Phil Town

LLY: HOLD OR SELL?

Eddie from Grand Rapids recently wrote to me to ask advice about what to do with inherited LLY shares. See below.

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From: Eddie
Date: Aug 3, 2005
To: Phil

Yesterday in Grand Rapids I told you we (my wife and I) were making 47% interest this year. She corrected me last night and said on our personal portfolio with InvesTools we are making 37%. Obviously, not disappointing at all!!   ;-)

Question. When I returned to the hotel after the seminar my office called and said that we received a registered letter from an attorney informing us that we will receive soon $275,000 from the estate of an elderly supporter of our 501(c) nonprofit Christian ministry.

The attorney wants to know if we want it cashed out (mostly Eli Lilly drug stock), or transferred to our Ameritrade account.

All we know about the stock market is what we've learned from you and your program.

Question 1: Would you advise us to take stock, not have them cash it out?

Question 2: Do you have some advice on what we should do to use this "extra" income to our ministry become an income stream for the ministry?

Thanks in advance for your advice...and THANKS for InvestTools!!

Blessings,
Eddie S.

EXBD: MOAT & MANAGEMENT

Here's a followup 4M exchange between me and Jason, who's started digging into EXBD's Moat and Management. He's done a great job so far, but there's still more work to do. See below.

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From: Jason Moore
Date: Aug 23, 2005
To: phil town

Phil,

Some tidbits that I have come across from an independent website dedicated to providing information about companies for prospective employees. This pertains to both CEB's management and, more importantly, its culture (what I believe to be their largest Moat).

ARE NEWSPAPERS REALLY A GOOD BUY RIGHT NOW?

Note: I wrote the following this morning... but couldn't find time to post it until now.

I saw an article in CNN Money about newspapers being undervalued and perhaps ripe for some mergers.   Newspapers are Toll Bridge Moat companies – if you want to advertise in a newspaper, you only have one or two choices in each city... and you have to pay to play.  I can understand that, and if I can find a newspaper that looks at the world in a way I can agree with, this industry group could be a good one to get into at the right time.   Here's how I go about checking it out quickly.

YOUR HOMEWORK: CORPORATE EXECUTIVE BOARD (EXBD)

This homework is from Jason Moore, who saw me speak in Nashville and wanted to take a stab at a 4M analysis. I think he's done a great job so far. Keep reading. The company is Corporate Executive Board (EXBD).

(The screenshots he sent me may be a little blurry, but they'll give you an idea of how he arrived at his results.)

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From: Jason
To: Phil
Date: August 3

Phil,

I first heard of your concept at the Nashville Get Motivated seminar a few months ago. I signed up for the one day Success Magazine seminar and followed through and started their Stocks and Options coaching. Since then I continue to read your blog, and I have been very impressed with the way that you respond to your readers. So, I am going to give this thing a shot.

HOW DEEP SHOULD RULE #1 INVESTORS DIG?

I love this comment from Patty H.  She is serious about being a proud owner of whatever she is putting her money into.  Believe me, if more of us feel that way, we will change the way business works.  Read on and see more from me at the end.

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From: Patty H.
Date: Aug 15, 2005
Subject: Biotech Investing
To: Phil

Dear Phil,

I have been studying your web page and have become very aware of all the moral issues associated with investing. In Sunday's local paper I read a very interesting article stating that DuPont is now getting into the Biotech world with a green product called Sorona. The logo for the new plastic is "Clothing from a cornfield."  They will use biotechnology to convert corn instead of oil into plastic.

As a nature lover I know I want to invest in a green company so this really peaked my interest. DuPont is not nearly green enough for me so in doing some investigating I found that Sorona resulted from a long term collaboration between DuPont and a company called Genencor International. I started to research Genencor and liked everything I read. They were ranked the number one medium size company to work for the year from HR Magazine, so I knew they were good to their employees. Things started to look up because they were a very green co. too, again something I really wanted. I then found out they were recently purchased by a company called Danisco and their stock would no longer be publicly traded. I was not crazy about Danisco...

SOMEONE TELL THIS GUY HE'S GONNA BE RICH

It's Friday - time for a laugh. Here's a picture of me from the river guide days:

HOW GOOGLE'S NEW OFFERING AFFECTS RULE #1 INVESTORS

I just saw that Google is in the process of diluting its current shareholders by 14 million shares to raise $4 billion, diluting me by 8%.

Remember that Rule #1 investors act as if we own the entire business -- so what does this mean if we like Google and feel like we own the whole thing?

It means the management just decided to take our pie -- which we own all of -- and cut a slice of it out and sell it to someone else.  On a per share basis, they just hacked about $20 a share out of my wallet.  That kind of sucks, doesn't it?

I've given them the right to do it (somewhere along the line the shareholders approved issuing another 90 million shares of stock for just this sort of possibility, so management doesn't have to ask for permission).  But why would I feel good about having 8% of my pie get confiscated and sold to someone else?

STURGIS INVESTORS

About my trip:

I rode a severely modified 2002 Harley softail to Sturgis from LA and then from there over to Jackson Hole where I live. I got too hot, too cold, too dry, too wet and rode too fast too often. It was perfect. Gave me time to smell the sagebrush at 90 mph and see some of the most amazing country at 20 mph. I camped most of the time. Rode solo most of the time just to go where I wanted, when I wanted and as fast or slow as I wanted. Nearly ran out of gas in Wyoming but some folks that run a bar were kind enough to spot me a gallon of gas and a great breakfast burrito. Rode some around Sturgis with a Jackson cop named Sarah and an authentic Jackson Hole cow puncher named Jimmy. Talked investing for hours with a Rapid City school teacher while I watched guys burn their back tires off for no reason whatsoever. There were too many bikes and not enough time to enjoy it all. And now I'm back and thinking about what to tell you guys at the next event where I'm speaking.

Here's what I've been thinking for the last ten days or so:

DETERMINING BRAND MOAT

Hi! I'm back.  My email buddy Jon had some questions about determining Moat. He wanted to know why it is that certain companies, like Panera or Starbucks, have Moat on a commonplace product like sandwiches or coffee. My explanation is below.

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On 7/29/05, Jon wrote:

Phil,

The one area that I'm struggling with a little is the moat.  Maybe it's just personal preferences.  I have the same problem with Starbucks.  I can see that they obviously have a moat, I just don't understand why.  I mean, it's just coffee.  I don't understand why people are willing to pay a premium for Starbuck's coffee vs someone else's.  I have the same problem with Panera's sandwiches.  I think they're similar to Schlotski's and to a lesser extent, Quiznos.  They obviously have some competitive advantage or they wouldn't be doing as well as they are.  But is it durable?  I don't know.  I just don't quite "get" it.

Jon

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On 8/1/05, Phil wrote:

Good thought on Moat. There are five Moats:  Price (Walmart), Secrets (patents), Switch (ADP back office), Toll (Utility), Brand (Coke, Gillette).  Clearly the first four are not moats for Panera or Starbucks...which leaves Brand.

CLOUD HIDDEN FAR AWAY

Sometimes you just gotta go. 

A shop has been working on my Harley for months and suddenly they called and it was ready.  And a friend called and wanted to meet in Sturgis. And then another friend wanted a ride to Estes Park from LA.  And that was on the way to meet the guys, so why not.  And now I'm in Colorado having just ridden through a beautiful and alien landscape in Escalante, Utah and Capital Reef NP and blasting on up the highway to Sturgis.  If you see me, just  be kind and remember that loud pipes save lives.  And I'll be in touch with every one of you who is doing an analysis shortly after Aug 11! 

Until then, I'm cloud hidden, far away.