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  • High Conviction: The Buffett of Burgers [View article]
    At his annual meeting, he did say he would make mistakes occasionally :)

    I think his pay package is high, and not Buffett-like. However, he is required to put a good percentage of that pay back into the company's shares, which aligns his interests and ours to a degree. All things considered, though, he's not going to lose his ability to invest because of this. It seems to me to be an overreaction.

    Also, a big part of the drop in price is because of the tender offer for AAP. Biglari is telling the markets he thought BH was not undervalued by offering BH stock.

    My suggestion is that if you are in this stock, you can't worry about a few months. You have to judge it over something like a three year period. Biglari could not have telegraphed it any stronger that he doesn't want investors who are short-timers. A lot of the discussions on this thread are precisely from people who are trying to trade this stock, not the kind of people who should be in it.

    Poly- if no one tenders what would be the net effect of BH offering the tender? It would seem to me that Biglari had two things in mind: telling investors he did not think BH was undervalued, and trying to shake out short-timers.
    May 6, 2010. 08:48 AM | 1 Like Like |Link to Comment
  • 'Consumer Protection' in Financial Services? It Won't Work [View article]
    Nice anecdote, Tom. It sounds typical. This reminds me of the regulators who hounded Andy Beal in Texas because he didn't want to make any loans from 2005-2007.
    Apr 29, 2010. 10:29 AM | Likes Like |Link to Comment
  • High Conviction: The Buffett of Burgers [View article]
    For those of you who follow Mario Gabelli, this past weekend's Barron's noted that GAMCO's BH stake is now up to 8.96% of the company. Additionally, I was told that Mario was at the annual meeting.
    Apr 23, 2010. 09:24 AM | 1 Like Like |Link to Comment
  • High Conviction: The Buffett of Burgers [View article]
    Agree with you guys. Look, this article isn't going to cause the stock price to change. All of this info is out there in one place or another. Maybe it's different for some sort of penny stock, but nothing we write on Seeking Alpha is going to materially change the stock price when it has a market cap of $550 million.

    To follow on with Hedged In's comment. I don't think you should ever by a stock based on someone else's opinion, even if you totally trust them. In my opinion, investing is 80% mental. You can have the right stock, but unless you are completely confident in the thesis, you will get nervous and sell at inappropriate times. The only way to get that confidence is to decide for yourself with your own research. Articles like these are invitations for you to learn more, not recommendations.
    Apr 20, 2010. 12:23 PM | 2 Likes Like |Link to Comment
  • Huron Consulting: The Race to Normalized Earnings [View article]
    Excellent points- thanks for posting. I couldn't agree more.
    Apr 20, 2010. 12:16 PM | Likes Like |Link to Comment
  • High Conviction: The Buffett of Burgers [View article]
    Hey guys- a few thoughts to add here. One, I know the title of this is "The Buffett of Burgers," but I don't think the comparisons really matter. Biglari follows Buffett's teachings, much like Buffett followed Graham's teachings. They're different people and have their own styles. Buffett wasn't Graham and Biglari isn't Buffett. But, it's undeniable he follows Buffett's teachings, which is a good thing.

    I'm going to push back a bit on the folks who thinks there is a lot of uncertainty here. Future growth is uncertain, but even if there is no growth, the stock price is fair to undervalued. Let me give you one example. I'll make it a simple PE ratio analysis because a few of you seem to like that approach. However, I strongly recommend you not use earnings to value BH, or really any company. Stated earnings are easily manipulated. Pretend a stock you own is a private company you're going to buy. You'll worry about cash more and stated earnings less.

    Anyway, for the sake of simplicity, BH has $62 million in cash, let's say Biglari can return 15% on that. Thats $9 million in earnings. And, let's say Steak n Shake makes $27 million in 2010. For just those two areas we have $36 million in stated earnings with 1.4 million shares outstanding. That's earnings of about $26/share. Throw a 15 PE on that and you get a stock price of $390.

    The PE ratio analysis is not worth anything, and it doesn't include any of the other assets of BH, but it still gives you a price very close to today's price. Those assumptions are conservative. Plus, the PE ratio would probably be closer to 20, not 15.

    I'm out for awhile for now. I'll let you guys debate this comment.
    Apr 16, 2010. 04:09 PM | 3 Likes Like |Link to Comment
  • High Conviction: The Buffett of Burgers [View article]
    Dr. Poly and repo 105- This is what makes a market!
    Apr 15, 2010. 09:47 PM | Likes Like |Link to Comment
  • High Conviction: The Buffett of Burgers [View article]
    mbkelly75- Don't forget to add in the value of the real estate SHLD owns. It's a balance sheet story, not an income statement story.
    Apr 15, 2010. 05:26 PM | 2 Likes Like |Link to Comment
  • High Conviction: The Buffett of Burgers [View article]
    I do agree that it's fairly valued, but my time horizon is a decade for this, which is how I defined the question the interviewer gave me about highest conviction. What we want to do with BH is ride on management's coattails, and we think management will increase free cash and profitably invest it. It's one pick in one category of our portfolio, and we don't want to ride on coattails for very many choices in our portfolio. What we do think is that ten years from now, we can look back, and even at today's stock price, be extremely happy with our gain on BH.

    Personally, I think the SHLD situation is different. Steak n Shake has growth potential while Sears and KMart are dying brands. You make a great point, though, if you're looking at a short time horizon.
    Apr 15, 2010. 04:11 PM | 2 Likes Like |Link to Comment
  • High Conviction: The Buffett of Burgers [View article]
    True, but Munger bets on the jockey.
    Apr 15, 2010. 04:03 PM | 1 Like Like |Link to Comment
  • High Conviction: The Buffett of Burgers [View article]
    Hester- Excellent points. I totally agree with your concerns, and I do think they are the main risks here. I will say that the cost basis for our clients on this one is dramatically lower than the current stock price, so readers should take that into consideration. That being said, investors will have plenty of time to figure out if BH is going to work out or not, even if the stock price is higher in the future.

    Janbil- Sure, without going into the specific assumptions (which I don't have with me right now), I will say that I took the earnings power of Steak n Shake and Western Sizzlin, the earnings potential of the investable cash and current invetments, and then added in the value of some of their other assets like real estate and their smaller business holdings. This is a really tough one for assumptions. A wide range is okay if you are comfortable with the business and management, so an investor needs to believe in the story and management to use this type of analysis. You really can't do a discounted cash flow analysis because of the uncertainties. You don't know what businesses they'll even own in the future. Imprecise? Yes, but the value isn't necessarily in their current income, it's in the transformation potential.
    Apr 15, 2010. 11:04 AM | 2 Likes Like |Link to Comment
  • High Conviction: The Buffett of Burgers [View article]
    MBKelly- I agree and would call it about fairly valued right now. This only goes into one part of the portfolio for us. Normally, I wouldn't buy into a fairly valued stock. Here, the value is in the management, which has the potential to create value where none exists right now, i.e. buying into a an insurance company.

    Hammer- It is a risk.

    John Galt- Love it

    Alex Morris- It is anecdotal, but reflects what the company has been telling us. It shows that capital spend alone doesn't improve a company. I think they now have customer service standards that weren't there in the past. That goes a long way towards more repeat customers. I mean, if the wait is long, you just can't go there for lunch repeatedly, ya know?

    Dr. Poly- I don't think Biglari should be managing Steak n Shake. His highest and best use is capital allocation.
    Apr 15, 2010. 10:13 AM | 5 Likes Like |Link to Comment