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    Monday, June 30, 2003

    I just finished listening to the Cavco conference call (link to the call and a set of slides). They highlighted that they have actually been cash flow positive for the last three years producing $3M,$4.5M and $7.9M in 01/02 and 03 respectively (year ending March 31st). They also identified some companies as competition, this helps to find comparable companies to compare valuations with. Comparing different company’s valuations by standard metrics provides only a Relative Value rather than discounting future earnings that gives an Absolute Valuation. Both have a role but in the end Absolute Valuation provides a more accurate long term outlook (all the stocks in an industry may be currently over or under priced, that is why a mixture of the two helps to provide a short and long term picture). Champion Homes (CHB), Fleetwood (FLE), Palm Harbor (PHHM) and Clayton (CMH) were all identified as competitors in at least Arizona.

    I generally have an issue with management receiving significant numbers of stock options as compensation. However Joel Greenblatt insists that it has been a great indicator that spin-offs will be successful and Cavco had allocated about 400k shares for executive compensation.

    I watched John Boggle on Kudlow and Cramer tonight. I am always interested in what he has to say. He founded the Vanguard group; they are a mutual fund that is effectively a non-profit. They have the lowest expense ratios and if you want to invest in any part of the market that Vanguard has offerings in I would strongly recommend them. Bogle was arguing that executive compensation should be voted on by shareholders and that investors be allowed to suggest directors. He had some addition thoughts on directors like having a minimum shareholding and potentially holding the stock for 2 years or more before you can propose a director. It boggles (pun intended) my mind that this isn't already the case.

    Some-how some-where along the line management lost sight of the fact that the OWNERS of the company are the stock holders and the company exists first and foremost to reward stock holders. It troubles me when I see corporate mission statements that have investors third or fourth down a list. Either the management is lying and pretending that Employees, local community and the environment are more important than share holder value or management is going to occasionally make decisions that are contrary to the objectives (and rights) of the owners. If you disagree, imagine that you own a small business like a restaurant and you have 5 staff. If you are only making enough money to support 4 staff do you borrow money or let one of them go. Whatever decision you make should be the same decision that the management you install (as the shareholder or the owner in a small business) should make. Sadly it doesn't work that way yet. Companies that show more commitment in these matters are more likely to get my investing dollars; companies that significantly diverge are very unlikely to see any investment from me. A great case study is AES before they crashed (maybe another time). In the end job creation and the environment are results of generating returns for shareholders, in communist countries where the employees and communities were supposed to be the top priority these stakeholders did very poorly.
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    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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