Thursday, June 04, 1998
Cash-King Portfolio
Report
by Tom Gardner
([email protected])
&
Rob Landley
([email protected])
Alexandria, VA (June 4, 1998) -- Well, we've had an absolutely extraordinary response on our message boards about the selection of our 8th Cash-King company. You can continue submitting your entries in the Cash-King Companies Folder message folder through tomorrow.
In the last three days, 88 research notes have flowed through the CK Folder on the Web with thorough first-glance studies completed on everything from General Electric to Dell to Cisco to Disney to Harley Davidson, Medtronics, and more. We even have a few foreign companies researched -- network builder LM Ericsson from Sweden, luxury products maker Louis Vitton Moet Hennessey from France, even Toronto-based precious-metal royalty concern, Franco-Nevada Mining.
Thank you to the contributors. I have learned a lot there over the past three days.
Today we welcome Fool Rob Landley to the stage to toss a few more ideas at us for the nominations we'll be studying -- in an interview about product strategies, margin management, the world of investing, even about the future of space exploration.
Tom: Good evening, Rob.
Rob: What's up, Fool?
Tom: Not much. Trying to get a little sleep in there on occasion. Let's talk investing -- can you start us off with a few comments, if you would, about the sort of products or services you think a C-K nominee should be providing?
Rob: Sure. Even in one word -- transient.
Other descriptive words for ideal products? Transitory, momentary, passing, fleeting. Non-durable.
We want our companies satisfying their customers, but we want those buyers coming back for more, again and again. That forces our companies to mass produce, leading hopefully to the methodical reduction of costs in the manufacturing process -- and it provides our companies with free product promotion, as buyers see the labeling over and again. A nice double win.
What we don't want customers to do is to make a one-time purchase from our company, then to pass that product onto their grandkids, then down to a third generation. We don't want to invest in the one-time mass production of family heirlooms. The turning of inventory, more this year than last, causes us to jangle bells and dance an idiot's jig.
Tom: Interesting points. Costs being driven down as demand rises, enviable. Rob, could you give a brief explanation of why the resulting ascending margins are an important part of the Cash-King approach?
Rob: Because direction is more important than location.
What we're really trying to do here is to buy, at today's prices, what a company will be worth in ten years. If we make intelligent selections, the values will increase... in certain cases, dramatically. That's an opportunity we're not likely to get when we purchase a car. Or a stereo. And, in many cases, with all the maintenance costs factored in, we don't get that appreciation when buying a house.
The greatest investment of the 20th century has been a solid common stock investment. And I think the direction of margins is one of a few great forward indicators of expanding value. An inchmeal growth in efficiency and broadening of profits. That said, margins can't go up forever. Good luck hitting the speed of light, or hitting 100% gross margins, or finding truth entire. Steady margins maintained at outright acrophobic levels are good enough for me.
Tom: Efficiencies of scale. We'll have to spend some time in the week ahead defining which businesses achieve them, which don't, and why. No time for that now though... I'd like to turn a little more toward the philosophy of investing. Could you provide us with what you think is the most overrated aspect of investing?
Rob: That's easy: The supposed excitement of it all. Guys shouting in the pits. A hedge fund manager spitting out ticker symbols on television. I don't buy that. Done right, investing is very much like farming. You plant it, you water it, you weed it -- and it does the rest. Age-old, timeless truths about sowing and harvesting.
In fact, it warms my heart just hearing the Fool brothers' last name. Is that the real thing or just marketing?
Tom: It's real. But I failed as a botanist. Ok, you're stuck with us for two more questions. The first -- would you share a one-paragraph description both of your single favorite public company in the world and why?
Rob: No. How's that!?
I'm not good at picking favorites. I don't even have a favorite food, which is a much less complex choice than picking a favorite company. I can provide some illustrations and characteristics, though.
I like the lean, mean, groundbreaking machine of Dell, carving out a niche in e-commerce years ahead of the pack. I also like the tyrannosaurus of IBM -- a rippling mass of streamlined muscles and teeth, capable of overcoming any obstacle... with a brain the size of a walnut. And Intel, which I've written much of in our past reports. And then let's not forget the last of the carbonated snake oil salesforce, the consistently-and-wonderfully-profitable American icon Coca-Cola.
Tom: That's four companies. You cheated. So I'm going to have to disappoint you by closing with a request for another favorite -- just to annoy you. Moving outside of finance, Rob, what's your favorite American discovery, invention, or achievement in the 20th century and why?
Rob: Grumble grumble "picking favorites" grumble grumble...
OK. We had a half dozen people wandering around on the moon almost thirty years ago. And not just because they were all male and refused to stop and ask for directions. We're pretty blase about that achievement today -- so much so that we put Dan Quayle in charge of the Space Program long enough for him to set it back at least 30 years. But it's still darn impressive. We really, really, really need to get people back up there -- buzzing around. That's the next world. It isn't flat. It isn't even round. And it certainly isn't empty.
But who should go? Rush Limbaugh comes to mind. We wouldn't even need to worry about all those fussy details like "oxygen" or "re-entry."
Tom: Rob, I bet you get at least one flame mail for that last comment. Enjoy it! Thanks for the interview. Enlightening as always.
Finally, before closing out tonight, I wanted to link all readers tonight that are teachers at any level into our Fools in Schools Survey -- the early rattlings of our push to provide personal finance and investment materials for elementary, junior high, and high schools. If you're a teacher and want to pitch in, or if you know a teacher online who'd like to help, link in here: Fools in Schools Survey.
Tomorrow we're joined by C-K Fool, Al Levit. See you then.
Tom Gardner
TODAY'S
NUMBERS
Stock Change Bid ---------------- AXP +1 1/4 103.94 CHV +1 5/16 80.25 KO + 3/4 80.19 GPS +2 1/8 56.25 EK - 13/16 69.00 XON +1 5/16 70.31 GM + 5/16 75.44 INTC +2 1/4 68.19 MSFT +1 3/4 86.00 PFE +3 7/8 106.88 TROW --- 35.00 |
Day Month Year History
C-K +1.59% 0.71% 6.51% 6.51%
S&P: +1.12% 0.37% 9.34% 9.34%
NASDAQ: +1.59% -0.50% 7.08% 7.08%
Cash-King Stocks
Rec'd # Security In At Now Change
2/3/98 22 Pfizer 82.30 106.88 29.86%
2/27/98 27 Coca-Cola 69.11 80.19 16.03%
5/1/98 37 Gap Inc. 51.09 56.25 10.10%
2/3/98 24 Microsoft 78.27 86.00 9.88%
2/6/98 56 T. Rowe Pr 33.67 35.00 3.94%
5/26/98 18 American E 104.07 103.94 -0.12%
2/13/98 22 Intel 84.67 68.19 -19.47%
Foolish Four Stocks
Rec'd # Security In At Value Change
3/12/98 20 Exxon 64.34 70.31 9.29%
3/12/98 20 Eastman Ko 63.15 69.00 9.27%
3/12/98 17 General Mo 72.41 75.44 4.19%
3/12/98 15 Chevron 83.34 80.25 -3.71%
Cash-King Stocks
Rec'd # Security In At Value Change
2/3/98 22 Pfizer 1810.58 2351.25 $540.67
2/27/98 27 Coca-Cola 1865.89 2165.06 $299.17
5/1/98 37 Gap Inc. 1890.33 2081.25 $190.92
2/3/98 24 Microsoft 1878.45 2064.00 $185.55
2/6/98 56 T. Rowe Pr 1885.70 1960.00 $74.30
5/26/98 18 American E 1873.20 1870.88 -$2.33
2/13/98 22 Intel 1862.83 1500.13 -$362.71
Foolish Four Stocks
Rec'd # Security In At Value Change
3/12/98 20 Exxon 1286.70 1406.25 $119.55
3/12/98 20 Eastman Ko 1262.95 1380.00 $117.05
3/12/98 17 General Mo 1230.89 1282.44 $51.55
3/12/98 15 Chevron 1250.14 1203.75 -$46.39
CASH $2037.63
TOTAL $21302.63
*The year for the S&P and Nasdaq will be as of 02/03/98
