The accumulation phase

[EricL]

Take stocks like the auto parts stores. 

Never really talked about, a boring business, and generate phenomenal long-term returns.

I never see ORLY or AZO discussed as home-run stocks, yet over the last 20 years, they've produced annualized returns of 19.7% and 21.6% respectively. 


A $1,000 investment in ORLY would be worth over $35,000 today.
A $1,000 investment in AZO would be worth over $52,000 today.

They are low overhead, high margin businesses in an overlooked sector.

Effective buyback programs steadily reduce share count, which gooses EPS growth.

Both are roughly trading at fair value, yet who is jumping on them to buy?

[fenders53]

Haven't checked lately but $1000 per share makes DCA tough for some. A Target cashier job is a huge pay increase. Other than that I have nothing negative to say lol.

[NilesMike]

(10-16-2020, 04:26 PM)EricL Wrote: Take stocks like the auto parts stores. 



Both are roughly trading at fair value, yet who is jumping on them to buy?

I am NOT buying. I work for one of the big boys as my retirement job, it's not pretty going forward IMO. Most of the DIY customers are keeping their beaters together as cheaply as possible. I'm actually shocked at what these people drive! Eventually those cars will pass away and the next generation of cars will be MUCH more difficult to DIY. 

EVRYTHING on the retail floor is way overpriced compared to Walmart, Menards and of course on line. Who needs to buy a headlight bulb for $13 when it's available on line for $2, scouts honor. I bought fog light bulbs online for my brothers Grand Cherokee, name brand closeout. FIFTY CENTS.

Commercial side is also not pretty. Nothing but warranty returns. Sometimes the part is bad, sometimes it's not even ours but they warranty it to not lose the account.

 Many new returns. This is how THAT game works. None of us make any of these parts, they are just re sellers. Joe Blow Garage needs an alternator ASAP. Sending it right over Joe, it's $209 plus core charge. SEND IT! Simultaneously, Joe orders one online for $129. 2-3 days later Joe calls, I need to return the alternator- customer walked. So, we go pick it up and sure enough a brand new alternator is in the box-the one from online! We write up the return, process the credit, put it back on the shelf-right next to the one that just came in. Couple days later, the warehouse calls for one of the parts to be sent back. Now someone has to pull the stock lift, process it, pack it up for return to the warehouse. That part or paperwork for that part has been touched by 9 people and there was no sale.-LOL

Repeat many times with many accounts.

I'm in an urban area with 5 stores within 2 miles. That's about 5-6M in parts, oversaturation indeed.
At some point, Amazon will take over one of them for their distribution system and keep a MUCH smaller footprint.

If you think that would be good, ORLY has the best distribution and would be the most likely candidate

[NilesMike]

(10-16-2020, 04:05 PM)fenders53 Wrote:

(10-16-2020, 03:39 PM)EricL Wrote: I've found that finding great stocks isn't hard, but actually buying them and holding onto them is.

I was long MNST and CMG back around 2008 and sold both with 100% gains only to watch them go higher by another 1000%.

I've watched NFLX and AMZN gain 1000%+ but never bought either because I either didn't believe the story, thought competition was coming or thought they were too expensive for my portfolio.

I now have a side portfolio that I buy things like that with. I'm long stocks like DG, SHAK, NVDA, SQ, SHOP, TTD, FB, and TDOC. Stocks that have potential to be the next 10 baggers. 

Now I just need to manage them right and not screw it up by selling them! =)

If I had it to do over Eric, here's my master plan lol.  You buy those promising stocks and if they run you don't sell, but you get most or all of your initial cash off the table when they run 2X or 3X, then try to forget you own them. Then add another with your profits.  I won't call it a lotto shot, but only a few go parabolic and more stocks increases your odds.  You only need a few homeruns and you don't need a $10K investment to make you smile.  Maybe grand slams in the bottom of the ninth is more accurate lol.  Reality is some boring stocks I sold in the 90s are five baggers in not much over 20 years.  A five bagger is not all that amazing in two decades, but a half dozen on them will fix a port with some total loss BKs in the mix.

That is a good strategy, especially if you get a couple where can take your money off the table early on in the master plan. Then you keep going with your original nut to find the next few likely suspects.

[fenders53]

(10-16-2020, 05:40 PM)NilesMike Wrote:

(10-16-2020, 04:26 PM)EricL Wrote: Take stocks like the auto parts stores. 



Both are roughly trading at fair value, yet who is jumping on them to buy?

I am NOT buying. I work for one of the big boys as my retirement job, it's not pretty going forward IMO. Most of the DIY customers are keeping their beaters together as cheaply as possible. I'm actually shocked at what these people drive! Eventually those cars will pass away and the next generation of cars will be MUCH more difficult to DIY. 

EVRYTHING on the retail floor is way overpriced compared to Walmart, Menards and of course on line. Who needs to buy a headlight bulb for $13 when it's available on line for $2, scouts honor. I bought fog light bulbs online for my brothers Grand Cherokee, name brand closeout. FIFTY CENTS.

Commercial side is also not pretty. Nothing but warranty returns. Sometimes the part is bad, sometimes it's not even ours but they warranty it to not lose the account.

 Many new returns. This is how THAT game works. None of us make any of these parts, they are just re sellers. Joe Blow Garage needs an alternator ASAP. Sending it right over Joe, it's $209 plus core charge. SEND IT! Simultaneously, Joe orders one online for $129. 2-3 days later Joe calls, I need to return the alternator- customer walked. So, we go pick it up and sure enough a brand new alternator is in the box-the one from online! We write up the return, process the credit, put it back on the shelf-right next to the one that just came in. Couple days later, the warehouse calls for one of the parts to be sent back. Now someone has to pull the stock lift, process it, pack it up for return to the warehouse. That part or paperwork for that part has been touched by 9 people and there was no sale.-LOL

Repeat many times with many accounts.

I'm in an urban area with 5 stores within 2 miles. That's about 5-6M in parts, oversaturation indeed.
At some point, Amazon will take over one of them for their distribution system and keep a MUCH smaller footprint.

If you think that would be good, ORLY has the best distribution and would be the most likely candidate

I only worked at AZO for about three months in early 2019, but I can confirm all of the above is true.  I seriously considered buying some stock but couldn't figure out how the earnings growth could continue.  I was on the sales floor every week raising the prices on already very expensive sales floor product.  We install some of it for free so that explains batteries, wipers, light bulbs etc.  Warranty return rate is quite high.  A lot of time spent on their 1990's era technology trying to find a customers old receipt for lifetime warranted items.  The stock was a great ride but the model is getting a little mature. IIRC AZO has about 6K stores. The US market is saturated. Not sure how they make more money other than jacking up prices and continuing to significantly underpay employees vs other retail. As a semi-pro DIY customer I only spend half as much at AZO as I did 10 years ago. Online is just too easy and I can often get the better brands I prefer. (Actually a reason I shop at ORY when I have an option.) I do think the quality of AZO and competitor branded parts has improved over the years FWIW. AZO needs to spend an enormous amount of money on technology soon. I sure typed a lot for somebody that isn't interested. I should have just said I need a hard pullback in SP to interest me. It's not overvalued, but the growth story is suspect so I need a good deal lol.

[ken-do-nim]

(10-16-2020, 03:39 PM)EricL Wrote: I've found that finding great stocks isn't hard, but actually buying them and holding onto them is.

I was long MNST and CMG back around 2008 and sold both with 100% gains only to watch them go higher by another 1000%.

I hang my head in shame here. Bought Apple at $20 when the first iPod came out, sold at $30. Made a nice profit right?

Similarly, years ago my portfolio consisted of Netflix, Amazon, and Tesla (among a few others). But at the time the prices weren't moving, so I got impatient and sold them for a dividend producer.

I'm an idiot. Or was.

[fenders53]

(10-17-2020, 08:02 PM)ken-do-nim Wrote:

(10-16-2020, 03:39 PM)EricL Wrote: I've found that finding great stocks isn't hard, but actually buying them and holding onto them is.

I was long MNST and CMG back around 2008 and sold both with 100% gains only to watch them go higher by another 1000%.

I hang my head in shame here.  Bought Apple at $20 when the first iPod came out, sold at $30.  Made a nice profit right?  

Similarly, years ago my portfolio consisted of Netflix, Amazon, and Tesla (among a few others).  But at the time the prices weren't moving, so I got impatient and sold them for a dividend producer.  

I'm an idiot.  Or was.

Or just a normal investor.  I have also sold stocks I thought were headed for BK, and in fact that's how it ended.  We tend to remember the bad ones because they haunt us.  For me, selling decisions are infinitely more difficult than buys.  The past few years, I try to trim a winner rather than cash out, and it tends to be a better plan.  For my losers I try to avoid denial.  Patience in equity investing is absolutely required, but after years of severe underperformance you have to accept your initial investment thesis was flawed and move on.  I've sat on blue chips that didn't find a path to returned growth in a decade.  That's too long IMO.

[NilesMike]

My chin on chest trades: I owned MCD in the 1990s@ $30 DOH! Recently it was PENN, scratched it for a small win then watched it ZOOM for a 5 bagger in 6 months OY!
Luckily, I think, my son rode out PENN but I hate it when he brings up that ticker GRR!

We all get slapped around more than a few times in life, it's how you respond that makes the difference. Just like working out when you don't feel like it. Off to the basement gym right now in fact.

Good luck to all.