Tag Archives: Franchises

Case Study #1 of An Excellent Investment Thesis (NVR)

The case study: http://www.scribd.com/doc/75321866/NVR


Professor Greenblatt in his Columbia Graduate Business School class passes out several Value Investors Club write-ups by charlie479 as examples of clear, concise investment thinking.  Diligent students may wish to go to the 2000 10-K of NVR included in the appendix (page 30) and value the company before reading these write-ups and discussions. The discussion of the investment thesis is important to follow for understanding the thinking behind the idea.

You should be able to explain why this investment increased 5 to 6 times from the price of $143.

QUIZ Question

What are the financial characteristics of an ideal investment? What creates a 10 to 100 bagger (a stock that rises in price 10 to 100 times!)?  Hint: the stock that made more millionaires than even Buffett’s Berkshire:

WMT_50 Year SRC Chart

NVR_25 Year Charts

What lessons can you apply to your investments?

If you do not answer the quiz question correctly, you are required to meet this nice lady:http://www.youtube.com/watch?v=cPR1a8B9YtU&feature=related

Good luck!

Joe Rosenberg and an Addition to the Compounding Machine Portfolio, ABT

Abbott Laboratories (ABT)

We began with Novartis (NVS), a Swiss pharmaceutical company in this post: http://csinvesting.org/2011/11/29/what-the-market-is-paying-currently/#comments

Adib, a contributor, who runs: http://motiwalacapital.com/ posted a suggestion to add to the portfolio of compounding machines. Abbott Laboratories (ABT).

Adib writes, “I have a potential candidate for the rest of the portfolio…..A company with $5.7 in after-tax free cash-flow. Sales, cash flows, EPS and dividends and book value have grown about 9% over the past 10 years and are estimated to continue growing 7% over the next few years. Debt is 39% of total capital. Ret. On total capital has averaged 18% over the past ten years; return on equity has been 25% on average. Dividend yield is 3.6% and 40% of net profits.”

Go here for the Value-line: Abbott Labs (ABT)_VL and for the 25 year SRC Chart: ABT_25 Yr Chart and for the 50 year SRC Chart: ABT_50 Yr Chart (We like to think long-term). Note how the company outperforms in weak markets similarly to NVS.

ABT certainly fits the critieria of a stalwart franchise. The company has patent protection with economies of scale in research and development.  18 more compounding machines to fill out our minimum diversification of 20 companies.

Joe Rosenberg: The Best Opportunities in Half a Century.

Big Companies (Especially High Quality Franchises) Are Cheap!

Since we are on the subject, I thought you might enjoy reading this: The Best Opportunities in Half a Century, an interview by Joe Rosenberg, Investment Officer for Loews Corporation. You will note that Mr. Rosenberg mentions ABT as an investment. Is Mr. Rosenberg front-running Adib?


I am not a fan of Barron’s because I sometimes view the paper as a CNBC proxy where Wall Street sharpies sell their stock to the unwary.  However, I do perk up when an experienced investor speaks.

That’s what veteran strategist Joe Rosenberg sees, and some of the best bargains, he says, are in the Dow Jones Industrials.

Joe Rosenberg is known for his candor, and for his understanding of all major asset classes. That comes from 50 years of experience on Wall Street, and his deep knowledge of markets and financial history. After beginning his career as an airline analyst at Bache in the 1960s, he was hired in 1973 by the late Larry Tisch at Loews, the New York conglomerate controlled by the Tisch family.

Rosenberg recalls that some people, including Barron’s columnist Alan Abelson, told him that he might not last long at Loews because he and Tisch both were too strong-willed to get along well.

Yet, Rosenberg has been there ever since. He was chief investment officer until 1995, when he became chief investment strategist. He’s also an advisor to Loews’ current CEO, Jim Tisch, Larry’s son. In addition, Rosenberg is a director of CNA Financial, the property-and-casualty insurer controlled by Loews.

“I feel like a kid in a candy store… I don’t know where to begin.…The best companies in the world are now some of the cheapest stocks.” — Joe Rosenberg

Barron’s has interviewed him on several occasions, most recently in February 2008. He then urged Microsoft (ticker: MSFT) to scrap its proposed merger with Yahoo! (YHOO) because he felt Microsoft was overpaying. Luckily for Microsoft, Yahoo! rejected the deal, which would have taken place at nearly double the Internet company’s current share price.

Rosenberg doesn’t always get things right. He was bullish on Fannie Mae and bank stocks prior to the financial crisis, during which financial stocks were crushed and Fannie Mae was taken over by the government.

Rosenberg spoke with Barron’s last Monday at his New Jersey home. He’s now bullish on U.S. blue-chips like Microsoft, Merck (MRK) and Johnson & Johnson (JNJ), saying investors have a historic opportunity now to buy them at attractive prices. He believes that Microsoft boss Steve Ballmer should act more like Sam Palmisano, the CEO of IBM (IBM). And he’s bearish on U.S. government bonds—with yields near historic lows. Rosenberg emphasized that these are his own views, and not necessarily those of Loews (L).

Barron’s:Europe has been a big overhang for the U.S. stock market. How bad is it?

Rosenberg: People are projecting a worst-case scenario about intertwined banking systems in Europe and the United States. That fear factor is what is impelling people to stay away from equities in the United States, and is precisely why equities here are so attractively priced. Now, I am not going to say all equities. There is a big disparity in valuations between the best companies in the world, large-cap companies—both growth and value—and small-cap stocks, which have done well over the past few years, and are not as attractively priced. The price/book ratio of the S&P 500 relative to the Russell 2000 is near a multi-decade low (see graph).

In my 50 years on Wall Street, it is rare that I’ve been so attracted to some of the best and finest companies. I will name a few, but generally speaking, I feel like a kid in a candy store, because I don’t know where to begin. There’s Microsoft, Merck, Amgen [AMGN], Johnson & Johnson, Teva Pharmaceutical [TEVA], Staples [SPLS], Oracle [ORCL] and Cisco [CSCO]. The best companies in the world are now some of the cheapest stocks.

Stocks have disappointed for a long time.

We’re at an inflection point in history, and that’s what I want to emphasize. I’m not talking about a trade. I don’t know what is going to happen next week or next month.

In terms of economic history, the equity market looks a lot like the Treasury-bond market in the early 1980s, when I had the most difficult time convincing people that they ought to buy bonds at 15% yields. Equities can easily generate a 10% annualized total return over the next five to 10 years. And they would still not be overvalued at that point. That’s the beauty of it.

What should investors do?

If investors are afraid to put all their money into equities at one time, keep cash—and then every time you get another one of these scares, add to your position.

Investors are running scared.

These scares are nothing new in financial history. Sometimes, the scares are financial, and sometimes they are political. I can recall worse scares than the current one. Nobody wanted to go near equities during the Cuban missile crisis. That was a much worse scare than this one. It didn’t last as long, but it was much worse, because we were actually on nuclear alert in this country. You can have cheap equity prices or good news, but you can’t have both at the same time.

Many investors are worried that a weakening economy will mean earnings disappointments in 2012.

I think earnings will hold up well next year, but my base case isn’t so much about the short-term earnings outlook.

A lot of the smart money has a very low allocation to U.S. stocks, including university endowments at Harvard, Yale and Princeton.

In the endowment world, everybody wants to be in vogue, so if you suggest to a fund that they ought to buy private equity, they are happy to do that. The wonderful thing about private equity is that you don’t get marked-to-market every day. With stocks, you have to be prepared to suffer some volatility, but the reward for that volatility is the ability to buy companies at prices that are, relatively speaking, as cheap as I have ever seen in my career.

One of my key points is that some of the largest potential investors are all under-invested in equities, and they will get reinvested in equities because these are long cycles. When I first came to Wall Street, the typical pension plan was managed by U.S. Trust, and it would be two-thirds in bonds yielding 2% or 3%, and the rest in equities. That was a carryover from the 1930s and ’40s. It later completely reversed.

Ready to Reverse

Joe Rosenberg likes stocks and is bearish on Treasury bonds, which he thinks are in the final stages of their long bull market.

Total Returns*





30-year Treasury





S&P 500 index





Change in security   value, plus dividends, through Sept. 30
Source: Blanco Research
Rosenberg’s Picks


Company/Ticker Price


Cisco   Systems/CSCO $18.58


Hewlett-Packard/HPQ 28.22


Johnson&Johnson/JNJ 64.45


Merck/MRK 35.68


Microsoft/MSFT 25.28


Oracle/ORCL 31.67


Seagate   Technology/STX 17.40


Staples/SPLS 14.32


Teva   Pharmaceutical/TEVA 39.74


Western   Digital/WDC 29.25


*Based on fiscal 2012   earnings estimates. NM=Not meaningful
Source: Thomson Reuters

Many investors are worried about the political backdrop.

America has loads of problems, but I certainly don’t believe that the country’s best days are behind it. The current administration doesn’t exactly foster a positive environment for the business community, either through its rhetoric or through excessive regulation. But even that has a positive aspect to it. With business leaders so cautious, corporate balance sheets are in superb condition.

How do U.S. stocks compare with other asset classes?

It’s important to look at all investments on a relative basis. One alternative to equities is to earn nothing on your money at all in cash. Now, earning nothing on your money is not without its risks, because your money can prove to be relatively worthless.

The return on government bonds and the return on cash is indistinguishable. It is basically zero. Now, why would somebody want to invest in a five-year Treasury bond at 87 basis points (87/100ths of a percentage point) for five years?

There was a time in the 1980s that I used to scream that people should buy five-year Treasuries yielding 16%, and I would have arguments. People would say to me, “Well, you know, government budget deficits are out of control, and that’s why yields are so high.” Well, if government budget deficits were out of control when Treasuries were paying 16%, what do those same people say to me about government budget deficits being out of control now, when government bonds are paying 87 basis points?

Looking back, bonds have been a great asset class.

The great bond bull market began 30 years ago, in September of 1981. For the past 30 years, 30-year Treasury bonds have outperformed the S&P 500. The last time that phenomenon occurred was in 1842. That is how far back you have to go. Now if you want to look at a period of 20-year outperformance, you have to go back to 1939. While I was around in 1939, I wasn’t managing money actively back then.

How are stocks valued?

Many companies have price/earnings ratios of 10, and free-cash flow yields of 10%. So these companies can basically LBO themselves [do a leveraged buyout] by borrowing two- to three-year money at 2% or 3% and buying an earning asset yielding 10% or more.

So, what’s your advice?

If a person is not a professional and they want equity exposure, one way to get it is buying the SPDR Dow Jones Industrial Average ETF [DIA, an exchange-traded fund]. Many of the companies that I would want to own are part of the Dow Industrials.

You’ve been bullish on Microsoft for years, and the stock has gone nowhere. What could change that?

Everyone is talking about IBM, because Berkshire Hathaway [BRKA] took such a large stake in the company. But Microsoft by every metric is better than IBM. Its top-line growth is better. Its valuation is better. Its return on capital is better. Microsoft has a 12-month trailing-earnings yield of 10%; IBM’s is around 7%.

Is Microsoft CEO Steve Ballmer part of the problem?

He is focused on operations, and should be focused on that, but he should listen to other people about the capital-allocation process. He should be more aggressive in buying back stock.

There are two things that IBM CEO Sam Palmisano has done, and that Buffett alluded to recently. By the way, I think that Buffett came pretty late to the IBM party. Palmisano basically has laid out a series of five-year plans, and he has met those targets. He also has communicated his intentions and his desires to Wall Street.

In this area, Steve Ballmer has been deficient. He has antagonized Wall Street by his absence. Why should he care about the stock price? His employees are shareholders. A better stock price certainly would help attract young people to work at Microsoft. When people look at a company, they assume that the price of the stock is symptomatic of its success. With Microsoft, that is not the case. Since Buffett is a buddy of [Microsoft Chairman] Bill Gates and has him on the Berkshire board, why doesn’t Buffett tell Gates to take a page out of the success of IBM and apply it to Microsoft?

Microsoft is now around 25. With better capital allocation, where could it trade?

It could easily trade into the 40s. And then things become much easier, because a higher stock price becomes self-fulfilling. There are a lot of reasonable tech stocks: Oracle, Cisco Systems and Hewlett-Packard [HPQ]. I’d also mention the disk-drive industry, with Western Digital [WDC] and Seagate Technology [STX]. The consolidation of that industry means that there are very few competitors, which gives them tremendous pricing power.

Are you partial to drug stocks?

Here’s an industry where dividend yields often are north of 3% and 4%. Companies have spent hundreds of billions of dollars on research and development in the past 10 years, and have little to show for it. Some companies are realizing that, and returning more of their earnings to shareholders. Merck is yielding more than 4%, and selling at a price/earnings multiple of nine, while spending $8 billion a year on R&D. Other companies have similar valuations, including Teva, which is large in generic drugs, and Johnson & Johnson, which is one of the premier companies in the world, has an AAA bond rating, and yields over 3%. Amgen is doing what Microsoft ought to be doing. It just announced a $6 billion bond issue, and a simultaneous repurchase of $5 billion worth of stock.

It’s a Dutch-auction tender. Amgen is going to buy all $5 billion at once.

That’s fine. Amgen isn’t overpaying for the stock, which has a free-cash-flow yield of 9%. Abbott Laboratories [ABT] is attractive, as is Zimmer Holdings [ZMH], which makes hip replacements.

What other stocks appeal to you?

Staples. Here’s an industry that could be consolidating. Staples’ two major competitors– Office Depot [ODP] and OfficeMax [OMX]—can’t seem to get it right. There are ongoing rumors that the two may merge. Staples has a huge brand name, and is very successful. It’s selling with a 10 P/E and a 10% free-cash-flow yield. Staples is handicapped in the short run by what I consider unfair competition in its online business, which is not insignificant. Staples has to charge customers state sales taxes, whereas one of its largest competitors, Amazon.com [AMZN], usually doesn’t. That’s an untenable situation in the long run. If that changes, and I think it will change, it will be a big boost to Staples, which has a better brand name in office supplies than Amazon. [For more on Staples, see “Nope, That Wasn’t Easy.”]

Many value investors like depressed financial stocks. What do you think?

I don’t want to recommend banks. The experience of the past few years has taught me that it’s impossible to figure out what banks own, even when you’re on the inside. As an outsider, I can’t analyze them. This doesn’t apply to MasterCard [MA], but it does apply to Citigroup [C].

How about emerging-market stocks?

I’d rather participate in emerging markets by buying U.S. multinationals that get 50% or more of their revenue abroad, including the growing countries of Asia.

What’s your view on bonds now?

Treasury securities are probably in the final throes of one of the greatest bubbles I have ever seen. But I want to distinguish Treasuries from spread products, such as corporate bonds or Build America bonds—which are taxable municipals—or long-dated municipals. New Jersey recently sold transportation trust fund bonds with a yield above 5%, or 200 basis points more than the 30-year Treasury. That interests me. But I’m not making a bull case for spread products, because equities are so much more attractive.

What about junk bonds?

High-yield debt is not outrageously cheap. I prefer equities.

What are your thoughts on retirement?

When you interviewed me three years ago, I said this and I’ll say it again: Retirement isn’t in my plans. I’m happy working for Loews. I’ll hang around as long as [CEO] Jimmy [Tisch] wants me around.

What the market is paying currently

This is part two for those who valued the mysterious company in the previous post found here: http://csinvesting.org/2011/11/29/what-would-you-pay/


and NVS_25

Not knowing the company or the price of the stock can keep you clear-headed and away from stories. There is no one right valuation since it depends upon your discount rate. But Buffett said your goal as an investor should be to acquire as many compounding machines at good prices as you can.  I will venture to say that if you can buy 15 to 25 companies with 10% free cash flow yields, steady historical performance with decent (greater than 12%) returns on assets, relatively clean balance sheets, growing 4% to 8%, you will do well over several years.

Nothing is guaranteed, but the odds are against strong, steady and stable companies collapsing while you own them. Some may disappoint but chance favors you.

Now if you look at the company you will hear the stories: pharmaceutical companies are struggling, Europe will collapse, the price has gone sideways for years………….etc., etc.

Find another 19 more of these and you have one heck of a portfolio–IMHO.

Let’s revisit this in two years.

What would you pay?

Buffett said that he likes to thumb though Moody’s Manuals and Value-Lines without looking at the price of the company.

You are sitting today in the library worried about central banks running their printing presses while flipping through your Value-Line when you see this

A company with $5.50 in after-tax free cash-flow.  Sales and cash flows have grown about 9% over the past 10 years and are estimated to continue growing 6% over the next few years. Debt is 15% of total capital.  Ret. On total capital has averaged 14.5% over the past ten years; return on equity has been 15% on average. R&D is 16.5% of sales (above average for its industry). Dividend yield is 4.4% and 42% of net profits. This company is considered one of the strongest in its industry and one of the top companies in the world–well-diversified internationally by geography and product type.

What would you pay per share ball park for this business?   Take no more than 33 seconds.

Buffett Case Study on IBM

Do you understand Buffett’s reasons for investing in IBM?  What are the financial characteristics of IBM that are attractive to Mr. Buffett? Look at IBM’s annual report provided in the link below.

From a CNBC Interview

BECKY: Wait. Wait a second, IBM is a tech company, and you don’t buy tech companies. Why have you been buying IBM?

BUFFETT: Well, I didn’t buy railroad companies for a long time either. I—it’s interesting. I have probably—I’ve had two interesting incidents in my life connected with IBM, but I’ve probably read the annual report of IBM every year for 50 years. And this year it came in on a Saturday, and I read it. And I got a different slant on it, which I then proceeded to do some checking out of. But I just—I read it through a different lens.

JOE: What’s the different lens? What’s the different slant?

BUFFETT: Well, just like—just like I did with—just like I did with the railroads. And incidentally, the company laid it out extremely well. I don’t think there’s any company that’s—that I can think of, big company, that’s done a better job of laying out where they’re going to go and then having gone there. They have laid out a road map and I should have paid more attention to it five years ago where they were going to go in five years ending in 2010. Now they’ve laid out another road map for 2015. They’ve done an incredible job. First, Lou Gerstner, when he came in, he saved the company from bankruptcy. I read his book a second
time, actually, after I read the annual report. You know, “Who Said
Elephants Can’t Dance?” I read it when it first came out and then I went back and reread it. And then we went around to all of our companies to see how their IT departments functioned and why they made the decisions they made. And I just came away with a different view of the position that IBM holds within IT departments and why they hold it and the stickiness and a whole bunch of things.
 And also, I read very carefully what Sam Palmisamo…

BUFFETT: …Palmisano, yes, has said about where they’re going to be and he’s delivered big time on his—on his—on his first venture along those lines.

BUFFETT: The other thing I would say about IBM, too, is that a few years back, they had 240 million options outstanding. Now they probably are down to about 30 million. They treat their stock with reverence which I find is unusual among big companies. Or they really—they are thinking about the shareholder.

JOE: But you’re buying this after it’s really broken out the new highs this year, new all-time highs.

BUFFETT: We bought—we bought railroads on highs, too.

JOE: Yeah? They sent it—you know, stocks at new lows that, you know, can hit new lows where they…

BUFFETT: Right. I bought—I bought control of—I bought control of GEICO at its all-time high.

BUFFETT: No, I never talked to Sam. I’ve never talked to Sam. I’ve got this—I competed with IBM 50 years ago, believe it or not. I was chairman of a company, had, and I testified for IBM in 1980 when the government was attacking about on the antitrust situation. But I’ve never—I have not talked to Sam or now Ginni.

BECKY: You—this is the second time in the last several months that you’ve told us about a purchase you’ve made of a company you’ve been the reading annual reports for years.


BECKY: Bank of America was the first.

BUFFETT: Right. I read those for 50 years.

BECKY: Read those for 50 years and you’re looking at companies a little differently. You never really bought tech stocks before. You had always said you don’t understand technology stocks.


BECKY: Does this mean that this is a new era and you’re going to be looking at a lot of tech stocks and I guess chief among them, would you consider Microsoft?

BUFFETT: I—well, Microsoft is a special case because Microsoft is off bounds to us because of my friendship with Bill and if we spent seven months buying Microsoft stock and during that period they announced a repurchase or increase of the dividend or an acquisition, people would say you’ve been getting inside information from Bill. So I have told Todd and Ted and I apply it myself that we do not ever buy a share of Microsoft. I think Microsoft is attractive but that—but we will never buy Microsoft. It—people would just assume I knew something and I don’t, but they would assume it and they would assume Bill talked to me and he wouldn’t have. But there’s no sense putting yourself in that position.


BUFFETT: I can say I’ve never met Sam but I can’t say I’ve never met Bill.

BECKY: But does this change the rules of the game that you would actually look at technology stocks now?

BUFFETT: I look at everything but most things I decide I can’t figure out their future.

BUFFETT: Yeah, it’s a—it’s a company that helps IT departments do their job better.

JOE: Yeah.

BUFFETT: And if you think about it, I don’t want to push the analogy too far because it could be pushed too far. But, you know, we work with a given auditor, we work with a given law firm. That doesn’t mean we’re happy every minute of every day about everything they do but it is a big deal for a big company to change auditors, change law firms. The IT departments, I—you know, we’ve got dozens and dozens of IT departments at Berkshire. I don’t know how they run. I mean, but we went around and asked them and you find out that there’s—they very much get working hand in glove with suppliers. And that doesn’t—that doesn’t mean things won’t change but it does mean that there’s a lot of continuity to it. And then I think as you go around the world, IBM, in the most recent quarter, reported double-digit gains in 40 countries. Now, I would imagine if you’re in some country around the world and you’re developing your IT department, you’re probably going to feel more comfortable with IBM than with many companies.

JOE: Well…

BUFFETT: I said I competed with IBM 50 years ago. Go here: http://csinvesting.org/2011/09/17/buffett-investment-filters-and-cs-on-mid-continent-tabulating-company/

BECKY: Yeah.

BUFFETT: We actually started—I was chairman of the board, believe it or not, of a tech company one time, and computers used to use zillions of tab cards and IBM in 1956 or ‘7 signed a consent decree and they had to get rid of half the capacity. So two friends of mine, one was a lawyer and one was an insurance agent, read the newspaper and they went into the tab card business and I went in with them. And we did a terrific job and built a nice little company. But every time we went into a place to sell them our tab cards at a lower price and with better delivery than IBM, the purchasing agent would say, nobody’s ever gotten fired from buying—by buying from IBM. I mean, we probably heard that about a thousand times. That’s not as strong now, but I imagine as you go around the world that there are—there’s a fair amount of presumption in many places that if you’re with IBM, that you stick with them, and that if you haven’t been with anybody, you’re developing things, that you certainly give them a fair shot at the business. And I think they’ve done a terrific job of developing that. And if you read their reports—if you read what they wrote five years ago they were going to do and the next five years, they’ve done it, you know, and now they tell you what
they’re going to do in the next five years, and as I say, they have this terrific reverence for the shareholder, which I think is very, very important.

And I want to give full credit, incidentally, to Lou Gerstner because when he came in, I was a friend of Tom Murphy’s and Jim Burke’s, and they were on the search committee to find a solution when IBM was almost broke in 1992, and everybody thought they were going pretty far afield when they went to Lou Gerstner. And look what…

BUFFETT: Well, you don’t have to think of—you don’t have to think of another one, Joe. And if you read his book, you know, “Who Said Elephants Can’t Dance?” it’s a great management book. Like I said, I read it twice.

ANDREW: What was it when you’re reading the report? I mean, most investors who are trying to invest like you, they’re reading annual—what is it in the report that you said, ah, I missed it?

BUFFETT: Well, it was—it was a lot of interesting facts and you know, I
recommend you read the report, you know. Go here: http://www.ibm.com/annualreport/2010/
And I didn’t look at the pictures and I’m not sure there were any pictures.
I kind of like that, too. But there were—there were lots of things in that
report but the truth is, there were probably lots of things in the report a
year earlier or two years earlier that you say, why didn’t I spot it then? And
I think it was Keynes or somebody that said that the problem is not the new
ideas, it’s escaping from old ones. And, you know, I’ve had that many times in
my life and I plead guilty to it.

BUFFETT: I will tell you one very smart thing that Thomas Watson Sr. said. I knew Thomas Watson Jr. just a little bit. Tom Watson Sr., this applies to stocks. He said, “I’m no genius but I’m smart in spots and I stay around those spots.” And that’s terrific advice.

Chuck Akre’s Search for Outstanding Investments

Always try to study good investors especially how they analyze businesses, portfolio management and risk. Note his focus on finding compounding machines and his three-legged stool approach.


If you are to buy franchises with their profitable growth, you must understand the strength and duration of their business models.

Franchise Lab Test: Coinstar (CSTR)

Buffett´s definition of a franchise is its ability to raise prices while retaining
customers. A franchise is like an inflation pass-through. A potential case
study for those seeking to test whether a company truly is a franchise is when
the company does raise prices.

Coinstar´s Share Price Drops on Price Hike

Today (Friday, October 28, 2011) we have Coinstar´s (CSTR) shares falling nearly 9% at midday, under pressure after the Bellevue, Wash.-based company /quotes/zigman/63447/quotes/nls/cstr CSTR -9.05% said late Thursday that it would raise the price of renting a standard-definition DVD at a Redbox kiosk to $1.20 a day from $1, effective Oct. 31. Blu-Ray DVD rentals will still cost between $1.50 and $2 a day.

In a statement, Chief Executive Paul Davis said the price hike, the first
for Redbox in eight years, was necessary due to higher operating expenses including recent increases in debit-card transaction fees, an outgrowth of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. (See how consumers get ¨protected¨by new regulation-the law of unintended consequences).

Read the entire article here:


Readers of this blog and students of Austrian economics are about as surprised to see rising prices-the effects of dollar debasement by the Fed-as being in a rain
storm in the tropics.

Lab Test

I am not implying that Coinstar is a franchise, but this is as close to a lab test as
you will see in investing. If you were analyzing Coinstar you would need to
monitor closely whether the company´s market share and profitability decline.
If either metric declines, then the company is not a franchise because the
company can´t pass through increased costs in the form of higher prices.

Be on the alert for potential case studies, there are lessons everywhere.

Coinstar´s Investor Relation´s website: