Posts By: Geoff Gannon

On Forbes List of The 400 Richest Americans

Forbes is out with its list of The 400 Richest Americans.

Have you ever wondered how Forbes knows who to put on the list (and where)? Here, in the magazine’s own words, is Forbes’ methodology:

Our estimates of people’s net worth are deliberately conservative and should be considered “at least” figures. We do our best to value everything, from stakes in publicly traded or privately held companies, real estate and investments in natural resources to art, yachts and mansions. We dig through SEC documents and court records; call analysts, employees, competitors and ex-wives; and look at newspaper and magazine articles. We also take a hard look at debt. However, we do not pretend to know everything on a private balance sheet.

All numbers have been rounded to the nearest $100 million. All publicly traded shares were priced Aug. 31. Privately held companies are valued by coupling estimates (or, in some cases, company-provided numbers) of revenues or profits to prevailing price/revenues or price/earnings ratios for similar public companies.

A lot of people have been (and will be) commenting on this list. So, I’d like to do something a little different. I’m simply going to go through the list (in order) picking out those names that might be of interest to readers of this blog and saying a few words about them (and their companies).

(Due to time constraints, I only selected billionaires who made the top 50.)

1 – William Henry Gates III ($53.0 billion)

Bill Gates, chairman of software giant Microsoft (MSFT), once again takes the top spot. Today, more than half of Gates’ net worth is invested outside of Microsoft. Despite a recent resurgence in its share price, Microsoft is as cheap as it’s been in many years. The stock has even started to catch the attention of some value investors. Microsoft has been buying back shares and has plans to buy back even more.

In June, Gates announced he will give up his day-to-day role at Microsoft; however, he will remain the company’s chairman. This transition will be completed in mid 2008.

Related Reading

On Microsoft

2 – Warren Edward Buffett ($46.0 billion)

Warren Buffett, chairman of Berkshire Hathaway (BRK.B), finds himself in a familiar spot – right behind his good friend Bill Gates. Unlike Gates, Buffett still keeps the vast majority of his net worth in a single stock. Shares of Berkshire are up over the past twelve months.

As a result, Buffett’s net worth increased, despite the beginning of the process that will ultimately lead to Buffett giving tens of billions of dollars to the Bill & Melinda Gates Foundation (and four other charities started by members of his family). The secret to Buffett’s success: since 1965, Berkshire’s value has compounded at an annual rate of 21.5%.

Related Reading

On Some Lessons From Buffett’s Annual Letter

Against Mr. Lynn’s Buffett Bashing Philippic

Berkshire Hathaway Discloses New Investments

On Buffett’s Big Bet

6 – Jim C. Walton ($15.7 billion)

Jim Walton is …

Festival of Stocks #2

Welcome to the second Festival of Stocks. The Festival of Stocks is a weekly blog carnival dedicated to highlighting the best recent posts on stock market related topics.

I am proud to present this week’s best entries to the Festival of Stocks. The articles are listed by category. The stock tickers are linked to Yahoo Finance. I have included my post “On Nintendo” in this week’s festival; it is a follow-up to an earlier post discussing Sony (SNE) entitled “On the PlayStation 3 Delay“.

Stock Analysis

Lifetime Brands – In Your Kitchen, Should They Be in Your Portfolio? By Inelegant Investor
The Inelegant Investor takes a look at Lifetime Brands (LCUT), a fast-growing supplier of cutting boards, bakeware, pantryware, tabletops, and cutlery. At fourteen times 2006 earnings, he likes what he sees.
Stocks: LCUT

The Buckle (BKE) at $35.10 By Dah Hui Lau
Dah Hui Lau explores the investment potential of The Buckle (BKE), a retailer of casual apparel, footwear, and accessories with a focus on denim. After asking and answering eight important questions (such as “is management shareholder oriented?”), he concludes shares of this undervalued retailer provide an opportunity for long-term value investors.
Stocks: BKE

Costco, At What COST? By SINLetter Blog
Asif Suria always knew Costco (COST) was a good business. However, the stock had always looked a little overpriced. Three weeks ago, Costco’s stock fell when the company warned it expects lower fourth quarter earnings. So, is now the time to start a position in Costco?
Stocks: COST

Quietly Marvelous (MVL) By One Guy’s Investments
Marvel Entertainment (MVL), home of the X-Men and other lucrative comic book franchises, had a terrific month in the stock market. But, the real test will come in 2007 and 2008. In ’07, the company will release three possible hits. In ’08, Marvel’s first self-produced film, Iron Man, will arrive in theaters.
Stocks: MVL

Dell, Not Yet? By Vitaliy’s Contrarian Edge
Shares of Dell (DELL) now trade at multiples low enough to attract value investors. But, are Dell’s problems truly short-term in nature? Or, do serious long-term threats lurk below the surface?
Stocks: DELL

Tom Joad’s Truck By Jeff Matthews Is Not Making This Up
As a Dollar General (DG) bull reiterates her buy, Jeff Matthews goes on an unscientific tour of some of the company’s stores in Mississippi and Tennessee. He finds nothing but “the same old stuff in the same old displays”.
Stocks: DG

Reader Question Regarding Unifi By Fat Pitch Financials
A reader asks George what he thinks of Unifi (UFI), “a textile company selling at approximately 0.36 times book.” George smells a cigar butt – and prefers to leave the dirty business of trying to get that last puff to someone else.
Stocks: UFI

Overstock.com By Value Investing, and a Few Cigar Butts
Mike takes a long look at online closeout retailer Overstock.com (OSTK). At a price-to-sales ratio of approximately 0.5, he …

Gannon On Investing Newsletter

I’ve updated the description of the Gannon On Investing Newsletter. The page now includes actual thumbnail images of sample pages from previous issues of the newsletter.

The Gannon On Investing Newsletter is a quarterly newsletter covering stocks purchased for my personal portfolio. A single issue costs $75.00. A one-year subscription (4 issues) is $275.00.

The newsletter is distributed both as a PDF via email and as a printed copy via U.S. mail.

Learn More About the Gannon On Investing Newsletter…

On the Upcoming Festival of Stocks

I’m hosting this week’s Festival of Stocks. You can send in your submissions here.

The Festival of Stocks is a new blog carnival focused on highlighting bloggers’ best recent posts on stock market related topics.

Posts discussing specific stocks are especially appreciated. Many blogs discuss smaller and lesser known stocks in great detail. This Festival provides a single location where the best such posts (as well as other stock market related pieces) can be collected and presented to readers who wouldn’t otherwise have had the chance to read them.

If you have any questions about the Festival, please email me.

The Festival will be hosted here on Monday, September 18th.

I’m accepting submissions now; so, you may send in posts as soon as they’re written. There’s no need to wait.

Visit The Festival of Stocks

Send in a Submission…

On Nintendo

Even before last week’s announcement from Sony (SNE), it seemed nearly certain that company’s dominance in the PlayStation 2 generation of video game consoles would give way to a much more level playing field for the PS3 generation. This time around, Sony faces much stiffer competition from both Microsoft (MSFT) and Nintendo (NTDOY).

While the Nintendo name is most closely associated with a video game platform (the NES), the company’s real focus has always been the games rather than the platform. Herein lies the true distinction between Nintendo and its two larger rivals. Nintendo seeks to make good games. Microsoft and Sony seek to control a distribution channel.

Nintendo is the only company among the three console makers that began life as an entertainment company – and it shows. Microsoft is known for software; Sony is known for hardware; and Nintendo is known for games.

American gamers are well acquainted with the Nintendo brand; but, American investors generally know very little about the company. That’s unfortunate, because despite all the attention given to Sony and Microsoft’s video game operations, Nintendo is the ultimate pure play video game company.

Nintendo is big. The company surpasses U.S. video game publishing giant Electronic Arts (ERTS) in sales, earnings, and market cap. On the last count, some may argue that Nintendo only has a larger market cap than EA, because its stock price has risen sharply over the past year, while EA’s share price has actually declined. However, there’s a much simpler explanation.

Nintendo has a larger market cap than Electronic Arts, because Nintendo (the business) is worth more than EA (the business). The run-up in Nintendo’s stock price may be entirely due to improved investor perceptions of the company’s future prospects as a result of the good press surrounding Nintendo’s soon to be launched console, the Nintendo Wii.

Regardless, such an increase in the price of Nintendo’s shares was justified by the rather low value the market had previously placed on Nintendo’s business. The same can’t be said of Electronic Arts. Even after underperforming the S&P; 500 over the last three years, EA’s stock price remains at levels that are nearly impossible to justify using any form of rational thought. So, Nintendo really is the world’s largest pure play video game company.

Nintendo is an interesting business to write about from an investor’s perspective for several reasons. The company operates in an exciting industry with excellent long-term prospects. It’s more reasonably priced than many public companies in that industry (although that’s not saying much). It’s a truly unique business (with a unique past), and it has a clear vision of what it is and what it isn’t. Obviously, Nintendo’s tremendous intellectual properties add to its appeal both as a subject of a post and as the object of an investor’s interest.

Nintendo has been a good steward of its intellectual properties. It’s been very careful to protect the image of its most beloved characters. In fact, some would say …

Festival of Stocks #1 at Fat Pitch Financials

Fat Pitch Financials is hosting the very first Festival of Stocks today. You’ll find a lot of great articles over there. All have to do with stocks rather than generic personal finance topics like many previous carnivals. So, all of the articles will likely be of great interest to readers of this blog. I encourage everyone to visit the Festival of Stocks.

I’ll be hosting the Festival of Stocks next week. Feel free to email me about it.

Don’t forget you can bid up the Festival of Stocks on Fat Pitch News by clicking on the green “bid up” button at the bottom of the post – bidding up the Festival will help share it with other like-minded investors via the value investing community site Fat Pitch News.

Visit Festival of Stocks

Visit Fat Pitch Financials

Visit Fat Pitch News…

Festival of Stocks Launch

Fat Pitch Financials recently announced it will host the first edition of a new Festival of Stocks on Monday:

“The Festival of Stocks will be a blog carnival dedicated to highlighting bloggers’ best recent posts on stock market related topics. This will include research and commentary on specific stocks, industry analysis, ETFs, REITs, stock derivatives, and other related topics.”

I think this is a great idea and have agreed to host a future edition of the Festival of Stocks on this blog (see schedule).

I hope readers will visit Fat Pitch Financials on Monday for the Festival’s first edition and be back here for week two.

Hosting the Festival

For those with their own investing blogs, see the announcement at Fat Pitch Financials for details on how you can host an upcoming edition of the Festival. To give you an idea of what hosting entails, here’s an excerpt from the announcement:

“The Festival of Stocks will be different from other blog carnivals in that I encourage hosts to be selective in the post links they include and to limit the number of posts included (up to the discretion of the host) to about twenty stories in order to cut down on the burden of hosting and to keep the carnivals readable and not overwhelming. I will be introducing a mechanism to help hosts rank submissions and I will also be creating an optional Excel template to help make the Festival of Stocks post easier to create. Hopefully, these features will make it easy to host and make the Festival of Stocks enjoyable to read.”

By the way, I’ll be contributing to the Festival, so if you have any suggestions on what my best recent post is, feel free to sound off by clicking the “comments” link below.

Read The Festival of Stocks Launch Announcement

See The Festival of Stocks Host Schedule

Visit Fat Pitch Financials…

On the PlayStation 3 Delay

As a result of problems related to the mass production of a key component of its Blu-ray DVD player, Sony (SNE) will delay the European launch of its next generation video game console, the PlayStation 3 (PS3). Sony will also reduce the number of PS3 units immediately available in both the U.S. and Japan.

In the U.S., the PS3 will launch on November 17th, with approximately 400,000 consoles available for sale. The U.S. launch will come almost a week after the Japanese launch which will consist of merely 100,000 units.

Sony’s PlayStation 3 is the successor to the PlayStation 2, the world’s most popular (and as recently as July, the world’s best selling) video game console.

The Number That Really Matters

The fact that there will only be 400,000 PS3 units available for sale in the United States on November 17th is of no long-term importance. In fact, the launch date itself is unimportant. What matters is how many units will be available for sale in mid to late December.

Sony claims it will have 1 million to 1.2 million consoles available for sale by December 31st. I think it’s safe to assume they don’t plan to have many arrive between December 26th and December 31st. So, let’s assume there will be at least a million PS3 consoles available for sale in the U.S. by Christmas.

Will that be enough to put a PlayStation 3 in the living room of every household that wants one?

No. There will almost certainly be many people who have to go without a PS3 for Christmas, despite being willing to pay the very high price Sony is asking. But, that’s nothing new. Other consoles (including the Xbox 360) have been launched without an adequate number of units immediately available for sale.

This isn’t like failing to get enough Glad trash bags on store shelves. Once the console has launched, limited availability shouldn’t cause many people to switch their planned purchase. If they want it and it’s out, they’ll wait for it.

A delay is much worse than a mere shortage. There’s a promise (and a tangible product) behind a console that has already launched. So, very few people in the U.S. or Japan who planned to buy a PS3 are likely to change their minds because of a Christmas shortage – no matter how severe.

The Things That Really Matter

The success of any gaming platform is largely based on five factors:

Available Titles

Relative Launch Date

Price

Predecessor’s Installed Base

Technology

Of these five, technology is by far the least important factor. The four most important factors (available titles, relative launch date, price, and predecessor’s installed base) are difficult to separate. Clearly, having a predecessor with a large installed base (such as the PS2) can be tremendously beneficial, if you get satisfactory marks in the other three areas (titles, launch date, and price).

The PlayStation 3 dominates when it comes to having a predecessor with a large installed base. So, …

On Freston, Redstone, and Viacom

On Monday, Sumner Redstone fired Viacom’s CEO, Tom Freston. Yesterday, Viacom announced that its Board of Directors had appointed Philippe Dauman President and CEO and Thomas Dooley Senior Executive V.P. and Chief Administrative Officer (a newly created position). Mr. Dooley’s role is expected to be similar to that of a Chief Operating Officer.

Both Dauman and Dooley are members of Viacom’s Board of Directors. They served in key positions within the previous incarnation of Viacom, which was split into two separate public corporations, Viacom (VIA) and CBS (CBS), approximately eight months ago. Sumner Redstone is the Chairman of each company. Viacom’s new CEO, Philippe Dauman, will report to Mr. Redstone. Thomas Dooley will report to Mr. Dauman.

Although The Financial Times went with the no nonsense headline “Freston Removed as Chief of Viacom”, I fear The Wall Street Journal may have had the more accurate headline: “Ouster of Viacom Chief Reflects Redstone’s Impatience for Results”. In fact, I couldn’t have said it better myself. Of course, I was planning on writing more of a personal opinion piece than a front page article (the story made the front page of both the FT and the WSJ). Still, I can’t fault The Wall Street Journal for putting the painfully obvious in big print.

The Journal article (which is a good outline of the whole affair) won’t encourage faith in Sumner Redstone among Viacom’s shareholders. It begins by quoting Mr. Redstone’s assurance (given just six weeks before) that he could imagine “no circumstance” under which he would fire Mr. Freston. Cut to Monday, at Sumner’s estate, where Tom Freston, a 26 year company veteran, is told he has managed to lose his job, just eight months after being given the helm of the new (CBS-less) Viacom.

The most obvious objection to Mr. Freston’s firing is simply that he wasn’t given enough time. There are billions of people on this planet and it took more than eight months to produce the majority of them; so, I imagine doing something truly remarkable, like steering a media company through troubled, transitional waters, takes quite a bit longer.

The other objection is that Freston had already proved himself a capable executive. He may not have been able to answer the question “What have you done for me lately?”. But, he had built up quite a reputation at MTV. Recent results have taken some of the shine off that golden boy (the channel, not Freston, who is no golden boy at age 60).

MTV is more than a golden boy; it’s Viacom’s crown jewel – accounting for about 70% of the company’s revenue and nearly all of its profits. The aforementioned Journal article fears “Mr. Freston’s departure could lead to a wider shake-up at the company, particularly within MTV networks, much of whose management has been with the company for years and is intensely loyal to Mr. Freston.”

Those fears are rational. Any time an executive …

On The Twenty Best Financial Blogs

24/7 Wall Street has compiled a list of the twenty best financial blogs. The list, presented in no particular order, included this blog. I’m also glad to say it included several of my favorite blogs such as Value Discipline and Bill Rempel’s blog (formerly Absolutely No DooDahs). All of the blogs on the list are quite good.

While checking out those blogs on the list that I hadn’t yet read, I found something worth sharing. In a comment to a post on Frank Barnako’s Media Blog, there’s a link to a great little Netvibes module that will allow you to get all of the available feeds (18 of the 20) in one easy step – and view them all in one place. Of course, you’ll have to register at Netvibes.com to use it. But, it’s worth it just for the module.

On a related subject, Bill Rempel (author of Absolutely No DooDahs) has moved his blog to a new location. I’ll update the directory later this week; for now, just know that he’s moved and he’s worth reading at his new location (where you’ll already find some new posts).

Finally, I’ll go through 24/7 Wall Street’s list and add those blogs that aren’t yet part of my Value Investing Directory to that directory. They are all very good blogs. Now that they’ve been collected in one place, there’s no excuse for any continued oversight on my part. Expect the directory update later this week.

Read 24/7 Wall Street’s List of The Twenty Best Financial Blogs

Read Comment Containing Link to the Netvibes Module

Register at Netvibes.com (required to use above module)

Visit Bill Rempel’s Blog

Visit Value Discipline

Visit 24/7 Wall Street

Visit Frank Barnako’s Media Blog…