shalab

My last BH positions cleared today - nice return overall compared to the market. IMHO, BH is not a buy now - I think Biglari is doing a mistake by using SNS money to buy BH shares in Lion fund and not retiring those shares as he should.

I'm not sure how happy Lion Fund partners are at this point. He's pouring everything into BH. That's $54M of BH stock already in the Lion Fund! I am thinking the lion fund is now managing BH money. Since it is owned by BH, there is no conflict of interest. I see the whole thing as a complicated mess.

Carefully leaked -why? Not sure. Yesterday, there was a report by London School of Economics that Pakistan continued to aid/abet Taliban including participating in Taliban council meetings. Never made it to any newspapers in the U.S.

"American business is improving from everything I see now," "Unemployment is going to come down," "Right now we're seeing pretty strong signs of an improvement in the industrial sector," there could be a "pretty decent balance" between housing supply and demand from household formation within a year, he predicted Mr Buffett

Today's WSJ carried an article about MSFT - why longer term prospects dont look good. Interesting trending on tablets, notebooks and desktops. They expect the desktop share to decline significantly

There is other cheap stuff going around. BRKA/BRKB is one to start with.

You are insulting Al Capone. He ran a true meritocracy. A different set of rules, certainly, but Bigliar doesn't even come close to comparison. At least with Capone you knew the rules. You are right about this; if this ends now, Biglari looks more like a conman rather than a leader.

IMHO - this doesnt look like it is going to end well for Biglari. It is amazing what can happen when one has the talent, the energy but no integrity. As Buffett said, a person with these traits will kill you as opposed to helping you. It seems some people tendered their AAP shares to Biglari as the press statement said the tendered shares will be returned to shareholders at no extra cost - I continue to be amazed the kind of people that invest in stocks. It reminds me of a certain Al Capone - who had the talent, the energy and some integrity (by his own measures but not society's). cheers!

What I like about the Google and Apple strategy is that they are attacking the Microsoft castle from the fringes and not head on. The legend goes that a long time back there was a great emperor who founded a successful and powerful dynasty that ruled all land from present day Iran to Thailand. His minister was a genius in political chess that guided the prodigious child to be an emperor. The minister was once going around town and he heard a woman scolding her son for eating hot rice from the middle as opposed from the edges where it tends to cool quickly. The woman was comparing her son to the minister's strategy. The minister realized his mistake and soon fixed his strategy to fight the existing kingdom from the edges. He was successful in executing his strategy. Apple knows the windows franchise is strong and can't be attacked head on. You start from the lower end, change the business model in how you reward app writers and use it to build a moat around you just like Microsoft did. Then you move up the chain to unseat the incumbent. Similarly, Google is starting from the fringes with gmail/chrome and google docs and slowly encroaching space and challenging established businesses. Gmail has become the best e-mail client by steadily adding features. Chrome is gaining market share in the browser space steadily. Last I saw both apple and google's margins haven't eroded despite the competition. Let us not forget that it was IBM that held sway in the corporate market once. Corporate IT will do what the people want - sooner or later. cheers!

The story is best told through operating margin. MSFT's operating margin has declined from 51% in 2001 to 39% in 2009. My belief is that this is a secular downward turn that won't go away soon without putting the windows/office groups in run-off mode. I expect windows/office to last for a long time - probably our lifetimes but they won't have the cachet they had once. AAPL on the other hand is expanding margins. It went from a loss in 2001 to 23% operating margin in 2009. Not sure how much they can trend up here - they have done well in the US gaining almost 10% of the desktop/laptop market share but in rest of the world, it hasn't caught up yet. You can see as having more upside than downside. cheers!

Shalab - I disagree with your first point: I think Windows 7 has a lot of momentum. The numbers I have seen are very compelling. For example, Dimensional Research polled a large sample of IT professionals a couple of months ago and 87% responded that they planned to migrate to Windows 7. Just yesterday I had lunch with a friend who works for a large Fortune 500 firm and he confirmed that all new PCs are now systemically coming with Windows 7. Win7 may have short term momentum but then why I should I buy the next OS? The only reason is new hardware or I got hardware for vista which is not usable. There is even less reason to upgrade to newer Office. There is no question that Windows market share (laptop + desktop) is declining though slowly.

Let us compare MSFT and WMT. MSFT is not a value yet for me because: 1. MSFT is losing mind share which eventually will lead to market share erosion. The windows and office franchise are in a secular decline which will take several years to play out In recent years, Microsoft has lost the browser market share ( from 90%+ to around 50% and declining ). Windows market share is also declining although slowly. The pricing of both windows and office franchises are under pressure because of free alternatives. Increasingly MSFT is forced to operate expensive data centers and offer the services free. WMT is expanding internationally and its cash flows are good and more predictable than Microsofts. 2. MSFT cash flow after backing out dividends is lower than that of Google and Apple. It is not going to be easy to displace the other two tech goliaths. These tech companies can reinvest as aggressively or better than Microsoft and enter new markets. WMT cash flow is sustainable and is not likely to erode. 3. Tech tends to have winner take all model This was a blessing and increasingly a curse to Microsoft. Look at search 4. Management has a poor track record of reinvesting capital At some point Microsoft will be a value stock, it isn't yet. 5. Poor second tier management After Gates and Ballmer, there isnt a good replacement in place to look at the variety of businesses at Microsoft.

It is hard to get loans to run restaurants. Banks look for minimum three year experience before granting a loan. Also, unlike one gets Berkshire kind of interest rates, it is unlikely the loans will work out.

Looking at it another way, SNS makes 22 million dollars in after tax profit from 480 stores which roughly translates to $45,000 per restaurant/year. If a franchisee has to invest 1.5 million dollars, he/she will get 3% yield at this rate in addition to the headaches of running a restaurant. Even if the franchisee is very efficient and gets $75000 per restaurant, it only translates to 5% yield. One can get such yields without any headache by investing in some safe stocks in today's market. Also, the average sales/restaurant is 1.5 million. With an average of $7/diner, one has to get around 210,000 visitors per year to get this revenue. This translates to about 575 visitors per day. cheers! shalab

It would be interesting to see how this takes off. Many franchises can be had for cheaper. If 1.15 million is the cost of the unit; then there is cost of rent, cost of electricity, cost of food, cost of labor, franchisee fee etc. I don't think there will be enough left over for the owner after paying franchisee fees at this price. He may be more successful in renting existing units.

Dont expect any changes from the management - dont think they write back to the shareholders who complained. Yet to get response to my letter and dont think Sanjeev got response to his letter either.

BRK book value grew by 3.98% from Q3 to Q4 2009 - part of this came from BNI share appreciation but still...

Let us compare Wesco - Wesco's equity increased by 4.64% in the same period.

The average return on BH is 6.2% (annualized with dilution ) where as return on BRK is 15.5% adjusted for dilution in six months.

Compare this to the behemoth Berkshire Hathaway - the book value grew by 16.67% in six months from Sept 30th till March 31st and the share dilution was 6.2%. The master is still way ahead. cheers!

BH equity growth is not very impressive for the past six months when compared to the general stock market. On April 14th, the equity was 302 million compared to 292 million equity on Sept 30th 2009. The growth rate for six months is 3.4%. The annual rate is 6.3% taking into account two extra weeks of April. Year over year there was about 1.7% dilution in shares. If the compensation is based on per share basis, the result(s) aren't that impressive. cheers! Shalab

It is not clear what happens to the SNS shares held by the Lion Fund - it would appear that they got retired at the market price on April 30th before the compensation agreement came out?

Separating this thread from the Sanjeev applause thread. The investment manager's traits and habits are important to note. While generally it is true that how one spends ones money is upto them - in this case, the way the manager spends his money may impact the investment decisions and may also give a hint about his temperament. Having expensive car(s) and houses means one has to pay for them and the money will usually come from the shareholders. It can lead to decisions which can compromise the investors altogether. As has been the case with Madoff, one has to do one's due diligence. Interestingly, BH declined today with higher than usual volume. cheers! Shalab

The one thing I've always espoused when investing is never fall in love with the CEO. You can fall in love with their actions...even their words...but they have to always back it up. Well said Sanjeev!

Mr Biglari may get many people to invest in him - many inadvertently through various index funds/ETFs. However, his reputation is harmed for good which will make it harder for him to become a billionaire or take a controlling stake in another company. In retrospect - the guy is not prudent with money, has taste for lavish cars/mansion - wants ot make money off the shareholders not with them - used the buffett emulation as a marketing tool - attract talented managers to wok for him since he is the only beneficiary of the new pay package - not have a sycophantic BOD around him He can still do well monetarily by milking SNS and investing money in undervalued companies. He seems pretty good in spotting such opportunities. Anyway, I made money off of SNS and was thinking of being a longer term holder for tax reasons if Biglari is able to compound even at reasonable rates. I wouldnt want to buy BH at these prices.