May

3

 I have been reading the autobiography of Marion Davies lately and she has a quote from Hearst that "make sure that the youth like it, and the rest will take care of itself." I am wondering if youth oriented stocks, Google et. al., perform better than others or whether the ratio of price to age of average employees or executives might be a better indicator than P/E. I would be interested in other youth oriented stocks, other than the toy companies, or readers' thoughts on this trickle-up theory. In particular, Hearst didn't like "kissing" in movies, as kids 12 and under hated it, and he especially didn't like it when Marion was involved in such activities in any way, though from a reading of the book, with her giving up her career ultimately so she could take care of the great man, she seems to have been perfect in her role.

Russell Sears replies:

Today I ran a 20k run (12 miles) with an young hopeful marathoner, Jerry Faulkner. He was taking an easy day and I was running hard. He had recently switched coaches an his new coach has him running much higher distances per week, longer hard days, an only picking key dates to race. Much more like I used to do.

After hearing him talk about his training and his coach, it dawned on me why you are seeing a surge of young USA guys finally having a chance at medaling… it's the availability of coaches now. For guys like him, a recent college grad with potential, but an unproven record, living on a shoestring, 20 years ago few coaches were available… When I was starting, comp race entries and free or cheap shoes where available from local specialty running store for the local champs. Now the coaches are seeing the benefit of comping a young local kid with potential, since coaching is bigger business than just schools and colleges. Becoming a personal trainer has gone beyond just the weight lifting guys, obsessed with making a living with what they love. The new coach sees helping the young guys out as their way of staying connected to the action in the sport as well as generating a buzz about their business.

But much credit must be given to the youth of today also… 25 years ago, I would not have thought of inviting a deteriorating 45 year old on a 12 miler… Plus they are much more aggressively seeking those coaching/mentoring relationships than I ever did… Part of why thrived after undergrad school was because I enjoyed calling my own shots in training. But experimenting without supervision often caused me to learn my lessons the hard way… blowing up.

So it may be both: "if the youth like it" is necessary for success but "the rest" have to be part of the potential of the company also.

My hypothesis  is: take the standard deviation of the ages of officers of a company, or the board of a company. I would suggest the CEO if both the CEO/president or chairman of the board age counts twice. Regress this with the standard dev against 3 or 5 year returns and see if they are correlated.

Steve Ellison adds:

This credo appears to be a central operating principle of the advertising industry. Just this week, I received a phone call from a man conducting a survey about television. The first question he asked was my age. It was also the last question he asked. When I responded that I was 46, he said, "Thank you very much for your time." I was not surprised. I already knew that I was an "undesirable demographic".

Sam Humbert complements:

And it's a timeworn idea in ladies' retailing that women will buy clothing aimed at the demographic ten years younger.. Probably there's a Zeno's Paradox in there somewhere.

Steve Leslie extends:

Vic has brilliantly raised a magnificent subject to discuss and debate and I hope that the thread continues onward and upward. As with all stocks, timing is important. With respect to "concept stocks," buys and sells are critical to a speculator's financial success. These are not grind 'em out stocks that move 8-10% a year. You have to be ready to buy and ready to sell. I know it sounds like a cliche but it is imperative here to remember. Even the great Apple was overpriced at $220 but offered value at $120. A good exercise is to examine Apple vs Microsoft and look to the esprit de corp or their raison d'etre for insights. The great thing about Apple is that Jobs came in and had the vision to discern what the consumer wanted. He went outside the box with the iPod. It was the same with the computer, the Apple brand always had the slickest, fastest, coolest best stuff around. But they were not content to sit on the computer. They were looking for more innovative concepts and other worlds to conquer. He listened to what his legion was telling him. Part of the struggle with Microsoft's stock having gone nowhere in five years is that they are now sitting on their dominance with the operating system. Although very profitable, throwing off massive cash, their stock is not embraced like Apple's. They could have done the same or similar things as Apple but did not transcend the culture. An insight into their mindset is their recent attempts to purcase Yahoo. I am totally flummoxed why this deal has not been done. Who's to blame: Yang, Ballmer, Wall Street, the lawyers? The deal may ultimately be done but at what cost? And at what price? Final suggestion: One company that merits study is Garmin, the leader in GPS hardware and software. Much too early to purchase in my view, but that view could change.


Comments

Name

Email

Website

Speak your mind

14 Comments so far

  1. steve leslie on May 4, 2008 1:28 pm

    Perhaps no other place in the country exhibits the young executive phenomenon as much as silicon valley and tech club atmosphere. In the heyday of the tech boom in the mid 80’s when Microsoft was running hard, and oracle and others were doing well, executives were wearing jeans, tee shirts and athletic shoes to work. . This was a far cry from the IBM dark suit, white shirt and red tie standard. It also confused many on wall street who plied their trade nearly 3000 miles away. NASDAQ was known as the over-the-counter market. The analysts were used to talking to traditional button down types who ran traditional companies such as Proctor And Gamble, AT&T, Ge more so in the Dow 30 and they could not really get their arms around the business or the culture of Microsoft, Intel etc. It took them years to catch up. Old generals always fight the last war. Some companies build their Maginot lines refusing to accept the fact that to live and prosper one must adapt to the ever changing landscape.

    They were forced to recruit analysts from the inside to try and figure out these companies. Highly recruited software engineers were commanding huge bonuses, This was the beginning of a new paradigm.

    With this as a background, I suggest that we are in a current culture that is interested in the slickest fastest coolest technology that is available. So I suggest look to the 15-25 or 30 year old market the same people who watch World Wide Wrestling for answers and they will tell you where we our thinking should be. If you want to know what sells in this market watch the TV channels, MTV, VHN,FX, and shows that appeal to this demographic. It would also be a good idea to enlist the help of an ad agency exec to tell you who advertises and where.

    Here are some of my ideas of stuff and things. I think it is very important that if you play this theme, play the leader the dominators as tech and tastes change quickly and the strong survive.

    Tech:
    Apple, Research in motion, gamestop, Google,

    Retail:
    Aeropostale, Nike, Tommy Hilfiger the most modern of clothing lines.

    sl.

  2. steve leslie on May 5, 2008 9:58 am

    This weekend Iron Man opened to the tune of $100 million in box office receipts. I believe this is the second largest box office take in history excluding sequels i.e. Spiderman II. As a result Marvel is expected to gap up 2 points on the open. These movies have always done well in theatres and in DVD sales, so there is no surprise here. I went to see Iron Man on Saturday at the 5PM showing and the theatres were packed. They had showings all day on the hour and their parking lot was filled to overflowing. Looking about, it appeared that the whole extended family was involved in this event. Parents were bringing their children and grandparents were bringing their grandchildren.

    There will be great merchandise and other promotions associated with this. Look for a major food chain such as YUM brands to promote the Iron Man character. In my view, this film will have enormous appeal for many years to come. I went to Transformers the movie and Iron Man is far better that that.

    I will refrain from a review as I hope the great Marion Dreyfus reviews it for this site.

    The marquee movie set to kick off the summer season is Indiana Jones IV with Harrison Ford as the dashing adventurer Dr. Jones. This is set for just before the Memorial Day weekend.

    For June, on 6/22 The Incredible Hulk with Edward Norton as the radioactive and tormented Dr. Banner is set for release.

    Rounding out the megahits for the Summer in July is The Dark Knight with Christian Bale as Bruce Wayne\Batman and Heath Ledger as Joker.

    Steve L.

  3. Anatoly Veltman on May 5, 2008 10:58 am

    On trading rather than investment side:
    the execution error, that sent E-mini up to 1417, down to 1401 and back to 1411, all in space of same 9.21pm minute Sunday night; it also jerked 30y contract one-and-half handles in 30 seconds - all sign of the times, since trade went algorithmic!

    In contrast, Copper’s 10% spike at NY open was not simply consequence of Chilean strike headline. C.O.T. (Commitment of Traders) report after the Fri close sported rare Bullish Divergence: where commercials have increased their net Long commitment in the week, despite the higher and near-record prices. So, spec buy-stops above were ripe for the taking…

    More of consequence may be Bearish Divergence in Japanese Yen commitment. The fact that both large and small specs continued to accummulate record Yen holdings is indicative of total dis-inclination toward carry-trade. Was that the proverbial wall of worry that stocks have been climbing? EUR and Aussie commitments have turned bullish last week, in contrast

  4. orson terrill on May 5, 2008 4:11 pm

    Not making stock picks here, even though I did recently buy it, questionable accounting and all, but ticker: APP is a company that is very young, (too young for many investors?, though there may be evidence APP chief Dov Charney is wising up to interests of shareholders) very much on the edge of culture and fashion; just a progressive company… and shocking. Aeropostale, abercrombie, Tommy, these are brands for the tail-end sheepsters…those are dead lines in terms of finding rapidly expanding social acceptance, though that doesn't mean they can't improve earnings significantly from a marginal increase in sales or have a seasonal upswing as they will continue to be "shopped", like bees always returning to a certain type of flower looking for that long lost satisfactory experience, they may find it from time to time…

  5. Alex Jones on May 5, 2008 7:58 pm

    More in response to Russell Sears - but I found in my athletic career (which took me from mediocre high school runner in 1999 to qualifying for the Hawaii Ironman in 2007 at the age of 24) there is an incredible amount of value in the information available on the internet. Simply by reading and hiring a coach online I was able to gather huge amounts of information from the best of the best (Dan Empfield, Gordo Byrn, Joe Friel etc) long before I met any of them.

    As for the more central premise - that superior returns may be found by investing in companies that young people like. Nike was mentioned here in the comments - it’s a great example of a company that has been able to stay “cool” and “young” for decades. Compare with Apple, which while the darling of the moment the business has a history of failing to produce winning products without Steve Jobs at the helm.

    Will Apple continue to produce superior products in a post-Steve Jobs world? Will Nike?

    Off the top of my head I can’t think of how to do any back testing since you are going to have a hard time doing any measuring without really just capturing new technologies and other startups inadvertently and having plenty of survivorship bias.

  6. George Parkanyi on May 5, 2008 8:12 pm

    I don’t know that youth offer any magical or special demographic. I bought Nvidia on a pretty good balance sheet (which met my criteria anyway) and some anecdotal input in chatting with some young gamers. They definitely preferred Nvidia graphics accelerator cards to Intel or ATI, and the reality is that the newer popular games my kids buy don’t work properly on older graphics systems. With all this planned obsolescence and gaming craziness you’d think slam-dunk; but Nvidia was hit hard in the recent down-turn and is the worst performing issue in my portfolio at the moment.

    The baby-boomers I think are still far more powerful force in North America, and expect that it is their purchasing/investing tastes that still offer the best opportunities here.

    It may be different in Asia and other emerging countries where there is a much higher ratio of young people. For example, when I was in Buenos Aires in 1997, I couldn’t help noticing that just about every youth had a cellphone pressed against their head. No free lunch however - the things that tend to be popular are also easily knocked off.

    With kids/teens you may want to consider the effect of peer pressure - the word on what’s “cool” travels very quickly. But their tastes are also temporal because of their shorter attention spans; they like to move onto the next new thing much more quickly. On balance I would say youth would still have to be a difficult demographic.

    My business partner many years ago kept it simple. His advice to me on any deal always was “follow the money”. Who’s got the purchasing and decision-making power, and when and how do they deploy it?

    Cheers,
    GP

  7. Russell Sears on May 6, 2008 1:42 pm

    Alex,

    For most of these kids, its not all about knowledge, its about objectivity. The more I knew and the closer I was of pushing it to the limit, the more I needed a coach. In 95-96 when the internet and networking was just starting, and I was hitting my stride, several of the running gurus where available to have informal forums chats. Benji Durden, Scott Douglas to name a couple. But I still needed a coach. The more success you have the harder it is to let yourself take that extra rest day, the harder it is to taper the goals to give yourself time to develop, to be satisfied with this seasons output to move on to next season.

    Not that you can’t do some great things by loading up on the info, but you can’t beat real life experience and objectivity.
    Look what happened to Yahoo yesterday, a young tech genius that was too close to the company blew it.

  8. Gary Rogan on May 6, 2008 9:31 pm

    In the age of technology, youth often like things that are marginally profitable or not profitable at all, like texting each other or posting videos of each other on YouTube. Even when somebody can make a few bucks of their endeavors, like social networking, since both they and the technology are fickle it's hard to predict how long the trends will last. Google is winning because the Google boys are sharp, but other search engines, just as youth oriented, lost a lot of money for a lot of people.

  9. steve leslie on May 7, 2008 10:40 am

    To Mr. Rogan’s comments. With all due respect, I do not get your post at all. I think it fair to say that the youth of today are much more complex than mere posting on my space, visiting you tube and unlimited text messaging for $5 a month extra. Outfitting a child today goes far beyond buying them one pair of jeans, sneakers and a few shirts like when I was a kid in the 60’s. Every kid from 15-25 that I know wears designer clothes. This transcends all racial and ethnic lines for that matter. They have their own computers. They have accessories such as their own cell phones and IPods. Send a kid to college and see their list of “must haves”. They must have their own car, Xm satellite and the bells and whistles that go with it. When they watch tv the shows are distributed by cable or dish providers.

    Have them in sports? At the very high end is hockey and lacrosse. Equipment alone can run into the thousands. Basketball? No self respecting “baller” will wear anything but Nike’s. Soccer? shoes, jerseys etc go into the hundreds a copy. From the high end to the low end sports are extremely expensive. If you want to see a great example of Nike at work, look at the jerseys the University of Oregon wears. Phil Knight was a graduate and is a great supporter of the “Ducks”.

    Britney Spears, Aguilera, and the Olsen twins became centimillionaires off of the backs of parents paying for daughters to emulate these spoiled stars.

    White boys are the number one audience for rap and especially gangster rap. Teenage girls love to scream at slasher movies. There may be a new artist a one hit wonder who comes out with a cd but there is always an eager audience willing to buy their product. When they are not internet surfing and IM ing their friends they are watching MTV and FX.

    A family of four going to the movies easily gets to $50 after tickets two boxes of popcorn and a few drinks.

    Google is far more than youth oriented. Everyone uses Google. You tube is an internet phenomenon and my space is not just for kids. Politicians and many adults use it regularly to post their info.

    I agree that tastes can be ephemeral. What works today will not necessarily work tomorrow. This is why the nimble and the well capitalized will survive and prosper. This is the number one reason that when one purchases the stock of these companies they must be traded. Their are two kinds of businesses who ply their trade in this arena, the quick and the dead.

    sl.

  10. acetrader on May 8, 2008 11:16 am

    Yeah, but, youtube is popular because it is Easy, Free, and did I mention Free, put a subscriber price on it and watch it go bye bye…texting is “free” because its only 5bucks a month for unlimited…my space, is, wait for it….FREE. and google…it is a nice clean search page, also FREE. My daughter is 13 and while no way is she allowed on My Space, she does have a youtube channel, unlimited texting and access to google….and of course we all read/click on every banner ad on every site, WINK!

  11. steve leslie on May 8, 2008 4:52 pm

    Lets look at some facts and not anecdotes. Myspace is a subsidiary of News Corp. Youtube was created in mid-February 2005 by 3 former employees of paypal. The company was purchased for $1.65 Billion in Google stock The stock then was app. $480 November 13th 2006.

    Google was started by Allan Page and Sergey Brin in 1996 when they were both under 25 years old. It was offered in an IPO at $85 in August of 2004. It peaked in price in November of 2007 at $750. It currently stands at $586.

    Allan Sloan of the Washington Post advised against buying Google stock in August of 2004 right after its IPO

    http://www.washingtonpost.com/wp-dyn/articles/A27391-2004Aug23.html

    Hmmm! I guess those guys at Google got it right. You can offer stuff that is free and make money off it. Coulda Woulda Shouda fills the coffers of the whiners and losers in life.

    But then there are those who wished they had bought Berkshire Hathaway when they were young and Microsoft and Oracle on its IPO.

  12. Gary Rogan on May 8, 2008 10:05 pm

    Steve, my only point was this: following youth-oriented trends in technological companies is extremely hard. It’s probably the most blatant example of ever-changing cycles, and the mere youthfulness of the founders or customers doesn’t add much to being able to profit from these trends. I took a cue from the mention of Google in the original article, so I stuck with the technological theme.

    Now, if you want to talk about demographic trends, it’s probably easier to take advantage for the oldsters’ needs for medical care, financial advice, cruises, and burials than the mundane needs of the young.

  13. Gary Rogan on May 8, 2008 10:11 pm

    Oh yeah, and for every Google there are many Globespans, and for everyone who bought GOOG at it’s IPO there is a significant number who bought it at 700. Tech stocks like life are best understood in retrospect.

  14. Tom Drake on May 10, 2008 10:02 pm

    Marian Davies and W. R. Hearst were a great couple. Because Hearst’s father, George Hearst, made his fortune in the Virginia City NV silver mines and in Homestake Mines in SD, current opinion has him as a Californian. But in fact he lived in New York City for quite a few years, was governor of New York, and wanted very much to be president of the US, something which F D Roosevelt was worried about.

    One interesting idea is that the dollar devaluation which FDR pulled in 1934, when gold was up valued to $35 from $20.68, was at least partially a political payoff to W R Hearst’s inherited interest in Homestake Mines. HM was one of the greatest of growth stocks all through the 1930’s and until FDR closed down the mines in the 1940’s so that the miners could go to war. Even when Hearst’s newspaper empire was failing, the earnings and gains from Homestake kept him going. Thanks to FDR.

Archives

Resources & Links

Search