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Monday, July 25, 2005

nothin' much

I'm hitting a dry spell in searching right now. It's amazing how many loser companies are out there. I ran into one company (forgot which one) where they announced the CFO was arrested for some sort of fraud.

Someone opened a small pet shop in the neighborhood around here in an obscure location in a shopping plaza... in the same location where a small candy store went out of business. How can they compete with Pet Smart (4 miles away) or the local grocery store (less than 1000 feet away)? Unless they're selling monkeys and sugar gliders (and more importantly Purina Monkey Chow and specialized sugar glider food), they would have nothing: no reason for someone to spend much money in the store. I've got a better idea: animal luxury items. They should sell very high priced, high margin stuff for animals, like fancy little sweaters, fancy food bowls, very obscure and boutique animal food. Make it so your customers might have just come from Pet Smart but they still have a reason to shop in your store. Maybe even add an animal photography studio with props and backdrops of every sort. Maybe move somewhat into the service business with animal walking and feeding when people are away.

YaSheng Group has certainly gone up in price. I've got a 50% gain in a little over a week. Someone big is establishing a position. It's up to $3 and it's still worth $6.

UPDATE: I had to add this quote.
"...at the heart of every non-financial management person is the quiet belief that they are really doing much better than the accounts show."
-- Elias Fardo --

In the mail: Blink: The Power of Thinking Without Thinking

Yet another bank doing well and priced about right: SFGP

UPDATE Tues.: Holy crap! Every f'king company that starts with the letter S is f'king incapable of even a single f'king dollar of f'king profit (you'll notice that Strathmore is no exception). I've looked at some of the most ridiculous forms of business, I'd be embarrassed to put my name on some of these financial statements. In other news, wow, what's up with YaSheng! Up yet another 15% today. I've never had that happen.

In my area someone opened a bakery for dogs. Homemade "cookies" that smell like plain old dog biscuits to me but they get a big price for them. They also feature the sort of fancy stuff you mentioned. They've been around for several years, so I guess they (and you) are on to something.
The thing with animals is that it's all an emotional thing from the owner. You won't make any margins on commodities like dog/cat food. So what you want to sell is "guilt relief" for the owner, and the business needs to be very pragmatic and constantly be getting [indirect] feedback from customers on what form that guilt relief takes. It may mean expanding into services like dog walking or pet psychology or pet psychic or pet playgroups or whatever. When it comes to investing, I'll take the margins on dog psychology services over dog food anyday, as long as it has value to the customer (i.e. the owner).

I'm hitting a dry spell in searching right now.

Take a look at Bodisen Biotech, aka BBOI. It's producing organic fertilizer in China. Looks very interesting. Only wrinkle is the huge anmount of credit they extend to customers. It will be intersting to see your thoughts.
Another day in valueville. Yasheng on a tear, wish I had joined you on that one, but my DD typically includes a period of pointless rumination. Meanwhile my little Chinese noodle company, NWD, is keeping a low profile. I was happy, however, that my only currently underwater microcap, QUIP (equipment supplier to the newspaper industry), moved up nicely, on some volume (good volume for QUIP being greater than zero). Looks like it is getting bought out and I'm glad. I think I "misunderestimated" the accelerating decline in the newspaper business, and the relatively new mgmt. of this company isn't getting any traction. Also today, NVI (vision centers in WalMarts but gradually losing leases), which is liked by some BRKers, is being taken out at $7.25, a 40% premium. If operated as a run-off, it looked like a very compelling value around 5, but management didn't want to operate as a run-off, stating that they wanted to be a "growth retailer" and open new free standing stores with all the risk and cash burn that implies. So I stayed away. Anyway, the interestingly named Berkshire Partners is buying them.
I've hit a dry spell in terms of good investments, but I still have lots of new companies to look at. But I took a look at this one.

So this company makes money by exchanging fertilizer for promises. :-) Actually, I understand the point: Farmers need stuff at the start of the growing season and get a return on it several months later. During 2002 and 2003, their cash flows were quite good. Apparently in 2004 they made this change in the their business model to accept a lot less cash from customers and throw cash at vendors and the business grew a lot. They actually used cash, a lot of cash, in operations during Q1. This is one very large red flag.

In March they had $7.9 million in receivables and $216K allowance. Is this enough? I don't know. What if there's a flood or bad crop year?

This company is only worth a lot more than the stock price if the business continues to grow... a lot... in terms of cash flow.
Yeah, YaShing is kind of frightening how fast it's going up. I've owned some stocks with an average volume of just about zero. Isn't it JDL Partners? That stock reminds me of Laser Pacific, one of my investments a few years ago. I bought it for $2.20, it rapidly dropped below $2 and stayed there for something like a year. The price started climbing and then Kodak bought them out for a high enough price to make the whole thing a pretty good investment. They do a lot of film processing and DVD authoring and stuff like that.
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