Friday
Oct152010

Great Ideas From Crocsideas

Written by Michael Bigger. Follow me on Twitter and StockTwits

 

Outstanding Business Digest recently quoted Charlie Munger as saying “Go where the competition is low.”

Most readers of this blog know we have a significant position in Crocs (CROX). Search for Crocs on our blog, and you can read all our posts about it.

One of the many things that fascinate me about the company is that it has a website called crocsideas.com. Crocsideas.com is a treasure trove for Crocs investors because on this site, the company asks customers to submit new ideas and also to rate new styles coming out soon.

I have a funny feeling that not many Crocs investors go on the site. This is how we get our hands dirty with this site: we go on there as a customer and investor and we analyze new products. We promote and demote new styles, and, more importantly, we read other customers’ reviews and try to find out what makes customers go bananas over Crocs.

We do the same thing when we look at the best sellers in shoes on Amazon.com.

Investing in a consumer goods company has a lot to do with figuring out its customers. In fact, investing in any company has a lot to do with figuring out the customers. You know you’ve found something good when the customer is delighted out of his or her mind.

Our investigation reveals that in Crocs’s case, the customer is having a great experience.

Thursday
Sep092010

How Much Big Mac Is in Your Investment?

Written by Michael Bigger. Follow me on Twitter.

 

One of the most successful posts on this blog has been A Thousandfold Return on Investment. It tells the story of my friend who made more than one thousand times his money investing in McDonald’s in the 1960s. It also shows his field trip report which he wrote in 1965.

Any time I make a long-term investment, I always ask myself whether there is a little bit of Big Mac in the investment thesis. Does it feel like investing in McDonald’s in the 1960s and 1970s? Are customers going bananas over the experience, the operational excellence, the consistency, the product comfort, etc.?

Here is a list of some of the investments we have made over the years that had a little bit of Big Mac in them:

  • Amazon.com, 2001
  • Priceline, 2002
  • McDonald’s, 2003
  • Netflix, 2005
  • Crocs, 2008

You might want to think about "How Much Big Mac Is in Your Investment" when you make your next long-term commitment. I won't commit capital to a long-term investment unless there is some Big Mac in the thesis. I make very few long-term commitments. 

Reality check: We’ve had plenty of Polaroid as well in some of the clunkers we have bought over the years.

BTW...I just published this work: In Praise of Speculation!. Check it out and let me know what you think. 

 

Tuesday
Sep072010

Crocs Update: Investment Thesis: Walking on Marshmallows

Written by Michael Bigger. Follow me on Twitter.

   

I am not going to bore you with more complex financial facts about Crocs (CROX). Search for Crocs on this blog or look at the latest earnings report to convince yourself. CROX’s business is on fire. The company has the highest margin in the footwear industry (Biggest Footwear Public Companies).

Why that is?

A good place to start investigating the nature of CROX successes is on Amazon.com. Day in day out Crox has about 40 to 50 percent market share on the top bestsellers shoes on that site. On August 25, it had 17 on the best 25 for a share of 68%.

I recently read most of the customer reviews associated with the top selling Crocs. What I learned during that process is best summarize by this statement from one of the reviewers:

“They feel like walking on marshmallows”

It is that feeling of comfort that makes some people disregard their indignation to the Crocs Classic look and wear the shoe. No other shoe companies that I know of delivers comfort like CROX does.

We are already up about 7+ times on our Crocs investment and we think the run is far from over. Sure, the stock will experience some severe pullbacks but we think the company will sell many more shoes in 10 years from now. Crocs global expansion holds promises. The company should deliver about $1 of free cash flow during 2011. Given the nature of its competitive advantage, its growth rate and its untapped market globally, we think CROX is worth $20 at a minimum. $30 is possible.

We intend to maintain our investment in $CROX….

  •         As long as Crocs can deliver the marshmallows experience
  •         As long as Crocs manage its business well and with very little leverage
  •         As long as Crocs stays at the top of the rankings on Amazon.com
  •         As long as the stock is not overvalued
  •         As long as the company treats shareholders well

 

 

Wednesday
Sep012010

Stalking The Education Sector For The Big Money


Frederick Kobrick had this to say about “big money” in his great book The Big Money: Seven Steps to Picking Great Stocks and Finding Financial Security (Amazon affiliate link):

 Over time, you’ll be able to work with more confidence and less frustration, and have a far better chance of making the big money. While this can be triples and quadruples, I think of the “big money” as more like making 10X, 25X —even 100X or 200X—your investment by owning the greatest companies, and owning them with true insights and patience over the long term.

 

Any time some stocks in a sector collapse by about 90 to 95 percent, we go on the lookout for a great investment that could deliver the big money. We are patient waiting for the perfect set-up: greatness at a cheap price. 

The private education sector has come under intense pressure recently because of the higher-than-normal delinquency rates of government student funding. This situation has created all kinds of issues for these companies. As an example, Corinthian Colleges (COCO) is down 86 percent from the all-time high it reached in 2004.

The education stock’s valuations have not reached our target levels yet, and we are far from being convinced that we can find a great company among the rubble, but we are stalking.

Is there anything on your radar screen that you think will make you the “big money”?

 

Written by Michael Bigger. Follow me on Twitter.

 

Tuesday
Jul272010

It's Been Two Years Since We Started Buying Crocs. What's Next?

Written by Michael Bigger. Follow me on Twitter.
 
 
It’s been two years since we added a new holding to our investment portfolio. The last stock we added was Crocs (CROX), which we started buying on July 8, 2008. You can read our investment thesis on Crocs at this link.
 
Despite the fact that the S&P 500 has slid more than 10 percent from its 2010 high reached in April, we don’t see much value in the U.S. markets. To us, value means an investment is trading at a level that can return four or more times our investment over a three- to five-year period. This blog post discusses what we look for. 
 
We know of no security with that potential investment payoff at the moment. Therefore, we will just sit tight and wait. We will let you know when we find such an investment.
 
Do you know of any?
 
 
 
 
 
Friday
Jul162010

A Thousandfold Return on Investment

Written by Michael Bigger. Follow me on Twitter.

 

A good friend of mine, a talented research analyst, covered McDonald's (MCD) in the sixties. One of his field reports is posted below. My friend liked the company and bought the stock at a price of $.06 (post split). He still holds a major portion of his original stake. The investment has returned more than one thousand times.

The lesson of this story is that you will most likely stumble upon one or two great companies like MCD in your lifetime. If that happens and your insight leads you to buy the stock, hold on to it for a long period of time. Don't get shaken out of your position.

 

Recommended reading:  The Big Money: Seven Steps to Picking Great Stocks and Finding Financial Security (Amazon Affiliate Link).

 

McDonalds

Wednesday
Jun232010

A Few Reasons Why I Am Shorting Barnes and Noble $BKS

 Written by Michael Bigger. Follow me on Twitter.

 

 Here they are:

  1. Barnes and Noble (BKS) does not have the balance sheet to win a price war with Amazon.com.
  2. BKS is fighting the Kindle and the iPad. Put yourself in BKS's shoes. Is that a war you can win? Imagine how much more intense this battle becomes if Google enters the market.
  3. The Kindle has been social-media enabled. It seems like the big innovations on the e-reader front are not coming from BKS. I don't expect that to change.
  4. My post Barnes and Noble's Pathetic Online Results was prescient. My short position has worked, and it should continue to do so.
  5. With books going digital, BKS stock price should follow the same trajectory others followed in such predicaments: for example, Polaroid, Eastman Kodak, Blockbuster, etc. You get the idea.
  6. If BKS decides to unwind stores, it would do so in a difficult real estate market.
  7. Many e-books are free. Digital publishing will put pressure on e-books prices and more pressure on printed books. This trend is just starting. The margins won't sustain the old model.
  8. The business model is broken.


Caveat: BKS will not go away so easily. It has a minimal amount of debt and it could very well find more capital to fight this battle.  I keep my short positions small since I never know what is lurking on the blind side.

Do you know of anything BKS could do to change my mind?

 

Monday
Apr262010

Are Dark Clouds Gathering on the Apple Sunny Sky Horizon? $AAPL

Written by Michael Bigger. Follow me on Twitter.
 
Do you remember the day-trading commercial featuring a guy named Stewart in Ameritrade: Let's Light This Candle? What about the Morgan Stanley advisor weeping at the wedding ceremony or the 2009 Citigroup’s ad in Barron’s emphasizing its two hundred years of investment wisdom?
 
Why I am bringing up these ads? These tidbits of information reveal a great deal about a company's culture, and they are often a warning sign of some big stock gaps to come.
 
To prove my point, compare the annual letter to shareholders of a company such as Amazon.com with its Wall Street counterparts before the crisis. The difference is stunning. Amazon.com’s letters emphasize obsessing about the customers while Wall Street pimped their capabilities. Wall Street's extreme hubris was followed by a total collapse in the share price of most financial companies.
 
We would have avoided many mistakes in our investment careers if we had kept a closer watch on the culture temperatures of our portfolio companies. 
 
Today, I want to bring to your attention some warning signs I see with the darling of all investors: Apple.  
 
 What are the specific issues troubling me about Apple?
 
• Steve Jobs’ statement about people not reading anymore.
• Apple’s deal with publishers forcing higher e-book prices and taxes on customers.
All the issues raised in this Gawker article: The Dark Side of Steve Jobs.
• The whole Genius concept sounds arrogant to me.
 
Many people are pinning their purchase of Apple shares on the following premises: Apple can do no wrong, the stock is going up, and it is an ever-growing money machine. That could be very true, but I rarely hear the critical side of this argument.
 
Are Apple investors asking the following questions?
 
What if Ipod sales taper?
What if the Android mobile platform starts eating into the Iphone market share?
What if Kindle app on most devices proves more popular than Ibook?
What if other tablets such as the rumored Google tablet start competing aggressively against the Ipad?
 
A little more water in the Apple Kool-Aid might be appropriate at this point. What do you think?
 
Disclaimer: No position in Apple at this time.
Friday
Apr162010

#FollowFriday Investment @specialsin @harmongreg @werner

Written by Michael Bigger. Follow me on Twitter.

 

@specialsin: Asif Suria writes a great investment newsletter. Check out his latest post on the Ipad.

@harmongreg: I enjoy reading Greg Harmon's comments on his technical charts. More often than not he is right!

@werner: CTO - Amazon.com. Blazing new trails in cloud computing. Must read for $amzn investors.

@....whatever company you own in your portfolio: Learn about your portfolio companies by watching how they interact with customers on  twitter 

Thursday
Apr152010

Why our Investment Blog is Boring

Written by Michael Bigger. Follow me on Twitter.
 
 
Because once every three to five years, we buy one stock. While we wait, we suffer from investment apathy. We are boring.
 
Why do we buy one stock every three to five years?
 
It is very simple. If you look at the following charts, they reveal the best investments we have ever made:
 
1. We bought Amazon.com in 2001 below $10.
2. We started buying Crocs in July 2008 and purchased aggressively below $1.
3. We shorted Deckers in early 2005 and we covered in early 2006. We should have gone long big time then.
4. We bought McDonald’s in 2003 at about $13.00.
5. We bought Netflix in 2005 in the low teens.
6. We bought Priceline at about $2 (pre-reverse split of one for six).
 
These are all companies we know quite a bit about because we use their products. We don’t need to do extraordinary things to get very good returns. The most difficult thing for us as an investor is to be patient waiting for the simple opportunity. When we force it, we don’t do well. We have the scars to prove it.
 
It has been almost two years since we started purchasing Crocs. While we wait for the next opportunity, we work on crafting our trading algorithms. It fulfills our need to be busy without putting our investment assets at risk by doing stupid things. We also read a lot. This balance works well for us.
 
If you are into boring and profitable, stay tuned in, we will discuss cool investment topics until a mighty opportunity presents itself.