Costco, SAM, Moats discussed on Capital Allocators


Five percent at costco. There may be one or two at sam's club sales per square square footage cost one thousand bucks five hundred sam's club employee turnover costco twelve percent fifty percent at sam's club are sees a twelve versus four for sam's uh-huh club what accounts for that to us. It has to come down to the culture and the values of the business wherein costco. They truly care about their people. They want happy employees employee's in retail. You want happy employees because you and i are going to go in there and we're going to get a great experience and we're gonna come back and spend more. It's reflected and by the way that whole value side comes directly from the top founder of the company. Jim cynical owned a lot of shares but never made more than three hundred thousand dollars a year. How different is that from companies other companies companies where the c._e._o.'s making twenty thirty forty million or in the case of some ceos where they get fired and they get a golden parachute a two hundred million dollars that doesn't bode well for the long term cultural success of the firm so to us the distinguishing characteristic any investment has got to be determining saying what those core values are what that what animates that culture and making sure. There's an alignment. Let's dive in on both of those so on the first on moats wrote. How do you define and then measure what the companies competitive advantage is. Lots of different ways first of all what what indicates indicates historically with money managers what indicates a mode is obviously some level of return invest cap so most managers out there always screening for some kind of hurdle at ten percent eleven percent hurdle on r._o._i. See over the prior five years. We've actually found more valuable than just the level of the are. I see is is the direction. There is a one to one correlation between the direction of the r._o._i. See over a five year period of time and stock performance. You know so if you if you break the market it down into five quintiles from the top quintile where they have the most rapidly rising r._o._s.'s to the bottom where they have the declining are icees. There is a one to one relationship ship between the best performing stocks on the top the top quintile and the poorest performing stock and that starting from a certain baseline absolute level of r._o._i. See from which you wanna to see growth after that and that that makes a good company or no no i mean we prefer a company. Frankly that would have <hes> the maybe five years ago had a four percent r._o._t._c. growing to five five six seven eight. That's a much better investment than a company. That's at a twelve percent r._o._i. See that might be stagnant over that period of time in not growing so there's is a huge advantage to getting that correct. There's a lot of other ways that people talk about moat buffet talked about brands when he went from being sort of a classic ben graham investor fisher fisher investor. How are the other ways that you think about what competitive advantages get incorporated into the kinds of business. You like though the obvious right disruptors low low cost providers.

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