Simon's Crown Jewels Help Me Sleep Well At Night

I agree with Mr. David Simon. I love to see a CEO who has aligned his interests with Average Joe and Jane. It’s ok that Mr. Market does not see the value in Simon shares, I certainly do. Simon certainly has a few crown jewels that help me “sleep well at night”.

Summary

  • “Differentiation is the essence of strategy, the prime source of competitive advantage." - Chris Zook.
  • Simon has returned -8.5% YTD, the worst performer in my “DAVOS” basket.
  • It’s okay that Mr. Market does not see the value in Simon shares, I certainly do.

This article appeared on REIT Beat in advance. For more information on REIT Beat, scroll down to the bottom of this article.

I’m really having fun with my new ‘DAVOS’ portfolio. As you know, I consider this basket of five REITs to be the “proxy” for quality dividend growth and everlasting repeatability. In the book, Repeatability: Build Enduring Businesses for a World of Constant Change, by Chris Zook and James Allen, I frequently cite the following “repeatability” attributes:

“Differentiation is the essence of strategy, the prime source of competitive advantage. You earn money not just by performing a valuable task but by being different from your competitors in a manner that lets you serve your core customers better and more profitably.”

So, you see, all of my ‘DAVOS’ picks perform best because they offersdifferentiation to the 100th degree. As the co-authors explains:

“The power of a repeatable model lies in the way it turns the sources of differentiation into routines, behaviors, and activity systems that everyone in the organization can understand and follow so that when a company sets out on a particular path, it knows how to maintain differentiation that led to its initial success… that strongest source of differentiation in a company’s business are its crown jewels.”

The common thread for all five “DAVOS” picks boil down to one theme: they have the sharpest differentiation with the greatest advantage (widest moat) within their respective sectors. These are REITs that build their strategies on vivid and hardy forms of differentiation, that all lead to superior divided performance.

In case you missed it, my “DAVOS” names include Digital Realty (DLR), American Tower (AMT), Ventas, Inc. (VTR), Realty Income (O), and Simon Property (SPG).

As a value investor, I have learned to “act greedy when others are fearful” and reap the highest returns, under the right set of circumstances: predictability must be present, and short-term events that create the subsequent downgrade in prices must not be moat-eroding. As you see (above), Simon has returned -8.5% YTD, the worst performer in my “DAVOS” basket… It’s now time to take a closer look at Simon to examine the “crown jewels” that will drive future returns and profits.

Simon Says…

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