Gustavo Ballvé on September 16th, 2013
Corporate Strategy, Food for thought, Home, Mental models, Portfolio Management, Risk management, Tech

As long-term investors, we are always trying to understand where the companies we cover are competition-wise. There are many different “tools” and “frameworks” to assess competitive aspects between companies in an industry and its suppliers, clients, etc. etc. – or between industries, even between countries. We try to use Porter’s 5 Forces, we try to make sure the company we invest in (or want to) has a big, wide Blue Ocean ahead of it (competitively speaking, of course), we hope to be aware of all the possible angles from which a Disruptive Innovator could come in and eat the company’s lunch… You get my idea: we are ultimately trying to assess who will keep for “himself” most of the industry’s or value chain’s “profit pool” – today and in the “future”.

I’m using quotes a lot because there are many pros and cons in each tool or framework, many different ways to define and measure each of those things, and many smart and not-so-smart ways to use all of this – we can even criticize the “checklist” use of many of them simultaneously for the illusion of completeness. We still have to try to understand for years, sometimes decades into the future, something that very well-educated, intelligent and experienced company executives, industry consultants, academics (and so on) can get oh-so-wrong, so often.

All this from reading this NY Times’ article about the semi-conductor industry, whose products power so many of our beloved consumer gadgets that make the likes of Apple so rich, and what they could do to change the game – if anything. Very interesting read, especially when you consider the technology-induced pickle in which the New York Times itself is in!

I guess the biggest point is to be humble about your ability to predict the future of competition for anything, especially if you will invest your own and other people’s money for the long term based on such assessments. Margin of Safety is the one “trend” still going strong after some 90 years…

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