Monday, August 18, 2008
What Would Warren Do? Not This.
One of the most striking things at the Berkshire annual meeting is how few questions are actually asked about the business itself. Mostly, shareholders seem to ask the kind of questions they’d ask Dr. Phil, not the world’s richest human being.
You’ll read a few of the more extreme cases in Pilgrimage to Warren Buffett’s Omaha (release date October 4) but in the meantime we’ll take a look at something Warren Buffett would most certainly never do, which is to invest in Rick’s Cabaret.
Take the most degrading publicly-traded business in the world, add a faulty analytical premise, and you have an investment idea that ranks right up there with Berkshire’s investment in US Air.
What makes us bring this up is the headline that appeared on our indispensible Briefing.com late last week, under the ticker RICK:
3Q08 EPS weak on start-up costs; believe impact is temporary and co's acquisition outlook remains solid.
Now, Rick’s happens to be a strip club operator.
We know next-to-nothing about the company, except that the shares were once recommended in Barron’s by an old acquaintance from this business—the investment business, not the strip club business. We don’t recall the details, but the core of the investment idea seemed to be that it was a defensive play in an uncertain world.
Firm expects mgmt to take advantage of its access to capital to fuel the expansion of its three distinct strip club brands to take additional share within the industry.
Now, the idea of a “brand” in an “industry” not too many steps removed from the flesh-trade business would be laugh-out-loud funny, except of course that the subject itself is pathetic. Almost as pathetic is the analytic reasoning behind the next gem in the report:
Merriman believes RICK is in the enviable position of representing just about the only exit strategy for the 3,800 strip clubs in the United States.
Without much effort we can think of a few other “exit strategies” for any one of those 3,800 strip clubs not already owned by legitimate enterprises such as Rick’s—like being shut down for anything from money laundering to unpaid taxes to prostitution.
Charlie Munger explained the reason Berkshire had never invested in the gaming industry this way: “It is a dirty business.” And while we here at NotMakingThisUp don’t claim to be the world’s leading experts on Berkshire Hathaway, we’re pretty certain an investment in RICK is something Warren Buffett would not do.
I Am Not Making This Up
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Posted by Jeff Matthews at 7:48 AM