July 22, 2014

Dealing with Business Rejection, the McDonald’s Franchise Disclosure Document, and a $114 Million Coffee Fortune

McDonald's Counter In New Store Copyright Joshua Kennon

From time to time, I get messages from business owners or entrepreneurs who are discouraged and upset.  Their family, friends, colleagues, bank officers, or suppliers don't believe in what they are trying to do and they take it personally.  This afternoon, as I sat in a McDonald's restaurant having coffee and revisiting an excellent book called McDonald's Behind the Arches that details the historical rise of one of the world's largest real estate portfolio masquerading as a hamburger chain, I was … [Read more...]

Location, Location, Location

Capitalism Summed Up

Remember rule number one on late billionaire Estee Lauder's strategy list?  I just came across an exchange about the merits of Costco vs. Sam's Club on this thread.  It sums up capitalism, consumer choice, and individual economic autonomy perfectly. Whether building a military fort or a fast food joint, location matters.  Paying more for the better location is often the best strategy.  It's one of the few areas in life you don't want to try and take the low bid. … [Read more...]

15 Rules for Success by Estee Lauder

Estee A Success Story Estee Lauder Autobiography 1985

Estee Lauder couldn't get an ad agency to accept her company as a client because her budget was too small.  Facing rejection after rejection, she decided to take the $50,000 she had set aside for marketing and try something new.  Undeterred by the endless stream of "no", she mailed direct samples to consumers, launched a virtually unheard of "free gifts with purchase" promotion, and made donations to charity to raise brand awareness.  Over the years, it is this sort of thinking that turned her bu … [Read more...]

Warren Buffett’s $12 Billion Disney Mistake

Disney Cinderella 2015 Movie

I mentioned yesterday in the post about Japanese Gyoza that we had seen Maleficent twice this week in theaters.  With time to reflect on the film, I keep coming back to the economic power of certain types of enterprises.  It reminds me of a story from a speech Warren Buffett gave two decades ago to a group of college students in North Carolina detailing his worst investment mistake up until that point; a story he first began telling in 1991 when the damage had crossed $1 billion.  I heard it wh … [Read more...]

A Look at the Tweedy Browne Global Value Fund’s Stellar Long-Term Investing Record

Tweedy Browne Managers

After the post yesterday about the inheritance battle that waged for famed value investor Chris Browne's estate, I kept thinking about how truly exceptional the team he and his brother put together was.  Even when assets were much larger (they would periodically close the fund to new investors to protect their best ideas for long-term stockholders), they utterly crushed their respective benchmark over a 20+ year period, and that includes a fairly high management fee of 1.39%, a basket of … [Read more...]

An $8,000,000 Investment Mistake of Omission

Nike Stock

One of my favorite topics from mental model studies and investments are the tendency of people to focus on mistakes of commission rather than mistakes of omission.  This area has received some press in recent years as a result of people like John Bogle and Warren Buffett talking about the opportunity cost of spending too much on investment expenses, or walking away from a good holding.  Yesterday, Aaron and I went to Dick's Sporting Goods to look at golf supplies and as we made our way back to t … [Read more...]

Mail Bag: Honey Maid Graham Crackers Goes After the Entire $241 Million

Honey-Maid-Graham-Crackers

The potential dangers and rewards of calculated marketing bets on race, gender, and tattoos are the focus of this response ... Dear Mr. Kennon, I'm trying to understand the rationale of the Honey Maid marketing team in taking on several social issues all at once that still divide America. If you aren't aware (I imagine you are given how much you read), they recently began making sure all married couples - including interracial couples, punk rock couples with tattoos and Mohawks, and gay … [Read more...]

Mental Model: Situational Knowledge

Jack Donaghy

Last night, I was talking with Aaron about the situational knowledge mental model and its implication for business innovation.  For those of you who aren't familiar with it, situational knowledge is a type of experience-based knowledge that arises either organically or through training, creating a database of relevant facts and implicit understandings about situations, people, or processes that you may not even be aware exists but that stands ready to be called upon at a moment's notice.  It is a … [Read more...]

How John Maynard Keynes Beat the Stock Market by 8% Points Per Year Between 1921-1946

John Maynard Keynes

The Journal of Economic Perspectives: Vol. 27 No. 3 (Summer 2013) has a wonderful piece on the investment record of John Maynard Keynes, who managed to beat the market by an average of 8 percent per year from 1921 through 1946 by focusing on long-term, high quality dividend paying stocks as well as smaller enterprises that had room to grow.  When he died in his early sixties, Keynes had achieved the rank of one of the richest economists in history, amassing a fortune equal to $30,000,000 today. … [Read more...]

Let’s Play an Intrinsic Value Game for McDonald’s Corporation

McDonalds Intrinsic Value

This afternoon, I was reading some financial news and happened across an article that breaks out the intrinsic value formula for McDonald's Corporation.  It's called McDonald's: Don't Buy for the Dividends and, through the dividend discount model, posits that one share of McDonald's has an intrinsic value of $70.29. First, let me say I applaud the author.  I think it's wonderful that he (or she) is publicly adding to the discourse and providing work product that can be scrutinized as a jus … [Read more...]