Canterbury Tollgate, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A return of +9.04% was delivered by the fund for the first four months of the year, while the 70/30 benchmark increased +5.66%, the S&P 500 (^SPXTR) by +11.85%, and the MSCI All-World Index (ACWI) by +9.34%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Canterbury Tollgate, in its Q1 2021 investor letter, mentioned Biglari Holdings Inc. (NYSE: BH), and shared their insights on the company. Biglari Holdings Inc. is a San Antonio, Texas-based holding company that currently has a $506 million market capitalization. Since the beginning of the year, BH delivered a 46.88% return, extending its 12-month gains to 166.91%. As of May 24, 2021, the stock closed at $167.44 per share.
Here is what Canterbury Tollgate has to say about Biglari Holdings Inc. in its Q1 2021 investor letter:
“One of our top ten positions, Biglari Holdings (ticker: BH), has garnered some attention and questions due to the chairman, Sardar Biglari. We began buying Biglari Holdings last year when the stock price was trading for a good bit less than tangible book value. Currently our average price per share is in the $80s. Biglari Holdings owns Steak ‘n Shake as well as insurance and oil/gas companies. A few years ago, in the midst of a takeover battle, Mr. Biglari took actions to solidify his control which included transferring cash from the company to a fund controlled by Biglari Holdings in order to turn around and buy BH stock. This was during a difficult period for Steak ‘n Shake. An already depressed stock price sunk more. Sufficive to say, without going into the entire backstory, many value investors are not big fans. I sympathize with their plight though I came to a different interpretation about the course of events—events which led to the depressed price. I started looking at the company a few years ago. Eventually I concluded it would have been less than ideal for Sardar to have taken less bold actions (i.e., to have given up control). Here’s a guy whose fought his entire life to get where he is. With all his quirks, he turned Steak ‘n Shake around after the 2008 crisis and diversified the company into multiple unrelated, less cyclical lines of business. Then, during a
rough patch, he’s faced with a hostile takeover, no doubt being seen as an easy target because of his unpopularity. What might we have expected him to do? Sardar Biglari is not your typical CEO. Born in Iran, he migrated to the U.S. as a refugee during childhood. Compared to the average smooth-talking, diplomatically trained CEO, he’s rough around the edges—a common theme among independent thinking entrepreneurs. He’s not afraid to go against the grain, to upset the apple cart, to be disliked. Biglari has a true owner’s mentality, having only completed a handful of selective deals since taking over post-2008. The value and scarcity of this type of mentality cannot be understated.In general, my baseline expectation is for a company’s executives to destroy value, particularly when they have little ownership. Seven or eight years ago my wife and I were invited out to a meeting in California put on by a large, well-respected mid-western financial services company. They flew us out, put us up in a nice resort near Santa Barbara, and fed us five-star meals. The firm’s key people were the picture-perfect executive-class—highly diplomatic and respectful, avoiding anything controversial—who I learned had flown in on the company’s private planes. They weren’t shy about how frequently they traveled in style (on the company’s dime). Meanwhile, it wasn’t clear during the conference exactly what was to be accomplished for the benefit of either customers or shareholders. A couple years later a few of these same executives flew down to Nashville on one of the company’s private jets. The purpose was to persuade me to do more business with them. I wondered at the time about the price tag of five executives from a moderately profitable financial services company flying private for an hourlong meeting that could’ve been held by phone.
The firm’s profits were derived mostly from fixed income investments and a loan book. Lower rates persisted for longer than anyone expected, which began to eat away at their bottom line. They bought an emerging market insurance company in an attempt to reinvigorate growth. When that plan faltered, they divested a capital markets division to raise cash when competitors retained or expanded separate business lines. After that they tried a management shake-up. Execs were ousted to no avail. Financial results kept deteriorating even as competitors’ results improved.
I recently received notice that this company was being acquired, no doubt out of necessity. That those luxurious trips and unnecessarily lavish expenses were isolated money-wasting decisions is implausible. The cumulative impact over a decade and a half goes without saying. And to think, all of this for the temporarily comfort of a few executives while destroying value for
customers and owners. This is just one of many examples of how a lack of ownership mentality leads to such poor capital allocation and decision making. To be clear, owner-insider’s do not guarantee satisfactory decision making. But it’s terribly difficult to find in their absence.”
Pixabay/Public Domain
Our calculations show that Biglari Holdings Inc. (NYSE: BH) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, Biglari Holdings Inc. was in 6 hedge fund portfolios, compared to 9 funds in the fourth quarter of 2020. BH delivered a 42.55% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
