Vulcan Materials

May 27, 2008

Vulcan Materials (VMC) produces construction aggregates and other construction materials. Sellers Capital thinks the company is worth US$85 a share, compared to a current share price of US$75 (compared to US$70 when the original analysis (pdf) was done).

The US$85 estimate is the expected value from three scenarios

  1. Pessimistic: US$60 a share with 30% probability.
  2. Most likely: US$90 a share with 55% probability.
  3. Optimistic: US$105 a share with 15% probability.

Summary of their investment thesis:

  • Aggregate is a wide moat business.
  • America’s infrastructure is poor and needs a investment of US$1.6 trillion according to the Society of Civil Engineers.
  • Worst case is flat growth for building infrastructure.
  • Demand for aggregates not dependent on residential housing.
  • The last three decades has seen growing volumes in aggregates.
  • Scarcity = increased pricing.

Perceived Problem: Volumes will decrease due to lower public expenditures and bad housing and commercial markets, and prices will decline.

Sellers Capital View: Volumes will decline slightly, pricing will be stable to increasing.


Resources for Value Investing

May 20, 2008

Influence

May 7, 2008

Summary of Influence: Science and Practise by Robert Cialdini material from an HBR article. Wikipedia also has a similar summary under Robert Cialdini.

Liking: People like those like them, who like them.

  • At Tupperware parties, guests’ fondness for their host influences purchase decisions twice as much as regard for the products.
  • To influence people, win friends, through: Similarity: Create early bonds with new peers, bosses, and direct reports by informally discovering common interests – you’ll establish goodwill and trustworthiness. Praise: Charm and disarm. Make positive remarks about others – you’ll generate more willing compliance.

Reciprocity: People repay in kind.

  • When the Disabled American Veterans enclosed free personalized address labels in donation-request envelopes, response rate doubled.
  • Give what you want to receive. Lend a staff member to a colleague who needs help; you’ll get his help later.

Social Proof: People follow the lead of similar others.

  • More New York City residents tried returning a lost wallet after learning that other New Yorkers had tried.
  • Use peer power to influence horizontally, not vertically; e.g., ask an esteemed “old timer” to support your new initiative if other veterans resist.

Consistency: People fulfil written, public, and voluntary commitments.

  • 92% of residents of an apartment complex who signed a petition supporting a new recreation center later donated money to the cause.
  • Make others’ commitments active, public, and voluntary. If you supervise an employee who should submit reports on time, get that understanding in writing (a memo); make the commitment public (note colleagues’ agreement with the memo); and link the commitment to the employee’s values (the impact of timely reports on team spirit).

Authority: People defer to experts who provide shortcuts to decisions requiring specialized information.

  • A single New York Times expert-opinion news story aired on TV generates a 4% shift in U.S. public opinion.
  • Don’t assume your expertise is self-evident. Instead, establish your expertise before doing business with new colleagues or partners; e.g., in conversations before an important meeting, describe how you solved a problem similar to the one on the agenda.

Scarcity: People value what’s scarce.

  • Wholesale beef buyers’ orders jumped 600% when they alone received information on a possible beef shortage.
  • Use exclusive information to persuade. Influence and rivet key players’ attention by saying, for example:“…Just got this information today. It won’t be distributed until next week.”

2008 Berkshire Hathaway Shareholder Meeting: Detailed Notes

May 7, 2008

Reflections on Value Investing has posted some notes from the recent Berkshire Hathaway meeting. Below are some quotes that I noticed.

I started investing when I was 11. I believe in reading everything in sight. I wandered for 8 yrs with technical analysis. I read Intelligent Investor, chapters 8 and 20 I recommend, and if you absorb it you won’t be a lemming.

Our job is not to select great managers, our job is to retain them.

In business school the amount of time spent teaching option pricing is total nonsense. You only need 2 courses, how to value a business and how to think about stock market fluctuations.

We never want to trade reputation for money.

There is a lot I wouldn’t buy even if best management in world, as it doesn’t make much difference in a bad business.

We want a company with durable advantage, which we understand, can trust management, at a good price.

If I were working with small sums of money, it would open up thousands of possibilities. We found very mispriced bonds. We found them in Korea a few years ago. You made big returns but had to be small size. I wouldn’t be in currencies with small amount of money. I had a friend who used to buy tax liens. I’d look in small stocks or specialized bonds.

Several times I have had 75% of my non-Berkshire net worth in a situation. You will see things where it would be a mistake not to act. You won’t see them often, and the press and your friends won’t be talking about them.

We have lower due diligence expenses than anyone in America. I know of a place that pays over US$200m to its accountants every year, and I know we are safer because we think like engineers – we want margins of reliability.

A brand is a promise.

We waste a lot of time, but we waste it on things we want to waste it on.