Timberland Co. Part 3; Why I Bought & When I Sold - Li Lu | CBS 2006【C:L.L Ep.21】

[Transcript]

LI LU: So what do you do at that point? What do you do?

Buy. How much you want to buy? Suppose we have a hundred dollars.

What?

AUDIENCE MEMBER: 40. (Laughter)

LI LU: What? How much you said?

AUDIENCE MEMBER: 200.

LI LU: 200, okay. (Laughs)

Well, I like to talk to this class because you guys are not polluted yet. Now, if you go to join a fund, the first thing people tell you is, oh gee, don't do anything more than 25 basis points and then your goal is maybe 50 basis points, and you do one percent – that's 100 basis point – they use basis point so every number sounds big. You know, boy, we’re gonna do 50 basis points, that's a big deal! (Laughter)

That’s what it’s like, that’s what it’s like. So keep your innocence because right now, what you’re thinking is the common sense. Think about how much effort you put in to get this damn thing right. Think about how good it is, there’s virtually no downside, you’re trading roughly about 5 times.

And the next thing I did is, I actually went to all different stores to see why in the last few years, the margin improved substantially. It turns out that there was a fad going on in the – especially in the inner cities – that all the little kids wanted to have, you know, the Timberland shoes and jeans and (inaudible) the things that, you know, all the store managers tell you, they couldn't really get enough stock.

And you look at how much of their international business? (BROKEN AUDIO) – Which is actually in shoes and in Asia – less than 10 – what they make out of that? Less than 10 – 10% out of the 10% of the 27%. So you calculate all day and you say that all of them are gone! You’re losing money.

So what? It reduce your earnings by less than 5 percent. So I put a shitload. (Laughter)

Anybody know what happens afterwards? In the next two years? I mean you guys all have internet, you can check right away.

AUDIENCE MEMBER: They don't want to check (Inaudible).

LI LU: Really? You should do that. (Laughter)

You should have. Why do you want to listen to all this shit? (Laughter)

You just do whatever you want to do, as I said, you know, you're right not because other people tell you to or agree with you, we’re right because you need to do that. You need to check on all that. All those things should come to you in no less than 5 minutes, otherwise you’re just not a good analyst. If you're not a good analyst, you will never be a good investor. Seriously, so you have to at least technically train yourself to be very very proficient with all of that.

Well the next 2 years, this damn thing went up 7 times. And the truth of the matter is during all those times, it was propelled by the earnings. So during all those times, you still did not have any risk.

It’s not like you're hiding – you know, riding some technology company after they doubled or tripled. You exposed yourself to huge amount of attacks. It was never more than 15 times earnings. Never. But if you trade it from 5 times to you know to 15 times, and the earnings been growing that period of time 30% a year. I mean that add up, that add up.

And the other – (BROKEN AUDIO) – took over as the CEO, and he had the entirely different ideas about how to run a company, it was very articulated, one of the most articulate person ever met. Still is. So he doesn't mind to talk to analyst, he initiates not earning guidance but analyst meetings.

And the first meeting, guess you know how many people showed up? It was him, me and another analyst. Three people – (Laughs) – Three people.

And the last analyst (meetings) when I sort of went kind of you know, somewhere in 2000s – end of 2000s, the room was absolutely filled with nearly 50-60 people – (BROKEN AUDIO) – major street broker house kind of initiate some kind of a cover issue.

So that's when I know I have to sell. So I sold everything.

(Source: https://youtu.be/y3c2PKupiu8)

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