September 29, 2006
A post on the Gannon on Investing blog alerted me to a guy named Sardar Biglari. He’s a 29 year old who started an ISP company when he was in college, then read about Buffett and realized that — qua investor — he does not want to be in an unpredictable business. He now runs The Lion Fund (hedge fund).
I’m very wary of smart talkers. Over the years, I’ve learnt that the wolf-like car-salesmen types are not the ones to worry about. The dangerous operators come in sheep’s clothing. The dangerous ones appear completely genuine and different, until you’re checking your wounds. So, out of curiosity, I read the one interview that I could find, and what was available on the site of Western-Sizzlin a company Biglari recently took over, and some stuff in the press.
Aside: I would have liked to read Biglari’s letters to his investors, which were public until recently, but it turn out that someone commented to his company that, since he runs a hedge fund, and since hedge funds aren’t supposed to solicit investments from the general public, putting his letters on the site might be construed as an illegal solicitation. In other words, my bloody government is trying to protect me from being tempted to invest in The Lion Fund, even though they already have a rule that prevents anyone with less than $1 million of net worth from investing in such fund. Oh, the tangled web of socialism! (I’ve emailed them asking if I can be given access.)
Anyhow, back on story: so far, everything adds up with this guy and the typical warning flags (things said, ways in which said, things left unsaid). In fact, I’m sufficiently convinced to have invested a small sum of money in Western-Sizzlin, where Biglari is Chairman.
Update (Oct 18, 2006): I should have added that I like the way Biglari is planning the new financing for Western-Sizzlin, using rights shares instead of debt. All too often, take-over firms will bring their own money in the form of convertible debt to the new company that gives some shareholders better treatment than others. The rights share way (or a debt from a truly unrelated third-party, if that makes sense) indicates a sense of fairplay.
September 29, 2006
March 2006: This is junk (BB), but it is run by PIMCO, so that lets me sleep easy. It’s a floating rate trust, which yields 8.5% today. Then interest rate tightening cycle has not ended, so there’s no reason to believe the yield will fall.
If Bernanke raises a couple of times and then let’s things remain steady, it may be time to sell, before the yield collapses, and the price does too. Right now, it seems that won’t happen until Q3 or Q4 at the earliest.
Sep 2006: The interest rate cycle might be at a plateau, for a few months at least. PFN has not fallen. In fact the price ($18.90) and yield (9%) have both risen slightly over the last 6 months. Review again in Q1 of 2007. [Update Feb 2007: Fed rate still steady. PFN yield @ 9%, but a 4% premium has built up in the price — $19.20 now]
Update Jan 2009: With the crash in the market, PFN went below $6, with a yield going arounf 17%. It is now $7.60, up a little bit from it’s lowest, but still yielding 14%. People are worried about all types of debt, particularly the low-grade stuff in this fund. In addition, the fund (like many other such funds) is leveraged about 30%. That debt is short-term and constantly renewed. A credit crisis raises short-term rates (private rates like LIBOR) even while the Fed is lowering it’s rate. So, that fear also hit the fund.
At these yields, the fund looks attractive to me, and I still own some.
September 12, 2006
“Minding Mr. Market“, is a collection of articles from “Grant Interest Rate Observer”. They’re from the 1980s and the earliy 1990s. Grant does not add much to the articles. Some annotations update the reader on how events turned out, but there is no organized attempt to look back at history and the predictions that were made. The essays are organized by topic. Apart from that, the reader has to do the analysis and summarizing on his own, with no help from the author.
Nevertheless, here’s something from the book…
Perhaps the oldest and purest blind pool on record was the “company for carrying out an undertaking of great advantage, but nobody to know what it is” during the South Sea Bubble of the early eighteenth century.
Grant goes on to quote Charles Mackay, from “Memoirs of Extraordinary Popular Delusions and the Madness of Crowds”:
The man of genius who essayed this bold and successful inroad upon public credulity, merely stated in his prospectus… … each subscriber, paying his deposit [of an initial 2 pounds for a 100 pound share], would be entitled to 100 pounds per annum. He… promised that in a month full particulars should be duly announced, and a call made for the remaining 98 pounds… he found that no less than one thousand shares had been subscribed for… He… set off… for the continent. He was never heard of again.
I would not recommend this book to a general audience. Since Grant did not add any commentary, the collection of articles would be of interest to a small niche of folks who already have a decent understanding the financial history of the period and who want to see what Grant said about it.