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.


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