Andrew Kuhn January 13, 2020

9 States in 5 days

9 states, 5 days, 2,092 miles, 32 hours of driving, 3 different companies, a ton of fast-food, 1 tornado scare, and a helllllllllllllllllluva lot coffee later, Geoff and I have finally finished our research trip and are back in good ole’ Dallas, Texas. It was a productive trip, and I thought I’d spend this week’s post talking a bit about the trip without revealing the companies we visited, for obvious reasons. (I know, I know – super annoying).

First, and most importantly – my biggest takeaway is that I think as investors WE ALL often forget that every stock we analyze and form extreme opinions on from public filings 100+ miles away are, in fact, real businesses. Everyone says they know this, but then you read or listen to their thoughts and it conveys the opposite. Real businesses are run by real managers. Real businesses have real employees. Real businesses have real assets. Real businesses have real customers. These real businesses are most likely very important in their real communities. And, the real people of these real businesses most likely have good intentions and are just trying to do the best that they can.

I truly think every serious investor should implement company visits and in-person scuttlebutt in their routine as much as possible. I think doing this helps take stock-price-gyrations out of the real business, and should help keep the big picture in mind – which is finding great companies that can compound their net worth for years to come.

One thing I often talk about on the podcast is being the customer in the companies you’re analyzing — experience what the real customers experience. If you’re thinking of investing in Disney, watch some content on Disney+. Plan a trip at Disney World. Eat at the park. If you have children, observe their reactions and mood. Basically, try to connect with why individuals use the product/business from an experience perspective. Have a journalistic mindset. This is all stuff that you can’t learn from a 10K.

Investing has a level playing field. Other people can read the same information that you can. I think putting in the additional work to go the extra mile (or 2,092 miles) in your research is what can separate the good from the great. Warren Buffett, in his early days, did this all the time – and it’s something that I think investors overlook due to information overload via the internet. Someone once asked Warren about Phil Fisher’s Scuttlebutt method at an annual meeting. Below was his response.

 

WARREN BUFFETT: Area 5?

AUDIENCE MEMBER: My name is Travis Heath (PH). I’m from Dallas, Texas. And my question regards what Phil Fisher referred to as “scuttlebutt.” When you’ve identified a business that you consider to warrant further investigation — more intense investigation — how much time do you spend commonly, both in terms of total hours and in terms of the span in weeks or months that you perform that investigation over?

WARREN BUFFETT: Well, the answer to that question is that now I spend practically none because I’ve done it in the past. And the one advantage of allocating capital is that an awful lot of what you do is cumulative in nature, so that you do get continuing benefits out of things that you’d done earlier. So by now, I’m probably fairly familiar with most of the businesses that might qualify for investment at Berkshire. But when I started out, and for a long time I used to do a lot of what Phil Fisher described — I followed his scuttlebutt method. And I don’t think you can do too much of it. Now, the general premise of why you’re interested in something should be 80 percent of it or thereabouts. I mean, you don’t want to be chasing down every idea that way, so you should have a strong presumption. You should be like a basketball coach who runs into a seven-footer on the street. I mean, you’re interested to start with; now you have to find out if you can keep him in school, if he’s coordinated, and all that sort of thing. That’s the scuttlebutt aspect of it. But I believe that as you’re acquiring knowledge about industries in general, companies specifically, that there really isn’t anything like first doing some reading about them, and then getting out and talking to competitors, and customers, and suppliers, and ex-employees, and current employees, and whatever it may be. And you will learn a lot. But it should be the last 20 percent or 10 percent. I mean, you don’t want to get too impressed by that, because you really want to start with a business where you think the economics are good, where they look like seven-footers, and then you want to go out with a scuttlebutt approach to possibly reject your original hypothesis. Or maybe, if you confirm it, maybe do it even more strongly. I did that with American Express back in the ’60s and essentially the scuttlebutt approach so reinforced my feeling about it that I kept buying more and more and more as I went along. And if you talk to a bunch of people on an industry and you ask them what competitor they fear the most, and why they fear them, and all of that sort of thing. You know, who would they use the silver bullet of Andy Grove’s on and so on, you’re going to learn a lot about it. You’ll probably know more about the industry than most of the people in it when you get through, because you’ll bring an independent perspective to it, and you’ll be listening to everything everyone says rather than coming in with these preconceived notions and just sort of listening to your own truths after a while. I advise it. I don’t really do it much anymore. I do it a little bit, and I talked in the annual report about how when we made the decision on keeping the American Express when we exchanged our Percs for common stock in 1994, I was using the scuttlebutt approach when I talked to Frank Olson. I couldn’t have talked to a better guy than Frank Olson. Frank Olson, running Hertz Corporation, lots of experience at United Airlines, and a consumer marketing guy by nature. I mean, he understands business. And when I asked him how strong the American Express card was and what were the strengths and the weaknesses of it, and who was coming along after it, and so on, I mean, he could give me an answer in five minutes that would be better than I could accomplish in hours and hours and hours or weeks of roaming around and doing other things. So you can learn from people. And Frank was a user of it. I mean, Frank was paying X percent to American Express for his Hertz cars. And Frank doesn’t like to pay out money, so why was he paying that? And if he was paying more than he was paying on Master Charge or Visa, why was he paying more? And then what could he do about it? I mean, you just keep asking questions. And I guess Davy [Lorimer Davidson] explained that in that video we had ahead of time. I’m very grateful to him for doing that, because that was a real effort for him. But that was really what I was doing back in 1951 when I visited him down in Washington, because I was trying to figure out why people would insure with GEICO rather than with the companies that they were already insuring with, and how permanent that advantage was. You know, what other things could you do with that advantage? And you know, there were just a lot of questions I wanted to ask him, and he was terrific in giving me the answer. It, you know, changed my life in a major way. So I have nobody to thank but Davy on that. But that’s the scuttlebutt method and I do advise it. Charlie?

 

CHARLIE MUNGER: Nothing to add.

So, if you get to that 80% level that Warren referenced, I would strongly consider doing some sort of scuttlebutt.

 

Some Non-Investing Stories From The Trip

The last 24 hours of our trip were quite eventful – The first one being at our hotel. Around 6 pm, Geoff went to the store and came back to the room with two 6-packs.

Geoff: “Alright, we need to try this cider.”

Andrew: “I don’t want any cider.”

Geoff: “No, this is Kopparberg Bryggeri’s cider. They don’t sell it in New Jersey or Dallas, we have to try it!”

Kopparberg Byrggeri is a Swedish brewing company that has been on our watchlist for some time. Here’s an old writeup on the stock from Moatology:

https://web.archive.org/web/20150109203416/http:/moatology.com/2014/01/15/kopparbergs-bryggeri-the-worlds-cheapest-craft-brewer/

We tried the cider (which was super tasty), Geoff went to bed, and I fell asleep listening to Cable Cowboy on Audible.

Enter chaos…

It was like 12:30 am, and I woke up to Geoff shaking me profusely and the fire alarms in the hotel going off. As you can imagine from being in a drowsy state, I was quite confused about what was going on for a few seconds. After coming to it, we went downstairs only to learn that someone had pulled the fire alarm.

Okay, I remember when I was in 6th grade….. That’s annoying, but– at least there’s no fire.

When we got back into our hotel room, Geoff said that he was “literally shaking and rolling me around hard for a few minutes” to wake me up. He said that he even looked at the cider to see if I had “finished the 8 or so bottles of cider left by myself” with the assumption that I was “severely drunk.”

Nope, apparently Cable Cowboy just puts me in a tranquilized state! We had a good laugh about this.

Here are some other writeups on the stock:

https://blogg.nordnet.no/write-up-kopparbergs-bryggeri-kobr-mtf-b-80-sek-sikkerhetsmargin-24/

https://blogg.nordnet.no/hvorfor-jeg-liker-kopparbergs-bryggeri-men-allikevel-ikke-eier-selskapet/

https://blogg.nordnet.no/hva-forte-til-kjopet-av-kopparbergs-bryggeri/

https://blogg.nordnet.no/kopparbergs-bryggeri-kvartalsrapport-for-3-kvartal-det-beste-resultatet-i-selskapets-historie/

Next Eventful Story…

On our drive back to Dallas we were driving on the highway in the middle-of-nowhere Mississippi when it started to rain a little bit.

The next thing I know, it started to rain so hard to the point of me probably only having about 15 yards of visibility.

As the wonderful saying goes, when it rains, it pours, and my phone exerted a calm alarm to a comforting notification on the screen that said: “TORNADO WARNING IN THIS AREA. TAKE SHELTER NOW”

…. great

Andrew: “what do we do?”

Geoff: “……”

(Me not knowing what to do, I resorted to what I usually do when I’m uncomfortable. Humor.)

Andrew: “Well, they say the safest part of a hurricane is in the eye, so if we’re in a tornado right now, at least we’re in the safest part!”

Geoff: “The middle of a tornado is the most dangerous part.”

Andrew: “……”

Fortunately, we quickly came up to an exit in Forest, Mississippi, which had a Walmart right next the exit off the highway. The tornado sirens were going off, we pulled into the parking lot to a wonderful Walmart employee that was waving for us to come inside and directed us to the back of the store with other customers and employees. We waited the storm out, and thankfully, everything was fine.

All in all, this trip was great, and I look forward to research-trips in the future.

 

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