There are some out there in the online value investing community who have been enthusiastic about Sardar Biglari, Western Sizzlin’, and finally Steak ‘N Shake (SNS). I’m not going to go into details about these figures as it would take too much time, so this post is for those who are already in the know.
I have followed the news on all these figures and I have yet to buy into the hype that Biglari is and has been trying to create. After some serious thinking about SNS and Biglari, here are some reasons that should at the least provide pause to any serious investor.
Reasons For Caution
Though having accomplished some impressive things in the past at a young age, Biglari is still unknown and young. There is no value investor that I know and respect that has invested with Biglari or in any of the stocks Biglari has targeted. But the same could have been said about Buffett way back. I ask myself if I would have invested in Buffett’s partnership when he first started going and I really can’t come up with an answer. My criteria probably would have been whether I intimately knew Buffett or I was friends with someone who knew Buffett. And so it should be with Biglari I think. Unless you know him personally, and you know he is not just saying all the right things to attract attention and money, then it’s not a good idea to invest with him or in any of his target companies.
Secondly, the restaurant business is a horrible business from which to launch a successful, long-term company, though the same could have been said about the textile industry. Looking at Biglari’s most recent letter, you see that SNS was only profitable because capex fell off a cliff. This might be alight for just a year, but Biglari maintains this level of capex, I can only predict dire results for the business. As a sidenote, I know someone who recently visited a Steak ‘N Shake restaurant for lunch and asked about new management. The response was interesting, as one of the bad things about new management was that company-owned restaurants were required to be open on Thanksgiving Day. There was only light traffic that day and I guarantee that 99% of SNS restaurants lost money that day. What’s up with that Biglari?
Thirdly, Biglari seems to be extremely narcissistic. Read his letters. Most of the sentences are in the first person, citing his actions and accomplishments. I’m fairly certain he doesn’t mention any SNS employee by name. True, Biglari has accomplished a lot of things and he is right to be proud, but he comes off as very full of himself.
Fourthly, Biglari wrote on page three of the 2009 letter that “there is no better barometer of value creation over the very long haul than stock price.” If you call yourself a value investor and this statement does not completely shock you, then I must question your credentials and beliefs. Stock price is absolutely meaningless when it comes to measuring the value of a company. There is intrinsic value and then there is the price that others would pay. If the owner runs the business successfully, invests in projects that yield returns, then price should follow intrinsic value, but price is certainly not a true measure of a company’s value.
Fifth, its interesting that there was a reverse-split of the stock to attract long-term investors, but I really question whether this created any value. I believe any type of split is a useless transaction that takes value away from the company. You can rationalize a stock split all you want, at the end of the day shareholders get nothing in return. If Biglari wants to attract long-term shareholders, then he should focus on running the business and start proving to everyone that he is not just blowing smoke or dressing up his company to look like another Berkshire with the insidious goal of attracting easy money and attention.
Finally, SNS’s recent hostile bid for FMMH was just insulting to the owners of FMMH. The premium was minuscule and was rightfully rejected. This action to me is more evidence that Biglari believes he is hot shit.
Summary
I do not disagree that Biglari has some impressive accomplishments, but for all of the reasons above, I would advise a wait-and-see approach to Biglari and SNS. For now, I think it’s more likely that Biglari is just doing and saying all the right things in order to appear like the next Buffett. And if Biglari is really a Buffett type of guy, then it won’t hurt to wait several years to see how things play out with Biglari and SNS.
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