Worst Investments I Ever Made

I’ve made a ton of great investments: QVC in the late 80s, AOL the late 90s, Amazon in the 2000s and Taiwan Semi in the 2020s.  What have been my worst investments?  Here are a few of them: 

  1. Dream Marketing DMMK.  I cant even remember what these guys did.  100% loss, they went defunct in 2013. 
  1. General Motors 2008.  100% loss.  I hate the automobile manufacturing industry, I know there are times when you can make money, I’ve never been involved in those times. 
  1. Pets.com  Launched in 1998, closed their doors in 2000.  Total loss.  Ahead of their time, they were what the website Chewy.com is today. 
  1. Bear Stearns.  I owned Bear Stearns in the 90s but sold long before they closed their doors in 2008.  BST, I can even remember the symbol years later. 
  1. Enron.  I owned less than 50 shares of Enron.  As this stock plummeted, I basically rode it all the way to zero. 

Why do investors avoid selling, even though the stock is crashing? 

I have a few theories on this.  Some investors simply don’t know what they own.  Maybe the holding is small relative to the size of the portfolio.  Other investors might know the stock will never recover and they figure since they have a loss anyway, they might as well have the largest loss possible for tax purposes. 

How to avoid stocks going to zero?  There’s no real guarantee like everything with investing, I’d say the best idea is to watch your investments quite carefully.  Even if you can’t subscribe to expensive research tools, consider free tools like Google news alerts.  You can set up Google news alerts for anything really; by tracking the headlines closely you’ll keep an eye on your investment and you may be prompted to sell before it’s too late. 

In case you’re curious, here are the top stock failures of the 1929 crash: 

Caldwell and Company   A financial holding company in the South that collapsed due to its leaders investing too much in securities markets.  

Why Aren’t These Ideas Blatantly Copied by The Competitors of These Companies?

Do you ever shop or do business at a company that has a unique way of doing business and wonder why others in the same industry don’t copy that idea? 

Here are my random observations on great business ideas that never seem to be copied by others in the same industry. 

  1. Aldi’s cart retrieval system.  If you’ve ever shopped at Aldi you’ll know that in order to use a shopping cart, you need to insert a coin like a quarter.  Aldi does this everywhere in the world.  The result:  customers return their carts to the store instead of leaving them abandoned in the parking lot.  Great idea…why don’t other merchants do the same thing? 
  1. Speaking of Aldi.  Aldi prints UPC barcodes on every side of each product that they sell.  Result:  cashiers don’t constantly turn products over looking for the barcode during the check out process.  Checkouts are fast at Aldi. 
  1. Chick-fil-a drive through process.  Chick-fil-a drive throughs are different.  Instead of driving up to a window or speaker box and speaking your order, Chick-fil-a employees instead walk up to your vehicle with a tablet and take your order.  The result, the line is always moving.  I’ve seen similar ideas in other industries but I dont know why McDonald’s doesnt do this at all of their drive throughs. 
  1. Apple’s app marketplace.  Sure Google has their own app store but why haven’t other cell phone manufacturers (looking at you Samsung) created their own app store.  The advantage with Apple’s app store is that Apple ensures security, they keep out random apps, and, if the app collects money, Apple gets a cut from each transaction.  As an Apple user, I know the apps are always secure, there are no such thing as IOs viruses, and it’s somewhat idiot proof for non tech people.  Why wouldn’t Samsung copy that? 
  1. Why didn’t Sears keep their catalog business?  Sears Roebuck and company once was the largest catalog merchant in the United States.  They discontinued their catalog in 1993. Amazon started selling books in 1994 and launched into items other than books in 1997, arguably only  4 years after Sears discontinud their catalog. 

There are plenty more examples…can you think of any?  Comment below 

Top Competitors to Grainger: A Market Overview 

W.W. Grainger, Inc. is a leading industrial supply company, known for providing a vast array of products such as maintenance, repair, and operating (MRO) supplies to businesses across various industries. While Grainger is a dominant player in the market, several other companies are also significant competitors, offering similar products and services. Here’s a look at the top five competitors to Grainger. 

1. Fastenal Company 

Fastenal is one of the most formidable competitors to Grainger in the MRO market. Founded in 1967, Fastenal has grown from a small fastener shop to a global distributor of industrial and construction supplies. The company offers a wide range of products, including fasteners, safety supplies, tools, and industrial vending solutions. 

Key Strengths: 

  • Vending Solutions: Fastenal is known for its innovative industrial vending machines that provide customers with easy access to MRO supplies directly at their job sites. 
  • Extensive Branch Network: Fastenal operates thousands of branches worldwide, providing localized service and quick access to products. 
  • Customized Solutions: Fastenal offers tailored solutions to meet the specific needs of their clients, particularly in inventory management and supply chain efficiency. 

2. MSC Industrial Direct Co., Inc. 

MSC Industrial Direct is another major competitor in the MRO supply space. Established in 1941, MSC has built a strong reputation for its comprehensive catalog of industrial supplies, which includes metalworking tools, safety equipment, and facility maintenance products. 

Key Strengths: 

  • Metalworking Expertise: MSC has a strong focus on metalworking, offering a wide selection of tools and services specific to this sector, including custom tool reconditioning. 
  • E-commerce Platform: MSC’s online platform is user-friendly and offers a broad selection of over 1.5 million products, making it easy for customers to find and order supplies. 
  • Customer Support: MSC provides excellent customer support, including technical assistance, helping businesses choose the right products for their needs. 

3. Motion Industries 

Motion Industries is a division of the Genuine Parts Company, also the owner of NAPA auto parts.  Motion grew over the years and also acquired other parts companies like Berry Bearing, and others. 

4.  Applied Industrial Technology (publicly traded as AIT) 

Applied Industrial Technologies (AIT) is a leading industrial distributor and solutions provider focused on supplying a broad range of products and services to various industries. Established in 1923 and headquartered in Cleveland, Ohio, AIT primarily serves industries like manufacturing, energy, healthcare, food and beverage, and government. The company is well-known for its expertise in bearings, power transmission components, fluid power products, and other industrial solutions. 

5. HD Supply (Part of The Home Depot Pro) 

HD Supply, now part of The Home Depot Pro, is a significant player in the distribution of MRO products, particularly in the facilities maintenance, infrastructure, and residential construction sectors. It caters to professional customers, including contractors, maintenance professionals, and government agencies. 

Key Strengths: 

  • Focus on Facilities Maintenance: HD Supply offers a deep selection of products for facilities maintenance, including plumbing, HVAC, and electrical supplies. 
  • Integration with The Home Depot: The backing of The Home Depot provides HD Supply with extensive resources, including access to The Home Depot’s retail network and logistical capabilities. 
  • Pro Services: HD Supply offers value-added services such as inventory management, delivery options, and product training to enhance customer experience. 

5. Amazon  

Amazon has rapidly emerged as a strong competitor in the industrial supply market. While not a traditional industrial distributor, Amazon leverages its vast logistics network, customer-centric platform, and competitive pricing to attract MRO customers. 

Top Publicly Traded Ball Bearing Manufacturers 

Top Publicly Traded Ball Bearing Manufacturers in the World 

Ball bearings, essential components in countless mechanical systems, play a crucial role in reducing friction and improving efficiency. The global ball bearing market is vast and competitive, with several major players dominating the industry. Here are some of the largest publicly traded ball bearing manufacturers worldwide: 

1. SKF AB 

  • Country: Sweden 
  • Overview: SKF is one of the world’s leading providers of bearings and seals. It offers a wide range of products for various industries, including automotive, aerospace, and industrial machinery. SKF’s commitment to innovation and sustainability has solidified its position as a global market leader. 

2. NTN Corporation 

  • Country: Japan 
  • Overview: NTN is a Japanese conglomerate involved in the manufacturing of bearings, automotive parts, and other precision components. The company has a strong global presence and is known for its high-quality products and technological advancements. 

3. Timken Company 

  • Country: United States 
  • Overview: Timken is an American industrial company specializing in bearings, seals, power transmission products, and steel services. The company has a long history and is renowned for its innovative solutions and commitment to quality. 

4. Schaeffler AG 

  • Country: Germany 
  • Overview: Schaeffler is a German industrial group that offers a diverse range of products, including bearings, clutches, and automotive components. The company is known for its strong research and development capabilities and its focus on sustainable solutions. 

5. NSK Ltd. 

  • Country: Japan 
  • Overview: NSK is a Japanese precision machinery manufacturer that offers a wide range of products, including bearings, steering systems, and automotive components. The company has a global footprint and is known for its technological expertise and commitment to quality. 

6. INA Holding 

  • Country: Germany 
  • Overview: INA Holding is a German industrial group that specializes in bearings, linear technology, and mechatronics. The company is known for its innovative products and its focus on precision and quality. 

7. Rexnord Corporation 

  • Country: United States 
  • Overview: Rexnord is an American industrial company that offers a wide range of products, including bearings, power transmission components, and process systems. The company is known for its strong focus on innovation and customer satisfaction. 

There are very few United States manufacturers of bearings.  The generic/commodity portion of the bearing industry has been taken over by Chinese manufacturers.  The specialized bearing industry has been taken over by German companies and the broad product line bearing companies are mostly based in Japan. 

Publicly Traded Material Handling Companies

The materials handling industry, driven by the demand for efficient logistics and warehousing solutions, has seen significant growth and consolidation. Many forklift manufacturers have expanded their operations and become publicly traded companies, offering investors opportunities to participate in this dynamic sector. Here’s a look at some of the prominent publicly traded forklift manufacturers: 

North America 

  • Caterpillar Inc. (CAT): Caterpillar is a global construction equipment manufacturer.  CAT forklifts are technically made under license by a Mitsubishi affiliate.  Its stock is traded on the New York Stock Exchange (NYSE). 
  • Toyota Industries Corporation (TOYOTA): While primarily known for its automotive business, Toyota also manufactures forklifts. Its stock is traded on the Tokyo Stock Exchange. 
  • HYG Hyster Yale Group.  Hyster/Yale formerly was a division of North American Coal.  It started trading on its own back in 2007.   

Europe 

  • KION Group AG (KION): KION is a leading provider of industrial trucks and warehouse automation solutions. Its stock is traded on the Frankfurt Stock Exchange (FWB).  Brands include Linde and Still and Rapistan. 
  • Jungheinrich Aktiengesellschaft (JUN3.DE) Jungheinrich is another major European forklift manufacturer with a strong presence in the global market. Its stock is traded on the Frankfurt Stock Exchange (FWB). 
  • Kalmar is publicly traded on the Helsinki stock exchange. 

Asia 

  • Hyundai Heavy Industries Co., Ltd. (HHI): HHI is a South Korean conglomerate involved in shipbuilding, offshore engineering, and industrial machinery, including forklifts. Its stock is traded on the Korea Exchange (KRX). 
  • Komatsu Ltd. (KOM): Komatsu is a Japanese multinational manufacturer of construction and mining equipment, as well as forklifts. Its stock is traded on the Tokyo Stock Exchange. 

Where to Invest Extra Cash: A Guide for Small Businesses

For small businesses, having extra cash on hand can be a blessing. It provides a financial cushion to weather unexpected challenges and seize growth opportunities. However, simply hoarding cash isn’t the most strategic approach. Investing this extra money wisely can yield significant returns and help your business thrive. Here are some effective options for small businesses to consider: 

1. Business Expansion 

  • New Locations: If your business model is scalable, consider expanding into new markets or opening additional locations. 
  • Product or Service Expansion: Introduce new products or services to cater to a wider customer base or tap into emerging trends. 
  • Technology Upgrades: Invest in new technology or software to improve efficiency, productivity, or customer experience. 

2. Vendors and inventory  

  • Lower prices for faster payment.  If your company paid vendors slowly in the past, it’s possible those vendors raised their prices to accomodate  your slow payment patterns.  Ask your vendors if you can get lower prices if you paid in 30 days or less.  
  • Inventory:   Since you have excess cash, does it make sense to order more inventory?  Do vendors offer quantity based discounts if you place larger orders?  

3. Marketing and Branding 

  • Digital Marketing: Invest in digital marketing campaigns to increase online visibility and reach a wider audience. This could include search engine optimization (SEO), social media advertising, or content marketing. 
  • Branding and Rebranding: If your brand is outdated or needs a refresh, invest in a rebranding effort to improve your company’s image and appeal to customers. 

4. Financial Investments 

  • Savings Accounts: While not as exciting as other investment options, high-yield savings accounts can provide a safe and accessible place to store extra cash. 
  • Certificates of Deposit (CDs): CDs offer higher interest rates than savings accounts but come with a fixed term, so you’ll need to consider your liquidity needs. 

5. Debt Reduction 

  • Pay Down Debt: If your business has high-interest debt, consider using extra cash to pay it down. This can reduce your monthly expenses and improve your financial health. 

6. Acquisitions 

Instead of competing against your competitor, consider buying their operation!  You better control margins, you build your customer base, and potentially acquire new talent. 

Do investment advisors recommend anything besides mutual funds?

While investment advisers are often seen as financial experts who provide personalized advice, the reality is that many of them primarily focus on selling standard mutual funds. This practice, often referred to as “selling the product, not the advice,” has raised concerns among investors and regulators alike. 

Why Do Investment Advisers Focus on Standard Mutual Funds? 

There are several reasons why investment advisers may prioritize selling standard mutual funds: 

  1. Commission Structure: Many investment advisers earn commissions on the mutual funds they sell. This commission-based compensation model can incentivize advisers to prioritize products that generate higher commissions, even if they may not be the best fit for the investor’s needs. 
  1. Familiarity: Investment advisers may be more familiar with standard mutual funds due to their widespread availability and marketing efforts. This familiarity can make them easier to sell and promote. 
  1. Simplicity: Standard mutual funds are often seen as a relatively simple and straightforward investment option. This simplicity can make them appealing to both advisers and investors. 

The Limitations of Standard Mutual Funds 

While standard mutual funds can be a suitable investment for some investors, they also have limitations: 

  1. High Costs: Many standard mutual funds come with high expense ratios, which can erode investment returns over time. 
  1. Lack of Customization: Standard mutual funds offer limited customization options, making it difficult to tailor investments to specific investor goals and risk tolerances. 
  1. Market Tracking: Many standard mutual funds are designed to track a specific market index, such as the S&P 500. This can limit their potential for outperformance. 

The Importance of Personalized Advice 

Investors seeking personalized financial advice should be aware of the limitations of standard mutual funds and demand a more comprehensive approach from their investment advisers. This may involve considering alternative investment options, such as exchange-traded funds (ETFs), individual securities, or custom-built portfolios. 

How Investors Can Protect Themselves 

Investors can protect themselves by: 

  • Asking Questions: Inquire about the investment adviser’s compensation structure and any conflicts of interest. 
  • Understanding Fees: Carefully review the expense ratios and other costs associated with any recommended investments. 
  • Seeking Alternative Options: Explore other investment options that may be more suitable for your individual needs and goals. 
  • Working with a Fiduciary: Consider working with a fiduciary adviser who is legally obligated to act in your best interests. 

Want to do it yourself?  You could manage your investments on your own.  Investing platforms like Schwab or Fidelity have a large variety of free tools.  Many have tools that will analyze your investments and help you re-shape your portfolio. 

Glenn Greenberg at Columbia: Insights into the Mind of a Great Investor

The following notes are from a lecture given by investor Glenn Greenberg in the spring of 2010 at Columbia Business School.

Bruce Greenwald introduced Greenberg by stating that, up until the 2008 financial crisis, Greenberg had achieved a track record comparable to or better than Warren Buffett’s.

Greenberg, an English major in college, never originally intended to pursue a career in investing. He attended Columbia Business School without a clear career objective and eventually joined J.P. Morgan after graduation. His “light bulb” moment came when he was asked to analyze a company owning land with redwoods. After some investigation, he discovered that the land was worth three times the company’s trading price. This realization shaped his investment philosophy, teaching him that some opportunities are straightforward and don’t require genius-level insight.

However, Greenberg believes that such opportunities are less common today due to the large number of value investors emerging from business schools who are competing with one another.

After five years at J.P. Morgan, Greenberg felt dissatisfied, believing he wasn’t being trained to be a good money manager. He left to work at a small money management firm, where he spent another five years conducting research. Ten years after finishing school, he started his own firm. He emphasized the importance of gaining substantial experience before starting a firm, cautioning against jumping in without proper preparation.

At the small firm, Greenberg learned to internalize the financials of potential investments deeply. His boss, the only one authorized to buy and sell stocks, would regularly grill Greenberg on potential investments. Greenberg was expected to know the business and its financials inside and out, and he does not believe in relying on pre-made spreadsheets. He argues that an investor must become intimately familiar with the financial details.

Greenberg founded Chieftain in 1984 with $40 million, mainly family money. From the outset, he prioritized research over marketing and minimized client interactions, focusing instead on the investment process. He believes that clients who require constant reassurance are not a good fit for his firm. Since the firm’s inception, he stated that they have outperformed the market by an average of 8% annually.

Recently, he started a new firm called Brave Warrior Capital. Greenberg has refocused on reading primary sources himself rather than relying on prepared data. He insists that investors should generate their own numbers to understand which ones are crucial, emphasizing the importance of identifying the key drivers of a business’s performance.

When evaluating a prospective investment, Greenberg first determines if it’s a good business that could withstand a severe downturn. Then, he assesses whether it’s attractively priced. He strongly advises reading 10-Ks, having dropped Capital IQ after finding too many errors and realizing that it distanced him and his analysts from truly understanding the financials.

One of his recent investments is Google.

Greenberg acknowledges that there’s much he doesn’t know about Google, but he’s confident in the broader trend: people now spend 30% of their time online, while only 10% of advertising is done online. He’s betting that, over the next five to ten years, online advertising will grow to match the time people spend online, and that Google, with a 50% market share in online advertising, will capture a fair share of this growth. He also sees value in Google’s optionality across its other ventures where they’ve invested heavily.

Greenberg likens investing to making a calculated bet, aligning with Buffett’s idea of being “approximately right rather than precisely wrong.”

To explain his approach to investing, Greenberg referenced a scene from the movie A Beautiful Mind. In the scene, John Nash visualizes formulae and highlights the key numbers. Similarly, Greenberg believes a good investor must sift through a company’s data to pinpoint the critical numbers that truly matter. (Buffett expresses a similar idea, emphasizing the importance of identifying key drivers for different businesses, like return on assets for banks or the cost of float for insurance companies.)

Greenberg advises young analysts to focus on the key variables that drive an investment. He suggests imagining they have only three questions to ask a CEO under truth serum. These questions should be strategic, aimed at understanding the core issues that would influence an investment decision.

Bruce Greenwald asked Greenberg for examples of this approach in practice. Greenberg mentioned his interest in Abbott, which at $52 a share was trading at about 10 times cash flow. Abbott has a strong track record, with Humira, a drug that accounts for about 45% of earnings. Given that Humira is a large molecule drug, it’s harder for generics to copy, potentially preventing a steep drop in sales when the patent expires. Greenberg would press the CEO on how the company plans to address the challenge when Humira comes off patent, as this is the central investment issue.

He also cited Ryanair, in which he holds a large position.

Ryanair, founded 20 years ago, was designed as a low-cost airline. Its financials are so strong that you wouldn’t guess it’s an airline. They grew rapidly by purchasing planes inexpensively, but this supply of cheap planes has dwindled, and they have few new planes in the pipeline.

The key investment question is their strategy moving forward. Greenberg analyzed what Ryanair would look like if they never bought another plane, focusing on cherry-picking profitable routes and paying out cash. His analysis showed that even with reasonable assumptions, they could still generate a 13.5% return for investors, setting a high hurdle rate for investing in new planes. This illustrates his approach to analyzing investments.

This concludes the notes on the first part of Greenberg’s lecture. I plan to post notes on part 2 in the coming days and welcome your comments.

13 Ways to Enhance Your Search Strategy

To be a successful investor, you need a solid search strategy. This strategy should be built on a clear investing process and philosophy. Without a clear direction, you’re likely to get lost along the way. Consistency is also key. It’s often better to have a simple, broad strategy that you follow consistently than an elaborate one that you struggle to stick to. As Buffett has noted, compelling opportunities are like fast-moving elephants—if you’re not paying attention, you can miss out on them.

With that in mind, here are some places to focus your search:

  1. New Lows: Check the new low list daily to spot potential opportunities.
  2. Value Line: Regularly review Value Line. If you’re behind, catch up by going through back issues and flagging good businesses within your circle of competence.
  3. 13Fs: Monitor the investment disclosures of top investors. Websites like gurufocus.com, marketfolly.com, and dataroma.com aggregate this information for easier tracking. Focus on investors with a concentrated portfolio and pay attention to how recent their purchases are. Even small positions can be significant if they represent a large stake in the investee company.
  4. Mutual Fund Letters: Similar to 13Fs, but with the added benefit that these letters often explain the rationale behind investments. Focus on top funds like Yacktman, Fairholme, Longleaf, First Pacific Advisors, Akre Capital Management, and Third Avenue Value.
  5. Hedge Fund Letters: Choose hedge fund managers whose processes align with your goals. These letters often provide detailed investment theses.
  6. Business Press: Read publications like The Wall Street Journal, The New York Times, and The Financial Times daily. Follow Michael Price’s advice to read with purpose, looking for changes that could signal an investment opportunity, such as new management, restructuring, acquisitions, or legal issues. Also, read Barron’s, Forbes, Fortune, BusinessWeek, and The Economist.
  7. Blogs: There are many high-quality blogs with research that rivals or surpasses that of Wall Street. Seek them out and stay informed. Check my “Useful Sites” sidebar for updates on recommended blogs and sites.
  8. Screens: Regularly run specific screens. For example, Mason Hawkins used screens like ROC > 12% and less than 8x earnings, < 10x free cash flow, below net asset value, and others. Follow stocks that meet Joel Greenblatt’s magic formula criteria at magicformulainvesting.com. Value Line also publishes screens for cheap stocks in each issue.
  9. Top Businesses: Create a list of the top 100 or 200 businesses globally and revalue them regularly.
  10. Trade Magazines/Sites: Follow trade publications in industries you understand.
  11. Social Investing Sites: Engage with platforms like Value Investors’ Club (information delayed 90 days for non-members), Seeking Alpha, BloggingStocks, and Motley Fool. The Corner of Berkshire & Fairfax Message Board is also known for its informed discussions.
  12. Subscription Services: Consider services like Outstanding Investor Digest, Value Investor Insight, and The Manual of Ideas.
  13. Early Buffett Approach: Emulate Buffett’s early partnership strategy by going through a comprehensive database and searching from A to Z for undervalued, under-the-radar opportunities.

By utilizing these resources, you should be able to identify a handful of promising investment ideas each year that can help you achieve your financial goals.

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