Geoff Gannon Digest #5 – A Compilation Of Ideas On Investing

Graham and Schloss had >50 stocks in their portfolio for much of their career
They turned over their portfolios infrequently; probably added one position a month
To avoid running a portfolio that requires constant good ideas:
- increase concentration
- increase hold time
- buy entire groups of stocks at once
With his JNets, Gannon purchased a “basket” because he could not easily discriminate between Japanese firms which were both:
- profitable
- selling for less than their net cash
Portfolio concentration when investing abroad is based upon:
- which countries do I invest in?
- how many cheap companies can I find in industries I understand?
- how many family controlled companies can I find?
Interesting businesses are often unique

To elements to consider with any business’s returns:
- How much can you make per dollar of sales?
- How much can you sell per dollar of capital you tie up?
Quantitative check: Gross Profit/ ((Receivables + Inventory + PP&E) – (Payables + Accrued Expenses))
Once an industry matures, self-funding through retained earnings becomes a critical part of future growth; it’s the fuel that drives growth
A company with high ROIC isn’t just more profitable, it can more reliably grow its own business
Maintaining market share usually means increasing capital at the same rate at which the overall market is growing
Higher ROIC allows for the charting of a more reliable growth path
Industries where ROIC increases with market share present dangers to companies with low market share or low ROIC
The easiest place to get capital is from your own successful operations; tomorrow’s capital comes from today’s profits

Capital turns = Sales/Net Tangible Assets
Buffett nets tangible assets against A/P and accrued expenses; gives companies credit for these zero-interest liabilities, rather than assuming shareholders pay for all of a company’s assets
Buffett’s businesses tend to have higher sales per dollar of assets
Companies with higher sales per dollar of assets have higher ROIC than competitors even if they have the same margins
There’s more safety in a business in an industry with:
- adequate gross margins
- adequate capital turns
Industries dependent upon margins or turns open themselves to devastating attacks from the player who can maximize key variables you control:
- price
- cost
- working capital management
- etc.
Companies often compete on a specific trait; it has to be a trait that is variable and can be targeted for change

It’s risky to act like everyone else, looking at the same stocks everyone else looks at, or by entering and exiting with the crowd
Don’t worry about which diet is best, worry about which diet you can stick to; find an adequate approach you can see through forever
Having Buffett-like success requires every day commitment
You should aim to earn 7% to 15% a year for the rest of your investing life if you aren’t going to fully commit like Buffett did
A good investment:
- reliable history of past profitability
- cheap in terms of EV/EBITDA
- less analyst coverage
A list of such stocks:
- The Eastern Company (EML)
- Arden (ARDNA)
- Weis Markets (WMK)
- Oil-Dri (ODC)
- Sauer-Danfoss (SHS)
- Village Supermarket (VLGEA)
- U.S. Lime (USLM)
- Daily Journal (DJCO)
- Seaboard (SEB)
- American Greetings (AM)
- Ampco-Pittsburgh (AP)
- International Wire (ITWG)
- Terra Nitrogen (TNH)
- Performed Line Products (PLPC)
- GT Advanced Technologies (GTAT)