Is Your Team Effective?

Most of us in the money management business have experience working and making decision in teams.  Whether it be on the athletic field during collegiate sports, in graduate school for study teams, or in the actual work place, working and interacting effectively as a team can be critical for success.  This weekend we read an interesting study relating to the most effective teams for investment committees that was written by Michael Mauboussin from Legg Mason Capital Management. 


Some of the key takeaways from Maboussin’s work, which was a summary of other studies,  was as follows:

  • According to J. Richard Hackman, a professor of psychology at Harvard University: “My rule of thumb is that no work team should have membership in the double digits (and my preferred size is six), since our research has shown that the number of performance problems a team encounters increases exponentially as team size increases”;


  • Brooke Harrington, a research at the Max Planck Institute for the Study of Societies, analyzed investment groups and found: “The larger the proportion of friendship and other socioeconomic ties within a group, the worse its portfolio performs; the larger the proportion of relationships based on professional, financial, or academic ties, the better the group performs”;


  • A survey by Arnold Wood and John Payne found that 85 percent of investment committee members were white males over 50 years old, they found no members under 30, only 15% were women, and only 5% were minorities; and


  • A recent survey of defined contribution committees found that they spent over one-half of their time, more than that on any other issue, discussing past investment performance – an unimportant knowable. Unimportant in the sense that there is nothing the committee can do about it ; and


  • In putting together committees, leaders sometimes seek to find experts to match the problems the committee will face.  So if the committee needs to decide about an allocation into alternative investments, they seek a member with experience in alternatives.  According to Phillip Tetlock, a psychologist at the University of California-Berkeley, writes: “People who devoted years of arduous study to a topic were as hard pressed as colleagues casually dropping in from other fields to affix realistic probabilities to possible future outcomes.”

The conclusion of all these points is that most effective decision making teams should have a number of attributes.  First, these teams should be a manageable number.  Second, the group should not be incestuous in terms of social ties.  Third, there should be a diversity of experiences within the group.  Fourth, groups should not overweight “expertise” for longer term decision making.  Finally, time allocation is critical and groups should focus on finding solutions to important questions (not debating the market or prior performance).


Our firm is comprised of quite a few Yalies and, as many of you know, we are located on the outskirts of Yale’s Campus in New Haven, CT, so we are obviously predisposed to like all things Yale.  We are not beyond You Tubing ourselves though, and a quick look at Yale’s Investment Committee suggests that it may not have the most optimal structure.    The Yale University Investment Committee has ten members, and eight of those members are white males.  Two of the members, Richard Levin and Shauna King, work for Yale.  Of the remaining eight that do not work for Yale, seven work in the finance industry.  The only outlier is Judge Barrington Parker.  So, in aggregate, the Yale Investment Committee has a very white, male, and finance oriented Investment Committee, with very comparable social levels.   In theory, this is a very suboptimal structure.


That said, it is possible for some investment committees or decision making teams to outperform.  This will occur when the individual members of the groups are better individual decision makers than average.  A political scientist at the University of Michigan developed the diversity prediction theorem and the equation reads as follows:

  • Collective Error = Average Individual Error – Prediction Diversity

The takeaway is that if the average individual error is lower for a group then that group may be able to overcome a deficiency in diversity.


In conclusion, as we make strategic decisions as teams, whether it be for investments or the strategic direction of a business unit or company, we can structure teams in such a way to make much, much better decision and plans, so as to increase our probability of success.  The days of a small group of white men going on an offsite to make strategic decisions are behind us, or at least the research tells us they should be.



Daryl G. Jones
Managing Director


Casual Dining – Outback’s new look

Although Outback Steakhouse is out of the public eye, it does not mean that what it is doing is not important.  We know that business is tough for Outback Steakhouse, as the company reported last month that same-store sales at the Outback dropped 10.4% in the second quarter ended June 30.  Clearly, the company needs to do something to change the perception of the concept, outside of just lowering menu prices. 


The following are a few pictures of the remodels the company has done in Florida and Virginia.  With 900 units in the US, Outback is a competitor that should not be forgotten.  Just something to keep in mind as it relates to the other steakhouse competitors.


Casual Dining – Outback’s new look - osi1


Casual Dining – Outback’s new look - osi2


Casual Dining – Outback’s new look - osi3




Terrific Q3. Surprisingly, lower Q4 guidance but generally better forward commentary. 




The following is our transcript from the CCL conference call that just ended. 


3Q09 Commentary:

  • The beat was driven by better yields, which benefitted them by 12 cents, while onboard spending and other contributed 2 cents
  • Cost cutting measures benefitted them by 3 cents
  • Capacity increased 5.5%, European grew 7.5% vs NA grew 3.6%
  • Overall net revenues yields decreased 12% in local currency
    • Ticket yields
      • NA brands were down by 20%
      • European brands only decreased 6%
  • Onboard yields were down but less than they were in 2Q, Europe was better than NA
  • Cruise Costs per ABLD
    • Net cruise costs, excluding the settlement, were down 2.4% (excl. fuel)
    • Fuel was 39% lower than last year
  • They are well positioned through the end of 2010 but may seek to opportunistically raise more capital



  • Closer in bookings are better than expected.  They have been running 19% ahead for 1Q2010. The gap in occupancy has significantly closed and the booking window has been widening 
  • Pricing is stable, but is better on select itineraries 
  • If current booking trends continue pricing should improve.  However, because most of the bookings for 1Q2010 are on the books, yields will be down in local currency but neutral to slightly better (because of the FX benefit) when adjusted for currency 
  • Moving older ships to the European fleet to third party tour operators – one out on a long term charter covering the remaining life of Costa Europa and the other is an outright sale (old P&O - Artimis)
  • 4Q2009 Color: 
    • Capacity increase: 5.7% in NA, 9.6% Europe 
    • Pricing is lower, but occupancy is the same y-o-y and there is very little inventory left to be sold
    • NA brands will have 45% capacity in Caribbean and 10% on the Mexican Riviera
    • Lower pricing for most itineraries – higher price products suffering the most declines 
    • NA down mid-teens in 4Q 
    • Alaska: Industry filed a suit against the head tax 
      • 2010 is still experiencing lower demand
    • Europe pricing is moderately lower, CCL expects a modest decline in local currencies
      • Should be flat-to-positive when adjusted for the FX benefit
  • 1Q2010
    • Fleetwide capacity up 9.9%, 15% for Europe, 5.5% for NA 
    • NA brands: 62% in Carribbean, 11% in Mexican Riviera 
      • Pricing is moderately lower, with Mexican Riviera down the most 
      • Have been able to increase pricing on some itineraries 
      • With such a large portion already sold for 1Q2010, they will see less of an impact from better short term positive bookings 
    • European itineraries are holding up well, only moderately down 
      • They expect pricing will only be down slightly by the time the quarter closes (in local currency) and current dollar yields will be neutral-to-slightly higher
    • South American yields are down more significantly (large increase in Brazilian supply)
  • 2Q2010:
    • Capacity increase set to be 9%, 4% for NA, 15.2% for European brands
    • Overall occupancy moderately down for NA & Europe 
    • NA is 54% Caribbean 
      • Pricing is lower than 2009, but better than 1Q09 last year 
    • European brands: 57% in Europe, 10% transatlantic 
      • Pricing (LC) lower than last year



  • Recovery timing?  
    • The company thinks the recovery will be slower than prior recoveries.  They believe it will be a slow emerging environment for yields.  2010 yields should be stable-to-slightly improving as year progresses
    • In the last recovery it took them two years to get back to where they were in prior to the downturn
  • No fuel supplements to be implemented yet 
  • Quantify extension of the booking window: 
    • It varies by brand, but overall 15-30 days improvement
  • Appetite to build new ships in out years 
    • Pricing in euros is back to the reality rates of 2003 when they ordered last time, but the dollar is weak 
    • It is unlikely that they sign any contracts by end of the year, which means that 2012 deliveries are unlikely 
    • US brands less compelling 
    • Would like to build some Princess 
  • Seeing more expansion in the booking window on higher end brands – because they were hit a lot harder 
    • Trade up recovery? 
    • Very difficult to compare to prior downturn because their portfolio was so different back then 
  • Dividend? 
    • The overall business tone is improving
    • Wanted to get their rating to A-
    • Liquidity has improved
    • So the bottom line is that they will make a recommendation to the board based on those three factors when considering reinstituting the dividend
  • Is there more room to cut costs?
    • They have taken out a lot of costs on the shore side area
    • Consolidated large part of their Alaskan operation
    • Probably in the 5th & 6th inning of cost cutting, remaining cuts may involve restructuring certain business
    • Operating companies are working closer together than they ever have before
    • Fuel conversation is an ongoing effort - only half-way there in terms of cost savings there
  • How do bookings look for Drea?
    • Bookings are terrific, they are getting a very significant yield premium
    • Oasis is doing great and so is the Odyssey
  • 4Q09/1Q2010 – what is a normal curve for remaining bookings?
    • Pricing is now essentially stable overall and, as they are able to catch up on occupancy, they have been able to tweak up pricing on certain itineraries (they are saying from current pricing less so than from pricing a year ago)
    • 5 cent benefit in the quarter,
      • Last year they had a penny related to insurance settlement
      • Accounting for FIN 48, this year they had a reversal
  • On Board spend update?
    • 3Q09 saw declines in most categories, but declines weren’t as great as those in 2Q09
  • Lower commissions, transportation & other due to less airport bookings and lower air booking prices (just a pass through anyway)
  • Alaska & Crystal only going in there for one year... Alaska will still have lower capacity next year
  • Generally speaking yards are hard pressed to build below cost and have already come down to reasonable prices. However, the Euro is so strong that it may not matter for 2012 deliveries.  CCL only has two ships coming online in 2012. Likely to have material cash flow in 2012 and beyond
  • Yield outperformance in 3Q09 implies that last minute booking prices were up about 20% (in order to beat by the amount they beat by) since 85-95% is already booked.  Onboard yields also helped. In July and August people just decided to take their vacations –  this implies pent up demand
  • The company expects that beyond 1Q2010, each quarter's yields are to get sequentially better
    • They won’t say that they will actually be positive in 2Q2010
    • Harder to predict now that it is in the past
    • Will increase pricing if this type of volumes continue
  • Current pricing in NA and Europe are well ahead of where second quarter closed last year (I'm confused here)
  • Art auctions and casinos are down a lot more than other onboard revenues
  • 10% change in fuel = 116MM or 15 cents a share; 10% movement in USD = 140MM or 17 cents a share

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


We thought slow foot traffic early in the month was indicative of a softer month than Aug as Macau headed into the holiday filled October. However, VIP, high end Mass, and high hold percentages are contributing to a strong Sep.



Following a casino walk through on 9/10/09, my Macau guys reported slow foot traffic.  Apparently, Mass business has picked up considerably - especially over the last two weekends - while VIP has been very strong all month.  Through 9/20 the month was up about 60% in year-over-year revenues according to reports out of Macau, off of an easy comparison.  Mass is definitely strong but it looks like most of the gain is coming from VIP, as can be seen by our estimated market shares in the following table. We are also hearing that hold percentage is high so far versus a low hold percentage in September 2008.




SJM, Crown, and Galaxy, all VIP houses, increased market share while LVS (the bigest market share loser) and MGM lost share.  The rest of the month will probably be slow given the proximity to the holidays in October, including the 60th anniversary of the communist takeover in China.

Chart of The Day: Burning The Buck

While it’s shocking and amazing that our President can do that many TV appearances in 48 hours and not talk about this chart, don’t bet on our Treasury Secretary saying anything about it any time soon either. Today, at $76.11 (US Dollar Index) America’s currency is crashing to new lows. All the while, America’s said financial “fiduciaries” are being willfully blind to this real-time global macro event.


The marked-to-market, Global Financial System, fortunately, must not be as stupid as Timmy Geithner thinks Americans are. Everyone with bucks is seemingly blowing them out again today. This assures a setup for the G-20 meetings in Pittsburgh where the world’s economic power is set up to shift.


The Chinese, the Russians, the Germans, the Australians – they’ll all be there, calling for the same thing. A diversification away from the US Dollar serving as the worlds Reserve Currency. No more Madoff. No more Stanford. No more Japanese style ZERO rates of return for your citizenry and creditors alike every time your stock market goes down.


From Bush to Obama, fully loaded with the most politicized financial system the US Government has ever overseen, does the world trust the US currency? The answer is in this chart. Price charts don’t lie; people do.



Keith R. McCullough
Chief Executive Officer


Chart of The Day: Burning The Buck - a1



SEPTEMBER 22, 2009




Recently Announced Retail/Apparel IPO’s


While Dollar General’s impending IPO is likely one of the largest and most visible IPO’s on the calendar, it is worth noting that there are a handful of other apparel/retail companies lined up to go public in the coming months. For now, the list is as global as we’ve seen in a long time, but we suspect many U.S. private equity firms will be watching closely to see how these offerings fare as they too contemplate monetizing some of their “peak-market” acquisitions.


  • Rue 21 (US)- 500 store specialty chain targeting 11-17 year old men and women. Merchandise is value-priced and concept is focused on small and middle markets. Sanders Karp & Megrue are the majority shareholders.
  • Dollarama (Canada)- 600 unit Canadian dollar store. Originally acquired by Bain in 2004.
  • Dollar General (US)- 8,500 store deep-discount retailer currently owned by KKR, GS Capital Partners, and Citigroup.
  • Yoox (Italy) Italian multi-brand luxury e-commerce retailer serving 28 countries. Backed by Benchmark Capital.
  • Myer (Australia) Largest department store in Australia currently owned by TPG.
  • Peak Sport (Hong Kong) Chinese sportswear maker sponsoring several NBA Players. May raise as much as HK$1.9 billion ($246 million) in a Hong Kong initial public offering, according to a sales document. 




Some Notable Call Outs


  • Despite the large amount of growth for American brands in China, local companies are not sitting still. Li Ning, China’s largest domestic manufacturer of athletic apparel and footwear hired Portland based design firm, Ziba, to overhaul the brand. The company hopes to not only compete more effectively with Nike’s push into China but to also take the Li Ning brand outside of its domestic market. Ziba has been working on the rebranding project in secrecy for nearly two years.


  • Improving momentum in PVH’s retail business continues, with same store sales currently tracking up 3-4% in September. The improving trend follows a 2% increase in August and flat performance in July. Management now believes the improved sales trend will allow operating margins to exceed the original 3% forecast for the year, with significant upside potential occurring over the remainder of 2009. Additionally, management noted that business has picked up across the board in the wholesale divisions over the past 3 to 6 weeks. At Macy’s, PVH’s business is “very strong” with AUR’s tracking above expectations as well as reorders.


  • Our meeting with DKS last week revealed some interesting facts about the company’s key competitor in Texas, Academy Sports. The privately held retailer currently operates 110 stores of which 73 are in Texas. DKS management believes Academy is generating almost $2 billion in annual sales out of its prototypical 80-100k/sq ft stores. While heavily concentrated in Texas, Academy recently opened distribution facilities in the Atlanta area to support eastern expansion in states including TN, NC, and KY.





-Price concerns are driving sourcing executives out of China and into neighboring countries - China is still the easiest place for companies to source because it is so well established, but it is no longer the most cost effective, an increasingly important element of sourcing decisions in the current economy, production specialists said. As a result of the search for lower-cost alternatives, companies are beginning to source more from countries such as Vietnam, Bangladesh and Pakistan, said Munir Mashooqullah, principal and founder of Synergies Worldwide, a sourcing firm with more than 50 clients. “You have to work to find the right factory because the obvious ones are not going to fit into the pricing model which is required in 2009 and 2010,” Mashooqullah said. Imports from Vietnam and Bangladesh are outperforming most other countries year-to-date, according to the Commerce Department’s Office of Textiles & Apparel.  Bangladesh and Pakistan manufacture mostly basic, commodity items, while Vietnam produces a product mix similar to China’s, but with a lower labor rate. <>


-The trade relationship between the U.S. and China has entered a complex and contentious new stage - With tensions escalating over President Obama’s decision to impose tariffs on Chinese tire imports at the behest of a powerful labor group, the two countries have ended a relatively stable period of trade relations. The U.S. and China share one of the largest commercial relationships in the world — China is the second largest trading partner of the U.S. behind Canada — while being on opposite ends of the political spectrum: leader of the free world versus most populated country long run by Communist dictatorship. But the trade balance between the two countries has been lopsided for years, with the U.S. posting record deficits, often prompting calls at home for protectionist actions against China. The U.S.-Sino trade relationship also presents significant exposure for the fashion industry, which imported $37.93 billion of apparel and textiles from China in 2008. <>


-As if luxury brands didn’t have enough problems coping with the global recession, they now have to battle two perceptions: commoditization and declining quality -According to a recent survey by the Luxury Institute, 48% said luxury products are too accessible and are no longer exclusive; 40% believed luxury brands are becoming a commodity, and 52% said luxury brands that also sell products for mass consumers are no longer luxury brands. And while superior quality and craftsmanship continue to be attributes most associated with luxury brands, a large percentage of wealthy consumers perceive that those characteristics are being delivered worse today than in years past. Looking ahead to the balance of the year, just 7% of wealthy consumers in the survey said they will spend more on luxury goods and services, although 21 % said they are likely to spend more on discounted goods and services. Of those who will be spending their cash, 55% said they will buy more of what they need rather than what they want. <>


-The pressure is building for holiday - Consumer behavior is the X factor, and if the recent past is any indication, shoppers will demand value and put off purchases on the expectation that stores will blink and cut prices. Moody’s Investors Service said in a recent research note that department stores — even with inventories more in line with sales than during the depths of the recession a year ago and despite better than expected first-half earnings — are likely to beat the discount drum for holiday. “We believe there is a high risk that the American consumer will have a ‘discount staring contest’ with the department stores by delaying purchases until they see a level of discounts that they believe offers them value,” the ratings agency said. “We believe that the department stores will likely blink first by opting to quickly mark down rather than risk having the inventory left over after the holiday season.”  <>


-UK Retail chiefs warned that retailers face further pressures on consumer spending throughout 2010 - New Look chief executive Carl McPhail said: “I’m not convinced we’ll see a recovery in the early part of next year as there will still be pressures, not least from unemployment, and our research shows customers are all concerned about that.” McPhail’s comments are included in a survey commissioned by PR firm Kreab Gavin Anderson, which found many retailers believe the consumer market will not pick up until 2011. Just over a third of those questioned – 34% - are not anticipating strong growth until 2011 or even later. Just 13% expected the consumer market to pick up significantly this year. And nearly all – 94% - said they expected a slow recovery as tax rises squeeze shoppers’ disposable income. Despite fears, two-thirds said they were more positive than seven months ago as fears of economic Armageddon had not emerged. Retail bosses also warned that Christmas would be flat this year. Rose said: “It will be a roller-coaster. Last Christmas was exceptional in terms of the global economic environment. This year there will be less background noise but a bit more competition.” Andrew Higginson, chief executive of Tesco’s Retailing Services division, said the market will be “flat at best” for UK retailers over Christmas. He added: “I think the market will be flat at best at Christmas and part of that will be deflation. Although currency falls suggest we should see a bit of inflation I don’t think the competitive market will allow it.” <>


-Skate Footwear Growth Slows, but Performs for Back-to-School - Although skate shoe growth is showing some signs of softening, the category certainly is not in crash mode. Conversations within the industry as well as data from SportScanINFO indicates that what's occurring is a slowing in sales gains in the recessionary climate and perhaps a little maturity after several years of high-double digit growth for the category. Many feel that like many other footwear categories, the skate category is also showing some signs of struggling in the downturn as retailers remain cautious around inventory investments. The increasing popularity of canvas vulcanized shoes - which also carry a lower price than core skate shoes – is also said to be impacting the category. But as skate shoes are increasingly being used as casual shoes — and skate brands themselves move into other categories — many skate shoe insiders claim it's becoming more and more difficult to classify the skate category.  <


-SIA Releases 2009 Snow Sports Market Intelligence Report -  While the 2008-09 season will be remembered for the worst economic conditions since the Great Depression, snow sports participation was healthy and some categories of equipment, apparel and accessories grew. 2008-09 Sales: $2.8 billion in sales of snow sports equipment, apparel, and accessories from specialty shops and Internet sales. Category breakdown: $760 million in equipment, $1.1 billion in apparel, $951 million in accessories. Adult high performance alpine ski boots were a hot trend, with an increase of 16% in units sold and an additional $11 million in sales. Online sales grew 12% in dollars and 23% in units $547 million total Internet sales were recorded 15% of all snowboard equipment was sold online. 2008-09 Demographics/Participation: 1 in 14 of Americans consider themselves to be skiers or riders, 14.8 million Americans participated in a snow sport in 2008, The average snow sports participant is about 30 years old, has a college degree and household income exceeding $100,000 annually, 1 in 5 female snowboarders are over 35 years old and plenty of girls are in the pipeline, the snow sports demographic experienced a doubling in unemployment rate during the 2008.09 season as the economy tanked. <>


-Hermes CEO Sees No Light in `Tunnel' This Year on Weak Japanese Recovery - Hermes International SCA Chief Executive Officer Patrick Thomas said he isn’t optimistic about the next six months because of a delayed economic recovery in Japan, the French luxury-goods maker’s biggest market.  <>


-U.K. August Online Sales Climb More Than Expected on Clothing Demand - U.K. online retail sales climbed more than expected in August as shoppers, lured by competitive pricing and improved returns policies, spent more money on clothing and electrical goods. <>


-Newsweek ranks America's retail companies by their environmental considerations - Top 10 Green Rankings of 2009: Kohl's, Staples, Gap, JC Penney, Macy's, Wal*Mart, Best Buy, Whole Foods Market, Limited Brands, Target.  <>


-The TJX Cos. Inc. board on Monday approved a new stock buyback program  - The $1 billion represents about 6.2% of the off-price retailer’s outstanding common stock at current prices, the company said. TJX, which is based in Framingham, Mass., said it expects to buy back $625 million of stock in fiscal 2010. The latest repurchase is the company’s 10th since 1997.  <>


-Scott Sible, the president of the Merrell and Chaco brands at Wolverine World Wide, plans to retire at the end of the year - Sible took over at Merrell domestically in November of 2002 when he was promoted to VP and general manager for the U.S. Merrell performance footwear operations at WWW. <>


-Stride Rite Corp. unit will now do business under the name Collective Brands Performance + Lifestyle Group - The name change is meant to better reflect and communicate the range of performance and lifestyle brands comprising the company and its new business model. Collective Brands Performance + Lifestyle Group includes Sperry Top-Sider, Saucony, Keds and the Stride Rite Children’s Group that encompasses Stride Rite, Robeez, Keds Kids, Saucony Kids and Sperry Top-Sider Kids. The children’s group labels are sold through Stride Rite stores and wholesale partners. Collective Brands Performance + Lifestyle Group is headquartered in Lexington, Mass. <>


-Christian Louboutin and Jimmy Choo were shoe winners of the Emmy's - The long flowing trains often made it hard to pick out the shoes during the 61st Annual 2009 Primetime Emmy Awards on Sunday, but from what we can tell, Christian Louboutin and Jimmy Choo were the clear winners of the night. <>




RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): AMZN


09/21/2009 10:30 AM


Runkle's duration on this short call is longer than what this company is setting up to print for the quarter. The math is telling me to get out of the way for this quarter, so I will. KM







JWN: Margaret Myers, EVP, sold 13,764shs ($433k) upon exercising the right to buy 13,764 shares nearly 50% of total common holdings.


DKS: Jeff Hennion, EVP – Chief Marketing Officer, sold 10,000shs (~$230k) upon exercising the right to buy 10,000 shares less than 20% of total common holdings.


ROST: Michael Balmuth, Vice Chairman, President & CEO, sold 17,457shs (~$840k) upon exercising the right to buy 17,457 shares less than 5% of total common holdings.