Double Yellow's Company Driver to Independent Thread

I recently finished "Buffettology" by Mary Buffett & David Clark. In it, she argues that for Warren Buffett's favorite "buy and hold" companies, he uses return on equity (ROE) as the preliminary screener. Companies with ROE in excess of 20%, along with return on assets of at least 12%, make good use of their capital and ultimately compound at the best rates. In short, they put invested money to work...

Companies with ROE less than 12% tend to be commodity-like with little pricing power and rarely generate good long-term returns.

It got me thinking about the investments I'm making, and how much capital goes into which business ventures. If I'm building a business, shouldn't it be the type Buffett would want to buy?

So I made a quick and dirty spreadsheet with numbers for generic businesses run by any ol idiot (but by all means, make your own version using your numbers and see where it pans out):



The first thing you should see is that being a commodity-like owner operator (like I am) is not a way to wealth.

Countless folks have offered advice that I either stubbornly refuse to take, or make excuses for why it won't work for me (with "but I'm from California" being my favorite excuse). Yet the guys giving advice (like @Old Man) have built their businesses such that they aren't a commodity so they get to dictate pricing.

You need to move a bunch of palletized freight sometime next week? Call me. Or Knight. Or Celadon. Or Timbuk2 Trucking. Need to move a tall machine under a short bridge right after the crane shows up at 12:30 on 11/22? Call Old Man...


The second thing you should see is how great a business it is to have little/no assets and lease a bunch of drivers on while taking a ~20% cut. "Owner Operators wanted, call now!" -- no wonder you see those signs on the backs of every other trailer.

Landstar (Nasdaq LSTR) manages a ~30% ROE and ~12% ROA -- so at the right price Buffett would be interested in digging deeper and possibly owning "forever".

And Landstar owns (or leases -- which is treated as an asset for this calculation) a ton of trailers, so you could do even better if you can get your "contractors" to show up with their own truck and trailer, get them to find their own freight, and you just handle the authority/compliance & invoicing.



Also, I should defend (residential rental) real estate a bit: For 99% of businesses, depreciation is a real expense. To paraphrase Buffett on stock compensation, if the IRS allows you to deduct something, it almost certainly is an expense.

However, residential real estate generally does not depreciate and instead tends to hold its value with inflation -- which is why property taxes tend to go up every year. So the depreciation "expense" on that last column is really more like an income tax advantage, making ROE more in the ballpark of ~20% (but ROA still low single digits).

 

March results (essentially Q1 results because I sat out all Jan & Feb):


(the $150 was TONU for a cancelled $3/mi Amazon load)


I had another ~700 miles "out of route," mostly from dodging toll roads. That brought the $/odometer mi down to $1.39

Expenses:
~$2,800 fuel
~$3500 maintenance (nothing actually spent)
~$1700 fixed cost for March, ~$5000 for the quarter

~ +$8000 for March (pretax)
~ +$4800 for the Quarter



Strategy for the month was essentially to say "F-it" and take the type of loads I would have liked as a company driver (~300 mile weekday runs + weekend long hauls). Looks like I could make a decent income doing just that -- as long as I didn't take off too much time. But the return on investment just isn't there, at least not monetarily...

Strategy for the next trip out will be to head for the hottest market and hope I can see something like last spring/summer. Otherwise I don't see much reason to continue at these rates, especially now that Californians have deemed burger-flipping a $15/hour occupation.

 

It was upheld on appeal. I hadn't flagged correctly -- I'd drawn something like off duty from 0730 to 0800, put a "5min pti" flag at the 0800 mark, and then driving from 8 to 915. I'd really done the 5min pti at 7:51 and started driving at 756 so technically I should have flagged another 4 minutes driving time. Doing so would have shown that I had shorted my 10 hour break by 9 minutes...

I was trying to shoot an angle I thought was legal, but it wasn't. Very small discrepancy to be put OOS, but technically I didn't have a 10 hour break...

Two quotes come to mind:
"When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." -- Warren Buffett

"Those who can do; Those who can't teach." -- George Bernard Shaw

There are ways to succeed in trucking, but trying to do exactly what the mega carriers do (but with a higher level of service) isn't likely one. I've put so many constraints on my business it never really had a shot: don't want to do dedicated, won't work out of my home state, want to do long haul, want to have enough slack on/between loads to sleep without an alarm, don't want to touch freight, etc.

In essence, my return on investment is having more control over what jobs I do. That is a real return, just not a monetary one...

Anyway, I hope some folks can read where I went wrong and decide not to start their business like mine.

Beats the $1.09/mi Swift would have paid their OO... I actually don't mind that one much -- I can make decent money grossing $3725 in 4 days. Going into NY for $2 was the truly terrible load, but it beat sitting over the weekend and then booking a $1.3/mi load back to the west coast...