tiddman

Biglari already has enormous incentive to increase BH's value. He indirectly owns 15% of the company worth around $60M. He acquired more than 95% of this with other people's money. This is plenty incentive for him to grow the business. He doesn't need to take capital from shareholders in addition. The proxy says that BH has $130M in AUM. He has enough to buy up 25-35% of the stock if he really wanted to.

Which borrowers do you feel are a better credit than the US Government?

I think there are two reasons. First, the brand for Coke is stronger -- Coke has associated its brand with basic happiness and satisfaction. I don't think that Pepsi's branding is as strong. Can you summarize Pepsi's brand in one word? Another is something that Buffett mentioned some years ago that I thought was very interesting. When you drink a Coke, ironically, your thirst isn't really satisfied. Coke has no "taste memory" which means that an hour after drinking a coke, you can drink another one and it will taste just as good. I think this is an intentional part of Coke's taste profile, which some say is less sweet, which I think is part of it. This is also part of the key to the success of Diet Coke and the other low-calorie options, because you can drink many of these without ingesting a lot of calories. Think about other soft drinks that you might have such as Gatorade or fruit juice. It is hard to have a 12-20 ounce serving of that and then a half hour later have another. But with Coke you can keep on chugging...

Quite a bit of back scratching going on between Berkshire and Goldman these days...

I flipped the TV on with my son and it took us 15 minutes to figure out what the score was -- we saw 58-59 and couldn't figure out if it was some new kind of scoring or what, like measuring total points or something. I think the "problem" was that the players both had good serves, which are more effective at Wimbledon on the grass, and just weren't good returners. Basically neither of them could break a serve for more than 120 games!

From a logical standpoint, I've often favored Natural Gas as an energy source, because it is domestic, onshore, largely hurricane-proof, etc. However it still fails to be widely adopted in favor of oil. Chesapeake Energy (CHK) has actually started to diversify into oil: http://www.google.com/hostednews/ap/article/ALeqM5iJzKn8AtzYNSdf2IO29O9Z3jKYmwD9G9A5BO0 Like so many things with energy sources, it is theoretically possible to use natural gas for everything from generating electricity to powering cars and trucks. But oil and coal are very hard to displace as energy sources for many reasons.

I had assumed that the client was someone involved in merchandising that could be affected by the outcome of the game, for example one article suggested this: France is generally a good team but did not perform well in the game, I wonder how detailed Jain got when evaluating the odds...

Giving money to a homeless person is perhaps a tangible example of giving money to someone who needs it, but in a lot of cases it is probably not really helpful, except for the guy who runs the liquor store, who probably gets the money a few minutes later. If you interpret that statement as donating money to a homeless shelter or a qualified organization that strives to get the homeless off of the streets in a sustainable way, or some other worthwhile charity, then it makes more sense. Essentially if everyone who had a luxurious lifestyle made their lifestyle a little less luxurious and used their money to support effective charities, the world might be a better place. Of course you could still argue that $1000 spent on goods and services might indirectly benefit the impoverished more than it would if you gave $1000 to the #1 charity in your area, because it would promote economic development that would lead to decreasing the level of poverty. Of course, the $1000 you spend might just go to some CEO's $10 million salary and then into his charitable trust which won't ever be released into the general economy... If you take that idea to the extreme, then Buffett should go out and wildly spend his billions of dollars on goods and services before he dies so that he can stimulate the economy?

Looking at BP, self insuring doesn't seem to work too well when your market cap is over $100 billion either :).

There is an interesting line of reasoning for JOE as it relates to the BP oil spill. JOE owns around 600,000 acres of land in the Florida panhandle, including a bunch on the coast. The oil is spreading and heading right towards them. While some of their land may be damaged, now that the $20 billion escrow fund has been set up for BP, JOE will very likely benefit from the spending of that $20 billion. Their land may be cleaned up at no cost to them, and the money will basically act as an economic stimulus to the area. And the $20 billion might be the first of many tranches of money that are deployed in the area.

Yes but the flip side is that the upside is probably multiples, which you aren't going to get with a major oil company. ATPG might be an all-or-nothing proposition, but might have a place in a portfolio. My point is just that the drilling isn't done exclusively by the majors, maybe predominately, but not exclusively.

What about small companies like ATPG?

I wonder if someone who has more background on the oil industry can answer a question for me. It strikes me as a little odd that BP, a British company, has such a dominant presence in offshore drilling in the US. This amounts to the US allowing billions of dollars of profits from its oil reserves to be shipped to the UK. I am sure that the US gets revenues from leasing the oil fields, but it is also giving up a bunch of profits that could be earned by US companies. Does anyone know the reasons why this is so?

I think the vote will come down to a contest between the hardcore Biglari loyalists (including Biglari himself) and everyone else. I don't think I've heard anyone really defending the package, and Gabelli has voted against it, so I'd expect virtually all retail and institutional investors to vote against it. Whether or not Biglari can buy up enough stock to influence the vote is probably the swing factor. I personally would be surprised if even his insider colleagues would go along with this since he's taking money out of their pockets too, but I don't know to what extent the cult of personality has taken hold. Biglari has been buying up the stock through his funds, and if he gets creative, he could probably keep buying, by using the cash at BH and borrowing. He couldn't buy 50% but maybe 20-30% which might be enough. Even more than the numerous other things that Biglari has done, the fact that he is trying to jam this down the throats of shareholders, by using all of the capital at his disposal that should be employed pursuing other investments, demonstrates the complete divergence between his interests and those of shareholders. If this does pass, I would expect the stock to fall and languish. If it does not pass, the stock might pop, but then I think everyone should worry about what his next idea would be.

In a strange way I've been interested in these kinds of companies, you think about the enormous difference in value between undeveloped and developed land and there is long term potential. However with many of these companies I think there needs to be a clear catalyst for creating value. Tejon Ranch for example holds a huge contiguous block of land north of Los Angeles, and you can imagine how that could become valuable one day. However they are mired in disputes with environmentalists and a lot of the land if of questionable value. As a result the stock has gone nowhere for 10+ years. This seems like a "value trap" -- the value is there theoretically and can keep you hanging on, but it might not materialize during your lifetime. I like JOE better because there seems to be a real catalyst. The airport will bring in new development and is becoming active now. Though you have to keep in mind that while some of the acres are pretty good real estate, there is a lot of what is literally swamp land in Florida and is probably worthless. I would bet that the difference in value between the most and least valuable acreage is 1000-fold. BHS (Brookfield Homes) is essentially a land bank company that operates as a luxury home builder, though they are more of a builder, which means their business has been in trouble for a few years. But they carry a lot of land which was acquired very cheaply 15-25 years ago and there is an immediate catalyst for creating value. T

Prior to the spill, BP had over 750 safety violations, compared to 20 for Sunoco, ConocoPhillips, Citgo, and Exxon, COMBINED, for the same time period. Yet BP was allowed to drill, and obviously without sufficient safeguards or contingency plans. The MMS (Minerals Management Service) which oversees the industry also collects revenues from it, an inherent conflict of interest. They did not even require BP to provide a blowout plan. Which is obvious, considering the terrible job that BP did at reacting to the spill. These are not signs of an industry that is "highly" or "adequately" regulated, quite the opposite. Regulation is lax and allows the oil companies to take enormous risks with the environment and industries that depend on it (i.e. fishing, tourism, etc). I am all for capitalism and free markets, however frameworks and regulations have to be in place, because free markets that are completely unfettered mean that greed and corruption will eventually dominate all other interests. The Enron debacle was the result of a period of very lax regulation over what certainly has to be a regulated industry.

Biodiesel and natural gas?

I think this spill is evidence that peak oil has passed. The easy oil drilling has been done. What's left is expensive, high-risk projects like deepwater drilling and extracting oil from Canada's oil sands. I can only imagine the cost to find oil increasing over the next 10-20 years.

Yes the moral hazard here is similar to what happened to the bailed out financial companies -- capitalism on the way up and socialism on the way down! The execs feel free to take risks and profit from them when things go well, but offload the costs to someone else when they don't.

BP pays a dividend of around $10.5 billion per year... so not all of that operating cash is consumed. Simmons throws around a lot of numbers but they often don't add up.

Mustang Capital just sold 4375 shares in two transactions, 3625 and 750 shares. Otherwise they've been exclusively a buyer of the stock over the last year or so. Curiously, on May 26 Mustang also sold 4375 shares in two transactions, 3625 and 750 shares (note the footnotes after the "I" which indicate that Mustang owns the shares): http://www.sec.gov/Archives/edgar/data/93859/000119380510001552/xslF345X03/e607081_ex.xml These transactions were actually mixed in with buys by Lion Fund. I find it curious that the number of shares is the same in both of these red herring sale transactions. Hard to speculate on why one fund is buying and another is selling, and they're all controlled by BH. I have wondered if the funds participate in the tender offers that BH makes for other companies, they may buy shares in the target company and then tender them, which allows BH to issue more shares. Then the fund can sell the BH shares that it acquired in the tender. This allows BH to issue shares and the fund to book a profit. These sales from Mustang might be the result of something like this.

Here is a research report from Citi. The money quote: T

I had the same thought, I wonder if BH is now a client of the Lion Fund, i.e. BH's extra cash is being invested in the fund. This would explain the increase in assets in the fund. There are still numerous conflicts of interest with this arrangement though. BH and Biglari draw fees from assets invested in the fund. If BH were to buy stock, it would be much more beneficial to shareholders if it bought it back and canceled it rather than buying it in a controlled fund. I assume that the original investors in the Lion Fund are locked up, otherwise I don't know why they'd go along with the fund investing all of its assets in BH stock. It is now being used as a tool for Biglari to control enough of the stock to pass an enormous pay package for himself. He's abusing both his fund investors and shareholders. Ironically, the fund's recent purchases are at about the same level as Biglari's purchases which were made at $15-17 split-adjusted. What goes around comes around I guess.

Say that the 10-K's are 100 pages each and the 10-Q's are 50, that is 1250 pages or probably about 6 inches of paper. I dunno I would hesitate to ask a broker for this, as it is basically an administrative / secretarial function. The guy would be asking himself if this was the first of many such requests too and wonder if his client intends on using him as a secretary. You could download the PDF's of the documents and e-mail them to a local Kinko's, have them printed, and pick them up in just a few minutes. I guess it is the principle of the thing though.

If the comp plan is voted down, he has a few options. He can try to negotiate a lower comp package, maybe with Gabelli directly. I think he also has the option of buying back Biglari Capital. He might do that using the current price of BH for the valuation. So he sold it when the stock was over $400 and could buy it back when it is at $280. Nice work if you can get it.