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Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: Shane M who wrote (1050)	2/14/1999 2:05:00 AM
From: James Clarke	Respond to of 4690

apparel stocks... but first, you'll want to find a copy of this weekend's Barrons to read Seth Klarman's essay on Buffett vs. today's hot shot mutual fund managers. Klarman is a distinguished value investor in his own right, and his observations are well worth the 3 bucks. As for apparel stocks. Gap is both an apparel and retail company. I looked at this stock in detail in late 1995, when it was flat on its back, I forget why I didn't invest, but obviously that was dumb. It was obvious to me that the numbers are stellar. I guess I just couldn't figure out how they did it. Also at that point, I was not a customer. Now I am, and I still can't figure out how they do it except that I am totally satisfied every time I leave their stores. They execute to perfection. I cannot identify the barrier to entry, but it just seems to me that nobody can do what they do as well as they do it. Hopefully Buffett will write about this investment decision at some point so we can understand his thought process. As for true apparel stocks, you can easily get tripped up in this sector if you think Buffetology = brands. They're all branded, and you've heard of all of them. So why has Guess been an unmitigated disaster? Or Oakley? They are the top brand in their business, but that didn't help their stockholders. What you want to look for is a barrier to entry. I would argue that the apparel industry has none. Oh, but Ann Taylor has superior designers. They'll be hired away or imitated if they're that good. Oh, but Polo has great brand image. So did Izod fifteen years ago. How cool would you look today with an Aligator on your shirt? I can think of one company in this sector with a barrier to entry I can identify with precision. I called this a buy a year ago when everybody hated it. So far, I've been wrong (just early, hopefully) - its still not much above my entry price with the market up 20%. Nike. What is the barrier to entry? As I recall my analysis, Nike's sales are roughly $10 billion. They spend 10% of that, $1 billion roughly, on advertising. They are much bigger than their closest competitor. This means that as long as the game is advertising, which it always will be in the sneaker business as long as Nike leads the game, a Reebok would have to spend 25% of sales on advertising to play on Nike's field. Not because they have an inferior product or less desire to advertise, but just because their sales base is 1/4 of Nike's. Adidas is closer, but the same argument applies. That is as close as I can come to a sustainable franchise in this business. And I know, its not Coke. Which tells me one thing. Aside from that one name, I spend my time elsewhere. JJC