One of my initial columns for TheStreet.com was focused on the search for the next Berkshire Hathaway.
That's the holy grail for value investors; but I am the first to admit that there will never be another Berkshire Hathaway, because there will never be another Warren Buffett. That, however, does not stop those of us in the value crowd from trying to find Berkshire-like companies. Sometimes I think we are deluding ourselves into finding anything remotely resembling Berkshire, but the quest continues anyway.
In that column, I identified four names that have drawn some Berkshire comparisons over the years, including Loews, Leucadia National, PICO Holdings, and Biglari Holdings. Loew's and Leucadia are on the larger side, with market capitalization of $16 billion and $6 billion respectively, while PICO and Biglari are much smaller, with market caps in the $400 million to $500 million range
None of these names have performed well since my column; while Loews and Leucadia are flat, Biglari Holdings is down 13 percent and PICO is down 16 percent. Nothing to write home about in terms of performance, but seven months is but a day to a value investor. That's one of the many reasons value investing is not for everyone.
In fact, I've recently increased positions in both PICO and Biglari Holdings. Frankly, overall, PICO has been a huge disappointment over the years. I've owned it for several years, seen it run from about $11 to $47, and then give most of that gain back. While I am not a trader, I have closed positions a few times, locking in gains, and then taken new positions. Part of PICO's problem is that it is difficult for investors to understand. Management has focused on increasing book value per share, and not earnings, and has not done a great job at either in recent years.
Still, PICO remains an asset-rich company with substantial water rights, residential property in California, and an interest in a canola processing facility. The company recently sold the two insurance companies it owned, as well as its holdings in former railroad land in Nevada, and is seemingly changing its focus. The canola plant, which is now online, is generating revenue, and we'll see if the earnings follow. I've referred to PICO Holdings as the "poor-man's Berkshire Hathaway," and unfortunately in recent years, that's had a meaning other that the one I intended; owning PICO has made shareholders poorer. PICO currently trades for 0.93 times book value
As for Biglari Holdings, the hopes there are pinned on CEO Sardar Biglari, a controversial figure, who has drawn comparisons from some to Buffett. But along with that has come scorn, because Biglari has made some very un-Buffett like moves. Besides pressing to change the company's name from Steak n Shake, to one bearing his own name, Biglari has taken aggressive stances when it comes to shareholder activism. He's launched a very public fight with Cracker Barrel for board seats, and changes at that company, having amassed a 19.99 percent stake — which is just below the 20 percent threshold that would trigger Cracker Barrell's poison pill.
He's had some successes, helping to turn around fast-food name Steak n Shake, which is owned by Biglari Holdings. He's used cash flow generated by Steak n Shake, and Western Sizzlin (also owned by BH) to build a stake in Cracker Barrel worth about $303 million. Biglari Holdings' market cap is more than $500 million, so this is becoming a sum of the parts story.
Still unresolved is the company's attempt to adopt a dual share class structure, a matter that needs shareholder approval. The meeting to vote on the proposal has been delayed twice, leading to speculation that the votes aren't there. If passed, the company would have Class A and Class B shares; with the former having the lion's share of the voting rights. Berkshire Hathaway has a similar structure, which has only furthered criticism that Biglari is trying to be Buffett.
While the jury is still out on Biglari's prowess as a capital allocator, I've been impressed enough to build a position in his company. Not everyone is impressed, for sure. Biglari, at times, appears to be a bull in a china shop; very un-Buffett like.
The quest for the next Berkshire Hathaway — no matter how hopeless, no matter how far — continues.
—By TheStreet.com Contributor Jonathan Heller
Disclosure: At the time of publication, the author held long positions in PICO and BH.