Monthly Archive for August, 2006

Fixing the Executive Pay Problem

In recent years it has become increasingly prevalent that many company executives, even if they hold a large amount of company stock, do not have their own interests aligned with the interests of the shareholders. For many of these execs, by the time they sit down at their desk on day one it has already been negotiated that their bank accounts are going to be well stocked by the time they leave the company, regardless of personal or company performance.

Mark Cuban, owner of the Dallas Mavericks, has offered his solution to the problem and while it seems like a good suggestion, the main issue will be getting the boards of these companies to go along with such an idea. The people who would be changing the status quo will be those who have benefitted or are currently benefitting the most from the way things are already set up.

Does that mean the government would have to step in and tell companies how the can and can’t pay executives? This is already done to some extent with current regulations but is more government involvement necessary? One thing is for sure, something needs to change.

Move over MSN, Yahoo Charts are here

The new version of Yahoo Finance Charts are available and they sure are pretty!

With this version you can set up the Moving Average, MACD, and Slow Stochastics exactly as defined in the Big Moat book. Best of all is that all three can be available on one screen which was not the case with MSN charts. Another big reason to switch is because the charts work in Firefox so you aren’t limited to Internet Explorer as with the MSN charts. If you aren’t using Firefox, well you should be using Firefox.

Follow up on Chico’s (CHS)

A recent article on points out that Chico’s may be a good value in the near future. The author makes some good points.

Chico’s warned about upcoming quarters, with one notable nugget being the expectation that August’s same-store sales will be negative for the first time in nine — count ’em — nine years.

The history of the stock has been very good but investors and the fashion industry don’t really care about yesterday. I’d still wait for the trend to turn around before considering this as a Big Moat choice.

Where does Berkshire Hathaway keep its cash?

Cash is a valid Big Moat investment, so many people wonder where Warren Buffett keeps his cash. Matt Krantz of USA Today answers the question.

…Berkshire says “cash equivalents,” money included the totals above, are invested in U.S. Treasury bills, money market accounts and other short-term investments that mature in three months or less from the time they were bought.

Series on Warren Buffett

Zen Personal Finance is running a series on How to Think Like Warren Buffett by examining his letters to the shareholders of Berkshire Hathaway in past annual reports. Part 6 was recently posted and is well worth the read.

The 4 M’s of Fastenal: Moat

Fastenal is one company where the Moat is not a question. They have repeatedly shown that they are here to stay and have been doing what is necessary to maintain their position as a leader in the MRO industry. Below are some brief highlights of why Fastenal has such a strong moat.

Brand: Fastenal is known as one of the big competitors in their industry and sometimes they are lumped in with Home Depot, Lowes and other home improvement companies because of the retail side of their business. They also do a huge amount of wholesale business where they compete with Grainger, Hagemeyer, MSC Industrial, Graybar and a few others. The MRO industry is very fragmented but Fastenal has continually remained a well known brand and they have the sales to back it up.

History: Existing customer relationships are very low cost for both Fastenal and their customers. The buying power of Fastenal means that competitors can’t compete with them on price. That means that for a competitor to take away a customer from Fastenal, they will have to provide better service. The cost in changing processes to implement a new supplier is often very prohibitive for the customer which makes sticking with Fastenal a very attractive option.

Wide Customer Base: With 1800+ stores worldwide and thriving retail and wholesale business, Fastenal has a very large customer base. Smaller customers pay higher margins on products while larger customers buy in volume. Both big and small customers have predictable purchasing intervals which allows Fastenal to better manage their own purchasing and inventory.

Distribution and Logistics: For many companies in this industry, inventory management and distribution can be the Achilles Heel. Fastenal has 12 main distribution centers and a truck fleet to deliver inventory to stores as needed. By having a hub and spoke setup, inventory and distribution challenges are kept under control and more easily managed.

In a future post, we’ll examine the Big 5 numbers to see if they back up the moat.

CAKE receives delisting notice

The Cheesecake Factory is a favorite among people looking for Big Moat companies, probably due to the frequency that it is used as an example in the book. The company has said that they have received a delisting notice from NASDAQ for failure to file their quarterly report on time. The late filing is due to issues surrounding stock option grants.

Cheesecake Factory Gets Delisting Notice

Tips for Staying Positive

Associated Content has an article that gives 5 Tips for Staying Positive When Investing Gets Negative and while their suggestions don’t always agree with the Big Moat philosophy, there are a few takeaways that Big Moat investors can still apply.

  • For example, the first item is “Look around”. For Big Moat investors – Is the trend going up or down?
  • Item two is “Look to History”. For Big Moat investors – What do the Big 5 Numbers say?
  • Point 4 is “Think of it as a sale”. For Big Moat investors – Is there a margin of safety?

Warren Buffet: The Importance of the Moat

Every day, in countless ways, the competitive position of each of our businesses grows either
weaker or stronger. If we are delighting customers, eliminating unnecessary costs and improving our
products and services, we gain strength. But if we treat customers with indifference or tolerate bloat, our
businesses will wither. On a daily basis, the effects of our actions are imperceptible; cumulatively, though,
their consequences are enormous.

When our long-term competitive position improves as a result of these almost unnoticeable
actions, we describe the phenomenon as “widening the moat.” And doing that is essential if we are to have
the kind of business we want a decade or two from now. We always, of course, hope to earn more money
in the short-term. But when short-term and long-term conflict, widening the moat must take precedence.

Warren Buffet in the 2005 Berkshire Hathaway Annual Report

Another method to find Big Moat Stocks

George at Fat Pitch Financials has come up with a way to use Portfolio123 to screen for Big Moat stocks that also utilizes the Magic Forumla from Joel Greenblatt’s The Little Book that beats the market to find companies that have a wide moat based on the Big 5 Numbers.