Today’s Machining World Archive: May 2010 Vol. 6, Issue 04
For almost 10 years I’ve lived the schizoid life of a machinery dealer and writer/publisher. Both jobs stoke my intellectual furnace with firewood. I feel like I’m usually on top of my game in my writing because the more I do the sharper the prose gets. As a deal maker, I sometimes feel like I’m half a lap behind.
The skills of deal making resemble those of writing a journalistic piece. Both require research—acquiring the facts from disparate sources. On the machinery side I am constantly looking for sources to provide me with solid comparisons of values. Is a four-year-old Mazak 30” x 16” vertical machining center worth $25,000 or $45,000? The difference in value may hinge on a change of controls, a choice of options or the hours on the spindle. Another variable affecting the price is the quality of Mazak service, availability of spares or whether the dealers are discounting at the moment.
This kind of exercise is almost second nature to me now because I’ve been doing it since I was young. I knew my father was in the buy low sell higher business, and I was always curious how he knew what low was.
My abiding interest in discerning the meaning of low continues to keep me engaged in the machinery business. One thing I have learned at heavy cost is that low isn’t always low, because if you have to hold an item for years and years it isn’t cheap at any price. There have been many years in the machinery business when the buy low philosophy had to be replaced by the buy high and sell higher approach because rolling inflation almost eliminated the buy low method. During an asset appreciation period, if you don’t chase the rising prices you can miss the big opportunity that the rising tide presents.
The stock market offers an interesting comparison. Warren Buffett is the consummate “value” investor, strictly adhering to his principle of buying “cheap” assets. He loves recessions because they afford him more opportunities to buy depressed stocks and companies.
But other investors have been successful at buying “momentum.” They spot a trend and ride it up and up. It mimics the buy high and sell higher approach that often works well in the used machinery business.
I think the reason I feel like I am half a lap behind in the deal making world today is that I can’t make up my mind if we are still in a buy low sell high period or if we are transitioning to a buy high sell higher world. The high production multi-spindle screw machine, rotary transfer and stamping press arena has been in a deflation rut for several years. But in the last couple of months the market has started to reinflate. Used Hydromats, which were abundant last year, are now scarce.
I think a lot of people in business live with one foot on the treadmill. Do you start hiring, build an addition or look for an acquisition when business starts getting better, or do you play it safer, fattening the margins, socking away the profits, paying down the debt?
Lloyd the journalist can sit here and observe, but Lloyd the dealer, the speculator, the buy and sell guy, has to make a call. Doing nothing is a decision. You and I are at or close to an infection point in the market. Do we double down to maximize the opportunity, or dance and jab, keeping our guard up at all times?
As a commentator I can comfortably opine on both sides, but my other half time job demands a call, and at the moment I feel at a loss to make it.
Lloyd Graff
