Thought for the day

Experience indicates that the best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago…. a business that constantly encounters major change also encounters many chances for major error. (Warren Buffett, BH 1987 letter)

Comment: analysing companies is hard – you need a good knowledge of corporate strategic analysis, finance, accounting, industry specific insight, and so on.

Furthermore the variables under scrutiny are subject to change over time.

Some industries are subject to very rapid change. Imagine undertaking the strategic analysis of an internet TV company. Who will be the main competitors in five years from now? Indeed will there be a completely different way of obtaining TV programmes in five years?

Thus the competitors could be firms that are not even in existence today, or which hail from a different industry entirely.

Clearly, we have some industries subject to a very wide range of possible futures, and we simply do not know how things will turn out; we don’t know who will have a competitive advantage………
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Investors cannot analyse these types of industries.

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