Family Dollar (FDO) came to mind recently and I thought that I would give them a closer look. On the surface, quantitatively, the company shows indicators of being reasonably priced. P/E is currently about 17 and the last 3 years have been pretty good growth-wise with EPS up around 20-25% each year. The years prior to the last 3 were much more variable, averaging about 12% growth over the last 10 years. Some years down, some years up. The balance sheet is OK and they are doing some pretty interesting work with buying up shares and new store openings. That aside, I went to visit some of their stores - No way. This company is showing indicators of having some pretty serious managerial deficiencies. The stores look bad, one of them smelled bad, the stock was skewed around haphazardly, the employees seem hopeless and frustrated, littered parking lots, one of their cashiers must have had trouble finding child care because I am pretty sure that was her far-too-young brood frolicking around directly in front of the store. They were still there doing the same thing when I drove by again a couple of hours later.

For a while, I considered that maybe Family Dollar can still get by with good results despite these things, as if maybe this is inherent with the business that they are in. Such thoughts have since been dismissed as their closest counterpart, Dollar General (DG), was a completely different operational story. Clean, well-maintained stores with prices even being marginally better on the few items that I sampled. Looking at this little statistical picture, all things being equal, I would take Dollar General over Family Dollar any day. Upon taking a closer look, Dollar General also has some pretty interesting things going for them, for example, they certainly have got one up on Family Dollar with their 21 years of consecutive same store sales growth and they have been quite quickly paying off the 4.3 billion dollars heaved upon their balance sheet as they were getting institutionally plundered by one of the big investment firms. (Hint: also recipients of our bailout tax dollars.)

However, despite the operational advantages of Dollar General, I would also have to pass on them for now as they seem to have an annoying little stain among their proxy pages that deserves mentioning. Since getting loaded down with debt and dumped out into the jungle of public equity markets, there are still some eyebrow-raising corporate interactions going on over the past couple of years that make me wonder if there is much regard here for the minority investor's best interests. On the other hand, Berkshire Hathaway has recently taken on a curiously small position in the company, so maybe they have a more detailed information on this situation involving their bailout buddy but, as for me, even if they are a good buy, I am going to have to sit back for now and see how this story develops. All stock prices being the same, if the pirates of Wall Street sail off to find some other company to pick on, leaving behind an unpolluted proxy statement at Dollar General, I am in. If Family Dollar manages to to leap through some managerial hoops to bring their stores up to par, I am in. Until then, no thanks. The stock market has far less trifling waters elsewhere.

The Strategy of Ben Graham – Warren Buffett’s Mentor

From 1923 to 1957 Warren Buffett’s mentor, Ben Graham, followed a strategy of investing in net-nets. He said: “It always seemed, and still seems ridiculously simple to say that if one can acquire a diversified group of common stocks at a price less than the...net current assets alone…the results should be quite satisfactory. They were so in our experience, for more than 30 years.”
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