Issue 46: Heartland Express

"Take a simple idea and take it seriously." - Charlie Munger

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A big thank you to

Manana Investing

for suggesting I look into Heartland. He reached out and shared his post on the company, which led me to look deeper.

As a thank you to Manana I gave him a free year subscription to Watchlist Investing and will do the same for others who suggest ideas that I act on or publish.

Watchlist Meetup: See the end of this post for a link to join a subscribers-only meetup on Friday, March 7 from 11 am to Noon Eastern (4 pm UTC).

Heartland Express, Inc. (HTLD)

Disclosure: Long

Heartland demonstrates the power of a biological meme, the transmission of an idea analogous to the transmission of a gene (thank you, Richard Dawkins). For the trucking company Heartland Express, the idea is to operate a young fleet of trucks with little to no debt. Such a simple idea, reminiscent of Charlie Munger’s advice to “take a simple idea and take it seriously”, comes with a host of advantages.

The Heartland operating philosophy originated with the company’s founder, Russell Gerdin. Gerdin was born with trucking in his genes, starting in the family business in the 1940s washing his father’s trucks in their hometown in Minnesota. The younger Gerdin saw the problems caused by expanding with too much debt and operating a fleet of older trucks. Channeling Munger’s other advice to invert, Russell Gerdin did the opposite when he started his own trucking companies in Iowa in the 1970s.

Operating a young fleet of trucks with little debt has many advantages:

• More uptime: Newer trucks break down less, which means more time generating revenue

• Manufacturer warranties: If/when problems do arise, repairs are generally covered by warranties

• Lower maintenance costs: Not only the direct costs of fixing the fleet but simplification, too. Major overhauls for things like transmissions and engines are avoided. This also reduces the need to maintain expensive diesel mechanics onsite.

• Driver recruitment: Drivers will be attracted to the prospect of operating newer trucks, all things being equal (who doesn’t like that new truck smell?)

• The latest technology and safety advancements

• A margin of safety during manufacturer shortages: The prices of tractors and trailers fluctuate with supply and demand, and other industry dynamics. A young fleet allows the deferral of new purchases if prices spike (such as post-pandemic).

• Financial flexibility: Operating a sound balance sheet in a cyclical industry avoids asset sales during lean times and allows opportunities for favorable acquisitions

While this operating philosophy is not complicated and is open for all to see, it takes discipline to maintain over years and decades. In this way, Heartland stands out for its thoughtful approach to operating in a commodity industry.