The blog is a personal commentary by Yale Bock on the specific events which may have occurred in the investment or political world. Specific stocks are mentioned, and many readers find this a good way to gain another perspective on the investment world.
If you are involved with any kind of business and consider yourself someone who is open to learning about better ways to approach your business, you might consider watching the show, "The Profit", which airs on Tuesday night at 10:00 EST on CNBC. The star of the show is Marcus Lemonis, a business person who successfully rolled up small companies in the RV industry after working in the automobile area for many years.
The plot of the show each week is pretty much the same as Lemonis identifies struggling businesses which are not profitable but believes have potential to perform much better with his leadership. He negotiates a capital investment in the company after analyzing the financials, management, and the current operations. Typically, he wants a control stake where he owns at least 50.1% of the company in return for his capital. In nearly every situation, before any deal is struck, he tells the owners if they accept his check, he is in charge and now the company will do things his way.
There are several lessons any business owner or investor can take away from the show and the approach Lemonis uses. First, he does a good job of analyzing the segments of each business and where the best margin profiles are on it's existing products, as well as those which are lacking or need to be eliminated. Next, the balance sheet is taken apart to see what the working capital situation is and how the existing supply chain might need to be changed to create a more efficient operation. By evaluating the different components of the balance sheet, he obtains a good understanding of the capital needs which are required. He then moves on to how the organization is utilizing their existing facilities and personnel in order to get a sense of whether a different approach might be required. In nearly every case, he winds up renovating or changing the location and marketing in order to generate better results. Certainly, a television show in many cases is contrived and not all the methods Lemonis uses will be applicable to every business. However, it is a nice hour long way to potentially learn about his three p approach: people, product, and process and one I highly recommend.
As an investor, much of what Lemonis does is applicable to any asset class, especially stocks or bonds. In the stock market, one typically has to take the analysis further by looking at topics like, but not limited to, management and its track record, growth rates, the potential of new products, identifying a stage the business is in, discovering what kind of assets the company possesses which the market gives it zero credit for, and probably most important, the valuation of the enterprise. You probably have to do much more as well because your capital is limited. You are trying to get the most bang for your buck, and there is always the opportunity cost of allocating money to one investment versus others. Investing and business is not simple or easy but learning new approaches which have a history of success is typically a good thing.
Turning to the market and the investment world, last week came earning reports from Yahoo, Google, IBM, Coke, Pepsi, and Johnson & Johnson, along with many others. The biggest surprises were from Yahoo, Coke, Pepsi, and JNJ, which all were generally viewed favorably. Google and IBM were seen as disappointing, although when a company makes three to five billion in profits in three months, the idea that company is not doing pretty well is delusional. Still, investors always care about growth rates in different forms, like sequential versus year over year, top line versus bottom line, and the devil is always in the details. The bottom line is global businesses are making more money than ever before, and the markets to sell products into are vast and ever expanding. Critics argue profit margins are unsustainably high and will revert to a more normal level as interest rates start to rise. I don't believe this argument as all over the business world in nearly every industry, enterprises have become far more efficient in nearly every aspect of their operations. Just look at software and cloud based services, for example, along with mobile devices, as they allow for approaches which are far more profitable than in the past. This week, the likes of Apple, McDonald's, Starbucks, and many more will report their results. You can bet the whole world will be watching, yours truly included.
On the opposite end of the spectrum of efficient enterprises, the Obama administration announced on Friday they are delaying the Keystone pipeline decision until after the November elections. The stated reason was existing lawsuits in Nebraska related to a variety of factors which had to be evaluated. At the very least, the lack of consideration for our neighbors to north in Canada is disgraceful, especially considering they are our largest trading partner. I am not sure anything should take six years to make a decision on and it is more evidence of the rigid, idealogical stance of our current government. The environmental and high tech lobbies certainly have to be pleased with the existing President and I am sure they will turn out the cash in record numbers for the mid term elections. However, our friends in Canada are going to wind up building a pipeline, the only question is will it run south to the United States or west across Canada leading to more exports focusing on Asia.
The chest beating victory lap of eight million signups for the Affordable Care Act was also fairly predictable as it was trumpeted this week by our commander in chief. I would note there are several omissions regarding the figure totals and it will be very interesting to see how the November elections turn out. Clearly, given the complete breakdown of a working relationship in Washington between Democrats and Republicans on any topic, control of the Senate is the big prize as many think the Republicans will be able to use Obamacare as the crucial issue to take both houses of Congress. Don't expect reciprocal mother's day gifts by Congressional members or July 4th barbecues to be attended on a bipartisan basis as the acrimony on both sides is deep and fierce.
Harry Reid added his latest brilliant oratorial expertise when he declared Nevada ranch supporters "domestic terrorists" for commenting they might put women and children on the front lines if the Federal troops were to start shooting during the calf conflict. Mr. Reid continues to be the poster child for term limits and his real motivation is probably to find a way to expropriate territory which then can be used for new alternative energy projects. Mr. Reid has a long and interesting history in Nevada regarding land transactions. My only wish would be our senate majority leader finds a similar fate as the cows he so eagerly wants to replace.
Y H &C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.