Greedy When Fearful

From This

I love cars. I nostalgically remember drooling over my former employer’s 1997 Corvette. Like most teenage boys, I had pin-ups of sports cars in my room next to the hot chicks and posters of Depeche Mode, U2, and NIN.  I had a miniature model of a Porsche Boxster on my dresser.  I still long for the day when I can own a 1950s Cadillac.  So, when I heard of a company going public in April called ZipCar, I laughed at how stupid it was. American’s “sharing” cars? Zipsters? In Europe, sure. But not AMERICA! Then, the following happened:

1)  I was dropping off some papers at the University Of Utah and noticed a car sharing automobile parked in the stall. It was U-Haul’s version, but it was still the first shared car I have seen.

2)  The Motley Fool recommended it as a Rule Breaker  in June so I added it to my watch list.

3) I read about how car sharing can be used for company fleet vehicles. This was such a great, money saving idea I talked to one of my clients about it.

Then it clicked. This contrarian idea may not be stupid at all. It could be revolutionary. It could be the future.

Two weeks ago, ZIP reported massive revenue growth of 34% and an increase of its members by 29%. Yet yesterday, it hit a 52 week low (25% decline in the past 5 days and 39% drop since its peak! When it recovers, it will be an easy double).  Great company, broken stock. My favorite.  So, I just started a partial position (my wife said “It’s not done falling.” which I responded “Exactly. Wide scales!”) in ZIP at 684 million (market cap).  I’m an optimist, but I’m not stuck in the past. This is why I’m betting America’s auto love affair peaked in the 1900s:

1) Cars are uglier than ever. They remind me of the toy cars at our nearby theme park, Lagoon. If we loved our cars, would we really drive a Smart Car?

To This

1) The middle-class is shrinking and the cost of gas is increasing. People are driving less because of the cost of gas. According to AAA, the average person spends $10,000 a year for the privilege to drive (add up your car payments, insurance, repairs, and gas costs. What do you pay?). More people are car-pooling and taking public transportation.

2) Renting music, movies, books, and houses is more popular than ever. Unless you’re rich, owning is becoming passé.  The green movement is stronger than ever (each Zipcar shared takes at least 15 personally-owned vehicles off the road.)

3)  Dean Kamen, inventor of the Segway, once mentioned in an interview that it’s stupid to move a 200lb person with a multi-ton machine. That point has stuck with me. So has the thought that we dedicate huge portions of our houses to storing these beasts.

4) Anyone who has traveled to France will most likely testify to the efficiencies of the Metro and how nice it is to not have car. On my last trip I felt this exact same way, except when I went grocery shopping. ZipCar is perfect for this situation.

5) Ever borrow a pick-up from your parents? I did last week. You can reserve pick-ups or a swanky BMW without the bother or the budget.

Then, I realized Zipcar has my favorite type of business model, subscription! Members pay an annual fee of $60 and around $8 an hour (which includes insurance, cleaning, maintenance, AND gas!) when they are driving. You swipe the windshield with a smart phone or ID card to get into the car. Instead of being like Hertz or Enterprise, this business model could be more like Costco or Netflix. Costco makes almost all their money from membership fees, not product sales (which are sold almost at cost). Ever pay an annual fee to rent a car from Enterprise? Me neither.

I posted a Facebook update about car sharing, and only one person responded. I’ve only seen one car-sharing automobile in Utah. Zipcar isn’t in Utah yet, it’s still a baby. Buying babies and holding until adulthood is how you get rich. In the US (they own UK’s version called Streetcar) they are only in 14 cities and 230 universities. A decade ago I was testifying to friends and family about the revolutionary iPod and the game-changing Netflix. Investing in strong trends early is key to building wealth. This may be the next strong trend.

Zipcar has built their own new world and it could easily implode. This is an extremely risky investment. Alternative energy or cheap gas, a rising middle-class, population shrinkage, cultural trends, flying cars, competition from the big boys, etc. Also, you still have to get TO the car. Right now, this model works much better in Manhattan than in Texas. But, when companies invent their own world take a look at your feet, you may be walking on a yellow brick road.

Monty

Since my last post, I also did the following (you can always follow along with every buy/sell on Facebook)

5/16/2011

Sold entire position of #VITA @ $3.82. After terrible sales of Cortoss, last August, Jedi David Gardner said sell. I agreed but wanted to sell into strength. Today Stryker announced they are buying VITA. I held VITA for 1 year and 3 months. A 40% one-day increase is the moment I have been waiting for.

6/1/2011

*click**click* RELOAD of #UA @ $65.64 (5% of portfolio) and @LULU @ $89.49 (5% of portfolio)

8/8/2011

Taking advantage of the S&P USA downgrade. Picked up #MAKO @ $22.43 making it 1.6% of my portfolio. MAKO Surgical has been delivering on their promise to change the world through robotic knee and hip surgery and is the 905 million little brother of Intuitive Surgical. Picked up #WM (Waste Management) @ $29.14 making it 1.7% of my portfolio. With a 4.68% yield and decades of trash to come I love picking this up at a 52 week low. MAKO reports earnings tonight. Normally I wouldn’t buy right before earnings but MAKO sold off almost 10% today making it worth the risk IMO. August 9^th, Got really LUCKY here! MAKO closed up 35% from yesterday after blowing away earnings. That’s a record for me! Usually 1 billion companies never have days like this. WOW.