Saturday, April 28, 2012

"I am taking a look this week at The Motley Fool's and David Gardner's Rule Breakers part of the book, "Rule Breakers. Rule Makers, The Foolish Guide to Picking Stocks"

Dow Jones Industrial Average 13029.26 (UP) Week ending 04-20-2012

(Photograph by Deb Wilson) 
We have a place nearby called "Harvest Books" where you can pick up some of the finest financial books ever written for $2.00 each. So last week I picked up a copy of The Motley Fool's Rule Breakers, Rule Makers, The Foolish Guide to Picking Stocks by David and Tom Gardner. Oops, I started reading and I was supposed to read there other two books first, Oh well.

I took a particular interest, (and I can't believe that I had not read this book up to this time, because it is really great original thinking), in David Gardner's section on Rule Breakers.

In Chapter 8, David summarizes the Rule Breakers and gives a continuous lesson in William Shakespeare's "Henry" historical plays. David will be glad to learn that we own 1 of 500 signed leather bound copies of "The Annotated Shakespeare" , signed by A.L. Rouse. We love books and love investing, what can I say. 
"Catherine of Valois was the daughter of King Charles VI of France when her husband essentially won her in battle. King Henry V, Shakespeare’s famed ‘King Hal,’ insisted on the long-discussed marriage after his victory at the Battle of Agincourt, and he was even more urgent once he saw how pretty the young French princess was."

So here are David Gardner's tenants:

"A Rule Breaker must be the Top Dog and first-mover in an important, emerging industry."

"It must possess sustainable advantage gained through business momentum,patent protection,visionaries, or inept competitors"

"The Rule Breakers stock will have demonstrated past price appreciation equivalent to relative strength performance of 90 or greater"

The stronger it's consumer appeal, the better it will attract customers,habituate them, profit off of them, and protect it's business"

and last , "You must find documented proof that it is grossly overvalued, according to the financial media"

David mentions three stocks in his book that hold true to his tenants, Apple, Amazon, and Starbucks which all have performed well. Here is my list going by his tenants and my fundamentals view.

Qualcomm (Symbol QCOM). The impregnable fortress of chips-sets and patent lawyers. Facing up against Qualcomm is like trying to cross the bridge that Lancelot, of Arthurian Legends is defending. A very difficult task. They have a strangle hold on the Smartphone chip business . Hy-Fi™, HSPA+ Advanced & LTE Advanced,   mirasol® Displays,  Vuforia™ Augmented Reality are just a few of their current concepts. Don't mess with Qualcomm      

            Chipotle Mexican Grill (Symbol CMG).  What is the secret sauce at ChipolteFood with Integrity. Chipotle tenant " It means serving the very best sustainably raised food possible with an eye to great taste, great nutrition and great value. It means that we support and sustain family farmers who respect the land and the animals in their care." But the real secret is their unique employee development program that makes them better than everyone else. Not since Charles Tandy of Radio Shack said to his managers, "Whatever % of profit you make to sales revenue, I will pay you that % of the profit", has their been such a dynamic employee development program. Other managers take note. (Symbol PCLN) . This one is a CFO's dream. The perfect combination of high revenues and earnings without investing a large amount of capital. It is the "perfect-storm" of capitalism, a virtual profit creation machine. The Negotiator has it all over the competition.

Union Pacific Corp. (Symbol , UNP) . You have tons of Coal and LNG energy products that will need to be moved to the west coast to ship off to Pan-Asia countries, (since we refuse to use it here!).  The way it will get their is on the Union Pacific Railroad on hopper and tanker cars unless you want to run a pipeline through YellowStone Park. Yogi and Boo Boo would not like that. Not to mention the thousands of miles of dark fibre that they have in the ground running next to their track right of ways for future communications connections. Talk about looking ahead!

Ebay Inc. (Symbol EBAY)  and Verifone Systems Inc. (Symbol PAY).  These two, (Ebay with Paypal) are the pay with your credit card via your Smartphone guys. They currently have this business monopolized. It's good to be King!

LIONS GATE ENTERTAINMENT (LGF) - This one is my Rule Breaker baby pick. LGF reminds of the early days of Gulf & Western's -  Paramount Pictures Company. They are building a powerhouse library of media content and are breaking the rules along the way with such ground breaking hits as "Madmen", "Hunger Games", "Margin Call", "Crash" , and "Safe". This one does not fit all the criteria yet, but is heading in that direction.

Well, sorry to write a novel here, but there was a lot of material to cover.  There are also allot more of these companies like Schlumberger and Allergan that could have been added here.

Adios Amigo,


No comments:

Post a Comment