Old School Value Nugget Fest (Oct 31st Edition)

I had some interesting email exchanges with some of our readers this week that will lead to blog posts in the next few days.

One of them, on using quantitative data to identify value traps (as opposed to the mostly qualitative analysis that’s usually recommended), is already up: Quantitative Stock Value Trap Analysis.

Check it out, enjoy, and stay tuned for the next, on whether product quality switching costs are a sustainable source of advantage.



Warren Buffett on Pricing Power and Economic Moats [Guru Focus]

There were two nuggets that really stood out for me in this one:

1. “And basically, the single-most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business. I’ve been in both, and I know the difference.”

2. ““If you’ve got a good enough business… your idiot nephew could run it. And if you’ve got a really good business, [management] doesn’t make any difference.”

These were excerpts from a Congressional inquiry into the financial crisis, and some of the exchanges with the Congressmen were pretty funny.

Markets & Investing

Evolve or Die [Ian Cassel – MicroCapClub]

There are a lot of great nuggets in this if you’re running a high-conviction, high-concentration portfolio for yourself.

“The hardest part about owning a concentrated portfolio isn’t financial risk but thinking about your positions too much. The shorter your time horizon the more you need your positions to perform to your expectations. The market doesn’t work this way.”

3Q19 Newsletter: “Money for Nothin’”: Have we met Dire Straits? [Smead]

In the face of what may be lower-than-average forward returns for equities, one manager is looking toward Millennials to power spending as they enter the key home buying age over the next 10 years.

Putting the Buy-and-Hold Gospel to the Ultimate Test [Zweig, WSJ]

“To be a long-term investor in stocks, you have to be prepared to lose more money for longer than seems possible. Anyone who takes that risk lightly is likely to sell out, in the next crash, near the bottom.”

The evidence? “The Dow didn’t surpass its 1929 high until Nov. 23, 1954, a quarter-century later. That doesn’t include reinvested dividends, but most investors surely took their dividends as cash in those days.”

By then, almost everyone had gotten out.

Where’s the Buyback Beef? [The Irrelevant Investor]

Interesting piece that puts buybacks into context that is usually missed.

“Most companies don’t view buybacks as a means of returning cash to shareholders but, rather, as offsetting all or most of the dilution caused by stock compensation.”

A Real Shift May Be Underway Towards Value Investing [The Acquirer’s Multiple]

Another piece, citing a Bloomberg article, that indicates Value may be coming back.

Company & Strategy

Life Of Pie: A Closer Look At The Domino’s Pizza Syste [INC]

Here’s a candid look at Domino’s Pizza’s franchise model, the value chain in the US and the differences in approach when it comes to different countries.

With DataXu buy, Roku unveils big ad ambitions [Digiday]

I like Roku as one of the beneficiaries of all this streaming competition, but I haven’t dug in. Getting serious about an ad business is interesting.

“At the most basic level, Roku’s acquisition of Dataxu should lower the barrier to entry for advertisers to buy Roku’s inventory thanks to Dataxu’s self-serve buying tool.”

Can You Hear Me Now? [Capital Group]

A pretty good piece from a Capital Group about the state of 5G technology and which companies and industries stand to benefit in the future.

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