Saturday, August 14, 2010

Detroit is revamping...

In light of Detroit's government induced economic recovery, it will be interesting to see if my decision to not buy a glut of houses for a few thousand dollars each (and deal with the absurd insurance policies and code regulations) was correct or not.

Thursday, August 12, 2010

Red Robin, The New CEO, and Food Stamps.

When looking at the background of the new CEO of Red Robin, I found one thing particularly interesting on the El Pollo Loco site... They somehow are able to accept EBT (or, food stamps). This is somewhat shocking to me, as, in Kentucky, we are generally kind of strict as to the types of food that people can buy with EBT. Furthermore, I would imagine that people here would have a conniption if welfare recipients could use said welfare to buy fast food with.

Regardless, this got me thinking; what kind of food does this place offer? Is it at the top of the chain like Red Robin or closer to Taco Bell? It is really top notch as the website describes? Please, readers, let me know.

Wednesday, August 11, 2010

Defending the Undefendable.

Sardar Biglari has been the subject of great fire from all fronts as of late. The legislature in Michigan made a law which was basically tailored by the management of Freemont Insuracorp; to save a single job and keep Biglari from buying existing (and willing) shareholders out. Mario Gabelli is rallying his troops against a compensation package that is similar to his own. Journalists are publishing 1/2 truths and negative spin about Biglari (which is often the case in the Indy Star). Even my level headed message board buddies are going against Biglari.

I will say that I am against the proposed pay package as it stands. As I have said before, I, as a stockholder of Biglari Holdings, feel poorer today than the day before the proposed package was announced, mainly because I never thought that Biglari would sandbag his performance in a huge way over compensation. I do like the philosophy of the package. Making him buy and hold on to stock is good. Tying compensation to increases in book value (which will have adjustments made for acquisitions and stock issuance) is good. Not paying him if he screws up and wrecks the company is good.

I certainly understand how shareholders and many former shareholders feel that they were misled by Biglari. From what I can gather, it seems that they feel he changed the rules mid-game to suite himself. With that said, I don't think that this is a fair characterization, there is certainly a lot of smoke, but in my mind, no fire.

It is my personal opinion that Biglari was the victim of a facade that he did not make. The guy never really spoke publicly about being just like Warren Buffett. The Lion Fund letters (which many will tell you read similarly to Buffett) were never intended to be passed around in the manner that they were and in the history of his activism, he did and said what needed to be to get the job accomplished- shareholders always benefited. When bashing execs for excessive compensation, it was due to the piss poor results they produced. As far as I can tell, Biglari never intentionally misled or lied about anything. I could be wrong, but, the case simply has not been put out in a convincing manner. I think that often times, the anonymity that the internet gives us, lets us make much more rash statements about other people, without fully thinking that we are talking about other people, who have reasons for doing the things that they do.

Biglari turned Steak 'n Shake around, and did so in the greatest economic contraction that I (and probably you) have lived through. Had he not, someone else would probably would have (and he has said that), but, the fact of the matter is that he did it. Not me, not you, not some other hedge fund manager. As a shareholder, I think he should be compensated for that.

In regard to his own comparisons to Buffett, having been at numerous WEST and SNS/BH meetings, he has always tried to downplay similarities to Buffett. I have heard him say thing to the effect of "we have to be a little different than Warren". It does seem that the contrasts have occurred more so in recent times (for obvious reasons!). Look at the guys at Leucadia, Berkshire, and Fairfax- they are all pretty different. Graham, Lampert, and Fisher (the younger) are/were all value guys, and were quite different too, value investment should probably be viewed as a big tent, with few people being sheltered, rather than a small, select club. Warren Buffett isn't even Warren Buffett anymore, most likely due to the amount of capital he controls. In the 60s, there is no way in Hell that he would have invested in anything similar to Goldman, if there would of been a mortgage meltdown.

When researching a company, I argue, that it is important to do a lot of research on management, whereas, Ben Graham, would have never done such a thing... in this case, it probably wouldn't of mattered, because he probably would have also sold before the compensation package came out. That said, I would be shocked if 5% of the people that thought Biglari was the next Buffett actually asked him what his personal views on his own compensation were. As the saying goes, it is a lot easier to find out how many teeth are in a horses mouth by simply going up to the horse and counting. BH is a good lesson in counting for yourself, rather than relying on the news, blogs, or boards... Hence, the disclosure that I give at the end of every article (let me say it again... DO YOUR OWN RESEARCH!).

Oh wait a minute... Biglari HAS stated his views on compensation, he believes in paying for performance! Which is exactly what the pay package that is being voted on in the coming weeks does. If he grows the company at 20% a year (in book value) he will be compensated in one of the higher percentiles of restaurant chains of similar size. Which he would deserve and deliver great value to shareholders.

Did I get this one wrong? Yeah, I did... While I did well with the stock, did the necessary analysis of the track record of management(s), and the business, I made a big misjudgment as to what would happen after the turnaround. I never would have guessed that SNS was going to turn into what is basically a publicly traded hedge fund, which happens to operate a greasy burger chain. But at least when the facts, or rather, the perceived facts changed, I was able to take a look at them, change my mind, not get angry, sell off the bulk of my shares (for greener pastures), and learn from the situation. It isn't like this is a personal matter, it is business. The same way that the market doesn't care about you as much as you would like, sometimes, management doesn't either. One of the conclusions that I draw from this experience is that the concept of a "margin of safety" is all important.

I don't really guess that any of this building up should come as a surprise. People love a good story, one of my favorite books, called The Life of Pi, is more or less about that sort of thing. We naturally want for people to be like us and are drawn to similarities that we have with them, often to the detriment of making progress. In this case, I think that people took Biglari's stances on things like: reading about Warren Buffett, value investing, being shareholder friendly, and paying for performance, to meaning that he was the next Warren Buffett. A lot of optimism in this matter may have cost people a great deal of money.

With that said, if I were to only throw my money at 1 stock and not touch it until I retire, it would without a doubt be Biglari Holdings, I like most all of the things that Biglari has done with the companies he has been involved with, I like how he is invested in Red Robin (and Sonic), and, he will probably be at the company until I can withdraw from my retirement accounts, so, it seems like a good fit. If the price/value ratio gets right again, I will be happy to buy more shares... but, I will have to take into account the pay package that in my mind, instantly eroded a significant chunk of intrinsic value of the company, despite getting a hedge fund on the cheap.

I feel bad for Biglari in this, I really do; being the savior of the value investing community, then being the whipping boy must suck. It is lonely at the top.

Disclosure: Long BH and RRGB. This is not advice in any way, shape, or form. Always do your own research before doing anything I think, talk, or write about.

Tuesday, August 10, 2010

Wal-Mart, inflation, and competition.

Hmmmm... Wal-Mart is having to increase it's prices. Obviously, there probably is not one single thing that we can blame this on, but, I will openly wonder about this.

1) Is this a symptom of inflation hitting from the monetary supply being flooded?
2) Is Wal-Mart getting less efficient because of it's size/management?
3) If Wal-Mart leads it's other competitors in pricing by over 10%, why are they still in business?
4) Is this going to happen for everyone else? Are they going to attempt to eat it in their bottom line?

Fun things to think about.

Monday, August 9, 2010

Milk and the stimulus.

Here is a great article on the Dean Foods conference call.

Something that is noted, is that the trend for buying milk used to be stable throughout the month. Now, it peaks in the beginning of the month, and tapers off towards the end. Based on my previous experience working in pawn shops [something that I say, at the risk of you all thinking I am a total sleaze bag ;)] we always noticed, as a rule of thumb, that people would pick up or pay on their pawn loans at the start of the month. Towards the end of the month, customers would generally be pawning items and tell us that they 'just needed a little bit of cash to get them to their check'... really, it is pretty similar to what is happening in the milk business.

I wouldn't be shocked if the strange happenings in the milk market are caused, in part, by unemployment benefits being low, people running out of money, and a lot of people getting government checks. Put another way, the government is propping up milk sales at the start of the month.

Disclosure: No position. Do your own research.

Thursday, August 5, 2010

They will hate you for what you have done...

Despite the lack of a political tone that Ragnar Is A Pirate has taken on as of late, I will make an exception this time, and do a quasi-political and mildly misanthropic post.

As many have heard, Bill Gates of Microsoft fame and Warren Buffett of Berkshire Hathaway have pledged their fortunes to charitable causes. I have a ton of respect for both of these guys and listen to anything they have to say. Delivering on the whole concept of getting other billionaires to do the same is no small feat.

Anyway, I think that there are a lot of people that are disillusioned with the brand of capitalism that we have taken on, where the government is heavily involved in the economy. And I can't say that I blame them for that. I also think that people are pissed off about the disparity of wealth in the US. Time and time again, there have been studies done, which more or less say that people don't care how much money they have, they just want for there to not be a huge wealth gap.

One snippet from an article that I like, is this: “Right now, when I look around, I think business people and financial people are pretty widely mistrusted and seen as overwhelmingly self interested,” Mr. Steyer said Wednesday. “But, I think that Warren and the Gates' point is an emphatically different one. It is that business people are not just laboring for themselves or their families, but they have bigger responsibilities and belong to a bigger community." There is no doubt about that, society does hate rich people; and they will continue to.

Despite the good hearted nature of these donations, there will be some unintended consequences. For example, it will change the velocity of money, it will change exchange rates, it will change equity prices, it will change the job outlook. For example, I don't see how you can sell off all of Buffett's BRK stock, without there being some impact on the price of the security. If over 100 billion of US dollars leave the US, it will have some impact on the value of the dollar. If a chunk of money leaves US bank accounts, it will change how said banks lend money, and will impact the velocity of money. If these guys give away their money now, it will impact US tax revenues, via the estate tax and tax exempt status of charitable organization. There are a lot of intangibles here; I am not saying that these changes are going to be very significant, good or bad, but they are there, nonetheless.

One other intangible unintended consequence that I am all but sure about, is that people will eventually be saying things such as "well, they didn't do enough!" or "they still have hundreds of millions, even billions of dollars, they don't understand the pain that is out there!" or "they chose THAT cause!?!?! there are such more note worth ones out there!" Here is a post that seems to take on a view similar to that, without directly coming out and saying it.

Personally, I don't give a damn what billionaires do with their money; they could burn it for all I care- so long as the fumes don't give me some bad smoke inhalation. It's there money that they worked for; at the very worst, someone that wanted them to have it worked for the money... regardless, it wasn't my work that generated said wealth, I have no earthly or divine right to it. Maybe it is my being an Atlas Shrugged fan (despite not being an Objectivist), but I think that people are going to hate the rich over this, and I want it on the record. I like the idea of donating to good causes, but would never pass judgment on someone for not donating to one.

As a different way of looking at the disposal of ones wealth, I have always thought it would be thought provoking (on intellectual, social, governmental, and business levels, among others) to see a billionaire liquidate his estate, buy gold bullion, sink it to the bottom of the ocean, letting whoever can get there first have it... all while anonymously watching the rat race at some dive bar.

Additionally, I have always found it to be interesting that many people readily talk about how charitable causes raise people out of poverty and improve the human condition, when often times, they reside in a country that was once poor and now rich. This is a nation that receives little to no charity from other countries and is on top of the world (for now) due in great part, to hard work, ingenuity, and people immigrating from their home nations for better prospects; such as one of the best justice systems in the world and a lot of exploitable resources. Furthermore, this is generally said about in a direction of telling people who made money from improving the lives of others through market forces, what to do with their money. If you look back just 15 years we were all poor by today's standards; no cell phones, no Internet, no computers that were worth a damn, tube TVs, VHS, and many other things/lack of things... Look back 75 or 100 years, in the winter, there would generally 1 warm room in the average persons house, if even that. Now, relative to GDP and such, we have infinity nicer houses, that also cheaper. As a nation, we generally never have an idea how poor we actually are.

Hell, I didn't even know the greatness that is a fully dressed Vegetarian Fajita Burrito from Chipotle, or a Vito from Jimmy Johns, commercial air travel, or Google Android until sometime in the last 6 years. Talk about not knowing how poor I was! The bottom line: Capitalism works. We may not like some of the results, but it is better than anything else, and at least we have the choice to spend out money in different (and sometimes pretty inefficient) ways with it; such as with buy local campaigns, fair trade items, TOMS, and the like... some of which, even I buy regularly!

Disclosure: No positions in any of the companies mentioned, but not overly bullish on society as a whole. As always with this sort of post: partly serious, partly jest.

UPDATE: Here, we see people talking about how Buffett is dodging his tax bill. I think that this, if anything highlights my point. People are bitching just to bitch. Furthermore, it may shed light on why people don't donate more to private charity and don't demand a dollar for dollar tax credit for said charitable contributions. Could it be that they innately want for the government to take relatively equally from us, and then dole the money back out?

Clarus Presentation

One of the things that I am quite fond of doing after I sell off a common stock position in a company is to keep track of them. Often, this includes occasionally looking at their stock price and keeping the RSS feeds for their SEC filings in my Reader program. This morning, I a woke to see the most recent 8K for Black Diamond Equipment (formerly, Clarus).

To me, the most interesting part was how they intend to grow the company to $500 million in revenues and the chart that showed the vast amount of money that they can take from other companies, if they are smart. On thing that bothered me in this instance, was that they made mention of having the ability to issue 40 million shares of stock to grow the business with. Having formerly been long BDE, I was actually disappointed at the acquisition once I got read the terms of it. I am sure that it is a great acquisition, with tons of potential, but didn't feel that the stock price justified it, relative to cheaper shares of other companies out there.

Regardless, for ~5 minutes of my time, I got something interesting to think about, I know a company (and an industry) better, and as a result of this, will be more prepared should Mr. Market throw me a Hell of a price on this security. After all, the company is well managed and has a great product. It will be a pleasure to watch the future growth of this company.

Disclosure: I do not own shares in any company mentioned here. This is not investment advice. Always do your own research before doing anything that I so much as think about.