On mobsters and pain killers

In one of my first jobs out of college, I was stuck in the "new guy" cubicle with zero charm and right near the elevator. Being young and energetic I wasn't bothered. Rather, I was determined to make the best of it. I went shopping one weekend for decorations to liven the place up. Included were a couple of business or finance related things that were funny, (at least to me), including a sign inspired by what was then the local telephone company.

I don't own the sign anymore, but I did my best to recreate it:

As is typically the case with these things, no one found it to be as funny as I did. But I was still caught off guard when one day as one of the big bosses was screaming his way through the floor he stopped at my desk, cursed a few times, and told me in words I will not repeat here that either my Bell Atlantic sign had to disappear forever or I would.

Turns out the CEO of Bell Atlantic was visiting the office that day.

To this day I wonder whether the CEO, had he seen the sign, would have been offended. In some ways I guess it was a joke about the company's business model. But at the same time, it was a hellova business model!

And now a brief (paid) endorsement:

To the extent that this content is intelligent, it is so because I use tools like Koyfin to make sure I have the best charts, data, analysis, and transcripts available. Koyfin provides a lot of the same tools you get with a Bloomberg terminal or Capital IQ at a fraction of the price.

Interested? Click the button below to get 10% off your first year using Koyfin.

When I look for new investments, I pay special attention to mafia stocks and aspirin stocks. (My terms, but not very original.) Bell Atlantic, in its heyday, was a mafia stock. People didn't do business with them because they loved doing business with them. In many cases, the opposite was true. They did business with them because they had no choice. 

Utilities are great examples of mafia stocks, but there are plenty of others. A more polite way to describe these businesses are sticky. Perhaps they do a good enough job at a good enough price that it isn't cost-effective to fire them. Perhaps they are a gateway to something you want.

As with everything, there are risks. Bell Atlantic (now Verizon) is a good lesson in how technology can upend a good mafia play. Cellular communications and coaxial cable caused the telephone company's competitive advantages to dim, if not disappear. There is also always the risk of an uprising. Ticketmaster looked like a mafia stock until they crossed paths with Taylor Swift. We'll see how that plays out.

Aspirin stocks are related to mafia stocks, but the allegiance is more earned than forced. They are stocks that relieve headaches for their customers. There are few businesses that are good at everything. Some (Amazon) have a habit of trying to throw money at getting better internally instead of looking for help. But a wide range of businesses will prefer to outsource tasks outside of their core competencies to an expert, especially in situations where economies of scale allow the expert to do the task cheaper than a company could ever hope to do it themselves.

SaaS accounting, HR, and other related businesses are great examples of aspirin stocks. The risk here is they can become commoditized, and companies freed from the in-house payroll and management expenses of things like HR are more free to shop for the lowest bidder. Others, like Snowflake, offer at least the suggestion of aspirin-like qualities with a tech core that is not easily replaced. Be choosy with what you select among headache relievers.

Back in January, Travis Hoium and I got together to discuss "hidden" stocks that could make you a fortune. Listening back, I realize I referred to one of the stocks I discussed as a mafia stock, and the other as an aspirin stock.

There is no one set formula for picking an investment winner. If there was, we'd all have identical portfolios, and we'd all be rich. You can't just come up with a subjective criterion for what is a good investment and blindly buy whatever checks the box.

But you can identify filters, concepts of what makes a good investment, and use them as tools as you evaluate companies. For me, mafioso and aspirin characteristics are near the top of the list of questions I ask when thinking about a business.

Disclaimer: Fits and Starts DOES NOT provide financial advice. All content is for informational purposes only. Stocks mentioned are as reference only, and a mention should not be interpreted as a buy or sell recommendation. The author is not a registered advisor or a broker/dealer. DO YOUR OWN HOMEWORK. The information contained within is not and should not be construed as investment advice, and does not purport to be.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.