Stocks Under Rocks

​Last week, like most years at this time, I made my way to The New Orleans Sheraton Hotel, to attend The Burkenroad Reports Investment Conference.  It’s like Jazzfest for Capitalists - according to the one and only - Peter Ricchiuti.  Peter puts on the conference and teaches the Burkenroad Reports course at Tulane’s A.B. Freeman School of Business. Students are assigned a Company to research, have access to interview Company management, and write a Wallstreet style report on what they think the business is worth.  Most of the Companies that students write reports on are within driving distance of New Orleans and Peter jokingly calls them – “stocks under rocks”.  Most are far away from Wall Street and barely get any media attention.
 
At the Conference, I had a great conversation with Mark Joslin, the CFO of Pool Corp (POOL) – the largest distributor of pool products.  POOL is a great business.  In a distribution business; 1) the availability of wide assortment of products, 2) the ability to generate sales and gain market share, and 3) the speed of delivery and logistics separate the winners from the losers.  And Pool has been winning on all these metrics for more than two decades.  Today, POOL also has a scale advantage as it is almost as big as all its competition combined.  Most competitors today are small, regional companies.  Scale also plays a key role in bargaining power over suppliers and pricing power over customers.  You might say, “well that’s great, but how can Pool compete with Amazon?”  Amazon has stringent product and delivery requirements which most pool product manufacturers cannot meet.  They prefer to do business with Pool instead.  Therefore, most of Amazon and its marketplace products are purchased from Pool or competitors.  No one is Amazon proof, but so far, the industry structure has played to Pool's advantage.  Pool and outdoor products might be one of the few end markets where Amazon doesn’t have a scale and procurement advantage. 

A good business in a stable industry structure generally makes for a good investment.  POOL’s stock returns have been extraordinary – up 22% annually for the past 10 years vs. 9% for the broader market.  After such a torrid run, while the time to invest in POOL isn’t today; but it’s well worth watching for, in wait for the proverbial ‘winter’. 
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The media is obsessed with popular companies, and headline grabbing events.  But there are lots of ‘stocks under rocks’ like Pool Corp., that have the potential to generate attractive long-term returns.  We as investors are always tempted to own the ‘hot stocks’, but the investment road less traveled holds real treasures as well.
 
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​This material does not constitute an offer or solicitation to purchase an interest in Latticework Partners, LP (the "Fund").  Such an offer will only be made by means of a confidential offering memorandum and only in those jurisdictions where permitted by law.  An investment in the Fund is speculative and is subject to a risk of loss, including a risk of loss of principal.  There is no secondary market for interests in the Fund and none is expected to develop.  No assurance can be given that the Fund will achieve its objective or that an investor will receive a return of all or part of its investment.

This material contains certain forward-looking statements and projections regarding the future performance and asset allocation of the Fund.  These projections are included for illustrative purposes only, are inherently speculative as they relate to future events, and may not be realized as described.  These forward-looking statements will not be updated in future.