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David and Tom Gardner

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from: David Gardner

An Age of Miracles?

Posted Thursday, May 10, 2001, at 1:09 PM ET

Tom,

We had Robert Hagstrom on our Motley Fool radio show last week, Hagstrom being as you know the author of a book or two on Warren Buffett. He turned a phrase on the show that he attributed to Buffett that I think reflects the right way to think about investing. He said, "Warren doesn't ever try to be short-term greedy. He tries to be long-term greedy."

Now let's please throw away the negative associations with the word "greedy" that some people will get hung up on and recognize both the light sense of humor and the heavy dose of common sense apparent in the expression. The benefits of being "long-term greedy" are ever so evident in Krispy Kreme's story and what it can teach students of business and investing. (Though I still hate the K's. What? Someone else had trademarked "Crispy Creme" at the time?!)

And your praise for Krispy Kreme is Buffett-esque, as you know, since he eschews technology in favor of--among others--consumer goods companies like See's Candies and International Dairy Queen ... and maybe Krispy Kreme one day, though I doubt at the valuation wave that stock is riding. Hang 10!

Could you live in Hawaii all year long? I don't think I could ... I'd miss the seasons. (Sounds like a Larry King column. Sorry. "How about that Angela Lansbury? The dame is timeless.")

(By the way, complete bio on AL available at one of the best sites on the Internet, the Internet Movie Database.)

Did you want to tell me about Einstein in Love?

Meanwhile, let me put in a brief plug for our era being called the Age of Miracles. I know --too optimistic a suggestion by half, in our cynical age. (I shudder to think my suggestion will appear on Slate--it'll be so quickly yanked down, pounded, flayed, chopped up, processed, and puréed.)

Anyway, as evidence, how about two quick surveys of philanthropy and biotechnology? We are seeing amounts of money given by private individuals and organizations that are so large as to be unprecedented and so frequent that they barely merit a front-page mention anymore. Obviously, there's Gates. And then there are the followers of the aforementioned Buffett, who--as they jet away into the next world--leave behind them sums of $50 million or more for more parochial concerns like, say, their local hospital. In just the past couple weeks, $35 million has been pledged to the Smithsonian and (separately) $100 million to Johns Hopkins. The sheer generosity of these donors is something completely underappreciated and underreported--just the way they want it, I'm sure.

And if you miss a given day's front page, you'll also miss out on the latest biotech mini-miracle. I was about to toss away our Washington Post from two Saturdays ago when I came across a front-pager on the successful biotechnology cure of inherited blindness in dogs. Apparently, through gene therapy we can now give sight to dogs that were born blind. This study followed the same successful surgery on mice. Next up, homo sapiens. The story said this gives hope to the more than 100,000 Americans who are born blind or lose their sight in infancy. The cure, if it works on our species, might be around in five years.

Am I wrong here, or do we take stuff like this for granted? A passing headline in a newspaper one picks up simply to toss it into the recycling bin. That is wrong. Age of Miracles? Let's pull ourselves out of time and place for a moment and consider ...

... And let's recognize how many great investment possibilities are out there, attached to these very sorts of achievements, that will show up over the next 25 years. Yowsah.

David

the breakfast table
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from: David Gardner

An Age of Miracles?

Posted Thursday, May 10, 2001, at 1:09 PM ET
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David and Tom Gardner are co-founders of The Motley Fool, a personal finance company. They are dedicated to educating, amusing, and enriching people through their Web site, books, newspaper column, and radio and television shows.
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[Notes from the Fray Editor: We're running Arthur Stock, because of his starring role in this week's "Breakfast Table" (this was his featured post), but Kate persuasively argues the opposite about Krispy Kreme here ("Hot sugar and fat beat microchips..."). Some good ruminations about the quality of life of the have-nots: try LT here (the lifeguard was a woman in fact--LT knows why that would be ironic...), or this post: "Short sightedness does not magically transform the HaveNots into Haves, it just keeps them from griping about the inequities." RonK has a comprehensive flame post for anyone looking for an argument here. There are Questions for Sowell here from Tom R, and two points of view on what The Fray has to offer in this thread.]


Krispy Kreme is a pure momentum play, and its momentum is played out. It's a product that appeals to the stock-buying class, and was new to many in that class (since it went national very recently) when they bought the stock. These stocks do well at first because people buy the stock after enjoying the product, without looking at balance sheets. Then the stocks collapse to sane levels--P/E closer to 20 than 90. Think of Calloway Golf Clubs some years back, mircobreweries, cigar sellers, Yahoo, and in the food world Snapple and Boston Chicken. Starbucks is almost an exception that proves the rule, but even it had several 50% falls along the way.

Krispy Kreme has limitations that can't be fixed: food is a competitive industry; Dunkin' Donuts demonstrates that there is competition even in the sub-category; franchise operations are subject to all kinds of accounting gimmicks for the first year. Boston Chicken, now in bankruptcy, was notorious--I don't know if Krispy Kreme is playing accounting games, but it would be difficult to determine that it isn't.

Foods with holes in them are especially poor investments, as Manhattan Bagel, Einstein Bagel, and several other bagel purveyors proved.

--Arthur Stock

(To reply, click here.)


 Whenever I hear someone start talking about finding for-profit solutions to social problems [Monday's entry] I think of a quote by Bill Speidel about Seattle's city fathers. "If they could have made more money by not building a city, they would have."

And there, in a sentence, you have the promise--and the problem--of for-profit ventures. What looks from outside like a remarkable feat of a healthy social conscience, in truth, relies on nothing more than a healthy respect for the bottom line.

The trouble is there in that "if" clause: when that bottom line comes into conflict with the social goals and one or the other has to give, which way are the venture philanthropists going to jump? Especially with any philanthropy that ventures into the tricky area of public goods, the good accomplished is only rarely monetizable.

--James Grimmelmann

(To reply, click here.)


 As far as I know, no society has yet come up with an incentive structure which rewards leaders by how well they are able to make impartial policy decisions, though it would be a great discovery. It's a nice try, but I don't think hiring economists to run the country would be the perfect solution.

The problem with economists is that they study only certain social relations, those that can be converted into cash. There are indeed harsh economic realities that we must face in making policy decisions. However, there are also harsh social, diplomatic, and environmental realities which economists do not take into account in their analyses. Of course economic growth is important, and policy makers should know exactly what they are doing to the economy and to individual businesses, but they should not assume that commerce trumps all other interests. (Stop waving those copies of Atlas Shrugged at me! Ayn Rand isn't even an economist!)

--Jane Grey

(To reply, click here.)

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