Biglari Holdings 2010 Letter

[Guest]

I'm naive about Biglari and I bet most people on the board know way more than I do. But here's my take (from what it's worth...which is not much.)  :P

 

Please feel free to correct any of this.

 

The guy is around 32 and has been managing money for about 10 years. Anyone know his current net worth? From what I've read, the Lion Fund had about $40-$50 million in it. He's earned about 13-14% over those 10 years. Market was essentially flat.

 

Buffett took over Berkshire in 1965 at the age of 35. His net worth at the time was about $4 million or over $27 million today. I believe Buffett earned about 30% or so after fees. The market return about 12%. So, he outperformed the market by about 18%.

 

Now, to be fair, one could argue that the market is easier to beat since it was less efficient back then. That may be true. However, the past 10 years for value investing could be considered much better than typically expected. For instance, the Sequoia Fund, since inception, has beaten the market by about 4%. Since 2000, it's beaten it by about 6%.

 

Value stocks were very cheap in 2000 with the great bull market. So, I would argue that value investing has been easier this past decade than in Buffett's time. Yet Biglari did not beat the index by as much. Heck, look at BRUSX and it's returned almost 15% during the past decade. Hindsight is 20/20 but a hedge fund with tighter restrictions and a small asset based should be able to beat a mutual fund. I mean, that's why those guy make so much.

 

People also claim that is a superior capital allocator and that his ability to buy whole companies will set BH apart. This may or may not happen. However, if we look at the shareholder outrage, I think some of his "people skills" still need to be developed. 

 

I'm not a fan of college, but Buffett did attend an ivy league school. I don't know of too many great investors who didn't. I believe he went to Rice, which is certainly a great school, but Columbia it isn't.

 

If we add the whole thing of changing the company name to Biglari Holdings and the fact that he's trying to copy Buffett in image...screams to me that he's trying to be something he's not. I beat he more than knows that there are so many people willing to "bet on the next Buffett" that he can work out a pretty good gig for himself.

 

Like I said above, please feel free to correct any inaccuracies! :)

 

 

[shalab]

I don't know if Biglari's return is before or after fees. Here are different returns of the super investors from Warren Buffett's the Superinvestors of Dodd & Grahamsville.

 

Walter Schloss over 28 years 21.5%, limited partners 16.1%

Tweedy Brown over 15 years 20%, limited partners 16%

Buffett partnership 12 years 29.5% limited partners 23.8%

Sequioa 17.2% after fees of 1%, total 18.2%

Charles Munger, 13 years 19.8%, limited partners 13.7%

Pacific Partners 19 years 32.9%, limited partners 23.6%

Perlmeter 23%, limited partners 19%

 

[rranjan]

 

If we add the whole thing of changing the company name to Biglari Holdings and the fact that he's trying to copy Buffett in image...screams to me that he's trying to be something he's not. I beat he more than knows that there are so many people willing to "bet on the next Buffett" that he can work out a pretty good gig for himself.

 

Like I said above, please feel free to correct any inaccuracies! :)

 

 

 

+1

 

It's very obvious. Copy everything, even the webpage. It does attract the crowd who want to find the next buffet. So far so good. Get their support and then reach to a stage where you might not need their support to work out pretty good gig. Then change the rule suddenly and start proclaiming that I am not Buffet or Wasta and I do do things non-conventional way.

 

[ In another words: Mislead people to to get their support to help you to get hedge fund like fee, but with much bigger captive money, on top of getting a guaranteed big salary and then spin it as a non-conventional way ...... ]

 

Well, I do have to agree that it's a non-conventional way. Not many people have been able to do it :)

 

Yes, investing in BH might still work out well if you buy it cheap enough. But I fail to understand why anyone need to take chance with a person who has proven track record of misleading people and coming up with so called unconventional way to make money at the expense of shareholders. Reward must be lot higher than risk to deal with Mr not-looking-I-will-put-my-hand-in-your-Jar.

 

Some time back, it was really amazing to see some one arguing that he does not own a big percentage so this will allow him to own bigger slice of this business to help align the interest with shareholders. Well, why not simply write him a check as donation with condition that he can only use it for buying the BH shares. Quickest way to align the interest. Only problem would be that your check might be still not enough and you might still find his hand in your pocket.  :)

 

For me, the Bilgari managing this is not a positive rather a big negative. Him being not dumb and proved track record of so called unconventional way of doing things is a deadly combination for my comfort.

 

 

 

 

[motownsf]

I'm a bear on this guy. He cares more about his legacy and has an inflated view of self-importance...

 

In this era, we see so many money managers who piggyback of the comments and writings of WEB, parade themselves on TV as prophets of WEB, and their businesses grow. I much prefer the managers who use the value principles, but try hard to keep themselves out of the media, rather than actively seeking it out whenever possible in order to grow AUM.

[Guest]

I'm not a fan of college, but Buffett did attend an ivy league school. I don't know of too many great investors who didn't. I believe he went to Rice, which is certainly a great school, but Columbia it isn't.

 

Buffett graduated from the University of Nebraska.  Biglari graduated from Trinity University in San Antonio.  There are a lot of great investors that didn't go Ivy League, particularly outside of the Northeast United States.  But most of the New York centered financial press gives attention to New York or Connecticut based managers and those investors usually started on Wall Street (which recruits mostly from Ivy League.)

 

John, Buffet graduated from Nebraska after he was accepted and went to Wharton. He also earned his graduate degree from Columbia.

 

However, thanks for correcting me on Biglari's education. Rice is also in Texas. I had the right state but the wrong school. Though, I would rate Rice over Trinity. I guess in my mind he went to one of the top schools in TX and I gave him more credit.

 

I'm not a huge fan of education, but you will see bright minds tend (not always) go to very well thought of schools.

 

Furthermore, if we look at the great money managers out there, almost all of them had a mentor, Buffett/Graham, Klarman/Heine, etc.

 

This guy started managing money at 22. Did he run a business before then? Who was his mentor?

 

I've been going through the Intelligent Investor again and Graham warns us about the "boy geniuses." We shall see what happens.

[Rabbitisrich]

Those issues would have been pertinent in 2002, but Biglari now has a decade of experience under his belt. You can see his thinking process laid out in a few of his very public activist investments. What additional information does his academic career provide? Richard Feynman eventually stopped responding to prospective employers of his former students saying, "You have now employed him longer than he had been my student!"

 

 

 

Rranjan cuts to the heart of the disappointment with Biglari. From his use of key phrases, the new acronym of the business, the web page design, and the structure of the annual letters, it's pretty clear that Biglari invited comparisons to a certain billionaire. I'm still not convinced that he is a sly manipulator as opposed to a young businessman with a clumsy public message. His public bidding style strikes me as a somewhat clumsy. Perhaps he is still locked in hedge fund mode and simply underestimates the importance of a good business reputation.

 

 

[Junto]

It seems to me i am one of the only commentators who is not blinded by emotions when looking at Biglari. I think many of you cannot accept what the facts are and those who have and sold are bitter for pretending they found the next Buffet to find an enterprising young man that is his own animal as we all are. I was not for naming the company what it is, but that has no bearing on the ability of the CEO to perform. It certainly puts more pressure on him.

 

I do not find him to be a superstar, but he has performed. I am betting on a winner and my own personal viewpoint that there will be opportunities in the immediate future to put cheap money to work which will provide market beating returns to shareholders over the long term.

 

Naive as many of you seem to be about the managers of public companies and what a respectable wage is for a CEO and money manager, Biglari has continued to manage the day to day business very well and has positioned the

company well going into then economic recovery in the United States. He will polish his public relations skills, no one is perfect and many activist investors have a tendency of insulting existing management.

 

We will see how this plays out and I do not recommend it a buy right now, certainly a hold, but I got money in the game.

[bookie71]

BUT, he has shown that when he hits a homerun, he gives a single to his partners.

[Junto]

BUT, he has shown that when he hits a homerun, he gives a single to his partners.

 

How is a $160 to $420 in two-three years a single. What kind of returns do you expect? I hate to belabor the point, but many of you are over sensitive. Many even got larger returns depending on the entry point.

 

Again, I am not intending to be the lone defender but some of the comments don't seem to stand on logic, facts, and history. He is certainly not perfect and neither are we.

[valuecfa]

BUT, he has shown that when he hits a homerun, he gives a single to his partners.

 

How is a $160 to $420 in two-three years a single. What kind of returns do you expect? I hate to belabor the point, but many of you are over sensitive. Many even got larger returns depending on the entry point.

 

Again, I am not intending to be the lone defender but some of the comments don't seem to stand on logic, facts, and history. He is certainly not perfect and neither are we.

 

Here is one bit of logic, fact, history.

 

Recall:

 

Feb. 11, 2008,

 

"I have made a personal commitment to you that I will spend all the time necessary to rehabilitate The Steak n Shake Company. Not only will I refuse extra remuneration for the time I intend to commit, but I also will not accept any stock options. The reason is simple: We are one of the largest shareholders; thus, we plan to make money with you, not off you. Our conviction is that now is the time to make Steak n Shake’s culture one of ownership — all the way from the board level to the store level.

 

Because we have made a commitment to own the stock of Steak n Shake for the long haul, our allegiance is to the long-term shareholders of the company. Our aim is to join the board and explore all avenues to maximize shareholder value."

 

And just a short time later (after he gets on the board) he pretty much does the exact opposite.

http://static.tvtropes.org/pmwiki/pub/images/wolf-in-sheeps-clothing1.jpg

 

He is not a dumb guy. However, i don't know that i would want to invest with a guy who lies to shareholders right off the bat.

[Junto]

Feb. 11, 2008,

 

"I have made a personal commitment to you that I will spend all the time necessary to rehabilitate The Steak n Shake Company. Not only will I refuse extra remuneration for the time I intend to commit, but I also will not accept any stock options. The reason is simple: We are one of the largest shareholders; thus, we plan to make money with you, not off you. Our conviction is that now is the time to make Steak n Shake’s culture one of ownership — all the way from the board level to the store level.

 

Because we have made a commitment to own the stock of Steak n Shake for the long haul, our allegiance is to the long-term shareholders of the company. Our aim is to join the board and explore all avenues to maximize shareholder value."

 

He also sold WEST and the LION Fund to SNS subsequent these words. One of the business's for $1 which does and will have future earnings potential. The change in compensation also occurred after he had made significant progress in rehabilitating SNS. Now, not to say that it is a fine line based on these original comments.

 

No more comments from me on this thread.