Seeking Alpha

Marc Gerstein

View as an RSS Feed
View Marc Gerstein's Comments BY TICKER:
Latest  |  Highest rated
  • Pharma Phobic: 5 ETF Pullback Choices [View article]
    Interesting. With two trading days out of five already gone, I'm not going to take the slippage to add it now, but will keep it in mind it SKOR shows up again in the future.
    Nov 12, 2010. 04:02 PM | Likes Like |Link to Comment
  • Applying a Buffett Strategy to Garmin Stock [View article]
    He did own it. (I and Buffett am quite able to distinguish between Dairy Queen and McDonalds.)

    It is absolutely vital that any Buffett watcher understand that the listings in the annual do not come close to being complete. The annuial report makes that very clear.

    As I wrote in the main article, back when I covered BRK for Value Line, I (as well versed as anyone in Buffett fol;klore) was caught by surprise at seeing reference to an investment in MCD in a news clipping. I was surprised and double-checked by calling Buffett to confirm, and he did. I think that's about as good a source of info as can be had.

    If you find this hard to come to grips with, then it's a signal that you need to re-asses you understanding of Buffett, which was a goal of the article itself.
    Nov 12, 2010. 10:28 AM | Likes Like |Link to Comment
  • Applying a Buffett Strategy to Garmin Stock [View article]
    Here's another interesting topic: Buffett and book value.

    With this metric, the main thing that concerns Buffett is growth in book value. (I know that because he told me so, and you can see it confirmed pretty clearly when you look at the BRK annual and see how he uses this criteria to evaluate the success of lack thereof of BRK.)

    For GRMN, here's what we have for year-over-year growth in book value per share:

    2002 32.54%
    2003 24.15%
    2004 24.65%
    2005 23.96%
    2006 34.64%
    2007 50.27%
    2008 2.55%
    2009 27.49%
    Trailing 12 months 15.71%

    I've seen worse.
    Nov 10, 2010. 01:56 PM | Likes Like |Link to Comment
  • Applying a Buffett Strategy to Garmin Stock [View article]
    You're missing the point. There is no such thing as a free app. Every app has to be paid for somewhere along the line by somebody. The key for GRMN is to get involved doing the grunt work for apps that may appear free to you but may be paid for by an outfit like GOOG, that is more interested in getting you eyeballs or clicks or finger taps so it can monetize you in other ways. Also, don't underestimate the extent to which purveyors of free content keep wishing they could find a way to get folks like you to fork over a credit card or paypal. (Advertising as a sole revenue stream really isn't a great way to do business. Don't assume content providers are nearly as happy as you are.) That, actually, seems to be the way the current GOOG/GRMN app is trying to go for now.
    Nov 10, 2010. 01:50 PM | Likes Like |Link to Comment
  • Applying a Buffett Strategy to Garmin Stock [View article]
    Be careful about the overly quick-and-dirty analysis.

    For one thing, you can't assume Google has any proficiency in mapping anything. The Google Maps Terms of Use already discloses a host of third parties with which it works, apparently to get mapping data. We don't know if developers on Google's payroll are processing and displaying it or if Google retains others to do that. But we do know that Garmin is already working together with Google on the Blackberry app and who knows where the two may go in the future. This is not unusual. Often, when it looks to you like you're dealing with just one company, you are in fact, dealing with many companies.

    Also, don't draw quick conclusions based on what you do or do not pay for. Just because you don't pay for mapping doesn't mean somebody else isn't footing the bill in your place, as is the case on many web sites (including this one, where advertisers pay on your behalf).

    For Garmin, it could actually be nice to add a wholesale revenue stream that spares them the burden of having to sell to each user one at a time (just the way S&P does the equity research content it makes available to individual investors; it doesn't even try to sell to you; it prefers to deal with on-line brokerage firms and get its revenue through a smaller number of larger transactions).

    So Garmin does not really have to compete against Google freebies. The true competitive battle is between Garmin and others who would want to get paid to do thing for or with Google. That brings us back to square one: Where does Garmin stand versus others in its business, such as Tom Tom.
    Nov 10, 2010. 11:35 AM | Likes Like |Link to Comment
  • Applying a Buffett Strategy to Garmin Stock [View article]
    Everything I said in an earlier comment with regard to tech-phobia applies likewise to "sustainable competitive advantage," "economic moats," etc. Be careful getting too obsessed with things like these. And be especially careful to distinguish what Buffett actually DOES as opposed to the cottage industry Morningstar and the like build based on their interpretation (gross over-interpretation, in my opinion) of what they think Buffett is about.

    Personally, I think the notion of "sustainable competitive advantage" is one of the biggest piles of baloney foisted on investors. It's incredibly easy for an author to write about it, and it's incredibly easy for a seminar speaker to talk about it. And believe me, as an analyst-strategist with more than 30 years experience, you can be sure I know the lingo as well as any others and could quite easily regurgitate every bit of it. But I'm not going to do that because I've seen again and again how incredibly hard, if not impossible it is, for a company to make that real. Examples are countless throughout the market including inside the Buffett portfolio.

    Consider the two companies I mentioned in the article, the ones I spoke to Buffett about; MCD and AXP. They have no sustainable competitive advantage. They had to fight tooth and nail for every bit of success they ever had. What about Washington Post. Where is there sustainable competitive advantage? Of wait. They never had one. That's why their flagship business has pretty much been destroyed forcing them to transform themselves into something completely different (mainly, for-profit education). What about Procter & Gamble? Can you tell the difference between brands of toothpaste, detergent, soap, or any of the other things they make. I can't and neither can most others. P&G has to slug it out in the marketplace every day for every sale they make. they're good at it -- darned good -- but that doesn't mean they can sit around behind some sort of economic moat and enjoy coktails. Ditto Coca Cola. It's a well known brand, but look at any convenience or grocery store at how they've been losing shelf space. They, too, have to battle like crazy. Lately, evasive action has been their thing. (Sell directly to restaurant chains, movie chains, etc, rather than slug it out for the consumer, and also run around overseas to find new battlefields.) Coca cola is doing well, but that doesn't mean there's a sustainable competitive advantage or an economic moat. It means they're skilled fighters. Etc., etc., etc.

    Garmin never had an economic moat or sustainable competitive advantage. But its track record to date indicates that they've been pretty good at fighting with competitors. That's what it's all about.

    I suppose all this is raising a question: So what exactly IS Warren Buffett all about? That question seems a lot harder to answer when we ignore what he says and what others say about him and look instead at what he actually has done. I think the answer can be summed up in a four-letter word: g-o-o-d. When it comes to stocks, we'd say it means, good fundamentals, good valuation, and good management and demonstrated by a good track record.If this seems disappointing, don't feel that way. Consider what he's not about: momentum, Street expectations, popularity, increased guidance, earnings surprise, etc. What makes him special is not so much a set of cliches like no tech or economic moat, but an emphasis on "good" (defined quite flexibly as we see when we examine what he's done) that, interestingly, may make him an oddball when we consider what most investors do.
    Nov 10, 2010. 11:16 AM | 3 Likes Like |Link to Comment
  • Applying a Buffett Strategy to Garmin Stock [View article]
    We really need to look closely at this technology thing; I should have addressed it more clearly in the main article. I'm sorry for that omission. But anyway, here goes:

    Buffett has a conspicuous track record of doing things that one would find inconsistent with his own statements and writings, including, for instance, his speculations in precious metals and derivatives.

    Closer to home with technology, we cannot know all of his publicly-traded holding because he does not disclose all of them. So for all we know, he might be investing in tech stocks. It wouldn't be the first time he did something contrary to even his own earlier pronouncements. But we don't have to stop here. We can look at the companies he acquired outright. Doing so, we find some interesting tidbits:

    First, we see Flightsafety International, described in the latest BRK annual as being "engaged primarily in the business of providing high technology training to operators of aircraft." This is clearly a tech company, at least as much so as Garmin.

    Next, we find MiTek, described in the BRK annual as "a leading provider of engineered connector products, engineering software and services and computer-driven manufacturing machinery to the truss fabrication segment of the building components industry." MiTek's customers may not be tech, but Mitek is.

    TTI, Inc., described in the BRK annual as "an electronic component distributor headquartered in Fort Worth,
    Texas. TTI is a global specialty distributor of passive, interconnect and discrete components, which are readily adaptable to a
    wide variety of end-users over a broad range of industries. TTI’s customer base includes original equipment manufacturers,
    electronic manufacturing services, contract manufacturers, military, industrial users and commercial customers." I suppose this is an honorary tech company. TTI itself is not especially technological, but it closely rubs shoulders with tech.

    Business Wire, which "provides electronic dissemination of full-text news releases daily to the media, the Internet, online services
    and databases and the global investment community in 150 countries and 45 languages" is more borderline as being a tech company per se. But having worked about five years at Reuters, I can say with confidence that the ability of an outfit like Business Wire to stay on top of their game in the years ahead is going to depend a lot on their ability to at least stay with and preferably stay ahead of evolution in content distribution technology (which has already come a lot way since the time when flat text files would be delivered via ftp).

    None of these three are exotic, especially TTI. Then again, much of the tech sector is likewise non-exotic. Go to a web site that lists companies according to sector and go down a tech list name by name. When I started in this business in 1980, tech was super cool. Now, for the most part, it's just another sector. Yes, we have some companies like Apple. But much of the sector is considerably lower on the ooh-and-ahh scale.

    So somewhere along the line over the years since he first penned the words suggesting he was tech phobic, he seems to have started to develop some sort of comfort with the sector. And again -- I cannot repeat this enough -- it may be more than "some sort of comfort." We don't know a lot of the publicly traded shares in which he invests. There may be more tech than we know of. The 100%-owned subsidiaries I mentioned above were acquired somewhat recently. Perhaps it has something to do with the dulling-down of much of the tech sector. Perhaps the personal friendship that developed between Buffett and Bill Gates contributed. Perhaps it was a combination. Perhaps it was something else. In any case, the Buffett-doesn't-do-tech mantra (regardless of how often it's been repeated in the past) is a bit stale and we do not help ourselves by continuing to cling to it.

    Besides that, consider the context in which the initial anti-tech utterances occurred. It wasn't an aversion to tech per se. It was an aversion to that which one doesn't understand or feel comfortable with. In this regard, even if Buffett were still completely anti tech, it doesn't mean anyone else has to follow suit if one's own comfort zone is different. Case in point: insurance. I try to avoid it because it completely mystifies me. But Buffett understands it, so much so that it has become BRK's dominant business. To each his own.
    Nov 9, 2010. 11:44 PM | 1 Like Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    The Buffett discussion has definitely become heated so I decided to address it straight on with a full-fledged seeking alpha article:

    The theme was inspired by zorrow's (well thought out, in my opinion) musings regarding what the average investor can or cannot learn from Warren Buffett.
    Nov 9, 2010. 04:33 PM | Likes Like |Link to Comment
  • Applying a Buffett Strategy to Garmin Stock [View article]
    My main point was use of Garmin as a case study to illustrate a Buffett-style approach. it was chosen because it appears often in a Buffett model I use, but superficially, seems very much like a non-Buffett stock. Looking at Garmin alone (not as part of a case study) - while I don't do intrinsic value, I do agree with your analysis. Readers who want more on Garmin should click the link in Jacob's comment.
    Nov 9, 2010. 03:50 PM | 3 Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    "Unfortunately, you don't appear very bright, nor do you appear interesting in learning."

    Was this directed at zorrow? I appreciate that you don't agree with him, and there are some points that make me hesitate a bit (the word "insider" is necessarily a very sensitive one in the context of investment; Buffett is not an insider in the nefarious sense of the word, but it is true that he has had opportunities to invest money outside the context of the public markets). But on the whole, I find his comments thoughtful and indicative of one who has done his homework.

    Going back to a point zorrow made early on -- that Buffett may have no relevance to the average investor -- Robert Hagstrom makes for an interesting case in point. As I'm sure most debaters here know, Hagstrom was one of the early authors to gain stature by writing extensively about Buffett, his most famous book being "The Warren Buffett Way." Buffett did not in any way participate in that effort; Hagstrom worked entirely with publicly available information, mainly the BRK annual-reports. I think it's fair to suggest that "The Warren Buffett Way" is as good and definitive an one-stop summary of the public Warren Buffett as we're ever likely to see. Put another way, if the average investor is likely to learn anything from Warren Buffett, Hagstrom is a terrific source (actually, Hagstrom even follwed up with a book on focus investing that I'm sure made Whitman smile it he read it).

    As it turned out, Hagstrom didn't just write. He actually launched a mutual fund wherein he applied the public-Buffett investing techniques to the real world. It was called the Legg Mason Focus Trust. I recall having looked at it some years ago and having been very much unimpressed with its performance record. Unfortunately, I can't now offer supporting evidence because Hagstrom gave up on his Buffett strategy. Somehwere along the fund became the Legg Mason Growth Trust (LMGTX). Morningstar's current report summarizes the transition as follows:

    "This fund's strategy originally owed a debt to Warren Buffett, with its emphasis on growth stocks picked up at discounted prices. While manager Robert Hagstrom still runs a concentrated portfolio, doesn't trade much, and seeks stocks trading at a discount to fair value--all Buffett hallmarks--he has shifted his focus to include areas undergoing rapid change (which Buffett has traditionally avoided). He covets franchises that can deliver strong unit growth, which he believes will be key amid a dearth of pricing power."

    On the whole, LGMTX has had some ups, some downs but on the whole, a track record that falls far shy of what one who started out applying the teachings of a legend might hope to achieve.

    The Hagstrom experience lends some credence to zorrow's suggestion that a lot of Buffett's performance comes from factors not relevant to the average investor. I think there's another factor: Buffett's own unique non-replicable intelligence (something that I think played huge roles in the track records of all those we now revere as investing legends). Former hedge-fund manager James Altuscher also wrote a book analyzing a lot of the not-so-folksy aspects of what Warren Buffett has done over the years. Roger Lowenstein has likewise covered that in "When Genius Failed", more specifically, his discussion of how the Fed called Warren Buffett in as it attempted to rescue Long Term Capital Management. I assume the Fed did not do that because of Buffett's love of low valuation metrics, economic moats, etc. :-)

    Ultimately, different observers can come to different conclusions, but to suggest that zorrow is not bright and uninterested in learning . . . that is just plain wrong.
    Nov 9, 2010. 09:55 AM | 3 Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    Would have, could have, should have .... Buffett's non-concentrated portfolio has existed for a long, long time (well before BRK got as big as it is today), as has his willingness to invest in exotic hedge-fund-type investments, as has even his willingness to invest in shares of companies that don't even come close to meeting the so-called requirements with which his name is most associated. There's nothing to extrapolate. The facts are clear to anyone who looks.
    Nov 5, 2010. 03:07 PM | Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    "There is a vast difference between what financial product salespeople tell people to do and what successful investors have done. Remember what Buffett said:"

    Guess what. There is also a vast difference between what Buffett has said over the years and what he has done, on a variety of topics including the number of investment positions BRK owns. And Buffett isn't even a financial product salesperson!
    Nov 5, 2010. 09:40 AM | 1 Like Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    I didn't allege anything. I copied and pasted. Any reference at all to day-traders and high-frequency traders in that context is indefensibly absurd.
    Nov 4, 2010. 01:46 PM | 2 Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    The only one who should owe anybody an apology is Whitman.

    Before you disagree, imagine for a moment that it was a Seeking Alpha contributor who spouted off like that (assuming the editors would even allow it to pass), or a Seeing Alpha commenter. I can easily imagine the SA community up in arms about the rudeness.
    Nov 4, 2010. 01:26 PM | 2 Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    I don 't know that 4%-5% is "fat pitch" level (assuming such a thing exists outside the Morningstar play-pen). Stakes of 4%-5% imply a portfolio with 20-25 positions, which I think would be regarded as being pretty reasonably diversified, especially for an individual who doesn't need to put billions to work.
    Nov 4, 2010. 01:23 PM | 1 Like Like |Link to Comment