Jump to content

List of Good Companies Regardless of Price


BG2008
 Share

Recommended Posts

I was having a discussion with my friends who invest full time and someone mentioned that he studies up on good companies and knows them very well.  When markets crash, he's able to buy with conviction.  He mentioned "I know that the home alarm companies and asset tracking companies will continue to receive monthly subscriptions going forward.  It is a high margin business with recurring revenue.  With Fossil, I'm seriously worried about whether people will buy watches going forward back in 2009."  So, I'd like to create a list of good businesses regardless of price to get ready for any impending selloff. 

 

Tellular and other home security business - Recurring revenue stream, high margin, good reason for their existences, cost outweighs benefit, hard to duplicate, hard to physically wire 500k homes etc. 

Most REITs - Long term leases, high margin, trophy assets can't be replaced, i.e. 5th Ave Manhattan real estate, real estate in most land constrained cities, Boston, NY, San Francisco, etc. 

Unilever, Proctor and Gamble, Coke, - Branded food products - loyal brands, high margin, consumer staple

 

 

Link to comment
Share on other sites

Unfortunately (for home alarm companies) crime has been on a downward spiral for almost 40 years.

 

EDIT:

 

It would be more accurate to say "over 30 years" than "almost 40".

 

http://upload.wikimedia.org/wikipedia/commons/e/eb/Property_Crime_Rates_in_the_United_States.svg

 

Link to comment
Share on other sites

Possibly *because* of home alarm companies ;)

 

I'd perhaps controversially add 3M.  The more I study them the more I think the years of materials knowledge they have accumulated adds up to a wide moat.  They do have to keep innovating, but I think they will, and they generate a lot of cash.  I'd love to buy that in a real crash.

Link to comment
Share on other sites

Possibly *because* of home alarm companies ;)

 

I'd perhaps controversially add 3M.  The more I study them the more I think the years of materials knowledge they have accumulated adds up to a wide moat.  They do have to keep innovating, but I think they will, and they generate a lot of cash.  I'd love to buy that in a real crash.

 

 

I'm not actually convinced that any facts about the crime rate make much of an impact on consumers' decisions about installing an alarm (or taking any other sort of defensive measure such as not allowing your kid to walk to school or buying a hand gun).  The decisions get made based on the perception of risk rather than any objective measure of risk.  In many cases, it's truly an irrational, emotional decision.

 

Many of my friends and colleagues have monitored alarm systems that cost anywhere from $300-$500 annually.  Unless your community has a demonstrably high break-and-enter rate, that's basically wasted money.  Canada's national break-and-enter rate is about 700 per 100,000 annually, implying that on average there's a very small probability of your house being hit.  If your house does get hit, most people have basically nothing of interest to the crack-head perpetrators (ie, maybe a small amount of cash, some booze, or a couple bits of electronics), so your losses to theft are likely going to be small in any case.  And if your losses do actually amount to something significant due to accompanying vandalism, then you just make an insurance claim.

 

So, in essence, every year my friends and colleagues are incurring a 100% probability of losing $300-500 to mitigate a 1% probability of losing a couple thousand bucks.

 

Crime rate be damned!

 

SJ

Link to comment
Share on other sites

Possibly *because* of home alarm companies ;)

 

I'd perhaps controversially add 3M.  The more I study them the more I think the years of materials knowledge they have accumulated adds up to a wide moat.  They do have to keep innovating, but I think they will, and they generate a lot of cash.  I'd love to buy that in a real crash.

 

 

I'm not actually convinced that any facts about the crime rate make much of an impact on consumers' decisions about installing an alarm (or taking any other sort of defensive measure such as not allowing your kid to walk to school or buying a hand gun).  The decisions get made based on the perception of risk rather than any objective measure of risk.  In many cases, it's truly an irrational, emotional decision.

 

Many of my friends and colleagues have monitored alarm systems that cost anywhere from $300-$500 annually.  Unless your community has a demonstrably high break-and-enter rate, that's basically wasted money.  Canada's national break-and-enter rate is about 700 per 100,000 annually, implying that on average there's a very small probability of your house being hit.  If your house does get hit, most people have basically nothing of interest to the crack-head perpetrators (ie, maybe a small amount of cash, some booze, or a couple bits of electronics), so your losses to theft are likely going to be small in any case.  And if your losses do actually amount to something significant due to accompanying vandalism, then you just make an insurance claim.

 

So, in essence, every year my friends and colleagues are incurring a 100% probability of losing $300-500 to mitigate a 1% probability of losing a couple thousand bucks.

 

Crime rate be damned!

 

This is true unless the crime rate was very high and on the increase, people would perceive the danger, constantly hearing about friends, neighbors, or family members being burglarized, and would be much more likely to buy an alarm system.

 

The point you made about insurance is exactly what my wife told ADT when they kept calling us after we bought our house (they previous owners had the alarm monitored).  The guy was very pushy asking her what if your home alone and someone breaks in?  She told him "I own guns I'll be fine".  He paused and said "but what if your not home", my wife just responded "that's what insurance is for".  He finally hung up.  In general I don't like to do business with companies who employ pushy salesmen with appeal to fear tactics even if I was inclined to purchase a service.

 

I

Link to comment
Share on other sites

Possibly *because* of home alarm companies ;)

 

I'd perhaps controversially add 3M.  The more I study them the more I think the years of materials knowledge they have accumulated adds up to a wide moat.  They do have to keep innovating, but I think they will, and they generate a lot of cash.  I'd love to buy that in a real crash.

 

 

I'm not actually convinced that any facts about the crime rate make much of an impact on consumers' decisions about installing an alarm (or taking any other sort of defensive measure such as not allowing your kid to walk to school or buying a hand gun).  The decisions get made based on the perception of risk rather than any objective measure of risk.  In many cases, it's truly an irrational, emotional decision.

 

Many of my friends and colleagues have monitored alarm systems that cost anywhere from $300-$500 annually.  Unless your community has a demonstratively high break-and-enter rate, that's basically wasted money.  Canada's national break-and-enter rate is about 700 per 100,000 annually, implying that on average there's a very small probability of your house being hit.  If your house does get hit, most people have basically nothing of interest to the crack-head perpetrators (ie, may a small amount of cash, some booze, or a couple bits of electronics), so your losses to theft are likely going to be small in any case.  And if your losses do actually amount to something significant due to accompanying vandalism, then you just make an insurance claim.

 

So, in essence, every year my friends and colleagues are incurring a 100% probability of losing $300-500 to mitigate a 1% probability of losing a couple thousand bucks.

 

Crime rate be damned!

 

SJ

Hear hear! I started writing a response trying to make this very point, only in a dodgier version.

 

But it should be said that this is not just irrational money down the drain. The notion that someone has broken into your home is VERY disturbing to many people. Home alarms are in that way a pretty cheap way of feeling in control. $300-$500 seems to be very expensive systems to me, however. Very few people cancel their subscriptions after getting a home alarm. I have a (thus far) small position in a small firm that provides home alarms and their churn rates indicate a customer relationship of +20 years (they basically almost only lose customers when they move houses and not even always then because they can often incite the new owners to take over the subscription on the cheap) while needing about 4 years to get to breakeven for every new customer.

 

Being the odd one out without a home alarm in an upper-middle class area may also garner a huge increase in burglary risk even if I haven't seen any statistics like that. People also feel very frustrated because these crimes have such a miniscule clearance rate and they basically never retrieve anything of what was stolen. The only way of protecting yourself if you feel that protection is high-priority is via getting your own protection. People just don't make cost-benefit analysis on these things.

 

It's just a great business model. Sell the alarms and don't fuck up the service and you have great business for two decades. When the infrastructure is in place you can grow quite nicely only by adding a couple of people - not much new equipment needed. And people aren't all that price sensitive because they will have to pay an uninstallation fee if they want to change providers and they can't use the extra equipment that they have bought with any other company because they are incompatible. The lock-in effect seems much, much better than for satellite, internet and other such subscription services.

Link to comment
Share on other sites

On V and MC, I've always worried that they are ripe for regulation.  This is a near-duopoly that charges a toll fee for a basic everyday necessity/an undifferentiated service, without the consumer even being aware of being charged.  That's virtually the definition of a utility.  (Most of the fee money goes to the banks, which use it to subsidise points and cashback offers for high-end customers, which is even less justifiable.)  If you destroyed this system, and instituted a regulated fee that covered the cost of running the system, you'd cut most retail prices by 1-2% immediately, no?

 

If not they are great companies, but I think there is a non-negligible risk that regulation or competition get them in the end.

 

 

Link to comment
Share on other sites

I think of software firms with high switching costs as good companies, because they are very capital light, and have long contracts with recurring revenue. Currently I am invested in Red Hat and Microsoft.

 

I think Google is similarly a great firm because it is a natural monopoly, capital light, and psychological switching costs. It is in many ways like a consumer staple of tech.

Link to comment
Share on other sites

The big oil, gas, and energy companies are always on my watch list.  For instance I bought XOM in 2010 for $59 and sold in 2012 for $88.

 

I've made money in the past on CHK as well and I might be buying now if I didn't have better ideas.

 

The need for energy isn't going anywhere and will only be increasing as the developing world develops. When these companies go on sale they are worth picking up.

 

Link to comment
Share on other sites

Possibly *because* of home alarm companies ;)

 

 

No because of Roe versus Wade,

http://pricetheory.uchicago.edu/levitt/Papers/DonohueLevittTheImpactOfLegalized2001.pdf

 

And/or the decrease in lead exposure during childhood.

 

http://3.bp.blogspot.com/--MITcvOw0QQ/UO0GUwa1UGI/AAAAAAAAguY/VFpNow1JNfs/s400/Lead_Crime.gif

 

from: Strong case that childhood lead leads to a lot more youthful adult violent crime, teen pregnancies and IQ loss

Link to comment
Share on other sites

I think that consumer staples in general in emerging markets with large market share and strong brands are good companies to own at the right prices

 

Tingyi - Beverage and instant noodles in China

Uni-President China

 

I recall that baby formula companies in general are great businesses.  Some dairy business have a hidden gem in it's baby formula business. 

 

Mead Johnson is a publicly traded company

 

Link to comment
Share on other sites

Possibly *because* of home alarm companies ;)

 

 

No because of Roe versus Wade,

http://pricetheory.uchicago.edu/levitt/Papers/DonohueLevittTheImpactOfLegalized2001.pdf

 

And/or the decrease in lead exposure during childhood.

 

http://3.bp.blogspot.com/--MITcvOw0QQ/UO0GUwa1UGI/AAAAAAAAguY/VFpNow1JNfs/s400/Lead_Crime.gif

 

from: Strong case that childhood lead leads to a lot more youthful adult violent crime, teen pregnancies and IQ loss

 

I was not aware of the lead study. Thanks for posting.

Link to comment
Share on other sites

I was having a discussion with my friends who invest full time and someone mentioned that he studies up on good companies and knows them very well.  When markets crash, he's able to buy with conviction.  He mentioned "I know that the home alarm companies and asset tracking companies will continue to receive monthly subscriptions going forward.  It is a high margin business with recurring revenue.  With Fossil, I'm seriously worried about whether people will buy watches going forward back in 2009."  So, I'd like to create a list of good businesses regardless of price to get ready for any impending selloff. 

 

It seems like he defines "good" as non-cyclical.  Which implies that he is looking to buy non-cyclical stocks when the market crashes.

 

Warren Buffett behaves differently in market crashes.  He was buying a lot of financial stocks (some of which went bankrupt).

Link to comment
Share on other sites

I was having a discussion with my friends who invest full time and someone mentioned that he studies up on good companies and knows them very well.  When markets crash, he's able to buy with conviction.  He mentioned "I know that the home alarm companies and asset tracking companies will continue to receive monthly subscriptions going forward.  It is a high margin business with recurring revenue.  With Fossil, I'm seriously worried about whether people will buy watches going forward back in 2009."  So, I'd like to create a list of good businesses regardless of price to get ready for any impending selloff. 

 

Tellular and other home security business - Recurring revenue stream, high margin, good reason for their existences, cost outweighs benefit, hard to duplicate, hard to physically wire 500k homes etc. 

 

 

George Risk Industries - RSKIA makes home alarm systems...

Link to comment
Share on other sites

20 years ago you might have bought the service .... after the break-in, & only if a lot of valuables got taken. The resultant claim ended up being way more than the deductible, & you really took the service to reduce the cost of that new higher premium. It was a derivative product.

 

Today a lot of the market buys the service to babysit the old folks .... especially if you/they live in different cities. They push a button & you get a text/'phone call. Effective, dirt cheap, & not reliant upon the neighbors. It has become the primary product.

 

..... one of those rare products that re-packaging & demographics really helps.

 

 

Link to comment
Share on other sites

George Risk Industries - RSKIA makes home alarm systems...

 

George Risk actually makes not so much home alarm systems, but switches for the security industry. They're mostly highly specialized (read: moat) switches for all kinds of security applications from preventing fuel theft from 18 wheelers, pool alarms, museum lift detectors and the like. And they are super cheap right now.

Link to comment
Share on other sites

George Risk Industries - RSKIA makes home alarm systems...

 

George Risk actually makes not so much home alarm systems, but switches for the security industry. They're mostly highly specialized (read: moat) switches for all kinds of security applications from preventing fuel theft from 18 wheelers, pool alarms, museum lift detectors and the like. And they are super cheap right now.

 

I seen this Name in some other blogs as well. Can any name comment more on this company?

thanks.

Link to comment
Share on other sites

20 years ago you might have bought the service .... after the break-in, & only if a lot of valuables got taken. The resultant claim ended up being way more than the deductible, & you really took the service to reduce the cost of that new higher premium. It was a derivative product.

 

Today a lot of the market buys the service to babysit the old folks .... especially if you/they live in different cities. They push a button & you get a text/'phone call. Effective, dirt cheap, & not reliant upon the neighbors. It has become the primary product.

 

..... one of those rare products that re-packaging & demographics really helps.

 

 

 

A few people at work set up web cams on their parents house so they can check in to make sure nothing is wrong. It's kind of creepy at first but effective.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...