-heroism-of-incremental-care
Brilliant! Many thanks for sharing.
Best,
Ragu
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Statutory warning: One year returns can be extremely skewed. In either direction.
XIRR of 165.9%.
Began the year with 98% in BH and ended it with 57% in FELP.
Thanks to Picasso for his comment in the FELP thread about the market missing the incentives for the various actors involved there that caused me to dig deeper.
Best,
Ragu
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[...]I think he deserves the benefit of the doubt.
I can only assume you haven't read the link to the complaint posted earlier in this thread.
To recap:
Net seller of APL securities until conversations with exec beginning July '10. Was provided information about upcoming asset sales and told not to trade on that info.
Purchases began after first conversation, including significantly out of the money short-term call options.
Attempted to influence exec when faced with a subpoena from the SEC.
Seems pretty clear cut to me.
Best,
Ragu
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It's quite charitable to assume that this type of behavior only occurred "right at the end."
Fair enough. I guess there's never really been anything, that I have seen, about him or the firm in terms of shadiness. With SAC and Cohen, for e.g., it was only a question of whether the prosecutors were going to have enough evidence.
This is a surprise. To me, at any rate.
Best,
Ragu
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Sure, but seems like a pretty clear case to me. Pretty stupid.
Unbelievably stupid.
I will never understand the motivation of something like this. And to do it at the fag end of one's career? How on earth do you turn rogue right at the end?
Best,
Ragu
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My best guess is YUME
Decent shout. Worth looking at this.
Best,
Ragu
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"Dammed" fool?! (Pg. 37)
Editorial standards, they are a slippin' at Berkshire.
Best,
Ragu
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Yes, this is clearer now… but again I don’t see what’s wrong with it…! ???
- For his job as CEO of BH he gets a compensation based on BH operating earnings, a compensation that is still capped to a maximum of $10 million,
- For his work as a fund manager he gets a compensation based on how well the investments he chooses will perform, which is exactly how any fund manager gets paid!
Gio,
I didn't imply there was anything wrong with it. FWIW, I didn't have a problem with the original incentive agreement (5% hurdle and no cap).
- How much does the Lion Fund charge BH for managing its investments? Where can we find that agreement?6% hurdle for BH, 5% for other LP's. The agreement should be in the filing I linked to a couple of posts back.
- I think (or at least I hope…) the 2% in the classical 2 & 20 formula is still not there. If it is like I think (hope), the Lion Fund remains cheaper than most hedge funds out there.No need to hope:-). Sardar continues to charge the same incentive fees as the Lion Fund originally. The only change, as far as I can tell, is that these incentive fees are assessed quarterly instead of annually.
- I wouldn’t underestimate the importance of operating earnings: from 2008 to 2013 they amounted to $194.3 million, while investment earnings were $269 million. In other words, operating earnings have been circa 42% of total earnings.Right. What matters though for the incentive calculation is not just the amount of earnings, but the equity employed to achieve those earnings. SNS' equity at the end of FY 2008 was $283.5 million. All of this equity was required to produce these operating results, whereas the investment earnings have come from a far smaller combination of equity produced by operations and debt. And, they've still outpaced operating earnings.
As Biglari keeps buying whole businesses, operating earnings might even get a larger percentage of total earnings. This means the share of the compensation incentive he receives as CEO of BH, that he has to invest in BH shares, won’t be negligible.Never said it would be negligible. Just that it'd be less (and I expect far less) than if he'd kept the Lion Fund within BH. It is a significant departure from the original agreement, IMO. As I said, it will be interesting to see what he does with the cash he receives from running the Lion Fund.
Best,
Ragu
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[...]1) where is it written there is no more a cap to Biglari’s compensation?
2) where is it written Biglari doesn’t have to invest 30% of the incentive received in BH stocks?
gio,
Re. (1), there isn't. The cap is still there, albeit tied to operating results (mostly). However, by moving the securities from BH in exchange for an LP interest in Biglari Capital, Sardar has effectively eliminated the cap on the investment side. His incentive fees via Biglari Capital are not subject to a cap of $10 million/yr.
Re. (2), again it doesn't say he doesn't have to reinvest in BH stock.
Think of it this way: Sardar's incentive compensation used to be determined on the entire equity of BH. His compensation is now determined with the investments committed to Biglari Capital removed from that equity.
Naturally, the incentive payments to Sardar as CEO of BH will be less (far less, in fact) under the new arrangement than under the original arrangement, even if the total payment to him from BH will be roughly similar.
So, even though he is still tied to the requirement to buy BH stock, it will be an amount that is far less than that stipulated by the original agreement.
Hope this clarifies.
Best,
Ragu
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Ragu,
if it really is like you seem to suggest [...]
gio,
There is no ambiguity about this. It's pretty clear.
From the filing announcing the sale of Biglari Capital back to Sardar:
(emphasis supplied)The modification of the Incentive Bonus Agreement between BH and Mr. Biglari to give effect to the transactions, inter alia, by providing that Mr. Biglari’s incentive compensation will thereafter be calculated without reference to any investments by BH and its subsidiaries in investment partnerships (including the Lion Fund and the Lion Fund II), of which Biglari Capital or Mr. Biglari is the general partner.and
(emphasis supplied)Excludes from the calculation of BH’s adjusted book value, and therefore from the calculation of Mr. Biglari’s incentive compensation, commencing with the period after the closing of the Biglari Capital Transaction, any realized or unrealized gains or losses, earnings and all other amounts attributable to any investments by BH and its subsidiaries in “Outside Investment Partnerships,” defined as investment partnerships (or the equivalent) in which BH or a subsidiary is a limited partner (or the equivalent) and Mr. Biglari or his affiliate (other than BH or a subsidiary) is the general partner (or the equivalent). As a result of the Biglari Capital Transaction, the Lion Fund and the Lion Fund II now constitute Outside Investment Partnerships and all amounts attributable to their investments in securities (including the securities contributed by BH) will be excluded from the calculation of Mr. Biglari’s incentive compensation.Isn’t this misleading? ???Seeing as the amendment is filed with the SEC and is public information, I'd suggest this is an oversight rather than an attempt to mislead. I wouldn't be surprised to see the amendment make it to the website.
Best,
Ragu
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Hi Gio/Ragu and other BH shareholders,
I got a small position in the last couple of days [...]
shalab,
Just got the chance to respond to this. Welcome aboard!
how about a share holder proposal to terminate this? I also like Biglari to give up his CEO position and he becomes a CIO.Safe to say that I disagree with both proposals. I want Sardar in control of BH.
He doesn't have the shares he needs for outright control. Neither does he have shareholders that trust him. This deal at least removes the possibility of a coup against Sardar.
Re. letter to the board, here's a thought: There's much brouhaha over how the sale of the Lion Fund to Sardar effectively eliminates the compensation cap. In fact, there's a far bigger implication for BH shareholders and it's one that has been (unsurprisingly) overlooked.
The vast majority of Sardar's compensation going forward is going to accrue from the fees that BH pays to Biglari Capital for investment management. This amount is not subject to the agreement that requires Sardar to buy BH stock. Given that this is a significant departure from the original incentive agreement, how does the board think about it?
FWIW, I fully expect Sardar to continue to be a buyer of BH stock over time (agreement or not), but this sale removes the requirement that the original agreement enforced. Certainly worth watching what he does going forward in this regard.
Best,
Ragu
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Brazil vs Chile was fun to watch. Chile almost pulled off the win before the penalty kicks.
It was good to watch!
TBF to Brazil, that wasn't handball by Hulk for the disallowed 2nd goal. Julio Cesar and the bar kept them in the game after that.
I'd love a Brazil vs. Argentina final, with Messi scoring the winning goal. Would be some redemption for him in the eyes of Argentinians, that.
Best,
Ragu
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Just saw the story behind the ad. Incredibly bad business judgement to let that ad run in the first place. Ironically, there was a similar issue at CBRL where Sardar was bemoaning their lack of judgement. Someone lost their job at Maxim over this, that's for certain!
Good to see that they responded quickly and correctly.
Best,
Ragu
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A CEO of a small local public company I know is like this. He mentioned to me coming in on a Saturday morning to fix a toilet in the bathrooms that was leaking.
oddballstocks,
Could you share the name of the company and that of the CEO?
Thanks,
Ragu
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[...]So it is worth my effort.
Indeed. Kudos!
Best,
Ragu
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Very well-said, Kraven.
Heh. I think you'll find that Kraven was, as they call it, "taking the mickey" out of potential responses.
Best,
Ragu
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Apparently it's not hard to get credentials.
Is right. The year we went (with a 7-month old in tow), I didn't have credentials in hand for the evening events prior to the AM. The Berkshire folks did a quick check to confirm that I was indeed a shareholder and gave me the credentials. All in the space of a couple of minutes.
Best,
Ragu
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Then the bubble burst...
Again, a bubble had popped...
How is this not macro?
Technically it is, although I suspect he couldn't have predicted exactly when it would happen. And that's what he is against: Making investment decisions based on macro-economic predictions in the short-term. In the cases above, he simply went looking in areas where the bubble had indeed popped i.e. prices had declined considerably so as to offer value.
Best,
Ragu
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http://www.washingtonpost.com/wp-dyn/content/article/2007/10/30/AR2007103002292.html
He cites in the article that he sold primarily because they diversified into an unrelated line of business [...]
Actually, he says the key reason he sold was the promise of double-digit earnings growth.
(emphasis supplied)The government is trying to show that Brendsel's promises of double-digit earnings growth set Freddie Mac on a dangerous path, and Buffett said they were another key reason he sold.Interestingly enough, Buffett apparently held Freddie Mac for quite a few years of these promises of earnings growth. So, it wasn't merely the promise of smoothly increasing earnings that caused him to sell. It's probably the fact that an unrelated diversification meant they now had to "reach" to attain those publicly stated goals.
Best,
Ragu
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From a former hedge-fund trader: http://www.nytimes.com/2014/01/19/opinion/sunday/for-the-love-of-money.html?smid=tw-share&_r=1
Because of how smart and successful I was, it was someone else’s job to make me happy.Bloody hell.
Fascinating read. Good to see that he seems happy now.
Best,
Ragu
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She's saying that the put options are the reason why Berkshire lost its AAA credit rating, which affected the ability of its reinsurance business to get good rates. With a AAA rating, his reinsurance units could have written a lot of business and he could have invested all of that float.
She's not saying that at all.
However, you do have one thing in common with Ms. Schroeder: You are both wrong about the puts handcuffing WEB in a manner that had significant implications for Berkshire shareholders.
Best,
Ragu
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Many thanks for sharing this. I suspect it is unusual for someone to have stayed this grounded while in receipt of a large inheritance.
Best,
Ragu
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but the important stuff... inter or ac?
On the foreign front, I hope it's Liverpool.
Congratulations Gio! You'll Never Walk Alone.
Best,
Ragu
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(emphasis added)Most people knew how they were positioned and the risks associated with that. But now that that hasn't led to considerable BV growth, I feel people are upset. Maybe I am missing something.
You really aren't missing much. For those that were opposed to his position, the best course of action would've been to not own FFH.
FWIW, re. BBRY, I think it'd have been best if Watsa hadn't said anything at all. In hindsight, I'd bet he regrets it.
Best,
Ragu
Buffett buybacks: Could Berkshire tender stock?
in Berkshire Hathaway
Posted
Mars, then?