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Field of Play


increase dramatically, and somebody has to house them. Even if you’re just average, you’ll be getting students through your doors. If you’re very good, and eventually people recognize that, that’s only going to make the demand for your educational services that much better. Guy Spier, 4.27.05

I’m convinced television programming is going to go over the Internet, an open system that’s the most efficient distribution network ever created. Everybody will be selling broadband access as a commodity. In such a world, a cable or satellite company packaging channels with some choice but not much and charging you 40% off the top is insane. At the end of the day, the cable company is the middleman. In a digital world, middlemen margins get crushed, because the marginal cost of transmitting a bit of information is zero. If you’re a middleman with a closed architecture, you’re in trouble. You might not feel it in 2006 or even 2008, but longer term you’re doomed. James Chanos, 7.29.05

this global trend of consumers wanting to trade up in the quality and style of what they buy. Through strong or weak economies, we think that companies that provide affordable luxury, who give the average person the chance to indulge in a special treat, will be extremely well rewarded in years to come. Shawn Kravetz, 12.30.05

There is something inevitable to me about “positional” goods. Once you’ve provided for your basic needs, you start to march up the consumption curve and it is often the more traditional brands that attract the consumer as he reaches a new position in life. The more you prosper, the more narrow the universe of items through which you can express your prosperity. Thomas Russo, 6.30.06

We believe the U.S. is already heavily over-stored, so retail has become more of a zero-sum game – one company’s success is at the expense of another. We also believe that after 15 years of spending growth, the American consumer is truly tapped out. Jean-Marie Eveillard, 5.30.08

The secular trend in healthcare is costcontainment. How do you slow the growth in the total cost of healthcare as a percentage of GDP? The convergence of secular trends in healthcare will not be positive for big pharmaceutical companies. It has been and will be positive for companies like Aetna and United Healthcare. The cost structures of companies that have earned excess returns for decades don’t reflect a lot of competition. That’s where the danger is when the secular trends change – because these companies have a culture that doesn’t know how to compete – but it’s also the opportunity when someone comes in and changes things. Bill Miller, 6.19.05

We think it’s hard to play where it appears the class-action lawyers have a permanent goal to destroy the industry, such as in tobacco or handguns. I’ve had long discussions with friends of mine, for example, about Philip Morris [owned by parent company Altria]. I just can’t imagine all the prohibition against smoking in the U.S. – in restaurants, bars, office buildings – all the added taxes and all the litigation risks aren’t going to be a problem for the stock. Of course, my friends have so far been right and I’ve been wrong. These are just risks that we’ve decided to avoid. John Rogers, 11.30.05

Coach, which we originally bought in 2002, is the poster child of tapping into

Another example [of a high barrier to entry business] would be the defense

Winter 2008

industry. It’s very hard to get a government contract, not because the government doesn’t entertain new entrants, but because the rules of bidding require assets in place in order to bid. If you wanted to compete with Boeing on the B-1 bomber, you’d have to build an entire facility and hire all the necessary engineers and production people to assure the government you could actually build a better B-1 bomber – all just to enter a bid that you may never win. That’s a positive situation for a company like Boeing. Murray Stahl, 11.21.07

We’re focused on four sectors that have exhibited unvarying demand regardless of economic activity and that have key fundamental strengths that help explain why they’ve been around for hundreds of years. The inherent demand of people to smoke, drink and gamble and of nations to arm themselves is clearly strong and long-lasting. Charles Norton, 4.30.08

I first got interested in technology stocks after watching things like Micron Technology go from $20 to $40 to $20 to $40 to $20 to $40. The cyclicality in many of these businesses can be more regular than is often believed, so it’s possible to buy on the down leg of a cycle because there will inevitably be an up leg. We’ve also had considerable success in buying technology companies that have great balance sheets. Companies like this have the flexibility to invest in new initiatives, buy new technology and invest in research and development. Even if they aren’t profitable today, you have the potential for a gold mine if the business turns around. John Buckingham, 8.31.07

We don’t do a lot in technology. Successful technologies change something, creating an efficiency or demand that wasn’t there before. But the very fact that the change happens means that Value Investor Insight 7

Words of Investing Wisdom  

Greatest Hits” collection of investing insight from Value Investor Insight

Words of Investing Wisdom  

Greatest Hits” collection of investing insight from Value Investor Insight