You Can Always Come Up With a Reason For Why the Stock You Are Researching is Actually About to Go Out of Business

by Geoff Gannon


Someone who reads the blog sent me an email asking how Quan and I judge qualitative factors like a company’s durability.

For most stocks, you can easily imagine a future condition that would obsolete the entire business model.

I’ve decided to make this post nothing but a series of examples.

 

John Wiley

Open access journal articles.

There is a whole Wikipedia page about this one. The idea here is that someone else will pay the cost of publishing journals in place of the subscriber.

 

Weight Watchers

Apps.

Dieters will use free apps like MyFitnessPal to count calories instead of going to meetings or using websites like Weight Watchers.

 

HomeServe

Illegal marketing.

Without aggressive marketing aimed at old people – would this product even exist? You can read about the FCA (a U.K. regulator) fine imposed on HomeServe and the reasons for it here.

 

Ark Restaurants

Leases expire.

Ark may not renew its leases because the casino or other landlord would want to charge a lot more rent now that the location and the restaurant is a proven success. So, Ark as a corporation has a finite lifespan except insofar as management reallocates capital to new sites.

 

Village Supermarket

Online groceries.

Traditional supermarkets have 3 durability risks people raise: 1) Online groceries 2) Wal-Mart 3) Organic and fresh competitors: The Fresh Market, Whole Foods, etc.

 

America’s Car-Mart

Securitization.

America’s Car-Mart sells used cars so it can collect interest on high risk auto loans. The difficult parts of the business are underwriting and collecting loans. If this could be centralized – as it is in lower risk subprime auto loans – then the loans would become commodities.

 

PetSmart

Online dog food.

The two concerns here are that places like Wal-Mart can sell more dog food and websites like Petflow can sell more dog food.

 

Atlantic Tele-Network

Guyana can take away their monopoly.

 

Greggs

British shoppers will stop frequenting high streets. Or, they will eat healthier food instead.

 

Progressive

Self-driving cars will eliminate accidents and therefore the need for auto-insurance.

 

Babcock & Wilcox

U.S. utilities will shift away from coal power plants – which use boilers – toward natural gas, wind, and solar power plants which don’t use boilers.

The U.S. Navy could stop using: nuclear powered aircraft carriers, nuclear powered ballistic missile submarines, and nuclear powered attack submarines.  

 

Swatch

People will wear products like the Apple Watch instead.

 

Movado

Same.

 

Fossil

Same. Plus, Michael Kors may be a fad.

 

Western Union

Online competitors like Xoom can replace agent location based money transfers.

 

Hunter Douglas

Big box retailers like Home Depot and Lowe’s can sell blinds in their stores. Blinds can be sold online. As a result, people will stop going to the independent dealers that Hunter Douglas gets all its sales through.

 

Strattec

Smart keys and push to start ignitions can eliminate the need for locks and keys used in car doors and the steering column.

 

Q-Logic

The cloud will eliminate the need for storage area networks.

Talk to Geoff about Durability

Check Out Singular Diligence