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Geoff Gannon June 27, 2018

Maui Land & Pineapple (MLP)

I did an initial interest post on this company on June 27th, 2018: https://focusedcompounding.com/maui-land-pineapple-mlp-900-acres-of-hawaiian-resort-land-for-250000-an-acre/ This thread is the place for members to ask me questions about the stock, discuss it among themselves, etc. I’ll start things off by providing links to other opinions on Maui Land & Pineapple (MLP). Here is a May 15th, 2017 Seeking Alpha post on the stock.  Here is a June 1st, 2016 post on Medium.  This is the 2016 Oddball Stocks post I linked to in my initial interest write-up....

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Geoff Gannon June 27, 2018

Maui Land & Pineapple (MLP): 900 Acres of Hawaiian Resort Land for $250,000 an Acre

Maui Land & Pineapple (MLP) owns real estate on the island of Maui (which is in Hawaii). The company has 22,800 acres of land carried on its books at prices dating back to the 1911 to 1932 period. So, book value is meaningless here. The total size of the land holdings is also meaningless here. Of the 22,800 acres, 9,000 acres are conservation land. That leaves only 13,800 acres of potentially productive land. Almost all of that (12,900 acres) is zoned for agriculture. That leaves...

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Geoff Gannon June 25, 2018

Relative Regret

To Focused Compounding members:
One of the most difficult things for investors to deal with is to watch other get richer faster than you. In the stock market, the same choices are available to everyone. So, if someone is up 20% this year, they are up 20% purely on a collection of opportunities you passed on. Two things make this even tougher for the people reading this memo. One, you judge yourself on your relative results versus a benchmark like the S&P 500. Two, you judge yourself on a yearly basis. Even if your process is superior to that of most other investors – there’s a decent chance you’re lagging this year. Does that mean you’re a failure as an investor? Is it even realistic to set the bar as high as beating a benchmark each and every year?

Let’s think about this another way. Let’s remove the idea of you from this analysis. Instead let’s imagine we are evaluating not an investor but an investment strategy. And, to make this easier, let’s set the pace horse a lot slower. Investing in the S&P 500 is not a bad strategy long-term. What is a bad strategy? Putting 100% of your savings into a commodities basket month after month. History shows that holding a basket of commodities indefinitely barely keeps up with inflation. So, if you continue to make a 100% commodities wager month after month for the rest of your working life you are almost certain to underperform the person who makes a 100% S&P 500 index wager month after month for the rest of his working life. In fact, based on the very long-term past record the annual real edge your neighbor would have over you if he invested 100% in a stock index fund and you invested 100% in a commodities basket would be greater than the house’s edge on a single game of baccarat, blackjack, roulette, or craps.

To simplify this hypothetical, let’s say you get only one investment choice your whole life. Instead of picking specific investments as the years go by – you only get one choice at the start of this 30-year period. And that choice is a strategic choice. You can either pick the 100% stocks strategy or the 100% commodities strategy. You can’t switch. Will there be years in which you regret taking the 100% stocks strategy? In a sense, yes. A basket of commodities will – in some of the next 30 years – outperform a basket of stocks. Yet, to say you would – in those years – actually regret your initial choice of the 100% stock strategy is like saying a casino would rather be the player than the house. If the casino knew the future of each hand, each night of play, etc. – I guess you could say that. However, what exactly is it that an investor is actually regretting in his poor relative performance years? He’s regretting not switching strategies from a long-term superior strategy to …

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Geoff Gannon June 17, 2018

There’s Always a Simpler Problem to Solve

Wednesday, June 13th – Monro by DAVE ROTTMAN   To Focused Compounding members: As a stock picker, when you’re first faced with the decision to buy or not buy a stock – it seems like a complicated question. Consider the mental math problem of 54 times 7. There are a couple ways of tackling this problem. The simplest though is to multiply 50 by 7, getting 350 and then multiply 4 by 7 getting 28. You add 350 to 28 and get 378. There are...

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Geoff Gannon June 13, 2018

Monro (MNRO): A Durable Automotive Service Chain Executing a Roll-Up

Article by DAVE ROTTMAN   Introduction and Overview Monro (MNRO) is a large chain of auto shops providing a wide range of automotive service and repair work in the United States with company-operated stores servicing 6.2 million cars in the fiscal 2018 year ending 03/31/2018. While originally based out of the Northeast, Monro has been executing a roll-up strategy for decades, slowly widening their coverage as they expand both south and west. As of the end of fiscal year 2018, Monro had 1,150 company-operated stores,...

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Andrew Kuhn June 9, 2018

Hamilton Beach Brands Holding Co: HBB

  Hamilton Beach Brands Holding Co should not be a completely new stock to Focused Compounding members – but, for those who may be new I will provide a bit of a background. Hamilton Beach Brands Holding is the stock that was spun off from NACCO Industries (NC) last year, which of course NC is the stock that Geoff put 50% of his portfolio in. Hamilton Beach Brands Holding Co opened up post spin at $32.86 and quickly ran to $41.00 per share, only to...

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Geoff Gannon June 3, 2018

Anything Times Zero

To Focused Compounding members:
Since I read “Fortune’s Formula” and “A Man for All Markets” this past week, let’s talk blackjack. In blackjack, the player has an advantage over the casino if he’s counting cards. A card counter can bet nearly the minimum when he suspects the rest of the deck has cards unfavorable to him in higher proportion than a fresh deck and he can bet nearly the maximum when he suspects the rest of the deck has favorable cards in a higher proportion than a fresh deck. Applying this to stocks, let’s say you’re convinced Wells Fargo is a safe bank and Bank of the Ozarks is a risky bank. You have $10,000 to invest in bank stocks. These are the only two bank stocks you know anything about. You have one question: what happens if instead of taking your $10,000 and putting $5,000 into Bank of the Ozarks and $5,000 into Wells Fargo you instead put $1,000 in Bank of the Ozarks and $9,000 in Wells Fargo. You still start off with $10,000 worth of bank shares, but now you are acting like a card counter – betting nearly the maximum when you think the rest of a deck (Wells Fargo’s future) is favorable and betting nearly the minimum when you think the rest of deck (Bank of the Ozarks’ future) is unfavorable. How important is your decision to split your money 10/90 in favor of Wells Fargo?

Let’s say the chance of Wells Fargo stock going to zero in any one year is 0.5% and the chance of Bank of the Ozarks going to zero in any one year is 5%. Over a single year, a bigger annual upside – especially in the form of a quicker catalyst – can make up for a stock being 10 times riskier. Stocks are volatile. And any extra chance of a 50% pop in the stock’s price this year could overcome a 4.5% difference in the rate of catastrophe. So, if you frame your own investment lifetime as lasting only a single year – the math says it’s perfectly fine to bet as much on Bank of the Ozarks as on Wells Fargo. Catastrophic failure is not a big deal over one year. And you’ve promised yourself you’ll only play one hand. You’ll buy both Wells and Bank of the Ozarks today and sell twelve months from today no matter what. Whatever result you get won’t compound. That makes failure cheap. And if there’s some upside catalyst you see for Bank of the Ozarks this year – that catalyst could overcome the 4.5% greater chance of catastrophe this year. But, that’s framing the choice as a one-year bet. Buffett has owned Wells for 27 years. So, let’s ask: what is the difference between a 99.5% annual survival rate and a 95% annual survival rate if you’re committed to letting each bet ride for the full 30 years? Now failure isn’t cheap. It’s expensive, because it kills compounding. If you …

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