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Milwaukee Private Wealth Management is an independent Investment Research & Advisory Services firm. We provide high net worth individuals, families, and institutional investors with services focused on the firm's value oriented investment principals. The firm concentrates on fundamental... More
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  • PriceSmart: Emerging Markets Warehouse Clubs
    PriceSmart is a membership warehouse shopping club company whose business is located in the Caribbean and Central America. Although the company is based in San Diego, this is an emerging market story. 
     
    PSMT recently reported their February store sales. Net sales increased 11.6% to $100.4MM from February 2009. On a same store basis, net sales increased 7.1%. Even more interesting, growth seems to be ramping back up at PSMT’s locations, with the last three months growing at 8.0%, 9.2%, and 11.6% on a year over year basis. Through the first six months of fiscal year 2010, net sales are up 6.5% to $667.5MM. 

    As the company continues to drive sales, investors will recognize the scalability of their business model. Historically, PSMT has been focused on reducing costs and in turn passing the incremental savings onto consumers in the form of lower prices. While aiming to decrease costs, and thus pricing for consumers, they have held their gross margins constant at 17-18% for the past three years. The growth in the top line has helped to expand operating margins and fuel EPS growth. The company understands that SG&A expenses “rise relatively slowly in relation to sales increases” and Warehouse Club Operations expenses have declined nearly 400bps as a percentage of revenue over the last five years. PSMT needs to continue to drive revenue growth, ideally through organic same-store membership growth. PSMT has successfully grown their membership per store from 18,000 in August 2006 to over 25,000 in November 2009 (latest data available).

    PSMT is also growing its store count. They plan on adding a 27th store this year in Trinidad and cite in their 10-K that they are, “closely examining Columbia as a potential new market for multiple PriceSmart warehouse clubs.” Columbia is the logical first step for the company to enter the South American marketplace. Columbia has a population in excess of 45 million, whereas the rest of the markets in which PSMT warehouses are located have a combined population of just over 55 million. Columbia represents a tremendous growth opportunity for PSMT.


    Disclosure: Long
    Tags: PSMT, WMT, COST, BJ
    Mar 24 10:14 AM | Link | 2 Comments
  • What's in YOUR Portfolio?
    I met recently with Mike, a gentleman who had been referred to my firm. He is a 55 year-old business owner who is very well informed about his industry and with current geo-political events.
     
    We had developed a pleasant working rapport over several months as I came to understand his investment objectives and concerns.
     
    Mike had three separate accounts – a joint account with his wife, a Simplified Employee Pension (NYSE:SEP) account for his business and an IRA. All three accounts were held by a nationally recognized brokerage firm, which employed his advisor.
     
    His three accounts held 29 different mutual funds, and he had no idea what he owned. I explained that because most funds report their holdings only on a quarterly basis, the best I could do was research what he owned as of the prior quartering’s ending.
     
    Unusual? Not even. Some advisors don’t know what is held in mutual funds they recommend. 
     
    Even more convoluted are the embedded fees.
     
    Mutual funds typically buy and sell on a frequent basis. The average domestic stock fund holds about 140 stocks. The average turnover ratio (the number of buys and sells as a percent of the total number of issues) is 89%. So a fund that holds 140 issues sells roughly 124 and buys another 124 issues over the course of a year.
     
    The costs of these transactions are passed on to the fund holders.
     
    In Mike’s case, the 29 funds he held had turnover ratios ranging from a low of 18% to a high of 302%.
     
    More disconcerting to him was that 18 of his funds held the same large pharmaceutical company, and while one fund was selling shares another was buying shares.
     
    In several instances one fund was actually shorting shares that other funds were buying.
     
    Naturally he questioned how this made sense for him as an investor.
     
    To make matters worse, Mike’s advisor had been evasive when asked about the fees to invest in these funds.
     
    Every fund has a unique expense ratio. This is the cost of operations of the fund – also passed on to fund holders. The expense ratio includes investment management fees, legal fees, marketing expenses and a variety of other items that are customary in the management of a fund. These costs are detailed in the annual proxy each fund holder receives.  Mike’s funds had annual expenses ranging from .43% to 1.95% of the fund value.
     
    These are just the internal costs. Probably one of the greatest misconceptions in the mutual fund world is the idea that a ‘no-load’ fund is free. A front end (upfront) sales charge or commission has little to do with the internal cost of managing a fund.
     
    Now, to add salt to the wound, he owned a variety of fund classes with designations (A, B C, I, F, Z and others) signifying various additional charges to the fund holder.
     
    Typically these are indicative of a trailing fee being paid to the advisor.
     
    Mike had no idea what he was being charged to own the funds. Surprisingly, few investors do.
     
    In light of the past year in the market, investors need to ask more questions. All of this information is available to you from your advisor. If he cannot tell you, find one who can.
     
    Your advisor should be able to discuss at length the following:
     
    What do I own?
    This is a very important concept for investors to understand. It is critical to understand what you own at any point in time. This is basic to managing risk. Do your holdings involve a margin of safety, or are they speculative?
     
    Why do I own it?
    This question relates to your investment outlook. What are your goals and objectives? Do you understand and agree with the investment strategy outlined for you? Do you want to preserve principal, or tolerate some risk in return for more growth?
     
    What am I being charged?
    Whether you are paying a management fee or commissions, you should know exactly what the costs entail. If you own mutual funds, know the expense ratios, turnover ratios, trailer fees, and up-front commissions.
     
    Working with an advisor you trust is crucial. He should be able and willing to talk openly with you regarding any aspect of your relationship with him.
     
     
    Jeff Geygan is the President of Milwaukee Private Wealth Management, Inc. an SEC Registered Investment Advisory firm located In Milwaukee WI. They utilize a Value Oriented investment approach.
     
     
     
    Sep 21 3:00 PM | Link | Comment!
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