Friday, March 27, 2015

Messi Announces Retirement, Reporter Asks About Half-Time Score

 Tom Prescott announced his retirement last night.   You may not have heard of him, but as CEO of Align Technologies (the inventors of Invisalign “invisible braces”) Prescott helped turn a $70 million revenue company with 35% gross margins, negative operating margins and a $127 million market value into a near-$800 million revenue company with near-80% gross margins and 25% operating margins.
 Oh, yeah, and a $4.5 billion market value, last we checked.
 More than that, Tom Prescott helped Invisalign develop from a niche product not much liked by the orthodontists who were supposed to use it (it’s far more expensive to them than the old-fashioned wires and brackets, plus, in the early days, before Prescott, the Invisalign treatment was far more limited in what it could do, teeth-moving-around-wise) into a near-standard of care in orthodontics around the world.
 And he did it the old-fashioned way: by spending on R&D to improve the product (a quarter billion in the last six years alone), marketing like crazy, and proselytizing every chance he had.
 Along the way, Prescott had to contend with a near-fatal copycat product (fought and won in courts of law), short-selling attacks (fought and won the best way possible: just running the business well) and big-company patent suits (smartly settled).
 If there ever exists a CEO Hall of Fame, Tom Prescott should get in on the first ballot.
 Thus it was quite a surprise to see the headline come across the tape after last night’s close that he would retire in June, with an outside-the-company successor to take his place.  No mention of such plans had ever passed his lips to anyone outside Align, and being the ripe young age of 59, nobody had ever bothered to ask him.
 Nevertheless, as the ensuing conference call made clear, the decision was voluntary, had been in the works for a year and a half, and had produced a successor who looks eminently worthy of filling some big shoes.
 Now you would think the first question on the call would be about the decision itself, with perhaps a follow-up on the successor and whatever plans he might have for the company.   
 But you would be wrong.  
 The first question was about what it’s always about for some of Wall Street’s Finest...near-term earnings:
 “Thanks.   Good afternoon.  Tom or David [White, the CFO], could you just elaborate on sort of the preliminary 1Q outlook in terms of revenues and EPS…?”
 It was as if Leo Messi suddenly announced his retirement from Barcelona during half-time, and the first question out of the reporters’ mouths was about who’s going to win the match.
 You could almost hear Prescott and his team restraining their incredulity, but, class acts that they are, restrain they did.
 Still, if there ever exists a Hall of Fame of Silly Analyst Questions, that one will get in on the first ballot.



Jeff Matthews

Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2015)    Available now at Amazon.com

© 2015 NotMakingThisUp, LLC



The content contained in this blog represents only the opinions of Mr. Matthews.
  Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Saturday, February 28, 2015

Charlie Named Name


Ned Isakoff: “You got me blacklisted from Hop Sing’s?”
Delivery Man:  “She named name!”
—Seinfeld, “The Race” 
 Like Elaine Benes in that Seinfeld episode, Charlie Munger named name.
 Two names, in fact: Greg Abel and Ajit Jain.
 Unlike Elaine Benes’s name-naming, however, the two named by Munger have nothing to do with Communist agitation and the destruction of capitalism as we know it—far from it.  
 Rather, they have everything to do with Capitalist orthodoxy in its purest, most meritocratic form: who might succeed Warren Buffett as CEO of Berkshire Hathaway under the scenario, as Munger puts it, “Buffett left tomorrow.”
 Here’s the direct quote from Munger’s comments written for the 2014 Chairman’s Letter that hit Berkshire Hathaway’s web site this morning (2015 being the 50th anniversary of Buffett’s takeover of the company, both men wrote individual retrospectives on the last 50 years and what the next 50 years might bring):
 But, under this Buffett-soon-leaves assumption, his successors would not be “of only moderate ability.”  For instance, Ajit Jain and Greg Abel are proven performers who would probably be under-described as “world-class.”   “World-leading” would be the description I would choose.  In some important ways, each is a better business executive than Buffett…
 While Munger’s naming of names does not carry the same penalty as in the Seinfeld episode—neither man will be banned from ordering takeout at Hop Sing’s—it does carry far greater ramifications, because the moment Munger’s comments appeared on Berkshire Hathaway’s web site this morning, both men’s lives changed forever, for obvious reasons that we won’t enumerate, since everybody else will be doing that starting, oh, now.
 Instead, we encourage a careful reading of the full Berkshire letter—including both Buffett and Munger’s insightful commentary on what made Berkshire what it has become and where it might go—here.
 Fortunately, our book on the topic of Munger’s name-naming—“Warren Buffett’s Successor: Who it Is and Why it Matters,” (eBookson Investing, 2013)—was published well before Munger actually chose to name names, but we don’t have to change a word of it.


Jeff Matthews

Author “Warren Buffett’s Successor: Who it Is and Why it Matters””
(eBooks on Investing, 2014)    Available now at Amazon.com

© 2015 NotMakingThisUp, LLC



The content contained in this blog represents only the opinions of Mr. Matthews.
  Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Sunday, January 11, 2015

From Cleaning Harbors to Feeding Roughnecks: “Next Year in Jerusalem!”

 The Canadian tar sands have been very good to Clean Harbors, a perennial Wall Street favorite that evolved from a disaster cleanup business (for which the company’s web pages still carry a plug at the bottom: “For 24-Hour Emergency Response, call 800.OIL.TANK”) into a diversified industrial service company through 35-plus acquisitions costing about $2 billion over 25 years.
 The tar sands business came with the 2009 acquisition of Eveready, and so swiftly did CLH expand deeper into so-called unconventional energy (everything from feeding and housing roughnecks in lodges to hauling out drilling waste) that oil and gas exploration and production services went from 0% of the company’s total business in 2008 to 27% in 2012, before the $1.25 billion acquisition of Safety-Kleen got them into the lube oil re-refining business, diluting the oil and gas piece to something closer to 15%.
 Now, I have a friend who refers to any company repeatedly flogged by Wall Street analysts while never quite seeming to meet their lofty expectations as a “Next Year in Jerusalem” story, after the phrase concluding the Passover Seder.  No matter what happens in the business, and how it varies from their expectations, the analysts, metaphorically speaking, say “Next Year in Jerusalem!”
 Granted, CLH deserved some free passes after beating analyst expectations for eight straight quarters from mid-2010 to mid-2012, but the streak ran out some time around the aforementioned Safety-Kleen acquisition—which seemed like a good idea at the time to the cheerleaders (fee-generating transactions generally do that!)—and the company failed to match expectations in 6 of the next 10 quarters, at least according to Bloomberg.
 But don’t take our word for it: the transformation of CLH’s from “beat and raise” to “hit or miss” is told in the headlines from various so-called analyst reports along the way:

5/11:    “Premier Mid-Cap Growth Story”
2/12:    “Momentum Strong Enough to Raise 2012 Outlook, but Still Conservative”
5/12:    “Slight 1Q12 Upside; Reiterates Guidance; Growth Story Intact”
8/12:    “2Q Transition/Seasonality or Structural?  We Believe LT Story Unchanged”
10/12:  “Upgrading to Strong Buy on Highly Accretive Safety-Kleen Acquisition”
2/13:    “Q412 Results A Bit Light; No Change to 2013 Guidance; Reiterate Buy”
5/13:    “Q1 Revenue Light with Targets Back End Loaded; Segment Results Mixed”
7/13:    “Inflection Unlikely for 2Q but More Likely in 2H”
8/13:    “2Q More Painful Than Expected, but Upside Narrative into 2014 Unchanged”
8/13:    “Q2 Weak/Guidance Cut; Technical Services Needs to Lead Charge”
9/13:    “Investor Day Enables Sentiment Shift; 2014 Appears Conservative”
9/13:    “A Very Bullish Investor Day; Reiterate Buy”
11/13:  “2013 Outlook Cut; Choppy Segment Results Don’t Help”
11/13:  “2014 Can’t Come Fast Enough”
2/14:    “Another weak quarter and outlook”
2/14:    “Oil & Gas/Re-refinery Drive Forecast Lower; Shares Finally Washed Out?”
2/14:   “CLH has not delivered a beat & raise quarter since 4Q11.”
3/14:    “From Land of the Lost toward the Path to Enlightenment”
5/14:    “Finally, a Good Quarter; Cost Reductions in Focus and Upside May be Returning”
6/14:    “Takeaways from Investor Meetings…businesses appear to be stabilizing/improving…”
8/14:    “Solid 2Q Driven by the Key Tech Service Franchise; Estimates Raised”
11/14:  “Estimates Cut on Energy Trends; Hopefully a Refocus on ‘Core’ Franchises
 Along the way, one large “activist” investor accumulated a 9% stake in the company, but months later announced it was shutting down its fund…and CLH began a strategic review, presumably with one eye on the “activist” investor…but then oil prices collapsed (in the truest sense of the word), putting a sudden damper on high-cost oil development in places like the Canadian tar sands and the U.S. shale areas where CLH had been planting its flag up until recently...so much so that shortly before year-end a “comp” to the company’s lodging services business—called Civeo, which had been spun out of Oil States International just last summer in order to “enhance shareholder value” at the behest of the same kind of “activist” investor that had accumulated 9% of CLH—shocked its own cheerleaders, saying thusly:
            “The acceleration in November of the decline in global crude oil prices and forecasts for a potentially protracted period of lower prices have resulted in major oil companies reducing their 2015 capital budgets…reducing the near-term allocation of capital to development or expansion projects in the oil sands, which is a major driver of demand for the company’s services in Canada.  It has also increased the difficulty of reliably estimating 2015 occupancy levels for the company’s facilities…”
 It wasn’t long ago—that 2013 “very bullish analyst day,” in fact—that the company’s cheerleaders were congratulating CLH for the lodging business being one of its highest return businesses.
 Now, Warren Buffett likes to say that when a management with a reputation for brilliance tackles a business with a reputation for bad economics, “it is the reputation of the business that remains intact.”   But in the case of Clean Harbors, the analysts like to say, “Next Year in Jerusalem!”

Jeff Matthews

Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2014)    Available now at Amazon.com

© 2015 NotMakingThisUp, LLC



The content contained in this blog represents only the opinions of Mr. Matthews.
  Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Saturday, December 27, 2014

The NotMakingThisUp Book Review: The Best Least Looked-Forward-To Book I Have Ever Received, John Cleese's "So, Anyway..."


 I received for Christmas the least looked-forward-to book I have ever received: John Cleese’s “So, Anyway…”.  
 Cleese, of course, is a founder of Monty Python, the wildly successful British comedy group that took male teenagers by storm in the early 1970s and was considered inheritor to The Beatles’ mantle as conquerors of America by none other than George Harrison (according to his friend Eric Idle, another Python).  Cleese is also co-creator, co-writer, producer and star of what has been called the best TV sitcom ever created, Fawlty Towers. 
 Thus, for a certain generation—i.e. male baby-boomers who came of age when Monty Python was laying waste to all previous notions of what was funny—a book, any book, by John Cleese would be a no-brainer for Christmas, or Hanukkah, or even New Year’s Eve.
 But despite having grown up on the original Python series aired on PBS, and despite having seen the group live at City Center in 1976, and despite having seriously considered traveling to London to see the group’s final reunion at the O2 Center last summer, I had no interest in this book, the reason being an especially scathing review in the Wall Street Journal by one Wesley Stace, a British author who also performs as a singer-songwriter by the name of John Wesley Harding, the title of an old Bob Dylan album (go figure).
 In his review, John Wesley Harding/Wesley Stace wrote pretty much what you might expect of a book by Cleese, whose intensely intellectual approach to comedy, and the well-known years he spent in psycho-therapy, tends to make him appear to be the John Lennon of the Pythons—Lennon being the ex-Beatle who had the nerve to dismiss his achievements as a Fab Four by saying, “We were just a band that made it very very big, that’s all.”
 And that’s the tone of the Wesley Stace/Wesley Harding review in a nutshell:
 The title “So, Anyway . . .” implies a cavalcade of convivial anecdotes and lengthy digressions. This is a grave misrepresentation, partly because of an occasional reluctance on Mr. Cleese’s part (“actually telling you about [the Footlights does] not fill me with excitement”) and partly because promising stories are derailed by the decision to narrate them in the voice of Mr. Cleese playing a crashing bore at a party in a Python sketch…
It’s a difficult book to enjoy and “The Last Laugh” would perhaps have been better a title, so often does Mr. Cleese give himself the punch-line in age-old disputes. He rehearses every perceived slight. The “undeserved insult” of being overlooked for a position of authority at school left a life long scar: “I believe that this moment changed my perspective on the world.” His ill feeling towards his dead mother is likewise undimmed by time...
 But receive the book for Christmas I did, and am glad I opened it and began reading it.
 Because if, as I suspect he did not, Hardy Wesley/Stace Wesley had in fact read the entire book, as I have, he would have discovered that [We interrupt here to explain that book reviewers frequently do not read the actual book before reviewing it; many reviewers, in fact, rely on summaries provided by the book publisher for scheduling and cost reasons, as we learned during the publication of “Pilgrimage to Warren Buffett’s Omaha,” when a reviewer took issue with a blog post the author had written, mistaking it for the book—Ed.] what John Cleese has done is write a tight, funny, comprehensive-but-compact biography that zeros in on the whys and wherefores of how he, and, indirectly, the Pythons, got to be what they became.
 He starts at the beginning, when and where he was born, and while the stuff about his father and mother (and grandparents, too) may seem irrelevant and mean-spirited to Stacely/Hardley, it’s all part of explaining how he developed the sense of humor he did.
 The fact that Cleese had a tough time with his mother explains a lot, while the fact that he really liked and admired his father seems jarring at first, considering his recurring role as the demented authoritarian figure in Python sketches, but that role is explained by his memories of being bullied at school, followed by this insight:
“Peter Cook [Another revolutionary British comedian—Ed.] always said that he quite deliberately staved off bullying by being funny.   I think in my case it was less a conscious activity—more Oh, that felt nice.’ And, as I realized, I became funnier, of course, because the spark is always there.  So the bullying faded away, and I started, for the first time, to make friends.”
 Hardly ‘rehearsing every perceived slight,’ as the Stacy/Hardy review put it.  
 In fact, the entire book is supremely well written in the Cleese manner—there is no “as told to” laziness here—and while the anecdotes are not, as the reviewer would seem to prefer, “convivial,” they all serve to tell a point: the point being, “here’s where it came from.”
 Along the way, we learn where the germ of certain bits were developed (e.g. Sybil Fawtly’s description of her paranoid mother—“And she’s always on about men following her; I don’t know what she thinks they’re going to do to her, vomit on her, Basil says”—came directly from Cleese’s phobic mother); why he and Graham Chapman worked so well as a writing team (“When you begin to write comedy, the biggest worry is simply: is this funny?  Writing with a partner ensures you get priceless feedback, and Graham and I worked together well: we found each other funny and when we did laugh, we really laughed); and how the path to Python let through unknown (in America, at least) radio and TV shows like “I’m Sorry, I’ll Read That Again,”  “At Last The 1948 Show” and  “The Frost Report.”
 To be sure, Cleese aims zingers at old archaic conventions and the occasional petty personality who offended his sense of justice, but those asides are overwhelmed by the surprisingly affectionate portraits of writers, producers and directors who helped him along the way (including David Frost, despite the fact that Eric Idle gave a merciless portrayal of Frost as “Timmy Williams” in the Python series).  All in all, it is hardly the cranky kind of stuff Wembley/Stadium would have readers believe, and even the occasional gibes all serve the main point of explaining where all this great stuff came from.
 As, for example, when Cleese reprints parts of several old sketches from various pre-Python shows, including a couple that later made it into Python sketches, either on film or on records, as well as some laugh-out-loud bits that did not.
 And for anyone interested in creativity—especially of the breakthough, Python kind—this is invaluable, and pleasurable reading.
 Wembley Stadium notwithstanding.

Jeff Matthews

Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2014)    Available now at Amazon.com


© 2014 NotMakingThisUp, LLC



The content contained in this blog represents only the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.