Chapter 2 - Know What You Own Flashcards
The specific technology products a company sells can be _____ important than how the company manages the development and evolution of that technology, how it works with its customers, how it markets its products and services, and finally, how it manages itself.
The specific technology products a company sells can be less important than how the company manages the development and evolution of that technology, how it works with its customers, how it markets its products and services, and finally, how it manages itself.
What is the most important aspect of high stock valuations?
Repeatability.
Many, if not most, tech investors are attracted to companies with “hot” products. They become trapped in the stocks as companies fail to carry the great product successes forward and achieve repeatability. Then investors end up with disappointing profits or even lose money.
Who managed Molex?
The Krehbiel family.
Started manufacturing inexpensive molding materials for toys and flowerpots in 1938. Took their know-how in manufacturing and applied it to a more dynamic market–electrical connectors.
They recognized a massive opportunity and capitalized on it.
Most of the time, great companies are not limited to serving little niche markets, but _____ _____ product or service areas that will have _____ if not _____ markets to sell into.
Most of the time, great companies are not limited to serving little niche markets, but correctly pick product or service areas that will have enormous if not unlimited markets to sell into.
p21
What two things are essential to making big money?
- In-depth knowledge
- Genuine cofidence
What did Kobrick focus on when doing his research on Molex?
He focused on two things:
1) What could change
2) What could repeat
What are three of the most important things a company needs to have if it is going to be a huge winner?
- Taking market share from other worthy competitors
- Having a huge or open-ended market opportunity
- Knowing exactly how to lock in customers and work closely with them.
p23
What percentage of companies are still family-dominated in the third generation?
4%
p23
What was Molex’s business model?
It centered on being as profitable as possible while avoiding debt
–and–
working closely with customers in order to anticipate and meet or exceed their needs.
Molex wanted a avery broad product line so that it could fill all needs, and avoid being stuck in a niche.
p24
What did Kobrick recognize in Molex?
He recognized the greatness of the business model and the execution abilities of management.
p25
Who said, “Knowledge is the antidote to fear?”
Ralph Waldo Emerson.
_____ reduces risk.
Knowledge
So know what you own, and why you own it.
p25
Was Kobrick’s initial investment in Molex’s IPO successful?
He made some money, but not a lot.
p25
What happened after Kobrick purchased Molex’s IPO offering and what did he do?
The stock market “reacted to a bad economy and took Molex down quite a bit.”
Because of his deep knowledge, he bought a bigger position than he wanted to.
p27
How did Molex investment work out?
Sales increased by almost 120x from $17m to over $2b in a little more than 3 decades.
Profits multiplied even more as margins improved, going from $1.78m to $858m at the peak, or 482x
The stock, adjusted for splits, went from 33 cents to $61 at the peak, or 185x.
Note: Koch Industries acquired Molex in 2013 for ~ $7.2 billion. Sales was $3.6b. PSR ~ 2
What did Kobrick learn from McDonald’s?
- A parking lot could be a great source of information for investors
- A full array of cars visit MCD from VW Beetles to the best Mercedes
- MCD serves a wide market! - Sustainability and repeatability are two things to always look for in a business.
Before investing in a company, what does Kobrick suggest investors do?
Look at the company from a customer’s perspective.
“Get a real feeling for the location and the facility, and experience how the company delivers its service or products.”
Correlate what you find with what management claims.
p32
Where does real confidence come from?
It comes from reading the annual reports and releases from management and then looking for oneself.
What made McDonald’s a truly great company?
Operations.
MCD truly excelled at operations. Ray Krock had a system to manage costs, standardization of menu, service and profit margins for every unit.
What was Kobrick’s first great company?
McDonald’s
p36
Kobrick made the recommendation to buy MCD, but only some of the portfolio managers bought it. Why didn’t more managers buy MCD?
They feared that MCD’s nice run was over.
But they were wrong. They didn’t see what Kobrick did–the amount of detail and the brilliance of MCD’s systems, that what MCD was doing could be repeated over and over again and that there were no limits to its growth.
p36
Should investors pass on buying a company just because its share price has already had a nice run?
No. Kobrick’s experience with MCD is proof of this.
There are many other examples such as Walmart, Amazon, Copart, Brown & Brown, RLI Corp, AJ Gallagher, Domino’s Pizza, Burford Capital, Realty Income, Home Depot
2021-11-28
What are the real great growth stories?
The stories about companies with really big markets or demand and an opportunity to do it better. p39
Example
Kelly Partners Group Holdings (KPG.AX)
2021-11-29 $3.72/share
What increased the growth and size of the package-delivery market?
Technology
p39
