Several of my friends turned 60 this year (I'm not there yet)
and to celebrate, 10 of us (five couples) will be sharing a villa
in the Italian countryside for a week in September. In fact,
my mind is already in Italy, to some extent, as I've been reading
guidebooks, pulling out old magazine clippings, surfing the
Internet, and-perhaps most fun of all-using Google Maps to get a
bird's eye view of some small Italian towns we plan to visit.
One thing Google Maps reveals about these small towns is this:
Because they were developed long before the birth of the
automobile, parking spaces are scarcer than in most American
towns. Commonly, there are small municipal lots scattered
throughout the town-particularly toward the edges-and frequently
these cost money.
The result is towns that are particularly pedestrian-friendly.
Shedding some welcome light on the economics of parking in the U.S.
was an article in the New York Times last week titled "Free Parking
Comes at a Price" that referenced a book published in 2005.
That book, by Donald C. Shoup, professor of urban planning at the
University of California, Los Angeles, is titled, "The High Cost of
Free Parking." It's 752 pages long.
[add image of book]
I'm not planning to read it. Planning my Italian trip is more
fun than reading 752 pages about parking economics (and
politics). But I have read summaries of it, and I think the
main idea is worth passing on.
In short, just as there's no such thing as a free lunch, there's no
such thing as free parking.
The costs of free municipal parking lots are paid by taxpayers-even
those who don't drive.
The costs of free commercial parking are borne by businesses, and
thus by their customers.
And the real unseen costs come from the unintended consequences
that are suffered by all of us. In short, legally mandated
parking artificially increases supply and thus reduces the market
price of parking spaces, often to zero.
In big densely populated cities like New York and Chicago, people
are accustomed to paying high prices for parking. These high
market prices not only spur the development of efficient public
transportation networks, they also enable higher-value use of
But where low-value public parking is subsidized by governments,
Professor Shoup argues that we forgo the true value of space that
could be better utilized. He calculates that the value of the
free-parking subsidy to cars in the U.S. was at least $127 billion
If we eliminated that subsidy, basically by repealing all the laws
that mandate the provision of parking spaces by businesses, and by
moving to make drivers pay the real costs of their parking spaces,
the prices of some spaces would rise dramatically. People
would drive less. There would be less traffic
congestion. There would be more room for people and business
… and American towns would look just a little bit more like those
small pedestrian-friendly Italian towns I plan to visit.
The basic concept to remember is that government subsidies distort
market-pricing activities, and thus artificially increase demand.
We saw it in the housing market, where the perception of government
mortgage guarantees increased demand for housing while lenders and
borrowers joined in the party … with disastrous effects.
We've seen it in the higher education market where government loans
have artificially increased the demand for college degrees and in
the process pushed up tuition prices at both public and private
schools. (Just last week, the stocks of for-profit schools
tumbled-look at COCO, DV, ESI and STRA, for example-when the
Department of Education revealed it might reduce lending to
students at for-profit schools with low repayment rates, providing
a perfect illustration of the link between government subsidies and
And we've seen it in the farming industry, where government
subsidies for corn result in cheap high-fructose corn syrup, which
contributes to the epidemic of obesity in our country.
Note: The reason government subsidies result in lower prices for
corn and higher prices for houses and education is due to the fact
that in the case of corn, the subsidy goes straight to the
farmer. (If you want to see a further analysis of the effects
of U.S. agricultural subsidies in a future Cabot Wealth Advisory,
let me know.)
Getting back to Professor Shoup, his main suggestion (remember,
this was five years ago), is that we implement market-base pricing
for parking whenever applicable. Ideally, these are smart
parking meters that communicate with each other regarding current
demand and set rates accordingly.
Here in Salem, I sometimes drive downtown after work, and I'm happy
to get "free" parking in metered spots after 5:00. But I know
the city would get more revenue-and all interests would be better
satisfied-if parking rates were based on real-time demand.
As to the market, which is very good about following the rules of
supply and demand, these are very interesting times.
Demand is down, in part because of lousy economic news (which I'm
not going to go into today).
Bond yields are at record lows … a clear sign of the market's
"flight to safety."
And it's extremely difficult to find an optimistic economist these
days. (You know in your heart that they're often wrong, but
you listen to them anyway.)
Ben Bernanke commented a month ago that "the economic outlook
remains unusually uncertain, "and the President of Cisco, John
Chambers, repeated that outlook after his company's earnings report
last week, saying, "We think the words "unusual uncertainty" are an
accurate description of what's occurring."
The market, of course, hates uncertainty, but I've learned to
embrace it, which is why I've been growing increasingly optimistic
in recent weeks, particularly because the market hasn't fallen
So today I want to give you part two of my article on "Stocks to
Part one, back on July 28 LINK, told you about the amazing Mr.
Phelps, whose investment strategy was to buy stocks with
exceptional growth potential when they were young … and never sell
Qualities he looked for included:
•Revolutionary technologies or services
•New and cheaper sources of energy
•Small size, so it can grow fast
•Undiscovered by the masses
•Barriers to entry
•Superior profit margins.
And he didn't minimize the value of buying when stocks are
temporarily depressed … as they were in 1932 and, more recently, in
2002 and 2008.
Three years ago, I got together with the other Cabot editors and
came up with a list of 10 stocks. On July 7, 2007, I
published this list. And three weeks ago I reviewed the
results … which were very good.
In those three years, the S&P 500 lost 24%.
But our 10 stocks had an average positive return of 39.5%.
(Details are in the July 28 issue of Cabot Wealth Advisory. LINK )
So I got together with Cabot's growth editors again, and we came up
with a new list of nine stocks-we couldn't agree on ten. Two
are repeats from the 2007 list-and here they are.
1. American Superconductor (
) is a leading provider of the electronics that power wind power
systems, where it presents substantial barriers to entry and growth
potential is enormous. The company has grown revenues every
year of the past decade, its profit margins top 10% and it's still
2. Chipotle Mexican Grill (
) has the potential to be the McDonald's of the next half-century …
in part because this high-quality burrito shop was spun off from
McDonald' in 2006 … so management has been taught well.
Revenues are growing steadily and profit margins are consistently
in the high single digits, which is great in the restaurant
industry. (It's my son's favorite restaurant, but I'm not the
analyst who submitted it.)
3. Ctrip (
) is the leading online travel agent in China, where a growing
middle class and increased business activity mean the travel
industry is booming. Last year, the recession slowed revenue
growth at Ctrip to 35%; in the latest quarter, it was back up to
47% … and profit margins were a very healthy 42.2%. Ctrip was
on the list three years ago.
4. First Solar (
) is a leading manufacturer of solar power modules, boasting great
growth of both revenues and earnings … and profit margins of 27% in
the latest quarter, very impressive for a manufacturer. The
stock was a big winner for Cabot Market Letter in 2006 (we sold in
March 2007) and like most stocks in the industry it's spent the
time since then cooling off. I think it's cool enough
now. First Solar was on the list three years ago, too.
5. Green Mountain Coffee Roasters (
) makes the revolutionary single-serving Keurig coffee brewers, and
gets a royalty for every cup of coffee that's brewed in them, which
is a great source of recurring income. Barriers to entry are
high. The market is global. Revenues have grown every
year of the past decade. And profit margins are healthy at
6. Home Inns & Hotels Management (
) is the largest hotel chain in China. Growth is as easy as
opening new hotels … the cookie-cutter growth model. The
company has no debt, unlike most hotel chains, and profit margins
were 19.6% in the latest quarter.
7. MercadoLibre (
), located in Argentina, is the eBay of South and Central
America-in fact, eBay owns 18% of the company. Most sellers
are businesses. Growth is virtually assured. The
barrier to entry is very high. And profit margins are over
20%. MercadoLibre is the smallest company of these 10, as
measured by revenues.
8. STR Holdings (
) makes the precisely engineered plastic film encapsulants used by
most solar module manufacturers to protect their components from
water, wind, radiation and shock. Profit margins are
19%. The stock came public just last year, so it's not well
known-in fact, it's the most lightly traded of these 10
stocks. But as the solar power industry grows, STRI should
grow with it. Coming off a slow 2009, revenues mushroomed 62%
in the latest quarter.
9. VMware (
) makes software that enables virtualization and cloud
computing. It's grown revenues every year of the past decade,
and could well evolve into the Microsoft of the next decade.
In the latest quarter, revenues grew 48% while profit margins hit
So what do you do with these nine stocks?
Think for yourself.
This is in part an intellectual exercise. In the ideal
scenario, you buy them at an opportune time (even better, you
already have profits in them), your profits compound over the years
and you pass these stocks on to the next generation, thus escaping
the bite of the taxman.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory