Friday, June 27, 2008

Stress Fractures in Titanium

There's a scene in the great 1995 Michael Mann movie Heat where the high-end armed robber, played by Robert De Niro, sits at the counter of a diner and, while waiting for his food to arrive, takes out a book he just bought. A woman sitting to his right, played by Amy Brenneman, leans over to see what he's reading. She reads the title of the book aloud: "Stress Fractures in Titanium". After briefly being annoyed at the intrusion, De Niro's character, who is lonely and decides he is attracted to the woman, introduces himself, by way of explanation, as a salesman who works in metals (this line becomes the set-up for a great line later in the movie that I won't spoil in the event there's anyone reading this who hasn't seen Heat yet).

I was reminded of this scene recently when reading Daniel Wahl's blog. I first became familiar with Daniel from his posts (as "DanielW") on GuruFocus. Daniel has had some big winners over the last year with options on Potash Corp. of Saskatchewan (POT) and stock in Hemisphere GPS (HEM.TO, or HEM on the TSX). A couple of primary sources of research that Daniel links to on his blog (and, I assume, influenced his decision to invest in these companies) are a precision agriculture forum (where farmers chat about high tech equipment that helps them farm) and the USDA's Economic Research Service. The web is full of sites on investing, of course, and your local Barnes & Noble has plenty of books and magazines on the subject as well. But seemingly mundane sources of real-world information can sometimes be better sources of successful investment ideas, as Daniel's examples show.

I could write a ham-handed sentence here connecting the dots between the two paragraphs above, but I trust the sort of reader who will find this blog interesting will have already connected those dots himself.


Daniel said...

Thanks for the mention!

It's amazing to me how many people are invested in a company but never bother to try and find out what its customers think of the products it sells. The precision board at AgTalk lets me do just that (for HEM, among other GPS companies).

Anyway, while I like to follow insider buying of the stock by management or non-management directors, knowing what the customers are doing is a whole other type of insider buying. It's more fundamental, and arguably much more important.*

*Times 2 for a small-cap stock.

DaveinHackensack said...

You're welcome, Daniel. I agree with your comments here. I made a similar point on the Investors Hub thread for Alloy Steel, in response to a poster who, incredibly, wasn't interested in who that company's customers are. As I wrote there,

Knowing their customers is something any security analyst would be interested in if any analysts covered Alloy Steel. With that info, the analyst could try to follow up with contacts at the client company and ask some useful questions. For example: What percentage of your bulldozers (trucks, etc.) are currently using arcoplate wear plates? If the answer is only a small percentage of the client company's equipment, logical follow up questions would include:

- Why are you only using this on a small percentage of your equipment? Do you really want to use it on all your equipment but you think the price is too high? Are you OK with the price but Alloy Steel simply can't fill your orders now?

- Are you testing arcoplate out on a small scale before deciding whether to widely adopt it? If so, when do you think you'll make a decision?

And so on. Answers to those questions would do a lot to clarify Alloy Steel's prospects. I know it's a real company, but getting this sort of information can give us a clearer sense of its prospects and potential.