Yellowstone Partners Blog

In December we made a portfolio adjustment in the Yellowstone Partners All-Cap Global Strategy, selling Amazon.com (AMZN) and buying Carnival Cruise Lines (CCL).

Our thoughts were simply that Amazon was fully valued, having risen drastically throughout the Christmas season. In fact, it reached a point where by some metrics it could be seen as double the valuation of other retailers with similar margins. The other major area of concern was the possibility of cash-strapped states looking to tax online retailers. Breaking news today showed that at least one state, Colorado, took a step exactly in that direction.

We added Carnival (CCL) to the Yellowstone Partners All-Cap Global strategy, seeing it as a great way to play the value vacation theme with strong fundamentals that seemed to be improving. After listening to the CCL CFO today, we feel even more encouraged by the prospects for the company, and confident that management will continue to navigate the Cruiseline operator to smoother seas.

What has always impressed us about Carnival is that they have operated with a very clear, consistent strategy. They operate 11 brands, each of which is specifically targeted to a particular customer group. Additionally, with 80% of Americans, and less than 10% of Europeans having ever cruised, they see broad opportunity to increase passengers, and consequently, profits.

In terms of tangible metrics that we feel give CCL an edge, we see that they have held their cost per berth in line at an industry low for almost 20 years. Thier numbers show that their costs are a little more than 10% lower than their competitors, and even still they see opportunity to continue to reduce costs.

Recently they’ve keyed in on fuel efficiency, developing systems to optimize usage. For example, they find that if they can keep the “cut line” of the ship within a certain range, they can reduce costs. So because passengers are always moving, they have ballasts which they adjust in order to maintain that balance. They’ve also begun treating the hulls with silicone paint, which reduces algae and drag.

More than anything, what is apparent is that the company, from the managment to the staff, is extremely cost-concious – exactly the kind of operation that is primed to take advantage of similarly cost-conscious cruisers.

As always, please remember that these statements should not be interpreted as a soliciation to buy or sell any security. Investing in securities entails risk which may not be suitable for all clients. Investments, while offering the potential for gain, may also lead to loss and no performance guarantee can or will be made.

CCL is owned in the Yellowstone Partners company 401(k), which is managed in the All-Cap Global Strategy. Neither CCL, nor AMZN is owned in personal accounts held by individuals at the firm.

Sometimes work is tough. This isn’t one of those times. Each year we have the opportunity to attend the Raymond James Instiutional Investor Conference in Orlando, Florida. Each year, a number of company CEOs and CFOs provide information to anxious fund managers, analysts, and other interested parties.

This morning, we’ve already listened to presentations from a number of companies, in some cases confirming ideas and tailwinds we had already discovered, in other cases, introducing us to new ideas and opportunities. In a market that has finally begun to return to the core of investment valuatuion – corporate earnings, this is truly the meat of asset selection.

To pass along just a couple little bits, this morning, Allegiant Travel Co, (ALGT), a company that has been on our watchlist (and in a few satellite portfolio strategies), has announced that they are purchasing a number of 757 aircraft to begin offering service to Hawaii from the West Coast. While this is a departure from the model they have developed, it remains in keeping with their overall strategy and focus, and provides another avenue for significant revenue growth.

In a small breakout session with Cinemark Holdings (CNK), which we recently added to the Yellowstone All-Cap Global Strategy, there were some interesting details which materialized, which we anticipate will have a positive impact on profitability, and, in the long run, earnings. Cinemark anticipates that they will have close to 1,000 screens with 3D capability by the end of the year. Additionally, CNK has opted for equipping some key theatres with what they refer to as the “XD” experience, a larger, more sound-intense presenation, comparable to IMAX, but without the need to share revenue.

These are just a few early stories from the conference, and we anticipate that there will be many more.

As always, please remember that these statements should not be interpreted as a soliciation to buy or sell any security. Investing in securities entails risk which may not be suitable for all clients. Investments, while offering the potential for gain, may also lead to loss and no performance guarantee can or will be made.

CNK is owned in the Yellowstone Partners company 401(k), which is managed in the All-Cap Global Strategy. Neither CNK, nor ALGT is owned in personal accounts held by individuals at the firm.

I once had the opportunity to hear the Oracle of Omaha speak in person at a Utilities conference. I was enthralled by his remarkably simple wisdom. If there’s one thing that makes Buffett who he is, it’s his ability to distill difficult concepts into easy, memorable phrases. This article draws out some of the best recommendations – the same exact principles that have guided his investment philosophy for dozens of years.

http://articles.moneycentral.msn.com/learn-how-to-invest/buffetts-tips-for-new-investors.aspx

I know this is a tired, tired story, but if you have any interest at all in re-living last year’s credit collapse, this is a nice way to do it.

http://jonathanjarvis.com/crisis-of-credit

It is a master visual compilation and explanation of exactly what went on in the 2008 Credit Crunch.

As we have watched the spot price for gold slice aggressively through previous highs, boldly ascending at an alarming pace, capriciously eclipsing expectations, the question must be asked: is Gold an investment for the ages?

The simple answer is, “yes and no.” The slightly difficult answer is, “it depends.” The thoroughly complex answer is, “keep reading.”

If Warren Buffett has taught us anything, it’s that investing is about finding value. Investing is about arbitrage… imbalance not between perception of value and reality, but between perception of value today, and perception of value in the future.

Gold is a solid investment if the perception of value will be greater in the future than it is at present. “Future” in this sense can only be defined by the duration specified by the investor. For some investors, “future” might be dozens of years, for others, “future” might be a matter of minutes.

To illustrate; consider that if you bought gold any time from January to March or June to December of 1980, you would likely have waited some 26 years before you ever made a profit… and that’s if you didn’t sell when your investment dropped more than 50%. And by that time, if your journey on Earth hadn’t already expired, you would need that investment at least to double just to get back what inflation had taken from you over those 26 years… something it still hasn’t done even three years later at all-time highs.

Yet, had you allocated your investments to the S&P 500 Index over that same timeframe, you would have the kind of investment returns that we all dream of – the kind with a comma: 2,390% (Almost 13% annualized).

In contrast, if you had bought gold in early 2000 (while we’re seeing with perfect 20/20 hindsight, let’s just go ahead and say you called the top of the Nasdaq and cashed out at 5000), now, some 9 years later, you would be sitting atop your cash heap with a wide grin and a 268% gain (14.3% annualized).

To provide reference, consider that in this same scenario, had you invested in the S&P 500 Index, you’d be pining over an 11% loss.

Then, to summarize, gold is and isn’t an investment for the ages. As with everything in investing, it is a question of timing – a question of value. There is a reason the answer is, so often, “maybe.”

This is a case study for diversification. The lesson might be never to spurn any single investment category, and never to believe any to be infallible. There is no replacement for prudent diversification of investment assets.

Disclaimer: This is not a solicitation to buy or sell any security or particular investment. Investing entails risk which may not be suitable for everyone. These figures were calculated in US Dollars with information provided by Bloomberg. Past performance is not a guarantee for future returns. The S&P 500 Index is compiled and managed by Standard and Poors and cannot be invested in directly.

In our quarterly newsletter we issued in September, we talked about using Google Trends to derive investment ideas. One of the positive trends we have been tracking and specifically mentioned was Amazon.com’s reading device, the Kindle.

Here is the Google Trends chart of search inquiries on the Kindle.

You may have noticed the massive move upward in Amazon.com’s share price on the heels of their most recent earnings release. The news, a 68% increase in net income, came from broad strength in sales across all of their various merchandise offerings, and while they were tight-lipped about exactly how much the Kindle is contributing, they were comfortable saying that it is their best-selling product.

Further developments in the Kindle include a significant price drop, international wireless connection, and use in many US universities. This is a story we will continue to follow.

Disclaimer: AMZN is owned by clients of the firm, but is not owned by the writer of this article or the principal of the firm. Stocks may gain or lose value, and past performance is not a guarantee of future return. This is not to be interpreted as an offer to buy or sell any security.