Archive for March, 2015

The Great Delineator -” Management “

Tuesday, March 24th, 2015

March 23,2015

Strange,…. when I was President and CEO of Saati North America, I  never thought of myself as a ” Manager “.

I think my aversion to that label dates back to 1956 at Iona College, New Rochelle, NY  when I was discussing with some classmates which major to choose.  I recall someone mentioning Management, and I recall another classmate saying it didn’t seem intellectually deep enough to him.  To him, management seemed nothing more than common sense.  I suppose on some subliminal level I agreed, so I decided to follow Adam Smith into Political Economy…..and major in Economics.

Now, as an investor, and no longer a manager,  I have a much better idea of what a manager should be, a much higher opinion of the job I did as a manager , and a much lower opinion of some of the CEO managers and their compliant  teams whose work I encounter almost everyday in doing bottom up analysis for potential investments.

To dispose of me as a manager,  and  voir dire my qualifications to express both my opinion of myself and others as managers , I believe I need to relate a little bit of my experience as a manager.  What follows is not a resume’ and , for sure, I am not at all interested in having a job.

As of January 1, 1987  I liquidated my interest in the fabric  importing company I owned  and became an employee of Saati,  ( Italy’s largest  industrial weaver ). I signed  a long term employment contract that gave me unlimited authority and responsibility for the profit of the USA  subsidiary, Majestech.  To me, unlimited authority meant nothing except  use in breaking ties…rare.

If anyone asked me to describe my job , I could easily have said  ” motivational engineer  /  consensus builder “. I was surrounded by in place managers whom I had  hired and  respected.  I saw myself as an outside the box thinker……probably a radical in how companies should operate and interface with their employees, customers, suppliers and shareholders ( in this case , shareholder…Dr Carlo Novarese , President of the world wide Saati Group. ).

I saw my job as  selling  ideas to the management team and adopting their ideas on how we could create a delineated image of ourselves versus our competition and have a hell of a good time, and lots of laughs,  doing it.  Every employee, manager or hourly, was  to be able to articulate to anyone why our company was different,  a great place to work,  and why we were a great source for products and implementation ideas.

I had to be able to go to Italy, quarterly,  and demonstrate via an annual ” Accomplishment  Portfolio ” that we deserved maximum shareholder support in terms of strategy and product development.  We did the same with other  suppliers and we lost no opportunity to demonstrate to our bankers that we knew how they ran their business and would only bring them bankable transactions.

Every employee of the USA subsidiary participated in a monthly ” Sales Bonus Pool ” based on sales growth and the perception that it wasn’t only our Field Representatives who sold.  We considered everyone who had an  opposite number at our  Swiss, German and Japanese competitors to be in sales.  Our  mission was to outperform the competition in any area where the customer could draw a positive or negative conclusion about us. This  individual and collective  effort to impress and delineate   was considered  a sale and it included the switchboard operators,  warehouse employees ,  accounts receivable employees etc. ..

The monthly sales bonus check for hourly employees could be as high as the monthly lease payment for  a BMW 325i.  This was in addition to a 401K plan, pension plan, medical plan and 100% tuition refund plan.  That’s right, we had full time employees  wrapping packages who were in line to receive a liberal arts or  accounting degree from one of the local colleges.

By now, you are probably thinking that it was easy to do this because we were selling a product with a highly delineated competitive advantage. Wrong.  In fact,  we were importing a product which was in reality a set of specs that any of our competitors could probably deliver, and maybe at a much lower price if they set their mind to it.  In fact, we were importing a commodity like product.  What we did ( as a management team ) was surround it with a  portfolio of excellent  peripheral products which made it part of a  system whose other components we either manufactured or bought on exclusive and favorable terms.  We spent time on  the factory floor of IBM, Revlon, and Champion Knitwear showing them and others, how to use our portfolio successfully. We  had a steady  stream of visitors to our ” in house ” lab including ATT and Northern Telcom..

Long story short,  the net worth of the USA subsidiary grew at a compound annual rate of 25% plus during the 13 years I had direct control of sales, operations and the budget.  Its only now, when looking back and remembering  the words of Hall of Fame NFL Coach, Bill Parcells……

” You  are what your record says you are “,….. that  I allow myself  to smile.

All the above is to set the stage for my next post ….How I find public companies with exemplary managements who use their prosperity to push ahead and simultaneously reward employees and shareholders .  Those are the companies I want to own.

 

Richard Maurice Gore

 

 

 

Market Tremors

Saturday, March 14th, 2015

March 15, 2015

As of  Monday,  March 2, we were breezing along with the  December 30, 2011 SPY trade 803 days old, ahead 74.37% and everything rosy.

SPY ( a basket of the S & P 500 stocks trading as one stock ) representing the USA stock market, and the USA economy ,was 5.07% ahead since  Nov 1.,  ( half way to May ), with all engines humming.

Then, came the whispers about the Fed  intending to raise interest rates in June.  Since the price of money (  interest yield  ) competes with the price of equities ( earnings yield ) for new money. there should be no doubt whatsoever that investors perceptions of what happens to interest rates is the  major underpinning for this market.   Trouble is,  its really easy to over simplify this issue .  The Fed is at zero !  Which  interest rate percentage,   relative to earnings yield percentage, will be the tipping point, and how fast it will get there, will be the real drivers for equity re-valuation.

What is happening now is equivalent to jet  passengers enjoying the reverie of cruising soundlessly at  30,000 feet suddenly feeling a bit of  wind turbulence.  Grab an an armrest and squeeze !  Now ….. silence.   Hear anything ?,  Feel  anything ?  OK,  back to serenity ! Whew !

Last week you could have had $1 million invested in stocks but still close Friday with a profit or loss of just $ 159 for the week.!   ( In fact,  SPY did close down 1% for the week ( $10,000 loss  on a $ million ).  My portfolio would have closed down only $159 for the week.  Why the different result ?  Read on .

By Friday, the Monday whisper about a June interest rate rise was undercut by economic data sufficiently weak to give rise to the thought the Fed would never consider  a June interest rate hike after digesting the weak data released. Bad news to the rescue ! Whew !

It seems Europe is starting to react positively to the stimulus package.  That means not as much new European money will be arriving at our shores and the EURO will find a bottom.   And, that is good for  the USA.  Nobody ever said the Dollar needed to crush the EURO and the YEN.  We want stable currency rates that allow for measured investment and sales planning. !  We want balance, not a tilt !

At present the dollar is still strong enough to drastically shrink the size of profits that are needed to contribute  profits on the global income statements of USA companies doing business overseas.  My reaction is to give a wide berth to USA equities  that rely on exports or profits generated in overseas markets.  Since SPY contains our largest companies, you can assume that  the still strong dollar creates headwinds for their profits.

My reaction is to choose USA stock  indexes such as IJR which contain small cap companies and are less likely to export or manufacture overseas. Since November 1,” IJR”  ( I Shares Small Cap 600 Index ) is ahead 4.41% while SPY  ( I Shares S&P 500 Big Cap Index  ) is ahead 2.01%.  The almost 2.5%  difference  shows what can happen over a short time frame ( say one quarter ) when you just sit with SPY versus  working through the logic of finding an alternative and acting on it. Hopefully I will be back in SPY with a profit from IJR  in my purse by the time the logic changes.

Conversely,  I am investing in European and Japanese stocks able to export because of the  strong dollar.  I am investing via index funds which hedge the strong dollar risk out of portfolio profits .  Examples are HEDJ ( Wisdom  Tree Europe Hedged Equity ETF ) , up 15.8%  and DXJ  ( Wisdom Tree Japan Hedged Equity ETF  )  up 0.75% since November 1.

At this point, my only exposure to SPY is the May 15 , $199 SPY Put which I sold on March 4 for $2.27.  If  it expires worthless May 15 , my profit will be $2.27 per share…..approximately 6.84% per annum. Not exactly money market rates.  The risk….SPY gets assigned to me at its current 200 day moving average level..$199. I’m prepared to own SPY at $199 and then write more Puts.

I am 60 % invested and ready to purchase more shares of  companies I already  own such as AAPL , CVS,  UNH, UA, DIS,  TWX, GLW, BX, SWHC, DLTR, ORLY ….if prices weaken – ( because I’ve done my ” internals ”  homework ) ….( Or ),

More shares of the following Sector ETFs :  FBT, ITA, XLV, HEDJ,  XHB, QQEW,  DXJ, if prices weaken, because logic tells me that these positions should prosper given the present macro economic conditions. These positions are not as ” iron clad ” as my equity positions because Sector conditions  can change much more quickly.

This is where I say ” I’ll be back.”

Richard Maurice Gore