Featuring Lutts’ Logic:
The New Beginnings of January 19
In Praise of Entrepreneurs
A Great Airline Investment
Today is January 19, and in honor of tomorrow’s inauguration of Barack Obama as 44th president of the United States, I’m dedicating this issue to new beginnings.
January 19, 1883, marked the debut of the first incandescent electric lighting system employing overhead wires. The location was Roselle, New Jersey, and the inventor, of course, was the wizard of Menlo Park, the man who amassed 1,093 U.S. patents, Thomas Alva Edison. While best known for his invention of the incandescent light bulb, Edison also made numerous inventions in telecommunications, sound recording and electricity distribution.
January 19, 1915, was the day Georges Claude, a French chemist, patented the neon light. In 1923 he sold the first two neon signs in America, to a Packard dealer in Los Angeles, for $1,250 a piece. (Equivalent to more than $15,000 today.) His company, Air Liquide, lives on, operating in 75 countries. 2007 revenues were 11.8 billion euros.
January 19, 1935, was the day that Marshall Field and Company, the premier Chicago department store, unveiled a window display featuring a new brief manufactured by Cooper’s Underwear Company (originally Samuel T. Cooper & Sons). Until that time, all men’s underwear had legs, so the Y-front brief, inspired by bathing suits worn by men on the French Riviera, was revolutionary. Even though Chicago experienced blizzard conditions that day, more than 600 briefs were sold before noon, at a price of 50 cents apiece. Over the next week, more than 12,000 briefs were sold. In 1971, the company changed its name to Jockey. It’s still privately owned, headquartered in Kenosha, Wisconsin, and employs over 5,000 people around the world.
January 19, 1937, marked the day Howard Hughes set a new transcontinental air record by flying from Los Angeles, California to New York City in seven hours, 28 minutes, 25 seconds. The plane, designed by Hughes himself, was the Hughes H-1 Racer, which featured innovations like retractable landing gear and rivets and joints set flush into the body of the aircraft to reduce drag. The plane was donated to the Smithsonian in 1975 and is on display at the National Air and Space Museum. Hughes of course, is now remembered more for his personal foibles in his later years. And Hughes Aircraft is gone, acquired by General Motors in 1985, and then sold off in pieces, which now are spread among Boeing, GM and DirecTV Group.
Interestingly, the very first transcontinental flight, by Calbraith Perry Rogers, was in a Wright Biplane in 1911. It took 50 days, though actual flying time was three days, 10 hours and 14 minutes. Rodgers made it in some 70 separate hops, and the plane was damaged and repaired so many times en route that by the end (according to legend), all that remained of the original machine was the drip pan and the vertical rudder.
The fastest transcontinental flight (brace yourself!) took just 64 minutes. That record was set in 1990 by Ed Yeilding and Joseph Vida, flying the SR-71 Blackbird from Los Angeles to its retirement in Virginia.
On January 19, 1983, Steve Jobs introduced the Apple Lisa, the first commercial personal computer to have a graphical user interface and a computer mouse. The cost was $9,995, or more than $21,000 today. It was a commercial flop, but Jobs persevered, and eventually changed the world with the Apple Macintosh, the iMac, the iPod, the iTunes Store and the iPhone. (For more on Steve Jobs, Apple and AAPL, you may like to read my column of January 8, available in our online archives, http://www.cabot.net/Issues/CWA/Archives.aspx )
The five men mentioned above, Edison, Claude, Cooper, Hughes and Jobs, were (are) entrepreneurs; they took risks to develop their inventions and they eventually built companies that helped change the world. Entrepreneurs, according to academics, are motivated by an overwhelming need for achievement and a strong urge to build. Driven by a need for independence, they are unwilling to submit to authority. They are creative, optimistic and passionate. They take risks, but the risks are calculated. And they are not afraid of failure. As Thomas Edison, commented, while he and his team were working to develop an incandescent light bulb that lasted more than a few minutes, “I have not failed. I’ve just found 10,000 ways that won’t work.”
Without entrepreneurs, the U.S., and the world, would be far, far poorer today. Most entrepreneurs, of course, are less famous than the men above. But as a whole, they are no less valuable. One is my father, who launched Cabot Market Letter from his kitchen table back in 1970 and persevered, working nights and weekends, until he could afford to leave his regular job a few years later. If he’d played it safe, and stayed in the engineering business, I wouldn’t be writing this today and you wouldn’t be reading it! I still have his original Royal typewriter, on which are taped the maxims, “You can be a winner, if you try.” and “No venture can succeed so long as it remains only in your mind. Launch out!” Yesterday he and my mother celebrated their 56th wedding anniversary, with all five of their children and seven of their 11 grandchildren.
One more entrepreneur, who is just beginning to make his mark on the world, is Patrick Sargent, a 20-year-old resident of Salem who’s currently a junior at Bryant University, majoring in filmmaking. Patrick recently worked as a low-level assistant on a Richard Gere film, and decided he didn’t want to spend decades climbing the ladder inside an organization. So he launched his own production company, called Work Your Way Up Productions, and last week he came to our office to show off his first project, financed solely by money he earned while caddying at a local country club.
It’s called “Work Your Way Up,” and it’s a motivational documentary focused on the theme of entrepreneurship, consisting of interviews with numerous successful entrepreneurs and experts in the field. It’s not Oscar material, but it’s better than the vast majority of 20-year-olds could do on his shoestring budget, and I recommend it for aspiring entrepreneurs, or schools that are trying to encourage entrepreneurship. I know Patrick is going to go far, because he has already built something new, and he’s not afraid of failure. You can check out his Web site at http://www.workyourwayupfilm.com.
And now, back to Barack Obama, who tomorrow takes on the hardest job in the world. He’s not an entrepreneur in the classic sense; he’s always worked inside the system. But he is a leader. He has a vision. He’s willing to work extremely hard to achieve that vision. And he’s willing to assume this presidency, knowing that there will be failures and that they will be broadcast far and wide for all the world to see.
Obama inherits the biggest federal government in history and with it the biggest budget deficit as well. I have little expectation that he will shrink the government, but I sincerely hope that he can shrink the deficit. I also hope that he will put no roadblocks in the way of entrepreneurs, the men and women who build something out of nothing, using no government resources, and make the U.S. richer for their labor.
Of course, everyone has hopes for Obama, in both the U.S. and all over the world, and these hopes are high because our need for a great leader is high. If he can achieve only half of what people hope he’ll achieve, he’ll be a great success. I wish him well.
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And now for an investing idea.
In one of the news reports on US Airways, following the miraculous Hudson River splashdown last Friday, it was mentioned that the company’s stock had a nice bounce following the event. That sounded odd to me so I checked the chart and here’s what I found. US Airways stock (LCC) peaked way back in 1998 at 83. Then it crashed to less than a buck. It rebounded to 32 in 2003 … and crashed again to less than a buck. In 2006, it flew up to 63 … and then plummeted to 1 1/2. And in 2008, thanks to falling fuel prices, it got back as high as 11.
But by no stretch of the imagination is this a good investment. The company has lost money in seven of the past 10 years!
As for the Friday bounce, it only came after the stock fell out of bed on initial reports of the crash–from 8 1/2 to 7. The rebound to 8 1/2 means the crash had no net effect on the stock.
So what’s my investment recommendation? A competitor. The lowest-cost operator in the industry. The third-largest passenger carrier in Europe. The company that charges extra for food, drink, baggage, airport check-in and more. The company that carries advertising on its Web site for hotels, car rentals, insurance and more. The company that’s grown revenues every year of the past decade. And most important of all, the company that’s grown its earnings every year of the past decade!
It’s Ryanair (RYAAY), and I think buying it around here is a good bet. The stock first came to my attention a month ago when it appeared in Cabot Top Ten Report. Here’s what editor Michael Cintolo wrote in that issue:
“Ryanair is Europe’s original–and biggest–low-fare airline. Started in 1985, and headquartered in Dublin, it operates 180 aircraft on 729 routes across Europe and North Africa from 31 bases … usually outside major cities. In fact, it’s grown so much, it’s now the third largest airline in Europe as measured by passenger numbers. Both revenues and earnings have grown in every year of the past decade as a result of route expansion and undercutting of established high-cost operators. . . RYAAY is, at heart, a growth company. It’s planning on entering the transatlantic market next year, just as soon as it can buy some cheap idled planes from high-cost operators. And it continues its campaign to acquire Aer Lingus, the national airline of Ireland.”
Admittedly, other airline stocks are strong too, thanks to plummeting fuel prices. And truthfully, I’d rather fly on most of those airlines than Ryanair. But no other airline has the growth record, and the growth potential, of Ryanair. In the past month, the stock has been working quietly to build a base around 30 while its 50-day moving average, now at 27, catches up. I think buying on any normal retreat toward 27 will work out well.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory
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