April 26, 2015

Cherrywood Capital Group Successfully Divested Two of Its Investments

Phase I of our secret project and my third quarter goals are both going really well, even though I’m spending an inordinate amount of time on the manuscript for my next book, which is a guide to calculating intrinsic value of stocks, bonds, real estate, and other assets.

Everything Merging Under the Kennon & Company Brand

Remember the $31,000 we spent on the paid search advertising pilot program last September?  Yeah, part of that involved testing various keywords to determine if we were better off running our retail companies as separate domains or under one, parent brand.  I didn’t tell you that at the time because there was no reason to do so.

The results of that test helped us confirm our belief that we can grow even faster by consolidating everything under a single brand name and online store and unleashing all of our advertising dollars, search optimization efforts, and time on that one luxury “superstore”.  The search engines and shopping engines, which serve as a major source of new customers, are now sophisticated enough they don’t require individual domains for various product lines.

Baby Gifts from Kennon & Company

Following the successful divestment of JustBabyGifts.com and WonderfulWeddingFavors.com, we are bringing in luxury niche-market baby gifts and such to the Kennon & Company store and online boutique.

Thus, as part of the launch of Cherrywood Capital Group, we successfully divested JustBabyGifts.com and the WonderfulWeddingFavors.com, leaving us with a pile of cash to focus our attention on building a retail holding structure that mirrors our sporting goods businesses all under the Kennon & Company brand.  (My guess is, those two sites will be shut down later this week and absorbed into the new business that owns them.)

Don’t misunderstand me … we will still be in the baby and wedding gift businesses, but they will be departments within the larger Kennon & Company family, giving us access to far more prestigious product lines that require physical retail locations and economies of scale when it comes to purchasing and banking relationships.

We came to this decision after realizing that we had developed a client base of high net worth individuals that are fiercely loyal to specific brand names;  for example, we have professors who call and want several thousand dollars worth of fountain pens shipped to their offices and successful women who come in and drop $1,200 on charm bracelets.  We ship expensive watch cases to the United Arab Emirates and luxury gifts to Italy.  By focusing on these customers and getting into fields most people don’t even know exist (e.g., $300+ bottles of perfume and cologne), we can mint money as a niche market provider to the top 10% of wealth in the United States.  Most start-ups don’t have the money to carry these types of products; they just can’t afford it.  We have a huge advantage here.

The truth is, while I appreciate and care for the big, cash-generating sporting goods investments we own, I love the high-end retail holdings.  We have the resources and intelligence to figure out how to build this into something, even if it is necessary to move heaven and earth.  I’m excited about the decision to increase our commitment to the retail companies.  They are almost – almost – as important to me as the capital markets trading of stocks, bonds, and other assets.  That says a lot.

The Lesson You Can Take Away from This

Six months ago, I was speculating what the holding company may end up looking like and explained that it comes down to the returns that are available; e.g., if tomorrow, I knew we could get 25% compounded on a chain of car washes, I’d be at the bank, borrow a few million dollars, and we’d be in the business overnight.

This is one of those shifts that I didn’t see coming until the growth rates and returns on capital were put in front of me, in black and white.  If you are going to be successful, you must allocate your money to the best performing investments in your portfolio.  We let the free market tell us that Kennon & Company has the potential to deliver substantial earnings and growth to our shareholders.  As a result, it now receives more money, times, and focus than it did a year ago.

What are the highest returning investments in your own life?  How can you get more money out of them?