Jan

11

Denny's is my kids favorite restaurant. They've noticed that the Denny's by our house is always at least 1/2 full, or more, no matter when we go. David seems to think that they have a steady clientele that is growing.

The kids like the fundamentals they've researched from the analyst.

They think the food is good, served quickly and has catchy names (Moon's over MyHammy … who can argue with that name … and Hunter likes the kid's menu).

Mr. Russell (their teacher) likes the senior menu (Mr. Russell bought Denny's in his trading portfolio two weeks ago).

David is very excited about doing this trade, but I told him we should do more research. He said, "Let's ask the spec list, they'll know what to do" (who can argue with that)

So … what is the list's opinion of Denny's?

Tom Larsen replies:

Maybe the kids should try to find someone that doesn't like Denny's and ask why.

Maybe the kids could estimate what it costs to make a specific meal at Denny's and then compare that to the price. They could count how many customers are in the restaurant. They could see what people are eating. Maybe they could have a short conversation with the local manager about how he manages the restaurant.

They could learn about the different jobs at Denny's. They could learn what a franchise is. They could also think about the company's advertising and whether it works or not. They could try to determine which restaurants are "the competition," and test the food at these establishments as well. This research could get really expensive, Scott, but if you are taking kids out to eat, Denny's is a good place to go.

David Wren-Hardin Adds:

I would have them analyze the upcoming increase in minimum wage and its possible impact on Denny's costs.

Martin Lindkvist Suggests:

 The stock could work great, but I would ask one more question: Do other investors already know this, and is it discounted? By discussing whether a restaurant that stinks and has bad food actually could be a better investment one stands a better chance not investing in something that "should" work great but that others have already invested in and driven up the price. Compare with Birinyi Research that just showed that the five least liked companies by analysts (Dow components) beat the 5 most liked by analysts in each of the five or so last years. They also beat the average of the thirty years. As I said, it can be a great investment, that restaurant you are discussing, but I think the discussion could give more meals for a lifetime including expectations.

J. T. Holley Contributes:

 A few years ago when I got to go to one of those “pat on the back” conferences w/ Paine Webber they had Lou Holtz come speak. He spoke to a crowd of folks that more than most liked modern portfolio theory and randomness. The best part was when he started to speak about investing and speculation. One day back in the 70’s or 80’s a guy asked him if he’d like to invest in a McDonald’s franchise. Lou said that he had been plenty of times but went by one that night and had a meal. He looked up at the Arches and underneath it read at the time “Millions Served”. He thought at that time that it had saturated the marketplace and probably wasn’t a good investment. Now the sign reads “Billions Served” so he said take that for what his skills were worth in speculation.

The other thing Lou mentioned in the spirit of “Racquet Sports” was when he came onto campus one day when Rocket Ismael first came to Notre Dame. He said that he knew Rocket was going to be one of the fastest players that he’d ever coach when he looked over and saw him playing Tennis. After a subtle pause he exclaimed “by himself”. I’ve probably missed out on a ton of good companies in my short investment life so far, but I had an older man tell he upon entering the “Speculative” business to stay away from Airplane, Restaurant, and Mining stocks and to this day I’ve done that (untested out of blind obedience to the unnecessary fixed rule to obey your elders).

Scott Brooks further adds: 

I just thought I'd update the group on the Brooks Kids Question on Denny's from the other day:

David is driving me crazy. He wants to buy Denny's stock and buy it now.

He is very excited about making this trade. He is cajoling, pushing, negotiating … and just short of begging me to make this trade for him. He has made up his mind and wants it now … however, I want him to wait.

I've told him that we need to do more research and figure out if this is a stock he wants to buy. He says, "Dad, you buy stocks a lot quicker than this … you don't spend this much time doing research …".

Of course he's right. I pull the trigger a lot quicker. But, as I've told him, I've been doing this a long time and I think I have a pretty good handle on what I'm doing (or at least I'd like to think I do).

I've told him that we need to wait until he gets more questions answered about the stock. I've told him that this is going to be a research project for him and the other kids. They should research this out, prepare a list of vital questions and get them answered before making the trade … or not making the trade … (as I've tried to tell him, some of the best things I've done in investing are the trades I didn't make).

But still he wants it. I've decided to wait and make him and the other kids do their research. I've concluded that it will be of more value to them to learn the details of the process (from the fundamentals on up) than to just make the trade on a little more than a whim and then see what happens.

I was tempted to let them make the trade, but decided to wait. I am not so worried about them making the trade and then losing money … I think that would teach them a great lesson. I am worried about them placing the trade and then making money … I think making money on a poorly planned and thought out trade would be far more detrimental to them.

So the trade waits for the research to be done.

Russell Sears adds:

Perhaps I missed the post, but did anybody else suggest counting, besides fundamental analysis?

While complex stats may be beyond the young ones, reading a chart and then doing some math on money should be a clear lesson when it is their own money.

A quick look at DENN max on yahoo shows they tanked big time in '98 to mid 2000 from $10 to below $1, apparently after recapitalization due to heavy debt.

You should have them count what could have happened back then.

Also I would suggest that you mark the dates of their ten Q release on the chart for the last ten quarters.

Perhaps stat significance is beyond them but I think the ideas can be grasped with some visual help. 


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