#51 - Learning Medley on Lemonade & pet insurance, Seller on being a Great Investor and Les Schwab Tires
July 20, 2020: Learning about, the newly IPO’d insurance company, Lemonade’s foray into pet insurance as a possible irrational competitor; Mark Seller’s famous ‘07 speech on what makes a ‘Great Investor’ (hint: writing is important); a story of Les Schwab Tires and common sense profit sharing.
Listen on:
Episode Notes:
Lemonade into Pet insurance
Newly IPO’d insurance company that tries to tackle ‘boring’ insurance is going into pet insurance. It looks like a mere growth play into an under-penetrated market in the hopes of “hitting scale"
A traditional P&C insurance company insured by Berkshire Hathaway… a vote of confidence?
A possible irrational competitor who prices pet insurance products at $12/month. This is much lower than Trupanion, the favoured incumbent that has recently reached close to a point of scale. But they charge a tailored plan specific to details of each pet… something Lemonade seems to be ignoring with the hope of burning cash until they “win”? A curious development to see who survives
https://techcrunch.com/2020/07/15/lemonade-launches-pet-insurance/
So You Want To Be The Next Warren Buffett? How's Your Writing? - 2007 Talk Mark Sellers of Sellers Capital gave to Harvard MBAs
"An economic moat is a structural thing. It's like Southwest Airlines in the 1990s, it was so deeply ingrained in the company culture, in every employee, that no one could copy it, even though everyone kind of knew how Southwest was doing it. If your competitors know your secret and yet still can't copy it, that's a structural advantage. That's a moat."
The four moats: economies of scale, network effects, IP/Goodwill/Brand, high switching costs
"You can't buy or study your way to being a great investor. These things won't give you a moat."
A trait you need is an obsession: "They often have a hard time with personal relationships because, though they may truly enjoy other people, they donít always give them much time. Their head is always in the clouds, dreaming about stocks. Unfortunately, you can't learn to be obsessive about something. You either are, or you aren't. And if you aren't, you can't be the next Bruce Berkowitz"
"Mathematically, using the Kelly Formula, it can be shown that a 2% position is the equivalent of betting on a stock has only a 51% chance of going up, and a 49% chance of going down. Why would you waste your time even making that bet? These guys are getting paid $1 million a year to identify stocks with a 51% chance of going up? It's insane"
"Look at Buffett; he's one of the best writers ever in the business world. It's not a coincidence that he's also one of the best investors of all time. If you can't write clearly, it is my opinion that you donít think very clearly. And if you don't think clearly, you're in trouble. There are a lot of people who have genius IQs who can't think clearly, though they can figure out bond or option pricing in their heads"
https://moiglobal.com/wp-content/uploads/mark-sellers_you-want-to-be-the-next-warren-buffett.pdf
Les Schwab of Schwab Tires
$1.8bn in sales across ~500 locations
51% of profit hares back to employees
Store managers who make $150K-200K/yr and many make more than executives in HQ
"His profit-sharing plan has provided store managers the opportunity to earn average incomes well into six figures, and a number of those six-figure numbers start with a "2.”"
"For many years top store managers were paid more than key executives at Schwab headquarters in Prineville, Ore. Schwab says that's only fair. They made the money. The executives spent it."
Schwab even cut his own pay down to $32K, more as a gesture that he wasn’t earning his keep with high compensation when he was spending less time on the business.
Retirement trust of $332M for employees
Up for sale as of 2020 for ~$3B
Started in 1952 for $11K
"In Washington, Oregon, Idaho, eastern Montana and western Nevada, Schwab Tire Centers have more than a 50% share of the tire market"
An incessant focus on providing value to customers: free first repairs, no exclusivity with tire brands to provide best tires for customer’s needs (tire supermarket idea)
A focus on hiring on ambition and leadership, not based on degrees.
"I have a philosophy that I've used for years," Schwab told the tire dealers years ago. "In training store managers, I ask them to make the people under them successful.... If everyone who works for you is successful, you, too, will be successful."
https://www.moderntiredealer.com/78348/les-schwab-one-of-a-kind