Staying Humble: Golf and Investing
Practice, Practice, Practice
Yum! Brands
I used to play golf regularly ... once a year. I’d pick up the clubs every summer when my wife and I visited my father, a man who had the good sense to live far enough to the south to extend the golf season beyond four or five months. I enjoyed the game and loved having the time with my Dad.
I’m not much of a golfer in terms of scoring; I’ve never broken 100 and probably never will. But when I was working in Boston, I had a co-worker who was both good at it and serious about it. He routinely shot in the 80s, and frequently made it into the 70s. Under his influence I played much more often (sometimes four or five times a summer), bought a new club (a driver) to go along with the set of clubs I bought in 1964, and even made my way to the driving range occasionally.
But even with this exceptional (for me) level of commitment, I didn’t improve much, and I’ve spent some time figuring out why. At the same time, I’ve always enjoyed playing, and I’ve tried to figure out why that is as well, given my fairly low level of accomplishment. Here’s what I’ve discovered.
Why I Don’t Do Well
First, I don’t play often enough. Golf is a physical and mental exercise, and building skill requires consistent, committed effort. Playing once a week (along with trips to the driving range) is probably a bare minimum. But golf is also expensive and time consuming, and I manage to fill the daylight hours of the few warm months that New England offers with lawn and garden work, traveling, going to the beach and hanging out with friends. That doesn’t leave many days free. If practice makes perfect, I’m highly unlikely to make much progress toward perfection.
Second, I don’t take lessons. I’ve picked up lots of good tips from friends, occasional viewings of The Golf Channel, and leafing through golf magazines in doctors’ and dentists’ waiting rooms. But a brain full of maxims about how to play is no match for the insight of a trainer who sees what you’re doing wrong and knows how to fix it.
Third, golf demands that you do everything well. If you break down the game of golf, you learn there are dozens of things that you have to do all at once (and time after time) to get the ball from the tee into the hole in a respectable fashion. Tee the ball up wrong, lift your head, pull the club back the wrong way ... there is so much room for error that it’s a miracle it ever works at all.
Why I Enjoy It
First, sometimes it works! On a good day, about two out of every five shots I hit do exactly what I want them to. On a really good day, those two shots will even happen on the same hole, allowing me to experience the illusion of competence for a few minutes. It’s immensely satisfying.
Second, it’s good to have a challenge. If I never do anything outside my comfort zone, I know that I don’t have a chance to grow. And golf, which is a constant challenge even for gifted people who work very hard at it, will always be a tantalizing and humbling experience for a duffer like me.
Third, it’s fun to hit things. I’ve played tennis, squash, softball, volleyball and lots of other sports, and I know that hitting things makes me feel good. So much of my work is intensely mental, and there’s something about the sight of a well-struck golf ball soaring in the right direction that’s good for the soul.
You’re probably asking yourself why I’m blathering on about golf in the Cabot Wealth Advisory. And the answer, of course, is that golf and growth investing are incredibly similar in all the important ways.
If you’re going to be good at growth investing, you need to work at it. You need to spend time on it, take lessons and be prepared to learn all the little maxims and rules. And, like golf, to be really successful you need to do everything right; find stocks with good fundamentals, strong stories and attractive charts, pick the right time to buy, know when to average up in your holdings and how to sell at the most advantageous time. And you need to know when the weather is so bad that it’s not worth playing.
And also like golf, you won’t always be successful. Sometimes you think you have the perfect stock and then its earnings report disappoints or the company gets investigated for backdating options or an analyst downgrades it. You’ll get punished for buying too high or holding on too long in a decline. A mutual fund manager whose decisions are right 51% of the time is a hero in the industry. If you can’t tolerate failure, you can’t enjoy either golf or investing. Both will keep you humble.
And finally growth investing, like golf, can be a lot of fun. Guessing right on a stock and watching its price climb the chart can give you a thrill that some people only get from a winning lottery ticket or having their scale tell them they’ve lost five pounds. If the only thing investors cared about was never losing money, they’d all buy nothing but U.S. Treasury bonds.
Yum! Brands (YUM), besides being one of only two companies I know that uses an exclamation point in its name, is a powerhouse in the quick-service and casual dining restaurant business. Yum’s KFC, Taco Bell and Pizza Hut brands are all well known in the U.S. and around the world, with around 37,000 restaurants in 120 countries and territories.
Three things really impress me about Yum! Brands:
First, the company was the first quick-service restaurant chain to take on the challenge of China. Pizza Hut is now the top casual dining chain in China, with more than 560 outlets in over 120 cities. And KFC, with significant menu additions to address Chinese tastes, is the number one quick-service restaurant brand in China.
Second, the company has been active in concentrating on its strengths. This was evident from Yum!'s sale of the Long John Silver and A&W All-American Food brands in December 2011. There was nothing wrong with either of those chains, but the three brands it retained are stronger. The company’s focus on Asia, which is its strongest growth market, is also apparent in its acquisition of Little Sheep, a Chinese chain of hot-pot restaurants. Clearly, Yum!'s management realizes the significance of its 13% gain in same-store sales in China in Q1.
Third, YUM (the stock) has registered 10 straight weeks of advancing stock price, which is a remarkable achievement in itself. The pace of price appreciation in YUM is low, but any stock that can string together 10 weeks without a pullback is on a roll, no matter how slow the advance is.
Yum! Brands has the global breadth to cushion a pullback in any national market. But it’s banking on its Chinese operations--which delivered 36% of 2011 revenue--to keep delivering growth. The stock’s 1.7% forward annual dividend yield is also attractive.
Sincerely,
Paul Goodwin
Editor of Cabot China & Emerging Markets Report
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