The Weekly Review #1

The evolution of pantyhose, demystifying competition, and ape wisdom.

Welcome to Vlad’s Notes, an investment newsletter from the founder of Roic AI. You can sign up here if you'd like to, or just keep reading.

The Weekly Review is a special Sunday publication made up of the most intriguing articles, tweets, companies, books, quotes, and services I discovered within the past week.

Article · Cracking the History of L'eggs Pantyhose

If you’re old enough and especially a woman, you should remember this egg-like pantyhose lying in the right place at the right time while you were finishing a regular grocery trip.

I’m not that old, but I like spending my free time searching for peculiar business cases, or say it more scientifically, deviations.

As you may know from the letter about my investment process, I prefer to own a dominant player in the market so I can sleep well and project future cash flow more precisely. But as nothing is perfect in our lives, it is so with businesses. Therefore, I always try to create a mental database of outliers. Stocks and enterprises that managed to break an industry’s status quo and become a monopoly or at least a near monopoly.

As Lynch noticed in a Barron’s interview, some of the most lucrative stocks are those that are growing in a no-growth industry. This way, an investor can catch the ride from the industry-average to growth multiples first, and add the extra appreciation for a dominant position with associated margins after the growth CAPEX has been spent.

The L'eggs brand is a very interesting example in terms of industry. The pantyhose segment was extremely fragmented and sold predominantly in department stores as a commodity. Yet Robert Elberson managed to spot the opportunity. He was the first one who started offering pantyhose at supermarkets where women were much more frequent visitors. The trigger here is the customer’s laziness. Women visited a department store every month or two. But you can ask your girlfriend or wife how often she needs to buy a new pair of nylons. The answer will be close to 3-4 wears before getting a new one. Way sooner than the average time between shopping trips.

Nevertheless, a supermarket offering wasn’t enough; they had to defend their position. The egg shape was supposed to differentiate and catch the eyes of buyers, especially when the industry standard was a cardboard package. And it did well. The company controlled 27% of all pantyhose sales in grocery stores by 1976.

The rest of the story, as well as the reason for the falloff, can be found in the article.

Book · Competition Demystified: A Radically Simplified Approach to Business Strategy

I think Bruce Greenwald is the most underappreciated financial thinker of our time. Someone may find his speech a bit generalistic, but in my opinion, an academic shouldn’t give you as many real world examples as a practicing investor.

The book is well recommended for someone who wants to understand the competitive environment and changing market share based on game theory and structural approaches.

Quote

"It's hard to overemphasize the importance of who is CEO of a company." — Warren Buffett, Shareholder Letters, 2005

"I knew nothing about the management of Moody’s" — FCIC Interview of Warren Buffett, May 26, 2010

A perfect reminder for all those guys who strictly adhere to their investing beliefs and thus have a disproportionate amount of cash and only a few stocks.

Investors don’t have to mimic the well-known capital allocators in every aspect by reading all available materials and trying to create a formula or a list of "golden" rules. Especially when the authors of those rules break them.

An investment strategy isn’t written in stone. It should change a bit based on a particular company, the economic situation, and one’s personality.

Service · Apewisdom.io

It's a pretty interesting service for checking a company on the subject of meme stocks. They examine Reddit and gather all mentions.I wouldn’t use it as a way to catch the hype, but it’s a very valuable self-check system for crowd biases and value traps.

The service is totally free and requires no information from the user whatsoever.

That’s all for today, thank you.