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Geoff Gannon April 29, 2018

The Second Side of Focus

To Focused Compounding members:
Back in 1991, Warren Buffett and Bill Gates were asked the same question. What one word described
how they became successful. Both men said “focus”. Most investors I talk to understand the importance
of focus. But, they understand it wrong. They think that Buffett and Gates mean they applied
themselves longer, harder, and in a more disciplined way to a particular task. This is the focus means
more school of thought. It’s half the story. There is a second side to focus.

Warren Buffett’s biographer, Alice Schroeder said this of Buffett: “…he expends a lot of energy checking
out details and ferreting out nuggets of information, way beyond the balance sheet. He would go back
and look at the company’s history in depth for decades. He used to pay people to attend shareholder
meetings and ask questions for him. He checked out the personal lives of people who ran companies he
invested in. He wanted to know about their financial status, their personal habits, what motivated them.
He behaves like an investigative journalist. All this stuff about flipping through Moody’s Manuals picking
stocks, it was a screen for him – but he didn’t stop there.” That’s the kind of focus investors imagine.
Hard work. But, there is another way to look at what Alice Schroeder said there. Focus means doing
more about less. But, focus also means doing less about more. Alice Schroeder did a Reddit interview
where she talked about Buffett’s approach to time management: “Warren is a master of time
management. He knows how to ease people off the phone without making them feel dismissed. He is
great at saying no…he manages his energy, reading when it’s optimal, talking on the phone when he’s
got the right energy for that and so forth… he does not multitask through his day.”

The question then is why others don’t do what Buffett has done. Why don’t they focus as much? Is it the
first side of focus: the hard work, the deep dive into one specific subject? Or is it the second side of
focus: denying yourself the possibility of knowing a lot of subjects superficially. This comes up whenever
I talk about specializing in some specific type of stocks. Recently, I gave this advice to two different
people. I said here is a list of categories of stocks that “work”. They tend to get overlooked. So, instead
of sifting through all the public companies out there – start by limiting yourself to stocks that are spinoffs
or have spun something off, that are OTC stocks, that are illiquid, that have just come out of
bankruptcy, etc. The reaction from both people was: “Eh. Why restrict myself? Maybe I’ll have a great
idea that doesn’t fit into any of these arbitrary boxes.” And they probably will. Odds are that the very
best investment opportunity out there right now isn’t in any of those arbitrary little boxes. But, you
don’t need the very best investment idea out …

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Geoff Gannon April 22, 2018

Patience as a Process

Friday, April 20th – Vestas Wind Systems by Kevin Wilde To Focused Compounding members: Andrew and I recorded four podcast episodes this past Friday. One of them was a Q&A podcast where the question was about patience: “Would love to hear your general thoughts about what I consider the greatest investment virtue of them all: patience. How do you think about it and how do you approach it practically? Can it be cultivated?” We didn’t give this question the time I think it deserved on...

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Kevin Wilde April 20, 2018

Vestas Wind Systems A/S (OCSE:VWS)

Opportunity Summary: Vestas holds the top position among wind turbine manufacturers. The industry has attractive economics (high ROIC) and long-term growth prospects; wind as an energy source has crossed the threshold of being able to compete with fossil fuels without the aid of subsidies. Vestas (>16% market share in cumulative capacity & new builds), Siemens Gamesa (~15% market share), and GE (~12% market share) are the dominant players.  Due to scale advantages and cost cutting initiatives started in 2011, Vestas has the best EBIT margin...

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Geoff Gannon April 15, 2018

Fear, Greed, and Boredom

Sunday, April 15th – Computer Services, Inc. (CSVI) by Jayden Preston Sunday, April 15th – AutoNation (AN) by Dave Rottman To Focused Compounding members: In a recent interview, I said: “Stocks bounce around due to fear, greed, and boredom. You can make a lot of money being greedy when others are fearful. But, you can make at least as much money being bored when others refuse to be bored. There are a lot of boring stocks in the OTC market. They’re not cheap because people...

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Geoff Gannon April 15, 2018

AutoNation (AN)

I’m creating this thread to start discussion of AutoNation (AN). The stock was written up by Dave Rottman here: https://focusedcompounding.com/autonation-an-a-cheap-cannibal-with-minimal-downside/ It’s a nearly 6,000 word article. So, I wanted to focus in on one specific point (mentioned in the title). AutoNation is a “cannibal” as Charlie Munger would say. It eats its own shares up. I thought a table might help. Shares Outstanding 1998: 471 million 2003: 287 million 2008: 178 million 2013: 123 million Today: 92 million Anyway, this is the place to ask...

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Geoff Gannon April 15, 2018

Computer Services Inc., “CSI” (CSVI)

This is the core processor stock that was just written up by Jayden Preston: https://focusedcompounding.com/computer-services-inc-csvi-an-unlisted-but-super-predictable-company-trading-at-an-unleveraged-p-e-of-15-times-next-years-earnings/ I also spent the better part of today’s Sunday Morning Memo on CSVI. You can find that memo entitled “Fear, Greed, and Boredom” here: https://focusedcompounding.com/memos/ Since CSVI doesn’t file with the SEC, it’s not on EDGAR. For that reason, I thought I should include links to the specific pages where you can find “EDGAR-like” information on the company. The company’s “Disclosures” page over at OTCMarkets.com has annual reports going as...

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Geoff Gannon April 15, 2018

AutoNation (AN): A Cheap Cannibal with Minimal Downside

Member write-up by Dave Rottman   Introduction and Overview AutoNation (AN) is the largest automotive retailer of new and used vehicles in the United States. As of the end of 2017, they owned and operated 360 new vehicle franchises with 33 different new vehicle brands through 253 dealership locations concentrated in major metropolitan areas primarily in the southern Sunbelt region. AutoNation also owned and operated 76 collision centers scattered throughout the continental US. Prior to 1999, AutoNation was named Republic Industries and was involved in...

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Geoff Gannon April 15, 2018

Computer Services Inc. (CSVI): An Unlisted, But Super Predictable Company Trading at an Unleveraged P/E of 15 times Next Year’s Earnings

Member write-up by Jayden Preston   Introduction   Computer Services Inc (often called “CSI”, the ticker is CSVI) is an unlisted stock in the US. It does not file with the SEC. But it does trade over the counter. The Company also publishes annual reports and quarterly earnings reports. You can find more information about the Company on OTCmarket.com.   As you would expect from an unlisted company, their annual report is not as extensive as you would find in a 10K. However, there are...

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Philip Hutchinson April 13, 2018

Facebook – making implicit assumptions explicit

Obviously, Facebook has been in the news a lot recently. And Geoff has written a couple of articles that touch on the company directly and indirectly. Also, I’ve been reading up on the company recently and thought it would be interesting to post about whether Facebook could be a value investment.   This is basically just addressing directly some of the implicit assumptions that get made when you look at a fast growth stock like Facebook. I’m not going to go into Facebook as a...

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Andre Kostolany April 5, 2018

National Cinemedia (NCMI)

Would very much appreciate everyone’s thoughts / comments / feedback / criticism. If there’s interest, I might follow-up with a full writeup. Notes NCMI has the #1 market share for on-screen advertising (about 50%) The industry is an oligopoly with NCMI and Screenvision having about 85% market share Basically NCMI owns the right to run a 30-minute pre-movie show in its founding members US theaters, which includes advertising. This right is backed by long-term exhibitor agreements with the founding members which, to the best of...

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