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Eric Houssels
Eric Houssels
Articles (9)  | Author's Website |

A Walk in the Sand

June 06, 2011

Over Memorial Day weekend, my wife and I visited Snow Canyon State Park outside of St. George, Utah. It is a lovely State Park, and we were immediately enraptured by its serene beauty and were hiking but minutes after our arrival. The trail of our initial hike in the picturesque canyon consisted of two distinct stages: 1) your typical dirt trail and then 2) miles of hiking in a very soft, quite pretty but tortuous red sand. It was during this torture stage of sand hiking that I decided to distract myself by brainstorming for an investment lesson. Here’s what I came up with.

Hiking in the sand is difficult due to two distinct factors. The first is that we sink too far in the sand; and the second is that, when we go to propel from the sand, we do not maintain a good grip, our motion suffers from an inefficient slippage and more work is required to move a same distance.

The investment implications from “sinking too far” are fairly straightforward. I have found in 11 years in the business that my best ideas have been rather obvious and “scream” at the outset of their discoveries. Inversely, when I have had to know every nook and cranny to rationalize the investment case, I have tended to risk trouble, especially when the bear market growled. As a valuationist, when I have seen something (like an established, for-profit education company) trade for 6x earnings and not be in consumer demand-led secular decline, a few obvious areas remain to be checked (e.g. management probity) but near perfect knowledge of the opportunity has simply not been required…move, don’t sink, has been the order of the day with these simple, screaming ideas.

The lessons of the second issue – slippage – of our sand hike relate to distractions and the elapse of time. As regards distractions, when we are analyzing an opportunity, each and every little ping removes us from our immersion into understanding the company, its competitors and prospects. Telephone calls, emails, walkers-into one’s office…with each one, our concentration slips a tad bit and renders our work that much less efficient.

Regarding the elapse of time, I am referring to how we organize our workload and, more specifically, how many ideas we attempt to analyze at any given time. We all have our preferences here, so the relevant advice here is to simply stay within your own zone of efficiency; I will offer mine as an example. I can look at 2 (maybe 3, but that is stretching) unrelated ideas at a given time. With 2 ideas, I have found there to be a natural break should my mind begin to weary of a particular company/industry; and when said company is picked back up again after the rotation, I have retained (without re-education) the basic and material knowledge of the investigation. Beyond 2 ideas, I begin to slip. Analyses begin to blur together; command of the numbers wanes and, what can be most problematic, resolutions can drag out too long. Slippage, in this instance, impedes my general approach to understanding an investment opportunity: blast in there, learn, answer the right questions (remember to not sink too far), reach the investment thesis, and resolve to act then or at some pre-committed point in the future.

Bogging ourselves in immaterial details, becoming distracted, and attempting to tackle too many ideas at once hinder the power behind an investor’s approach and should be understood and ultimately minimized. Happy hiking this summer!

Eric Houssels is the co-founder and managing member of Houssels Capital Management, LLC, a money management firm based in Las Vegas, NV. The firm focuses on investments in the stocks of publicly-traded companies of all capitalizations that possess, preferably, significant earnings power or, alternatively, assets that can be (re)deployed to achieve significant earnings power and are trading at reasonable valuations. Houssels Capital Management was founded in 2000.

About the author:

Eric Houssels
Eric Houssels is the co-founder and managing member of Houssels Capital Management, LLC, a money management firm based in Las Vegas, NV. The firm focuses on investments in the stocks of publicly-traded companies of all capitalizations that possess, preferably, significant earnings power or, alternatively, assets that can be (re)deployed to achieve significant earnings power and are trading at reasonable valuations. Houssels Capital Management was founded in 2000.

Visit Eric Houssels's Website


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