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Value of Field Research


Uccmal
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I have recently realized the value of field research.  To some degree I have always done it but I now realize how important it can be. 

 

I have avoided two bad investments so far this past year by doing field research.  Le Chateau looked real good on numbers - I checked out a couple of their stores at Christmas and they were actually empty - Le Chateau is a clothing retailer in Canada.  Two stores was enough to tell me to stay away.

 

The same thing with Liquidation World in the past year.  Checking out one store in a busy area was enough to tell me to stay away.

 

Where I failed this year was in not checking out RIM and its competition very well.  I had bought an IPad, and already had an older BB.  All I needed to do was buy or borrow an Iphone, and perhaps a Samsung galaxy, and buy a playbook before I invested.  I think that would have told me what I need to know.  The total cost may have been 2000 or so but well less than what I ultimately lost. 

 

I have distinct advantage in certain non numbers areas such as a deep working knowledge of manufacturing processes, that I take advantage of frequently. 

 

Researching Banks is relatively easy.  I have been to Boston and NYC in the past year and Califormia a number of times.  Every time I go I have a good look at the bank branches.  Are they busy?  Aremost of the stores I see busy? 

 

Alot of investment managers seem to feel they have done their due diligence when they meet with management.  I have no problem with this if your are trying to determine how honest they are but

what can they actually tell you that they have not said publicly.  IMO, meeting management is not very worthwhile and does not qualify as due diligence.

 

  To be fair I have met and spoke with several different levels of FFH staff, and was always impressed by their honestyand humility.  This includes two or three fromer employees as well.  These people

were not top management.  Talking to them showed me what a good investment it might be.

 

I have been watching License to Drill on TV to get a better handle on oil drilling.  I'll tell you this

much.  After watching that show I will never invest in a pure E&P play company again.  Can you say gambling?

 

I have been reviewing my good and bad investments and am realizing that the best investments I have made have leaned toward the qualitative.  Taking BAC for example.  Sure I have reviewed the numbers, and I pay attention to the capital ratios, but I also know that there are branches in virtually every city in America, all over the place, and that people are lined up as we speak to see a teller, put in a deposit, withdraw money from their line of credit.  I have seen it happening in NYC, Conway, NH, Boston etc, since the financial crisis. 

 

At the opposite end of the pole is one of my more dubious investments SFK Pulp/fibrek.  I owned this 6 years ago pre-fairfax even.  By the numbers sfk has always looked to be okay, except right after the RBK purchase.  That I have no idea who their actual customers are and have never actually visited a pulp mill ( lumber mills, and paper machines yes), have never met a present or past employee never seemed to bother me.  It is going to bother me going forward. 

 

One thing I can say about my remaining holdings is that I have kicked the tires in one form or another in REAL life.  I am also well aware of their competitors, and their indistry dynmaics.

 

There is more to an investment than numbers.

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I like field research too - I use it to look at potential investments.

 

I have to be careful about putting too much emphasis on it as I am just one set of eyeballs in one economic area seeing one or two locations so I take it all in context but sometimes stuff just begs further research.

 

    One example I recently looked at was Coach (COH).  After observing my own family of two daughters and my wife pulling their Coach wallets out of their Coach purses in the Coach store to buy another Coach purse, after waiting in a lineup of similar situations pursuing similar ends, I just had to look into it.  It's a phenomenon to be sure and when the music stops that's that and on to the next thing, but until you actually observe that process playing out, no financial statement or filing encompasses it.

 

The skew I had to place on my observation was that this was occurring in an outlet mall in a small market so I concluded that the big phase of growth is probably passed, however I should add that on a micro-scale all three of my market research subjects claim that they are particularly nice to use (not so much digging around required) and I can vouch that they are very well made.  I could easily see them becoming like shoes where there are a seasonal purses etc.

 

Disclosure:  Don't own any COH stock but do have a growing COH inventory!

 

 

 

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JEast - Thanks for the rec, I picked up a copy of that book on Amazon, looks interesting.

 

I've always been wary of my view on retail from the eyeball perspective.  A lot could depend on the time of the visit, weekday vs weekend.  Big football game on a Sunday means the store is empty when another Sunday it might be full etc.

 

The field research is also hard when a lot of the companies in a portfolio are manufacturing or build a piece for some other part of a process.  I guess you could always count trucks leaving the parking lot or something.  I've always had the impression sell side analysts do this sort of minutia research.  Count parking spaces filled, watch truck traffic, count rail cars etc. 

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I have avoided two bad investments so far this past year by doing field research.  Le Chateau looked real good on numbers - I checked out a couple of their stores at Christmas and they were actually empty - Le Chateau is a clothing retailer in Canada.  Two stores was enough to tell me to stay away.

 

I too looked at Le Chateau before Christmas, they had what was supposed to be a brand new concept in the shopping center next to me. Went there and it was the same merchandise then in their other stores but with more expensive displays. Passed on it after the experience.

 

BeerBaron

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There is no substitute for fieldwork, but it’s not just looking at storefront &/or product.

 

We like O/G servicing, but it is because I got a summer job on a rig while attending school out west.  One learns very quickly that the servicing world is all about the qualitative, none of it is on the BS, & that the culture of blunt speaking & merit driven royalty matters. Per the market, PD @ < $5 looked like a dog, until you realized that the majority of the business works on the connections, hand-shake deals, & old-boy networks that are not visible - & that PD is one of that merit driven royalty. It was a PD rig, doing something that had not been done before, that saved the Chilean miners a couple of years ago.

 

We like ‘tech’, but it is because most of our family are trained as engineers, & we distinguish tech from the consumer toys that use it. Again per the market, NEM looks a like a dog, until one recognizes that the industry runs on Chinese connections & old-boy networks which are not visible - & that NEM is not that different than an old school Hong, run by a master.

 

We see forestry as akin to airlines, & about as badly run. Obviously there are some nuggets , but for now we will decline to comment  ;)

 

SD

 

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