One of the things I like to do when thinking about companies and investing is draw parallels between what I am seeing in the world today what may have happened in similar instances in the business world in the past. As I was driving into the office this morning and listening to the radio, I heard a brief news story on some of the now famous (or infamous) troubles that Toyota is having, and my mind went back to the 1980's.
Anyone who's grown-up in southern California knows that one of the teenage/young adult rites of passage, for many at least, is going to Knott's Berry Farm for Halloween. For those unfamiliar, the amusement park is converted into one rather huge haunted house. The staff where costumes, the rides and other attractions are decorated in accordance with the holiday, and at least when I was a teenager, employees would do their best to startle, scare, and spook those of us in attendance.
One such ride at the park is a little train (called the Calico Mine Ride, or something similar, I think). Sitting at the front of the train was an engineer, and I'll never for get his costume, because at the time I found it pretty funny. He had taken some large cardboard box, cut out holes for his arms and head to poke through, painted it or covered it in white paper, and decorated the box with the appropriate logos so as to look like a box of extra-strength Tylenol.
This, was of course, during the height of the 'Tylenol scare' that those who were around at the time likely remember, and that is still the stuff of cases in business schools today. I don't remember the details, but for those around at the time the scare involved someone tampering with Tylenol and lacing it with poison. Of course sales took a nosedive (even after the company had recalled all the product), and took some time to recover, but revover they eventually did.
Then I thought of an instance a couple/few years ago. At the time, I owned shares in air-bed purveyor Select Comfort. The share price took a nose-dive when news spread that at least some of their beds housed mold. Of course later on the share price recovered (at least for a while) because, it's a moldy world out there, and no mattress is really immune - Select Comfort's, or anyone else's.
And then I think of Toyota's recent troubles. Sure, the Tylenol case was different - it involved tampering with their product after it had left the factory. Select Comfort's case involved mold that is pretty prevalent everywhere, so not limited to just their products. Toyota's troubles, unlike Tylenol's, started with their own design and were built in their own factories, and unlike Select Comfort's, seem limited to just their cars. So yes, there are differences.
But I can't help but look back at the decades-long reputation of world-class product quality from Toyota and not come away thinking that the current problems, no matter how severe they may be (and they are), are anything but temporary. I can't help but wonder whether or not the stock market is overreacting, discounting the entire future of Toyota's abilility to return money to it's shareholders by some 30% or so (given quick glance and 'eyeballing' the stock chart).
Some of my favorite investments are those made in good companies in temporarily out of favor industries, or in great companies suffering from a temporary setback. I'm not suggesting that Toyota is a good investment today. I haven't done any homework. Haven't done any analysis. Haven't read any public filings. I haven't even closely followed the recent news, hearing only the little bits and pieces I gather from the news during my morning and evening commute.
What I am finding myself doing, however, is drawing parallels... and sometimes, when it comes to investing, I've found that it's not a bad place to start.
Russell (a.k.a. TMFEldrehad)
P.S. I own no shares in any company mentioned in this blog post.