A Brief Book Review of Plunkett’s Almanac of Middle Market Companies 2018 by Jack W. Plunkett
In the early 1950s, Warren Buffett, then in his twenties, would regularly flip through Moody’s Investment Manuals and strike gold. He would find within the thousands of pages of those books companies selling at fractions of their intrinsic values, sometimes just 2x their earning power. After conducting due diligence on a business, he’d put significant chunks of his net-worth into it and within weeks or months make multiples of his invested capital. In his own words: “I went through the Moody’s Manuals page by page. Ten thousand pages in the Moody’s Industrial, Transportation, Banks, and Financial Manuals—twice. I actually looked at every business—although I didn’t look very hard at some.”
It became the stuff of legend, and deservedly so. It was remarkable obviously because it was bold and courageous of him to trust his own judgment and make concentrated investments based on what he had independently uncovered. But I want to focus on something else that I think is equally remarkable and more ignored; I think it was remarkable in large part because Buffett, in his attempt to turn over more stones in pursuit of the glittery stuff at the center of all searches, demonstrated tremendous tenacity.
At the beginning of the Mutoro Group’s 2018 first quarter letter, I quoted former Arsenal F.C. manager Arsène Wenger referring to tenacity as “stamina in your motivation”. Here’s the full quote:
“Tenacity is the most underrated quality. We always speak about talent, intelligence, glamour, but tenacity is the common thing for every successful person in life. Maintain that motivation to go from A to B and to keep your focus on the target without any weakening—that is called tenacity. Stamina in your motivation.”– Arsène Wenger
I love this, and not just because I’m a fan of Arsenal F.C., but because it speaks volumes. Anyone could have picked up the books Buffett did and found what he found, but the difference maker was that he actually did; he actually went page by page through a volume so large and so popularly regarded as dry and cumbersome, and he did not lose focus, and he did not stop. I don’t think we say enough as a society about that part of successful journeys, that is, the slog. It’s easy in our media-rich world to only see the joyous outcome at the end, rather than the monotony of what makes the hard in hard work. So much is a montage and set to music that I think it’s easy to trick ourselves into thinking that being on the hunt should be similarly rapid and entertaining rather than sometimes long and slow. But not always.
In 2017, HBO released a documentary called “The Defiant Ones”, which tracked the careers of music-industry giants Jimmy Iovine and Dr. Dre up until their sale of Beats Music to Apple. It’s hilarious and insightful, and one scene in particular is instructive. Bruce Springsteen recounts his in-studio search for high-quality drum sounds for the album “Born to Run”, which was released in 1975. His team spent three weeks trying to get drum sounds up to his exacting standards. “It was indulgent, but sometimes you need to be indulged,” Springsteen says. When he felt they weren’t getting the drum sounds he needed, he would implore Iovine, who was engineer for the album, to redo the work by saying, “Stick”. Just that word, repeatedly for days, whenever he felt it had to be redone: “Stick… Stick... Stick…” The monotony was so unbearable that Iovine almost walked off the project, describing it as “brutal”. Springsteen saw it as necessary. Whatever your perspective, it worked. What seems to matter is the focus and motivation one brings to the hunt despite it occasionally feeling meandering, whether that hunt is for a drum sound or a discounted stock.
I doubt there is anyone who has read a biography of Buffett that retells his Moody’s Investment Manual episodes who hasn’t herself fantasized about finding an investment gem in the discount bin by combing through the pages of an overlooked book. I certainly have. And this ambition has served me well in my more modern way almost seventy years later; I have made numerous investments that I sourced through learning about a company or situation after running a unique stock screen or digging into the guts of a book or the archives of far afield newspapers and then going through the slog of diving into the companies that came out of those searches. This hasn’t always been a fruitful endeavor for sourcing investment ideas, especially recently. As the valuation of markets has grown substantially this decade, most companies that appear “cheap” on screens aren’t diamonds in the used bin, but junk priced the way it should be. Screening, though, will always find some favor with investors in some capacity, especially if the downward volatility in the markets in the second half of this year continues.
It is with this background that I trekked to the New York Science, Industry, and Business Library in Manhattan one recent weekend after going to my gym in Brooklyn. I have worked at funds that spend millions of dollars a year to have access to the most expensive data sources and subject matter experts and take first class trips to the most obscure sites. But I still think one of the hardest things for humans is picking up a book and independently flipping through its contents; the “drier” the book is, the truer this is. I see advantage in that. To this end, I was happy to look through this book, Jack W. Plunkett’s “Plunkett’s Almanac of Middle Market Companies,” which I randomly picked off the shelves, some bit of that inner Buffett-Moody’s fantasy coursing through my veins.
It has hundreds of profiles of businesses, each with its own page containing summary info on the company’s operations and some key financials over the last six years. If I had not heard of a business I came across (many in this book), I quickly calculated some metric I was interested in or read its financial table for its “operating margin”, “revenue growth rate”, and “free cash flow” to see if that particular business met my initial standards for “a good business”. If it did, I read the description, noted its name and then did more research about it. It took me a few hours to go through. I left with 19 companies I have followed up on. That’s what this book did well.
Here’s what it didn’t do well. The long-and-short of it is this book isn’t very well organized and clearly wasn’t researched beyond depths a beagle or corgi could comfortably splash through. Of the six hundred or so companies within this book, some, while presumably “middle market”, come with no financial data and such scant editorial information that it’s surprising they are even here. The Miami Dolphins? The Chicago Bears? C’mon, Jack. And for those companies that do have more information within their pages (i.e., the publicly traded ones), beyond the financial data provided about them, the editorial descriptions of the businesses are so bare bones and disjointed as to be often largely irrelevant.
I think there is still a lot of utility in books like this even in our digital age. But I would not pay a dime toward the $320 this book sells for retail and am grateful for living near a healthy public library system. As for the 19 companies I took away from this book as being worth further investigations: In time I hope my research of some will make this worth the slog.