What I Wish I Wrote ~ September 1, 2017

A collection of mostly finance related links that I wish I had the talent to create.

Why Everyone Should Write. Putting yourself out there increases optionality. (Collaborative Fund)

Shorting Uber (Jeff Matthews Is Not Making This Up)

McDonald’s (MCD) used to make the best fast food french fries in the world — until they changed their recipe in 1990. (Revisionist History)

5 Tips to Avoid Dividend Cuts (ValueWalk)

Big name consumer brands earn outsized economic returns in part because they lowered the consumer’s search costs. The internet is changing all this. (Intrinsic Investing)

Flywheel Effect: Why Positive Feedback Loops are a Meta-Competitive Advantage (Evergreen)

Tencent’s wide moat and it pays a dividend albeit a very small one. (Saber Capital Management)

Why The Auto Parts Retailers Will Slowly Go Extinct (The Drive)

Three Financial Red Flags to Avoid When Investing For Dividend Growth (Sure Dividend)

Importance of ROIC: “Reinvestment” vs “Legacy” Moats (Base Hit Investing)

What I Wish I Wrote ~ Mar. 25, 2016

“I’d argue that network effects and critical mass are two of these mental models that carry a lot of weight.” (a16z)

Dollar cost averaging won’t help your returns but it may help reduce risks. (Nerd’s Eye View)

I’ll have a Big Mac, fries, and an Egg McMuffin on the side. All day breakfast has been a hit for McDonald’s (MCD). (Quartz)

Can CSX. Corp (CSX) continue growing its dividend? (The Div-Net)

A Reddit “Ask Me Anything” with a partner at a multi-strategy hedge fund. (Reddit)

“What is amazing is that in the early 1980’s, well over half of mutual funds had an active share above 80%, but as of 2009, only 20% or so of funds were this active”. The more active share your portfolio is to the S&P 500, the more potential for outperformance. (The Investor’s Field Guide)

The craft beer bubble. We’re now in the consolidation stage for older established breweries. Anheuser-Busch InBev (BUD) will have a lot potential acquisition targets. (Vine Pair)

The power of Visa and MasterCard as networks and businesses. (Seeking Wisdom & the PDF)

How credit cards tax America. (Pricenomics)

Arlington Value’s 2015 annual letter. (ValueWalk)

A dozen things learned from Benjamin Franklin about income and investing. (25iq)

The evolution of anxiety: why we worry and what to do about it. Investing is delayed return environment but our brains function for immediate return. (James Clear)

The distorting power of incentives. Get the incentives right and you will get the behavior you want. (Farnam Street)

Morningstar on Steve Easterbrook’s Turnaround Efforts at McDonald’s

From Morningstar’s Restaurant Rundown on what McDonald’s CEO Steve Easterbrook has been doing to turnaround the company’s operational misques.

The company has a new CEO. What is he doing to get the company back on track?

Hottovy: The most interesting things that Steve Easterbrook has done since taking over are changing the organizational views about accountability and being more customer-centric. Those things give us conviction that a turnaround is possible.

Easterbrook reorganized the company into four segments based on the maturity and the competitive position of their markets, which has also led to rapid improvements in the level of communication and cohesion among executives, franchisees, and suppliers.

This has been most apparent in what the company’s calling its international lead markets, which are Australia, Canada, France, Germany, and the United Kingdom. Innovations there are establishing a blueprint for more sustainable growth across the entire system.

For example, in France they’ve rolled out what they call the full restaurant model, which combines a number of different ordering technologies, whether it be kiosks or touchscreens, or just even at the counter. They’ve got a number of ways to customize burgers, chicken sandwiches, and salads. Then, there is also the in-restaurant experience, whether it be Wi-Fi, pickup at the counter, or table delivery. The full restaurant model has done really well in that market. It’s a success that could be brought to the United States.

In the United States, what’s important is that the company has decided that it’s not a one-size-fits-all market. What works in Chicago may be different from the Northeast or the West Coast.

Then, there is the recent launch of the all-day breakfast platform. It’s not necessarily the all-day breakfast platform doing well that’s got me excited. It’s the fact that they were able to roll that out from a test market to nationwide in just over six months. That’s something that we hadn’t seen under the previous management team, where it was a much more drawn-out process. Sometimes, we’d see products either delayed or outright canceled. That quick time frame gives me confidence that this can be a much more nimble company.


Restaurant Rundown (Morningstar Advisor)

Why McDonald’s and Pfizer Will Bounce Back

Just some more of the usual confirmation bias I like to wallow in.

Now about McDonald’s (MCD) and Pfizer (PFE).

McDonald’s: The golden arches have been under siege recently as sales, particularly in the U.S., continue to fall. With 65% of revenue coming from Europe and Asia, the strength of the U.S. dollar has also dinged results. While McConville says there is clearly a secular decline in fast food with consumers pushing for more healthful options, McDonalds is slowly but surely changing its offerings. McConville also likes the possibility of the company spinning off its franchise locations into a “McREIT,” though he stresses the company has denied the possibility. The company generates about $5 billion in net rents from franchisees annually. And while management has played down the possibility of a REIT, McConville says, “it’s nice to have that real estate ownership in your back pocket.” Including its real estate assets, McConville estimates the company’s fair value at $115-$120. McDonald’s currently trades around $97.

Pfizer: The breakup of Pfizer (PFE) has long been a popular point of discussion for analysts and investors. Based on a sum-of-the-parts analysis of the pharmaceutical giant’s two main businesses — innovative treatments and established drugs — McConville puts the company’s value at around $40 a share compared to a recent price of $34. [Barron’s has also made the case that Pfizer stock can climb.] McConville also thinks the company’s portfolio is promising, particularly its recently approved breast cancer treatment, a potential blockbuster that could register annual sales anywhere from $4 billion to $11 billion. “It’s a reasonably priced large-cap pharma with the catalyst of the breakup over time or a potential M&A deal that really effects the earnings growth of the company.”


Today’s Top 5 Stock Picks: CSX, Pfizer, McDonald’s, and More (Barron’s)

McDonald’s is Attracting Activist Investors

From Fortune.

If Rosenstein does pick a fight with McDonald’s, he’ll have more than one not-so-silent partner. Also eyeing McDonald’s is Keith Meister, who runs Corvex Management. Corvex bought 205,000 shares of McDonald’s in the first quarter. Meister is a former right-hand man to Carl Icahn. But the activist who looks most likely to aggressively pursue McDonald’s is lesser known Larry Robbins. Robbins’ Glenview Capital bought 2.9 million shares of McDonald’s in the first quarter. Another hedge fund, Highfields Capital, which is led by sometimes activist investor Jonathan Jacobson, upped its stake in McDonald’s in the first quarter as well. That fund now owns nearly $1.4 billion worth of stock and options in the fast food chain.

The one option that keeps coming up is McDonald’s spinning off its real estate holdings as a REIT. Count me skeptical on this option happening. Ray Kroc may be synonymous with McDonald’s but it was Harry Sonnenborn’s real estate acquisition, financing, and leasing strategy that made McDonald’s extremely profitable. Owning and leasing real estate has been a crucial pillar to McDonald’s business success so it’s hard for me to see management willingly spin-off its real estate holdings.


Activist Investors Want to Supersize McDonald’s Stock (Fortune)