All the negative arguments do not seem related to the intrinsic value of the business here.

Look back at his record at WEST…book value decreased during his time as CEO. He overpaid for the vacant land in San Antonio. WEST lost about 1/3 of its franchises.

His rationale for his SNS investment makes him look stupid. He claims he initially had no desire to become actively involved in SNS. He bought SNS @ $15-17 per share based on the underlying fundamentals (which included management, since he didn’t want to become involved). However, if you read his most recent letter, he claims that SNS would have gone bankrupt if HE hadn’t miraculously saved it by becoming CEO.

Let’s assume that Biglari is a miracle-worker and that he saved the company. The logical question then becomes, why did he pay $17 per share for a company that was on the road to bankruptcy? What does that say about his investing acumen? How does a value-investing legend (at least in his own mind) put almost 100% of his portfolio in a stock that would likely have gone bankrupt in 2 years without his active involvement? (And even with his involvement, it’s still not at the price at which he began buying)

Or, let’s assume that SNS would have been just fine without Biglari becoming CEO (and therefore, it was a relatively sound investment at $17). What does that say about him that he’s now claiming HE was the one that saved it?

Finally, if you look at his initial purchases of SNS, he started buying in bulk the day after HBK investments filed a Form 13-D. That filing caused the share price to jump from $15 to $17 in a single day. Instead of waiting for it to settle down, or admitting that he missed out and moving on to something else, Biglari chased the stock. His biggest purchases were made when SNS was at its highest. Does that sound like a value investor to you?

If I were an SNS shareholder, I’d be terrified of what Biglari is going to do with the cash that is generated.

Perhaps I’ll mention the purchase of WEST by SNS in another post. All I’ll say now is that I find it “interesting” that SNS is paying 14% notes for WEST when it has cash sitting on its balance sheet. That 14% is going directly into Biglari & pal’s pockets. I wonder what kind of rate SNS could have received from a bank…

And Buffett worked for Graham’s fund before he started his partnership. That’d be like an analyst breaking off from a major hedge fund now to start his own partnership. On the other hand, Biglari has never worked for another investment fund.

There is one big difference about buying SNS now, vs buying BRK in it’s early years. VERY FEW people knew about BRK in the early years. Information flow is so rapid and prevelant today that the timeframe of an opportunity is now either greatly reduced, or non-existant.

Sardar is comfortable enough with the price to add to add position this year. What is perhaps more telling is that board member William Regan also added to his position this year at the $320 price level.

I think that Biglari made a fair “starting” offer for Fremont. Fremont’s shareholders owe Sardar a big thank you for at least generating a more realistic value to their shares.

Sardar’s bid for Fremont also encourages me that he is determined to add value to SNS, and So far Sardar has done everything he has said he would do since the inception of Lion Fund.

I wish he had more capital available. There seems to be a number of larger P&C companies available at reasonable prices.

As for the economic cycle, Look at 2005, 2006, and 2007. Unless you’re telling me the economy was in a recession then, then I don’t buy the turn is just lucky timing.

And where does it say you have to offer a premium when you offer to acquire a company. The bigger the premium, the more likely they’ll accept the offer. But I actually give him credit, trying to buy a company at a price that he thinks offers him a good return.

Again, I’m not a Biglari Fanboy, but I think he’s doing the right things so far…

Enjoyed reading your carefully considered criticism. The third point, however, I see as misguided. I have witnessed first-hand the rise and destruction of many truly narcissistic individuals over my long career in finance. These people are easily to spot by applying a simple test: Do they claim credit for other peoples work, or do they acknowledge the success of others around them? These people rise quickly on the backs of others, but are eventually ruined with the eager assistance from those who have been slighted in the past.

A careful reading of Sardar’s 2008 and 2009 shareholder letters gives plenty of credit to others, both explicitly and implicitly. (See as an example page 4 of the 2008 letter). A non-scientific test is to count the number of references of “I” compared to the number of references of “we”. A true narcissist will write letters overloaded with references to “I”. A word count shows for 2008: “I”=10, “we”=120; 2009: “I”=35, “we”=75. This is not a sign of a person looking to claim credit from others.

My many interactions with Sardar (in person and on the phone) has never once left me with that ugly feeling we all get when dealing with an “It’s-all-about-me!”, self-centered, bore. Sardar is youthful, confident and decisive, and this combination often rubs people the wrong way. But to label him a narcissist is inaccurate and unfair.

In regards to point four, can you really say that “over the very long haul” that price is always reflective of intrinsic value? The truth of what Graham has said has nothing to do with the matter. The fact is that “over the very long haul” a company’s stock can be priced at $100 when the intrinsic value of the company is only $25. Is stock price really a true measure of value creation? Not necessarily.

One previous commenter has suggested that Biglari may have been lucky with his timing. How much of the turnaround was really Biglari’s efforts and how much was it just the economic cycle.

In regards to the hostile bid for FMMH, the size of the premium should not be measured when he first started buying, it should be measured on the day of the announcement. On the day of the announcement, the premium was 11.3%, and yes, that is insultingly low. If I offered to buy you out of a business you had created and worked hard at for the majority of your working life, and I only gave you an 11% premium to the stock price, would you be insulted? But even a 20% premium is still low. Do I need to mention that the offer of 24.50 was below FMMH’s book value per share of 25.50? If you were the one who had been running the business for a long time, would you be happy and proud you got this low-ball offer or might you feel a little insulted?

1.) I agree he is young. But you are wrong about no value investor investing with Big Larry, as Gabelli keeps buying, he’s up to 8% or so of the company now. Maybe you don’t respect Gabelli, but he does have a pretty strong record. It wouldn’t surprise me if he mentions SNS in the Barron’s Round Table when it comes out in a few weeks…

2.) It was profitable because sales went up. It generated a bunch of cash because capex fell off a cliff. The lack of capex has no affect on current earnings, but it does on cash flow. I think $5m is not enough to spend, but most of the capex spent under prior management was going to new stores, so if you’re not opening new stores, you won’t be using as much capex. The key to SNS is profitable capex spending, not unprofitable growth capex.

3.) I couldn’t agree more here. Which is why I own more WEST than SNS, as I want to lock in what I thin is an 11% return for 5 years, as I think he’s too full of himself to redeem the debt early.

4.) You are correct in the short term, but in the long term, he is correct. Go back to the Graham quote that Buffett repeats – “In the short term, the market is a voting machine. In the long term, it is a weighing machine.” Hence why Biglari says “over the very long haul”

5.) Don’t disagree with this, the reverse split doesn’t add any benefit. But it did result in some sort of share buyback, so that’s potentially good.

6.) I don’t comprehend how it was insulting to FMMH owners (of which he is one). He offered more than the current price. It was at $18.82 when he started buying, his buying drove it up over $20. So that’s a 20% premium. It traded up in anticipation of him making an offer, as it was no secret he wanted to buy an insurance company, and he’d already bought 9.9% of the stock by the time he filed his 13-D when the stock was at $20.

Look, I don’t know if Biglari is the second coming of Buffett. What I do know is he’s done a pretty good job turning SNS around, more than you can credit the economy for. They had years of negative same store sales under the prior management, even in boom years like 2007. He’s managed to change that.

So yes, I own a small bit of SNS which was spun out of my WEST holdings; it’s trading higher than where I purchased it. I’m not running out to buy more right now, but if he’s half as good as Buffett, I’m sure in 5 years I’ll have wished that I had.