On How the CRIC Became a Growth Investor
Board: Macro Economics
We were sitting in the Maccorkle Road McDonalds, right in the metropolitan heart of St. Albans, looking out at the mighty Kanawha River and the grim, gray November morning and wondering where the summer went. Out there, it was colder than a witch’s . . . knee; inside, though, it was hotter than blazes: the Coal River Investing Conclave was in full and plenary session, and the fur was flying.
Sam had started things promptly at 6:30 with some prepared notes on the first chapter of Seth Klarman’s opus, Margin of Safety, and everything had moved along pretty well until Sam hauled out that hoary analogy between stock prices plummeting and finding consumer goods on sale:
Sam: “And you know how it is; when, say, bait or ammunition goes on sale, we all jump in and buy, because we like getting a bargain. Am I right?”
Well, that was Sam’s first mistake. That kind of rhetorical question works at a church meeting or a political rally, where everyone is in agreement, but the Coal River Investing Conclave is full of independent thinkers – just on the stock-picking front, our weekly picks run the full gamut from RGR and SWHC all the way to ATK and OLN -- so I knew Sam was asking for trouble. But I did not expect it to come from Herm:
Herm: “Well, darn it, Sam, hold it right there. That ain’t right and I am the man to say so!”
Sam “Sweet Suffering Moses, Herm, can’t you just let me . . . . “
Herm: “Sam, you always act like you hung the moon; let me ask you this: If you was to stop by that little cart that Chinese feller sets up down by the overpass, figuring on picking up some sushi for the wife . . .”
B-Bob: “Right, Herm, ‘for the wife’ . . . You ain’t fooling nobody; were you gonna have some yogurt with that sushi? How about a little tofu and some sasparilly?”
Herm [imperially ignoring the heckler]: “As I was saying . . . if you saw that sushi marked ‘$1.00 OFF,’ what would you do? I’ll tell you what – you would walk right by it, because nobody wants day-old-sushi. So . . .”
Me: “But, Herm, the thing is that sushi is not fungible . . . .”
Herm “Of course I know that Daisy, although I fail to see what that has to do with anything. Sushi is fish, and that is the problem, nobody wants day-old raw fish! It would actually be better if it was mushrooms and such, but marked-down raw fish? You can have it!”
Me: “Actually Herm, ‘fungible’ doesn’t mean what you think it . . . .”
Herm “And it works that way for lots of stuff. Any of you guys still using reconditioned tires or rebuilt carburetors? Second hand sofas with lice and bed bugs in them?”
And, you know, we all ended up thinking maybe Herm had a point. We actually do not buy sales, not for important things. We want top quality when quality matters, and somehow a high price is reassuring about the underlying quality.
Suppose IBM were suddenly to drop 25% -- would you be comfortable buying it if you could not ascertain the cause of the dip? Wouldn’t you worry that somehow things had gone south? Why not instead find a company that is growing like a sprig of baby macrocystis? Swallow hard, pay the fare, and hitch on for the ride?
What really convinced us all was when Herm got going on the Conclave’s investments:
Herm: “And another thing, Sam, this Watch List stuff is for the birds. We make a big list of companies and wait until they hit our buy price, right? And guess what! Guess which ones hit our buy price? It’s the crummy ones! We have a whole portfolio full of Supervalue and Radio Shack and horse**** like that because we keep waiting for stocks to go on sale. Well, let me tell you something, the good stuff NEVER goes on sale! It doesn’t HAVE to go on sale, because it is GOOD! When did you ever see a John Deere tractor on sale? Did you ever see a Benchmade knife at half-off? But we all own Benchmades, right? Why is that, Sam? It’s because if you want quality, you have to pay for quality. If you pay horse**** prices, you get horse**** stocks!” [I apologize for Herm’s lexical choices; the CRIC is a pretty rough crowd, as investing clubs go, and things are not always pretty at our meetings.]
Well, Herm convinced us -- maybe he has convinced you too.
We threw the Klarman book in the trash, decided to buy TSLA and NFLX, filled up the coffee cups, and hit the road.
And I guess that you could say the Coal River Investing Conclave is now a growth investor . . . .
A Drumlin Daisy
Chief Gaffer, Coal River Investing Conclave