Competing
In Part 1 of the Sand Castles, Concrete Walls text we used the “Maginot Line”, the French fortification system bypassed by the German army in the Second World War, to discuss three important questions regarding the decision taking process for investments: the identification of sustainable competitive advantages (“economic moat”), the sense of security embedded in our convictions and risk perception (our “behavioral Maginot Lines”), and finally, the partial antidote for our ignorance – the requirement of a “margin of safety” (quantitative and qualitative). In this Part 2 we reflect on the concept of an “economic moat”, the metaphor immortalized by Buffett to designate a “sustainable competitive advantage” – one of the sacred cows both for the strategy/competition theories and for classical methods for valuing companies.
In our Q4 2010 report, out later today, we will publish the second part of the “Sand Castles, Concrete Walls” text we began publishing in the Q3’10 report. Today we’re publishing part 1 on Buysiders.com. In Part 1 we revisit the idea of an “economic moat”, using as a backdrop the Maginot Line – France’s ingenious fortification system which, bypassed by the German army at the beginning of the Second World War, became a synonym for a “white elephant”. More important than reflecting on subjects that interest us as investors is to make use of the Maginot metaphor to rethink the sense of security that guides our actions as shareholders or executives, especially in times of calm.
Strategy & Business published a review for The Curse of The Mogul, which we’ve read recently. It’s a must-read for several reasons: media, capital allocation, competitive strategy and leadership. Not that we agree with Greenwald 100%. Chapter 2, on competitive strategy, is especially interesting because it assesses the competitive strategy framework from a specific industry’s standpoint (always better than ‘generic speeches’) and it was useful for thinking about other industries as well.
We have put together a small collection of links regarding competition and corporate strategy as defined by Harvard’s Michael Porter. As this blog will always remind readers, “take it with a grain of salt”! No matter how famous the expert, how “make-sense” his arguments, always check, search for contradictions and weaknesses and then make up your own mind.
Underdogs stand a better chance to win when they don’t play by the “rules” – when they innovate. Can’t beat the opponent at his game? Change the game. From a basketball team of 12-yr-old white girls making it to the Nationals to David to Lawrence of Arabia, Malcolm Gladwell’s (long) article at the New Yorker [...]
