My Thoughts/Valuation on Mattel, and a Few Quotes to Learn By

Mattel’s stock hadn’t been on my radar in quite some time, because I thought it too expensive. The stock has been getting slammed in 2014, down about 24% year to date. Obviously, it has underperformed the S&P 500 by a wide margin. Clearly, it’s not wise to buy a company’s stock just because it’s down sharply……..but as Warren Buffett likes to say, the new low list “is a great pond to go fishing in”.

Typically, purchases for my portfolios fall into one of two categories. Either they are “cigar butt stocks ” (marginal businesses that are selling for less than their liquidation value or working capital), or they are powerful global brands such as our holdings in Coca-Cola or Johnson & Johnson which I like to hold in perpetuity. My recent purchase of Mattel’s stock was a play on their powerful brands. This purchase was relatively small because I believe the share price will go lower, along with the broader market, and I hope to buy many more shares. When the long awaited correction will come to the broader market is anyone’s guess, but Mattel’s shares appear to represent a good relative value compared to the broader S&P 500. Click HERE to read my complete valuation article on Seeking Alpha.

 

A Few Quotes to Learn By

Additionally, I’d like to share two quotes from Warren Buffett that I think succinctly explain how he feels about a given company’s management, and why he handles his managers the way he does.

Whenever I read about some company undertaking a cost-cutting program, I know it’s not a company that really knows what costs are all about. Spurts don’t work in this area. The really good manager does not wake up in the morning and say, ‘This is the day I’m going to cut costs,’ any more than he wakes up and decides to practice breathing.” ~ Warren Buffett from Carol Loomis’ 1988 article The Inside Story of Warren Buffett.

….We don’t go into companies with the thought of effecting a lot of change. That doesn’t work any better in business than it does in marriage.” ~ Warren Buffett from Carol Loomis’ 1988 article The Wisdom of Salomon?

Warren Buffett is highly praised as an investor, but in my opinion he doesn’t get enough credit for being a great manager. Part of what makes him a great manager is that he delegates responsibilities and then supports the managers that are in charge. It doesn’t always work out, of course, but there is something to be said for a manager who is confident enough in themselves to delegate. In my opinion the best managers also “ read/understand” people extremely well. Here too Buffett seems to get high marks.

What are your thoughts on Buffett’s “hands off” management style? Do any other married folks out there read true brilliance in the second quote…..at least when it comes to marriage?

Purchased This Week

It’s hard to believe another week has come and gone, but the facts are undeniable. Geopolitics stole the show this week. With the Israel/Palestinian conflict heating up and the Ukraine/Russia continuing to burn. The biggest tragedy this week was the death of nearly 300 innocent people when their jumbo jet was shot down by a surface to air missile over the war ravaged eastern Ukraine. I’m sure you all saw the headlines this week. Though half a world away, my thoughts and prayers are with the families. Continue reading

My Thoughts on The US Railroad Industry

Many investors have become very wealthy investing with Warren Buffett. Many more have made substantial profits riding The Oracle’s coattails. Therefore, it should come as little surprise that the stocks of US based railroad companies were thrust into the spotlight following Berkshire Hathaway’s (BRK.ABRK.B) purchase of Burlington Northern Santa Fe in late 2009. Rail stocks had garnered little attention in the prior years, and what attention they did achieve was based on the industry’s relative fuel efficiency relative to overland trucking. So when the 2008-2009 financial crisis took hold, the stocks of railroad companies were punished along with the broader US stock market.

So how do the stock market valuations of US railroad companies look today? In a minute we’ll get into a comparison between Union Pacific (NYSE:UNP), Norfolk Southern (NYSE:NSC), and CSX Corporation (NYSE:CSX), but first let’s talk about some of the strengths and advantages US railroads enjoy. One of the major strengths is a large built out infrastructure of tracks and extremely high barriers to entry. When was the last time you saw a new “upstart” railroad go into business in the US. It’s not going to happen. The costs are just too high and the track network is largely built out.

Click HERE to read more of my thoughts on the railroad industry

Have you invested in North American railroads?  What do you think of this form of transportation?