Seasonal Impacts On Investment & Business

I was on vacation at Mont-Tremblant this week. It was a very nice and relatively quiet place for a tourist location. Although its busier in the Winter (known for its skiing), from a business point of view it was too quiet in the summer. But I guess that goes for most Canadian tourist attractions, other than Niagara Falls. But then again, the falls is much less busy in the winter.

Canada’s extreme seasonal changes make it difficult for the summer season tourism industry.

I started to think about what happened to Canada’s Wonderland. Pretty much the only show in town of its kind (not only in town but in the province). Ontario Place and Marine Land really don’t offer much of a comparison. Wonderland has what is pretty much monopolistic like status! In business, a company that operates as a monopoly in an unregulated market usually rakes in large profits with high margins! With the exit of the entertainment giant Paramount, this may not be the case.

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Lets take a look at the possible reasons:

The seasonal impact may be too large. The operating season is from mid May to mid October. Effectively just 5 months of operation. That is simply too short. Operating during the season may be okay, but I suspect overhead costs for the year becomes too high. Taxes, permits, safety checks, administration, staffing/labour, maintenance (summer & winter), setup/setdown.

HR and labour costs may be high. Because the operations are seasonal and not year round, new staff is hired each time. This means spending on HR to review applications, interview, hire, train, and purchase of new uniforms. Labour may not be efficient since most are new. The process is repeated each year. If operations were year round, HR wouldn’t need to always review large amounts of applications or interview so many candidates. This would result in fewer new hires and less introductory training. Overhead would not be repeated to such a degree.

We could continue to analyze the seasonal impacts on each portion of the operation, but the the HR and labour analysis gives us a pretty good idea of how seasonality significantly impacts the operational cost.

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Noted This Week:

– When looking at investments I make it standard policy to always take a business point of view. Warren Buffet’s teacher Benjamin Graham said it best, “Investing is most intelligent when it is most business-like”.
– Its important to take a look at how the seasonal or environmental cycles may impact the operations of the business each year. This is something that can be often overlooked, especially if it appears that the company is doing fine.
– We should also evaluate the long term viability of the company, factoring in those impacts.

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Canada’s Wonderland may not have been the best investment for Viacom Inc. The future profitability for current owner Cedar Fair Entertainment Company, which purchased Wonderland in a 2006 deal along with several other Paramount owned parks, remains to be seen. Viacom is the parent company of Paramount Films, which also owns MTV and other media networks. Cedar Fair also owns Kings Dominion and other well known American parks.

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Benjamin Graham’s classic book The Intelligent Investor is available online from Amazon.ca/com. I have placed a link to the specific version/edition that I recommend. There are a few editions out, but this one has the Introduction and Appendix written by Warren Buffet (informative extra commentary). Chapters is sold out at the moment but I added a link to the audiobook. However, I find having it in textual format is better for referencing.

Amazon.com
The Intelligent Investor: A Book of Practical Counsel

Amazon.ca
The Intelligent Investor: A Book of Practical Counsel

Chapters.ca (CD audiobook)

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