It actually took me a while for this concept to start to make sense in terms of DTL. And if you look at some of my other posts in this thread, you can tell I hadn't quite grasped the whole picture.
Basically DTL has lots of variable costs in their business model, which means that they can employ cost control. This is the reason why their margins are so thin (that and the fact that the core of their business is a distribution model). In a lot of businesses paper-thin margins are a bad thing, but in this case (if I am right going forward) it simply means that they can sell lower than the competition and still remain profitable. The product services margins have been at roughly the same level (obviously with small fluctuations) for near-on a decade by my calculations. If anything this re-inforces my point (and the fact that asset turnover is so high). It is near on impossible to survive with low margins if you do not have a competitive advantage (in this case cost leadership).
This concept made sense to me after reading about Costco somewhere.
On a second note; it is no secret that there has been speculation about Grant's continued tenure for quite a while now. He still has 2/3rds of his holdings left in DTL, and the recent sell-off last week, and forgive me for speculating because it does none of us any good, is more likely early retirement planning and diversification of his asset base.
I would also note, that if you do not have enough confidence in DTL retaining the QLD government contract then you probably should not be holding. It is obviously different if you believe that this would not put their long-term business model in jeopardy.
PortfolioPlus said:
After reading about some of these companies (in this thread and via their own investor presos) that you mention, I believe that while they are in the same industry, most of them do not directly complete with DTL.