Table of Contents
1. Getting There
2. How I Found It
3. The Research – The Good
1. Getting There
Hey everyone,
It’s a joy to finally get to write an issue for you. I think about our wonderful community here every single day, and desperately want to get issues out to you, if only my fuzzy Long Covid brain will let me. It is getting better, but it’s two slow steps forward and one quick step back constantly. It’s an unbelievably frustrating experience. However, my health IS getting better overall, and we will catch up on the issues so you won’t miss any content to which you’ve subscribed, I promise. You are the wind beneath my wings and I appreciate every bit of your patience.
Let’s get straight to some real investing practice because that’s what we’re all here for. I’m dictating this into a document and then editing it in chunks of time to try to avoid too much time on a computer screen (they still make me dizzy and nauseous), so please give me some grace here if there are typos or run-on sentences. My wonderful team keeps trying to help me edit, but that adds time to the process so I am just going to get this done and send it to you.
On my podcast, a few episodes ago, I said that there’s a company I’m completely obsessed with but I’m not going to share the name of it publicly yet. However. I am choosing to share it with you here.
Normally I wouldn’t talk about a company at this stage of my research. I’m wary of committing myself to stand behind this company when I have not concluded yet on whether or not this is a wonderful company. I do not stand behind it as a good investment choice at this time. I’m trusting you to keep it between us when I tell you about my love for it and my excitement about it and with full knowledge that maybe next month I’m going to completely change my mind on it due to some new information that I haven’t yet discovered. I am wary of confirmation bias here because I’m at a full dangerous part in the research process where I’m excited, and that’s emotion taking over. I’m aware of it and enjoying it and okay with it, but I typically also keep it very private at this stage so that I can change my mind with no need to defend any ideas. So I’ve decided to share because it’s what’s going on in my investing practice but – giant grain of salt with everything.
The company is Hermès.
2. How I Found It
Since I got Covid, the stress level in my body has been at a constant red alert level. Basically, my body is in a permanent fight or flight mode. I’ve had to learn over and over, usually the hard way, to avoid any outside stressors if I possibly can.
Therefore, I’ve had to search for activities that don’t create the slightest bit of stress in me. You know they always say that what you were interested in as a kid is a true interest. One thing I loved as a kid was fashion and handbags. Some women love shoes, but I love bags. They don’t hurt, and they always fit.
When I was isolated for two months with Covid, I started reading a lot about the latest handbags and window shopping online on my phone. I don’t even know why, it just felt incredibly safe. There is nothing stressful to me, in any way, about handbags.
I stopped shopping when I started investing because all my money went to investing, so I’ve been out of the loop when it comes to fashion. So I was reading a lot about the new styles, about the thriving online resale market with quite a few successful websites that have eclipsed eBay, and discovered after a few months that I was becoming quite the expert, without ever meaning to be. Talk about an accidental circle of competence. I spent a lot of relaxation time learning about this entirely non-stressful subject and about the various companies that make these various high-end luxury handbags.
Now you do not have to be interested in handbags to take the point here – indeed, I expect very few of you to be interested in handbags. The point here is that whatever mysterious niche interest we have can usually turn into an investing interest.
I had six days of feeling cognitively energetic right after Thanksgiving – it was amazing, I felt like my brain was back and on the attack – and the absolute first thing I wanted to do was investing practice. Months and months and months of brain fog and not being able to concentrate, and then it was like the sun broke through the clouds, and I could think. It was a joy. My brain felt strong and like I had the capacity to do some intellectual work – but on what? In the space of a few minutes I went from “okay what do I want to research” to “it needs to be a legit company that maybe I will buy,” to “what I’m really interested in and rather surprisingly know a lot about are these various handbag companies, so why don’t I just learn about those in my investing practice?”
I’m not really a fan of luxury companies. I’m not against them, it’s just selling overpriced stuff with logos on them is not my thing. Equally, however, I love true fashion and appreciate the art of it. I felt a bit frivolous to go look into buying a luxury handbag company. There are several, and I knew the background of them in broad strokes.
I had those thoughts, and I said to myself “do it anyway.” I have no idea where this will lead maybe it will lead to something, probably it will lead to nothing. Both are okay. I just need in this moment, to get back on the investing practice horse. Voila, my little handbag obsession suddenly turned into a full-on luxury fashion goods industry investing research project. Just like that.
Here are few high-end fashion companies that you will all have heard of:
- Chanel
- Gucci
- Bottega Veneta
- Hermès
- Christian Dior
- Louis Vuitton
- Celine
- Givenchy
- Saint Laurent
- Cartier
- Van Cleef & Arpels
And here are a few you probably won’t have heard of, unless you’re into this stuff.
- Delvaux
- Valextra
- Goyard
- Moynat
- Moreau
- Loewe
It looks like a large universe, but it’s not. Many of those brands listed above are owned by three huge fashion conglomerates: Kering, LVMH, and Richemont
Kering: Gucci, Saint Laurent, Bottega Veneta
LVMH: Louis Vuitton, Christian Dior, Celine, Givenchy, Moynat, Fendi, Loewe
Richemont: Delvaux, Cartier, Van Cleef & Arpels, Net-a-Porter
Chanel is on its own and still privately-owned. So are the MUCH-smaller Valextra, Goyard, and Moreau.
And then, off in a universe of its own, is Hermès.
My first impression of Hermès was that it was an expensive French fashion house, and one that was a bit boring and out of touch. I loved their bags, but they, as a company, did not seem to match my values.
Still, I thought – “just follow the joy.” So Hermès it was. I figured I’d spend an hour or two. I thought it was private.
I remember being on a group call, probably with you, and somebody asked about Hermès and I said it was private. No clue why I thought that, but in my head it was private, and therefore a waste of investing practice time. I wrestled with my mind. Do I do the “responsible thing” and look into LVMH, the leader of the high-end luxury world? Or do I follow my heart and look into a tiny company that makes products I’m interested in?
I decided to follow my heart and thought, you know what, even if it’s private, I don’t care. I’m just going to do what I enjoy and follow my joy, as I’m always telling you guys, and learn about a private company that’s going to give me a lot of good information about what’s important in a company like this. Then, maybe if I’m still interested, I’ll continue to read about those other enormous fashion conglomerates.
So imagine my surprise and wonderful discovery that I have been a complete idiot when I searched for Hermès and it was public! I’m always saying that when you follow what makes you feel interested and excited, the universe starts to support you in investing practice. Now, obviously, Hermès has been public for many many years. This has nothing to do with me. However, I will tell you, in that moment sitting on my couch feeling like there could be so many ways I could go with my research time and I was choosing the one that simply made me happy, it felt very much like I was being supported by the universe.
3. The Research – The Good
My physical limitations are that reading on a computer makes me dizzy, but reading on my phone seems to be okay. It’s the size of the screen and the eye movement. Therefore, I considered my options and decided that making myself dizzy wasn’t worth it. I’d read on my phone and take notes on paper. Maybe not as effective as my previous process of reading and taking notes on my computer, but I had to meet myself where I was.
Taking notes on paper forced me to discover that I tended to take fairly extensive notes in my old process. Anything that grabbed my interest, I noted it down. Now that I had the physical limitations of the size of a piece of paper, I was forced to be concise. I didn’t feel like physically writing a lot, and I didn’t want to keep reams of paper filled with random notes.
I think having to pick and choose what to note down was really good for my investing practice. I organized my notes differently – now in categories, versus before it was more in chronological order. I want to talk a lot about note-taking and process in a later issue. I’m still discovering my new methods. There is research that shows writing by hand makes the brain absorb the information better, and that writing on paper creates stronger memory than writing on a screen. We don’t really need to memorize investing research, but I still think there are improvements I can make in my practice and i’m grateful for the circumstances that have forced me into trying out new methods.
Regarding Hermès the company, here’s what I discovered, and it made me love this company. I’m going to give you broad strokes here because again, I’m dictating this, but maybe we can talk more details later if you’re interested.
Hermès is a French family-owned company and has been since its inception in 1837, and is still run by family members.
Very few companies last even 100 years, and this company has lasted almost 200. Extraordinary. It started as a harness and bridle company founded by Thierry Hermès.
As I read about its origins, what kept coming back to me was how many jokes we’ve made over the last few years about companies that are harness makers in the age of the automobile. In other words, a company becomes outdated and loses their competitive advantage, not through any fault of their own, but because technology moved on to something completely disruptive to the industry. That is literally what happened to Hermès: a harness maker, as the automobile came to prominence. They made high-end harnesses and saddles for the wealthy elite in France. The company passed to Thierry Hermès’s son, then grandson, and the grandson added other product lines like scarves, jewelry, and bags. That grandson’s son-in-law, Robert Dumas, then took over in 1951, and grew the company further, turning it into more of a fashion house. In 1956, Grace Kelly wore the iconic Hermès top-handle bag to hide her pregnancy, and the house re-named it the Kelly bag after her. This bag is now perhaps the most sought-after bag in the world (neck and neck with the Hermès Birkin) and it’s extraordinary that that design has been at the top of fashion for 65 YEARS. Unbelievable.
In 1984, Jean-Louis Dumas now ran the company (the son of Robert Dumas) and designed a bag for the actress Jane Birkin to use for traveling. The Birkin bag became a sensation. Few people know he actually used an old Hermès classic bag as the inspiration for the Birkin, and simply changed the proportions. Just like the Kelly bag, the Hermès company took something they had been making for years and updated it, to great success.
They developed their fashion, their homewares, their china. In some ways Hermès is a department store unto itself. Most people know only about their bags, but they’ve had iconic fashion over the years. Jean-Paul Gaultier was their womenswear designer in the early 2000s.
The family fought off a hostile takeover by LVMH about ten years ago, by banding together their shares and refusing to sell. For a family filled with many branches and hundreds of cousins at this point, that is an extraordinary level of trust in the current management.
The company’s Mission is clear, and splattered all over their consumer-facing marketing and on their annual reports: to create sustainable products at the highest level of quality and beauty, which make their customers’ lives better. Then I learned they are the only fashion house to handmake their bags. The only one to control their manufacturing. The only one that imprints on each bag the mark of the artisan who made it, from start to finish, one person.
I started to learn why so many women are obsessed with buying multiple Kelly bags and Birkin bags (and Constance and Roulis and Picotin and Lindy) – the leather, color, and hardware combinations that make each individual bag rare. There are SO MANY OPTIONS. It creates an obsession.
OK. A family-owned company, with leadership and stockholders who are in it for the long term, making beautiful and sustainable products that are unique in the market. Our interests are aligned and I am very, very interested.
There is more to say about all of these topics, but I am getting awfully tired and want to send this to you. The next issue will be about the problems. No Company is Perfect is my motto when I get excited, and this one certainly is not an exception to that rule. There are problems. Fascinating problems.