We have stated in the past that good investment is not rocket science, which can only be practiced by the initiated few, but rather that it is very possible for the average investor -- given the proper tools, discipline, and understanding of business principles -- to be successful (see this previous post, for example).
This message is contrary to much of what is heard from the representatives of financial services firms, as well as from the financial media, both of whom have a vested interest in making their listeners feel they need to listen to the "fast money" or the "big boys" or some other anointed class and depend on their recommendations.
On the other hand, while it is certainly possible for the average person to make investment management decisions for himself, it is important that those who decide to do it for themselves have a solid set of business-based criteria and the willingness to do the in-depth study required to determine if a potential investment meets those criteria. Also, if they opt not to do it for themselves, they should make the effort to ascertain what process the person to whom they delegate that responsibility will employ in his asset management decisions.
We have discussed in some detail the criteria we use as asset managers, and which we believe are important in assessing a potential business investment (see here, for example). Some of the most important include the trend in profitability measures such as return on equity, return on assets, operating earnings growth, as well as measurements designed to determine how the company has used capital to finance its growth.
We have also from time to time outlined businesses which we believe are exceptionally well-run and which are positioned in front of potentially fertile fields of future growth (see for example discussions of II-VI, Hittite Microwave, Dolby and Resmed)*. We hope that these companies will help to illustrate examples of what we would call "classic Taylor Frigon growth companies."
Another company we have owned for many years in our Core Growth Strategy -- since October of 2004, in fact -- is global transportation services provider C.H. Robinson Worldwide*.
C.H. Robinson is what is known as a "non-asset third-party logistics firm." Third-party logistics (3PL) companies coordinate shipments for their customers, who choose for business reasons to outsource some or all of their logistics requirements so that they can concentrate on their own core competencies. The reason that they are known as "third-party" logistics firms is that the 3PLs generally turn around and hire other transportation firms to do the actual transportation.
Some of these 3PLs use a combination of their own logistics and transportation assets to accomplish some of their customers' shipping and hire other transportation firms for other customer jobs (in which case they are often referred to as an "asset-lite" business model), and some 3PLs own no transportation assets themselves but hire others to do all of the work (in which case they are often referred to as a "non-asset 3PL").
C.H. Robinson is a non-asset model: they own no transportation assets themselves, but instead use a keen understanding of their customers' business needs, a network of relationships with a variety of transportation asset owners, and the capabilities of modern technology to drive higher efficiencies for their customers than they might be able to achieve on their own.
There are a tremendous number of companies in virtually every industry which require shipment of their goods to their customers. The 3PL value proposition to these shippers includes the reduction of fixed-asset requirements (shippers no longer have to maintain their own trucks or other transportation assets), the reduction of inventory costs, the reduction of order fill times, and an increase in flexibility and customer service.
A recent survey on the state of global logistics led by Capgemini Consulting found that, out of the variety of shippers of all types of goods surveyed in both North America and Europe, 47% of total 2009 logistics expenditures by shippers in North America and 66% of total 2009 logistics expenditures by shippers in Europe were spent on outsourced logistics, and that all geographies anticipated increasing those percentages over the next five years.
Further, the ongoing increased freedom for private enterprise in China, India, Vietnam, and other formerly un-free nations has for the past two decades increased the number of firms who have moved some or all of their manufacturing production overseas, creating growing need for intercontinental shipping as part of their business model.
Companies such as C.H. Robinson Worldwide, which have global reach and the ability to coordinate land, sea, and air transportation (as well as "intermodal" transportation in which they supervise the shipment of goods on more than one mode of transport) are uniquely positioned to add value to shippers in need of such capabilities.
Finally, the technology aspect of this investment thesis is very important. We have in the past discussed the tremendous opportunities being created by the "unstoppable wave" of networked communications -- in which greater and greater amounts of data can be sent more and more quickly for less and less cost. While this ongoing paradigm shift creates tremendous opportunities for companies that are enabling those bandwidth improvements, it is also creating opportunities for other businesses in other industries who are able to apply those new capabilities to improve their own offerings to their customers.
In the logistics world, the ability to provide real-time visibility of a customer's shipping task and more timely alerts is extremely valuable to a customer. The bandwidth revolution taking place right now provides innovative logistics service providers such as C.H. Robinson Worldwide the ability to provide that valuable information to their customers.
While there are countless complicated factors which influence the demand for shipping worldwide, factors which can change rapidly from day-to-day, we believe that the measurable efficiencies that shippers can gain from an experienced 3PL provider such as C.H. Robinson will continue to drive demand for their services. We also believe that there are clear differences between the capabilities of 3PL firms, and that C.H. Robinson has demonstrated that they can provide superior services that shippers will seek out.
While it is very easy for investors to become caught up in the news of the day and the predictions of the economists and "big money" investors they might hear on the financial media, we always try to steer the focus back to the critical task of finding well-run businesses in front of potential fields for future growth, and that C.H. Robinson is a good example of the types of businesses they should be looking for.
* The principals of Taylor Frigon Capital Management own securities issued by II-VI (IIVI), Hittite Microwave (HITT), Dolby (DLB), Resmed (RMD), and C.H. Robinson Worldwide (CHRW).
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.
For later posts on this same subject, see also:
This message is contrary to much of what is heard from the representatives of financial services firms, as well as from the financial media, both of whom have a vested interest in making their listeners feel they need to listen to the "fast money" or the "big boys" or some other anointed class and depend on their recommendations.
On the other hand, while it is certainly possible for the average person to make investment management decisions for himself, it is important that those who decide to do it for themselves have a solid set of business-based criteria and the willingness to do the in-depth study required to determine if a potential investment meets those criteria. Also, if they opt not to do it for themselves, they should make the effort to ascertain what process the person to whom they delegate that responsibility will employ in his asset management decisions.
We have discussed in some detail the criteria we use as asset managers, and which we believe are important in assessing a potential business investment (see here, for example). Some of the most important include the trend in profitability measures such as return on equity, return on assets, operating earnings growth, as well as measurements designed to determine how the company has used capital to finance its growth.
We have also from time to time outlined businesses which we believe are exceptionally well-run and which are positioned in front of potentially fertile fields of future growth (see for example discussions of II-VI, Hittite Microwave, Dolby and Resmed)*. We hope that these companies will help to illustrate examples of what we would call "classic Taylor Frigon growth companies."
Another company we have owned for many years in our Core Growth Strategy -- since October of 2004, in fact -- is global transportation services provider C.H. Robinson Worldwide*.
C.H. Robinson is what is known as a "non-asset third-party logistics firm." Third-party logistics (3PL) companies coordinate shipments for their customers, who choose for business reasons to outsource some or all of their logistics requirements so that they can concentrate on their own core competencies. The reason that they are known as "third-party" logistics firms is that the 3PLs generally turn around and hire other transportation firms to do the actual transportation.
Some of these 3PLs use a combination of their own logistics and transportation assets to accomplish some of their customers' shipping and hire other transportation firms for other customer jobs (in which case they are often referred to as an "asset-lite" business model), and some 3PLs own no transportation assets themselves but hire others to do all of the work (in which case they are often referred to as a "non-asset 3PL").
C.H. Robinson is a non-asset model: they own no transportation assets themselves, but instead use a keen understanding of their customers' business needs, a network of relationships with a variety of transportation asset owners, and the capabilities of modern technology to drive higher efficiencies for their customers than they might be able to achieve on their own.
There are a tremendous number of companies in virtually every industry which require shipment of their goods to their customers. The 3PL value proposition to these shippers includes the reduction of fixed-asset requirements (shippers no longer have to maintain their own trucks or other transportation assets), the reduction of inventory costs, the reduction of order fill times, and an increase in flexibility and customer service.
A recent survey on the state of global logistics led by Capgemini Consulting found that, out of the variety of shippers of all types of goods surveyed in both North America and Europe, 47% of total 2009 logistics expenditures by shippers in North America and 66% of total 2009 logistics expenditures by shippers in Europe were spent on outsourced logistics, and that all geographies anticipated increasing those percentages over the next five years.
Further, the ongoing increased freedom for private enterprise in China, India, Vietnam, and other formerly un-free nations has for the past two decades increased the number of firms who have moved some or all of their manufacturing production overseas, creating growing need for intercontinental shipping as part of their business model.
Companies such as C.H. Robinson Worldwide, which have global reach and the ability to coordinate land, sea, and air transportation (as well as "intermodal" transportation in which they supervise the shipment of goods on more than one mode of transport) are uniquely positioned to add value to shippers in need of such capabilities.
Finally, the technology aspect of this investment thesis is very important. We have in the past discussed the tremendous opportunities being created by the "unstoppable wave" of networked communications -- in which greater and greater amounts of data can be sent more and more quickly for less and less cost. While this ongoing paradigm shift creates tremendous opportunities for companies that are enabling those bandwidth improvements, it is also creating opportunities for other businesses in other industries who are able to apply those new capabilities to improve their own offerings to their customers.
In the logistics world, the ability to provide real-time visibility of a customer's shipping task and more timely alerts is extremely valuable to a customer. The bandwidth revolution taking place right now provides innovative logistics service providers such as C.H. Robinson Worldwide the ability to provide that valuable information to their customers.
While there are countless complicated factors which influence the demand for shipping worldwide, factors which can change rapidly from day-to-day, we believe that the measurable efficiencies that shippers can gain from an experienced 3PL provider such as C.H. Robinson will continue to drive demand for their services. We also believe that there are clear differences between the capabilities of 3PL firms, and that C.H. Robinson has demonstrated that they can provide superior services that shippers will seek out.
While it is very easy for investors to become caught up in the news of the day and the predictions of the economists and "big money" investors they might hear on the financial media, we always try to steer the focus back to the critical task of finding well-run businesses in front of potential fields for future growth, and that C.H. Robinson is a good example of the types of businesses they should be looking for.
* The principals of Taylor Frigon Capital Management own securities issued by II-VI (IIVI), Hittite Microwave (HITT), Dolby (DLB), Resmed (RMD), and C.H. Robinson Worldwide (CHRW).
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.
For later posts on this same subject, see also:
- "Have you heard of this company? NAT" 11/22/2010.
- "Have you heard of this company? EZCH" 12/09/2010.
