Book on Moats; Best Blogs; Ask Greenblatt; Eddie Lampert


If you want to contribute to a book on Moats: The Competitive Advantages of Buffett & Munger Businesses go here: You can read a few sample chapters of the book. I disagree with Buffett’s comment that Net-Jets has a competitive advantage—perhaps the company’s scale reduces its deadhead costs—but the company has yet to show consistently high profitability. I am not recommending this book/project, only making you aware. I hope when we complete our study of competitive advantages, you could surpass the analysis found there.

Ask Joel Greenblatt a question by Jan. 21, 2012 here:


What are the best blogs for intelligent investors? See for yourself:  or to vote and receive a recent listing:

An extensive list of blogs found here:

Below is an assortment of blogs I have come across. The bolded links are ones I have found to be informative, but with little time to read all of these blogs, I leave the rest up to you. Your first priority in learning about investing should be to read original company filings with your accounting textbook alongside and/or the works of the masters like Buffett, Fisher, Graham, Klarman, Greenblatt, and Munger. However, any blog which informs and encourages you to think is worth a perusal. Learn from many sources, just don’t fritter away your time. (good, in-depth business stories) Also, read his analysis of Fairholme (name not mentioned) here: SHLD, one of Fairholme’s holdings, is mentioned in the last posting. This is a lesson in correlated bets of a NON-diversified portfolio. If wrong, you go down with the ship.

Eddie Lampert meets a bad business

Buffett does acknowledge that even the best managers (Eddie Lampert)  will flounder if the business is not intrinsically sound. His most telling comment on management is:

‘When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.’







Sears Holding Corp. announces its struggles.

There are many lessons here: allocation of capital, operating a non-franchise business, a bad business, and hubris. We shall return again.

11 responses to “Book on Moats; Best Blogs; Ask Greenblatt; Eddie Lampert

  1. John,

    Thanks for Bronte’s letter, it is truly enlightening to read how he looks at things..

  2. “Net-Jets”

    I don’t consider myself having reached even just the foothills of the mountain of moat investing, so I’m reticent to badmouth other people’s investment theses. There’s some things I didn’t like about the Net-Jet analysis, though.

    Perhaps the biggest moat that NetJets has is Uncle Warren’s chequebook. It would have been toast without it. The 4% and 5% return on investment is an abysmal one, so it is difficult to know where the attraction of it is as an investment. It suffers all the usual problems of a capital-intensive business: you have to invest heavily to earn extra returns, yet you’re left holding the baby when demand dries up. The business is not super-sticky, as NetJets has found out directly. Event he mega-rich nip-and-tuck their expenditure from time-to-time.

    As regards the “rebounding U.S. economy” argument, that seems more an article of faith than fact. I’m not sure I find the factors of safety and service especially convincing. I assume that their competitors aren’t exactly dropping out of the sky, and that level of services are uniformly high given the amount of dough it costs.

    I Googled for fractional jet ownerships, and found that there were a few competitors: FlexJet and JetAlliance, for example.

    A point that I didn’t pick up on, and is not obvious unless you study the issue, is when Buffett explains “The ubiquity of our fleet also reduces our “positioning” costs below those incurred by operators with smaller fleets.” I think it’s microeconomic issues like these that Buffett understands better than others that makes him the billionairre that he is.

    Still, 4-5% returns is a tough business, and not attractive. I also don’t really “get” the attraction behind fractional jet ownership. They seem a bit like holiday timeshares for rich people. Why not just rent on an as-needed basis? There are companies that cater to that market.

    “Sears Liquidation Sale: A hedge fund speaks about its short position.”

    I think 2011 is a year that poor old Bruce Berkowitz would rather forget. Let’s hope he fares better in 2012.

    • Dear Mark:

      Thanks for your intelligent comments. To become better investors in franchises (or companies that grow profitably on a sustained basis) we have no choice but to understand microeconomics and strategic analysis. We need to learn the general principles that underlie strategic decisions. If not, we will simply be telling war stories about the past performance of successful/unsuccessful firms. We must know the structural characteristics of barriers to entry to understand competitive advantage. Even as an entrepreneur developing an energy services business in Sao Paulo, Brazil I did not know the difference between an arbitrage opportunity and competitive advantage. When the arbitrage opportunity closes, you had best be gone.

      Now if you are disciplined to stay within a small circle of competence, you can focus on net/nets, asset-based special situations, etc. and do fine. But as you see the various case studies, VERY smart people do not think clearly about strategy either through ignorance, hubris, or delusion.

      Net-Jets may have a low ROIC due to heavy investments in infrastructure and once completed, then ROIC will rise. Deadhead costs mean moving the jets into position to pick up passengers (like backhauling for trucks) so perhaps there can be economies of scale? The point is we need to have a systematic process to analyze such businesses. So we will begin brick by brick. I will post so people are forewarned about the commitment required to REALLY learn about moats.

      Unfortunately, since Berkowitz publicizes his position, he is an example to learn from. He may do well but I doublt many of his investors understand how concentrated his positions are.

  3. “If not, we will simply be telling war stories about the past performance of successful/unsuccessful firms.”

    Yes! I have been looking at the performance of a few value investors, and 2011 has made for some disconcerting reading. It just goes to show that to earn decent returns is very tough. Earning Greenblatt-like returns is super-tough.

    Talking of net-nets, I did a write-up on GNG (Geong International) – a net-net that I thought people should stay well away from it. Although It’s listed in the UK and not the US, I hope you find my reasoning interesting nevertheless. The link is here: I hope you like it. Be gentle with me if you think my logic needs a lot to be desired.

  4. Hi John, in terms of the order of learning all the material, do you have a suggested route (since this is more of an unstructured learning environment)? Would it make sense to read through the material you post in chronological order on this website, then eventually go through an the analysis of companies via a website like Bronte Capital (I believe they are focused short sellers). Would focusing on material posted on franchises, asset based companies and Austrian Economics be the best course to proceed then in the next few months look at outside case studies? Thanks.

    • Dear Logan James:

      What is your fluency in accounting? And do you have an investing philosophy or are you trying to build one? Once you reply, I can give you a more thorough response.

      Certainly you want to have read through Intelligent Investor and Margin of Safety by Klarman (in the Value Vault). Read Buffett’s partnership letters and and all his letters to Berkshire shareholders. Then try the cases in chron. order on this blog. Start with Munsingwear.

  5. Hi John. I would say that I’m fairly fluent in accounting. I’ve taken several courses in college and have also read a fair amount of accounting related books on my own. I’m trying to build my investment philosophy. Also, I’ve read the material you mention in the second paragraph. Thanks.

  6. The blog list is full of helpful and financially practical blogs. Thanks for sharing it with us.

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