Working Draft - Last Modified 04/23/2008 11:49:19 AM Printed 4/21/2008 4:27:01 PM Nine Investment Questions July 2019 PE Investment Committee Course
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Nine Investment Questions
July 2019
PE Investment Committee Course
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My Background
• My writing and speaking are on digital China and Asia’s latest
tech trends.
• LinkedIn Top Voice for Finance and China for 2016-18.
• Named one of 15 Global Influencers by Alibaba in 2017-18.
• Most followed waiguo Professor in China? +3M Followers.
• Do healthcare PE deals and M&A advisory in the US and Asia.
• Teach at Peking University, CEIBS and others.
• MBA from Columbia, MD from Stanford, BA in Physics.
• Based in Bangkok and Las Vegas.
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Prince Alwaleed – the “Arabian
Warren Buffett”
• The world’s 4th richest person (2004)
• The largest owner of Citigroup
• The largest investor in the Middle East
• The largest foreign investor in the USA
• The 2nd largest owner of media in the world
• Owner of 200+ hotels
• Grew $200k into $28 billion over 20 years – with 3 biz staff
• China assets include Bank of China, JD, lots of hotels, and
portfolio companies
2www.jeffreytowson.com
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3www.jeffreytowson.com
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• Nine Investment Questions
• Ques #2a: Has a Competitive Advantage? Is the
Company GGTB?
• Break – 20 min
• Case: SABMiller
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Typical Due Diligence Includes:
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• Market and customer assessments
• Industry and competition
• Operations
• Management
• Financial projections and valuation
• Accounting due diligence
• Tax due diligence
• Regulatory due diligence
• Technology due diligence
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• Income Statement
• Balance Sheet
• Cash Flow
• ROIC
• Reproduction Value
• EPV
• DCF
• Owners’ Earnings
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Typical Financial Projections
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”Checklist routines avoid a lot of errors.
You should have all of this elementary
wisdom, and you should go through a
mental checklist in order to use it. There
is no other procedure that will work as
well.”
- Charlie Munger, Vice Chairman,
Berkshire Hathaway
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3a. Valuation chart
3b. Graham: Criteria list
2a. 5 CA questions
2b. Management
2c. CGTA and destiny ques
2d. Barrack: Sellable RE or FA?
2e. Fisher’s 15 questions
Is the company
Great, Good, Bad
or Too Hard?
Does it have a CA?
21 Is the business
(company or asset)
attractive and / or
predictable (in long or
short-term)? 5
How much can
financial engineering
improve returns at
purchase and / or
sale?
3What is the
intrinsic value?
What is the margin
of safety?
What is the Exit?
What is R&R
outcome tree with
odds? Second
level thinking?
What is the worst
case?
What is time / effort
vs. return?
Deal & Value Add Ques
Is this company good,
great, bad or too hard?
Has a competitive
advantage?
7 Who are the
competing bidders?
How eliminate? What
is your edge or
acquisition
advantage?
Who is selling?
Why is it cheap?
Is there a
catalyst?
6. 3G playbook Pass punch card
test? Check
against common
ways to lose $
4
How much
operational value add
in 3 months? In 1
year? 3 years? Effort
and difficulty vs.
return?
6
8
9
1a. Customer view
1b. Industry questions
1c. Porter: Five Forces
1d. Russo: 5 + “and then what?”
1e. Munger: Psych list
1f. Marks: “Where are we?”
4a.Klarman: FEMs and sits
4b.Marks: Investor behavior
4c.Gabelli: Catalysts & 4 steps
4d.Icahn: Anti-mgmt activism
Risk & Returns Ques
7a.Alwaleed / Barrack
approach
7b.Search lists • Do checklist for follow-up
• A prime bet (for $) or small
action bet (for psych)?
Value and Price Ques
www.jeffreytowson.com
9 QuestionsPause 1: Do
external view,
how can
company fall by
30%?
Pause 2:
Send to “no
man”
Company Ques
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1. Attractive or Predictable Business?
1. Tom Russo
2. Charlie Munger (Psych stuff)
2. G/G/B/TH?
1. Warren Buffett
2. Philip Fisher
3. Tom Barrack
3. Valuation?
1. Ben Graham
2. Seth Klarman
4. Situations and Catalysts?
1. Seth Klarman
2. Mario Gabelli
3. Carl Icahn
4. Joel Greenblatt
5. Financial Engineering?
1. John Malone
2. Henry Kravis / KKR
3. Carl Icahn
4. William Zeckendorf
5. Jiuding Capitalwww.jeffreytowson.com
People to Study
6. Operational Value-Add?
1. 3G Capital / Jorge Lemann
2. KPS Capital
3. Alwaleed
4. Unitas Capital
5. Prestige Brands?
7. Advantage?
1. Alwaleed
8. Risk vs. Return Cases. Worst Case?
1. Howard Marks
2. Dead Companies Walking
9. Punch Card Test?
1. Charlie Munger
2. Jim Chanos
3. Shorts (Muddy Waters, etc.)
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• Nine Investment Questions
• Ques #2a: Has a Competitive Advantage? Is the
Company GGTB?
• Break – 20 min
• Case: SABMiller
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Buffett’s Most Important Piece of
Information?
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”Warren...likes investments in which he
can predict winners a decade in
advance – an almost impossible feat
when it comes to technology.”
– Bill Gates
Page 12
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Economic Theory – A Company Creates Value
When Its ROIC is More than Cost of Capital
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• Value creation comes from the company’s ability to earn a
return, after all operating costs, that is greater than the capital
deployed in the business, equity as well as debt. This excess
return is what economists call “economic profits.”
• ROIC (return on invested capital) - WACC (weighted
average cost of capital)
• This shouldn’t exist. High economic profit (high return on equity
capital) should attract competition.
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Competitive Advantages Protect This
Attractive ROIC Situation from Competition
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• It has multiple names:
• Franchise
• Moat around the castle
• Barrier to entry
• Most companies don’t have one – but think they do. And for those that do,
few are sustainable for that long. Average is like 8 years.
• It is not high profits. It’s about protecting economic profit. About keeping
ROIC>WACC
• ROIC = NOPAT/IC
• NOPAT = Revenues – Operating Expenses – Cash Taxes
• So it’s about having higher revenue or lower expenses.
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To Simplify, Let’s Say There Are Only Two Types of
Companies
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• Those with no CA - “Treadmills” (Bad and Too Hard Co.)• Continually fighting competitors. No protection or strong
advantage so all about execution.
• Spending money to upgrade facilities, grow, etc.
• Often little cash produced
• EPV is equal or less than AV
• Running on treadmill to survive – but never get anywhere
• Those with CA - “Snowballs” (Good and Great Co.)• ROIC>WACC
• Often cash producer
• Protected from competition
• Living the good life
• “Life is like a snowball. The important thing is finding wet snow
and a really long hill“ – Warren Buffett
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”There are two kinds of businesses: The
first earns 12%, and you can take it out at
the end of the year. The second earns
12%, but all the excess cash must be
reinvested — there’s never any cash. It
reminds me of the guy who looks at all of
his equipment and says, “There’s all of my
profit.” We hate that kind of business.”
- Charlie Munger, Vice Chairman,
Berkshire Hathaway
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How Long It Lasts is Critical
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What is a Competitive Advantage?
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How to Test if it Exists?
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1. ROIC
• Sustained high profitability as measured by return on invested
capital (ROIC)
• Significant, and sustained, differences between the profitability
(ROIC) of various market participants.
2. Market Share - Entry/Share Stability
• High share stability over time (low change in average share
among participants)
• Few new entrants / failed entry attempts
• Local, long-term company dominance
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How Can ROIC > WACC?
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• ROIC = (Revenue – Cost) / Invested Capital
• For ROIC to be higher than competitors, revenue has to be
higher or costs have to be lower.
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1. Revenue Cost Advantages
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• Revenue = units x price
• Somehow you can charge higher prices or sell more quantity that your
competitors.
• It’s usually about some type of customer captivity
• 3-4 types of competitive advantages on revenue side:
• “Share of consumer mind”: Like / love, buying / usage habits, etc.
• Switching costs: Installed systems, perceive risk, training costs,
etc.
• Searching costs: Difficult to assess, brand names, etc.
• Temporary Supply-Demand Imbalance – including from network
effect and first mover situation.
• How would you check?
• Ability to charge a premium
• Repeat purchases
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2. Production Cost Advantages
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• Lower cost per unit – regardless of volume.
• If a company has manufacturing / production advantages, it has a
cost structure that other companies cannot duplicate. A company with a
cost advantage will be more profitable than all of its rivals.
• Increasingly about IP / tech costs. Innovative business models can
change these (e.g., online retail removes real estate costs).
• Main sources of production / manufacturing advantages:
• IP or proprietary technology
• Labor costs
• Lower cost of inputs from suppliers
• Special resources
• Location or transportation cost advantage
• How would you check?
• Per unit cost at different volumeswww.jeffreytowson.com
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3. Economy of Scale & Scope Advantages
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• Lower cost per unit at higher volume, relative to competitors.
• Economies of scale provide a company with a lower long-run average cost
curve because of high fixed costs and greater production volumes than all
other vendors.
• Not the same as being big. Is about being big (in volume and/or spending)
relative to others in a circumscribed market. Usually a niche. Almost all
local. Few are national. Very few are global.
• Usually cheaper in:
• Manufacturing
• R&D
• Marketing
• Logistics / distribution
• How would you check?
• Fixed cost spending as a % (including capex and M&A)www.jeffreytowson.com
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4. Government Advantages
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• Depending on the type of regulation, governments can effectively
limit entry into specific markets. This barrier can help to provide the
existing firms with a competitive advantage which would be
sustainable for as long as the regulation stays in place.
• Sources of governmental influences:
• Licenses (big competitive advantage)
• Regulation (antitrust, zoning, environment). Can be helpful.
• Patents. Usually a competitive advantage. Especially if
exclusive.
• Tariffs and quotas
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5. Efficiency of Scale
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• A situation with one dominant company in small, circumscribed market
with big initial capital costs. A history of attacking new entrants helps.
• Examples:
• The only powerplant in a small town.
• The only two hospitals in town.
• Not really a competitive advantage. It’s just not worth it to enter, as there
not enough market to support additional companies.
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6. MSPs and Network Economics
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• Lots of important things happening here – including demand side
economies of scale.
• One-sided network effects:
• Each new user increases the value of the product to other users.
• Communications networks: Telephones, fax machines, etc.
• Most social networks: Skype, WeChat, Facebook, etc.
• Standardization / collaboration situations: PDFs, Slack, etc.
• Two-sided MSPs and network effects:
• Each new user increases value to the supplier network. Each new
supplier creates value for the user network.
• Can be transaction marketplace like Ebay and TaoBao.
• Can be payment system like American Express.
• Can be innovation platform like the App Store.
• Discussed later under digital.
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Competitive Advantages (1 of 2)
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1. Revenue Advantages – captive customers / control over pricing / repeat purchases
• Share of consumer mind and buying habits
• Switching costs
• Searching costs
• Temporary supply-demand imbalance
2. Production Cost Advantages – proprietary production capability / manufacturing cost advantages
• IP or proprietary technology
• Labor costs
• Lower cost of inputs
• Special resource
• Location or transportation costs
3. Economy of Scale Cost Advantages – lower average costs at higher volumes
• Manufacturing
• R&D
• Marketing
• Distribution / logistics
• Real estate?
4. Government Advantages
• License
• Regulation (antitrust, zoning, environment)
• Patents
• Tariffs and quotas
www.jeffreytowson.com
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Competitive Advantages (2 of 2)
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5. Efficiency of Scale – One dominant company in small market – with high initial capital costs
and history of attacking new entrants.
• Not a strict CA. But strong disincentive to new entrants.
6. MSPs and Network Economics Advantages
• One-sided network effects – Facebook, Wechat, telephone
• Two-sided MSPs and network effects – UnionPay, American Express, Apple App Store
• Combos – Tencent multiplayer gaming is one sided and two sided.
• Usually not (but not always) a competitive advantage:
• Most brands. You can buy a brand with cash. It’s an asset.
• Being smarter. This can be copied.
• Most expertise. Can be copied over time.
• Lower cost of capital – nope.
• Lower cost of labor – nope. Transitory.
• Most government regulations and tariffs
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Example: Coca-Cola
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• Founded in 1886. Now operating in +200 countries.
• Coca-Cola, Diet Coke, Dasani Water, Sprite, Poweraid
• 500 brands
• $32B in operating revenue and $8.7B in operating income
(2018)
• 70% of sales outside of USA
• Operations:
• Coca Cola America
• Coca Cola International
• Coca Cola Bottling
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• Coke’s Market Share (of cola)
• USA: 40% (approx.)
• China: +50% (AC Nielsen)
• India: +60%
• Latin America
• Global
• ROE (1998-2002): average 37%
• ROC (1998-2002): average 33.6%
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Example: Coca-Cola (continued)
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31www.jeffreytowson.com
Example: Coca-Cola’s Competitive Advantage1. Revenue Advantages – captive customers / control over pricing / repeat purchases
• Share of consumer mind and buying habits
• Switching costs
• Searching costs
• Temporary supply-demand imbalance
2. Production Cost Advantages – proprietary production capability / manufacturing cost
advantages
• IP or proprietary technology
• Labor costs
• Lower cost of inputs
• Special resource
• Location or transportation costs
3. Economy of Scale Cost Advantages – lower average costs at higher volumes
• Manufacturing
• R&D
• Marketing
• Distribution / logistics
4. Government Advantages
• License
• Regulation (antitrust, zoning, environment)
• Patents
• Tariffs and quotas
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Which Are Sustainable?
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Which Require Effective Management?
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Ques 2a: Checklists for Competitive
Advantage
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1. Does company (or asset / product / service) have a competitive advantage (a
long-term forces view)?• What is it?
• Wide or narrow moat?
• Is it getting stronger or weaker? Moats have a lifecycle.
1a. Has a high ROIC – WACC?
• Sustained high profitability as measured by return on invested capital (ROIC)
• Sustained high market value / book value (replacement value)
• Significant, and sustained, differences between the profitability (ROIC) relative to
other market participants.
• Note: You can have high profits with no CA. Needs to be relative to capital.
1b. Stable market share? - Entry/Share Stability
• High share stability over time (low change in average share among participants)
• Few new entrants/failed entry
• Local, long-term firm dominance. How long?
• Is the market strictly circumscribed? Niche? Better for maintaining CA. Think local
(Greenwald).
• If in an uncertain period, market share will still be there. But ROIC and earnings
can be low or negative.www.jeffreytowson.com
Five CA Questions (1 of 5)
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Five CA Questions (2 of 5)
36
2. How does CA compare to existing competitors with or without CA? To giants?
To dwarfs? How long will it last?
• Think about the key competitive relationships (giants to giants, giants to dwarves, both to
new entrants).
• How long it lasts? 0-1 years, 0-10 years, 10-20 years?
• Key to sustainability is usually competitive advantage + sharply proscribed market.
Dominate a niche (customer type, geographic, functional)
• Compare the existing competitive advantage with the existing resources / assets.
• Verizon – a Buffett company with a big competitive advantage based on the
economies of scale of their national network (huge capex expenses every year (fixed
costs) and a big expensive tangible asset). This is about a tangible asset that is hard
to replicate and expensive to maintain and upgrade every year.
• Visa – a Buffett company with a big competitive advantage based on two-sided
network economics in their global payment network. No real tangible assets or fixed
costs (some marketing). They have a big intangible asset (customers, merchant
network) that is very hard to replicate.
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Five CA Questions (3 of 5)
37
3. What is the cost and / or difficulty for a Dwarf or a well-funded, well-run new entrant to replicate
this or overcome the CA? Think about the tangible and intangible assets that create the
competitive advantage (the resources view)?
• A CA shows up as high revenue or low cost relative to capital. But is the result of resources / assets or
intangibles / capabilities. These things can often be bought so someone can jump the barrier. The key is
how must does it cost (tons of capital?) or how difficult (a new railroad approved?).
• Replace them on shelves? Convince loyal customers? Build pipeline? Launch a big furniture
store? Develop a drug?
• Think about entry costs and special entry difficulties versus ongoing costs:
• Keeping an existing customer cost (A) << Grabbing a new un-attached customer cost (B) << (C)
Taking a customer from a competitor (C).
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Five CA Questions (4 of 5)
38
4. Cheetah Qestion: What is the company superspecialized in?
Relative to a specific market / situation and against a specific competitor. Think
Cheetah plus the ecosystem it is in.
• Cheetah is specialized for 17 seconds of speed. BUT...this only works when after the
gazelle that others cannot catch. Need to be super-specialized against a specific
situation? Think what do you give up to do this?
• Be extreme at one thing. You usually have to give up lots of things to superspecialize
(cheetah is all about acceleration). Costco is extreme low cost retailer.
• More powerful is when it is a combination of 2-3 different and intertwined activities. That
is very difficult to replicate.
• Nascar has stadiums and Nascar media / race teams
• Sirius Radio has unique content but also tons of devices in cars. Very different skills
to create content and coordinate with car dealerships.
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Five CA Questions (5 of 5)
39
5. Mgmt Behavior Question: Is there unhealthy competitive fighting between
companies with CA?
• Is this like Coke vs. Pepsi in the 1980’s?
• Very common in China.
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When confused:
•Identify the key activities (content,
mktg,distribution) and ask "what doing
that others cannot?". That is the barrier.
•“Could a well-funded and well-managed
company enter this business? What
would it cost? Cost vs. difficulty to jump
the barrier?
40www.jeffreytowson.com
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1. Revenue Advantages - Checklist
41
• For Share of Consumer Mind / Customer Buying Habits:
• This is often about brand power and intangible assets. It shows up as repeat business or
willingness to pay more. Frequency of purchase usually matters.
• Example: Coca-Cola, Starbucks
• Aging consumer population is often the problem.
• For High Switching Costs:
• Switching means cost, hassle and/or time. Switching can also be perceived as risk.
Customer will ignore lower price and better product if big switching costs.
• Best is a low cost item with high perceived risk. Such as airbag pellet in car. Not worth
switching.
• For High Searching Costs:
• This is similar to switching costs. You tend to stay with what you know if it’s complicated for
evaluating quality. The devil you know.
• Example: doctor, lawyer, accountant, management consultants.
• Another example is limited shelf-space in stores. Leading companies are amplified as 1
of 5 available in Walmart or 7-11. This is especially powerful for Heinz as stores only carry
1-2 ketchup. Try to find another ketchup or beer to buy.
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2. Production Advantages
42
• If a company has manufacturing or production advantages, it has a
cost structure that other companies cannot duplicate. A company with a
cost advantage will be cheaper or more profitable than its rivals at any
volume
• Four main types of competitive advantages on production side:
• Proprietary technology (often new technology)
• Example: Software, trading
• Process advantage and learning curve – that is hard to replicate
• Example: BYD
• Lower cost of inputs – such as bargaining power with suppliers
• Example: Managed care / United Healthcare
• Special resources
• Example: Saudi Aramco
• Location and transportation costs
• Example: granite mine in town, Carlsberg
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2. Production Advantages - Checklist
43
• For Proprietary Technology:
• Technology can be for lots of activities (call center, etc.) but we are looking
at production costs.
• Example: manufacturing technology, drilling tech, software
• New or disruptive technology shows up as a cost advantage. Like Netflix
DVDs against blockbuster. Allows a new entrant. But it can usually be
copied fast. So new entrant needs to get big and build a real competitive
advantage asap.
• For Process Advantage and Learning Curve:
• This is rare. Hard to have process that can’t be replicated.
• Learning curve / cumulative experience can be a real cost advantage.
Unlike economies of scale which is in a set period of time, this is about time
it takes to capture low costs..
• Example: BYD, McKinsey?
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2. Production Advantages – Checklist (cont)
44
• For Lower Cost of Inputs – and Bargaining Power with Suppliers:
• Low cost labor, low cost energy, low cost capital and other factors tend to
be fleeting cost advantages. Almost never more than just efficient.
• However, bargaining power with suppliers is important and durable.
• Example: Health insurers (vs. doctors)
• Ques #5: What discount are you getting relative to competitors? What % of
costs is this?
• Ques #6: Are suppliers consolidating?
• For Special Resources:
• You have access to Lithium, oil, or other. Planet has limited resources so
geological resources can matter. Can be other things.
• Ques #7: Do you have unique or lower cost resources? What % of costs is
this?
• For Low Location and Transportation Costs:
• Transportation is important cost. For products with low value / weight ratio.
• Example: beer, furniture, granite mine, railway versus trucks
• Ques #8: Do percent of costs are transportation for you versus competitor?
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3. Economies of Scale Advantages
45
• Lower cost than competitors when at higher volumes. So can undercut on price or
keep price the same and make larger profits.
• Do you have lower per unit costs than your competitors at higher volumes?
• Economies of scale provide a company with a lower average cost curve because of
high fixed costs and greater production volumes than others.
• The company’s advantage translates into a lower per unit cost for a certain
volume - that other vendors cannot duplicate. For economies of scale to be in
effect they must result in lower per unit manufacturing costs as volume
increases. But this effect reverses when volume hits certain point.
• Look at fixed costs in Sales/Marketing, R&D, manufacturing, distribution and
other. Is about being big in a local market, relative to others. Need to bash small
competitors. For Sales / Marketing, R&D and local promotion, you spend them
into the ground. For manufacturing and distribution, you cut your prices cause
they cannot match your cost per unit at higher volumes.
• Need sharply prescribed market (local, local). Need to keep others small.
Almost all local. Few are national. Need market of certain size to get economies
of scale - but if too big cannot get.
• Usually also need customer captivity. otherwise new entrants chip away at your
size advantage over time. (greenwald)www.jeffreytowson.com
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4. Government Advantages
46
• Depending on the type of regulation, governments can explicitly or
effectively limit entry into specific markets. This barrier can help to provide
the existing firms with a competitive advantage which would be sustainable
for as long as the regulations stays in place.
• Sources of governmental advantage:
• Licenses and regulations
• Patents
• Presence of strategic SOEs
• Government impacts that are not competitive advantages but can influence
competition:
• Regulation (antitrust, zoning, environment)
• Tariffs and quotas
• Subsidies and taxes
• Contracting and purchase preferences
• Government-related assets and capabilities
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I Put Companies In Four Buckets
47
• Great (i.e., Protected and Value Increasing)• Has a competitive advantage. More predictable future (and valuation).
Won’t decrease in economic value per share over time.
• Also, increase in economic value per share over time. Often a cash
producer.
• Good (i.e., Protected and Value Protecting)• Has a competitive advantage. More predictable future (and valuation).
Won’t decrease in economic value per share over time. Often capital
intensive.
• Bad (i.e., Unprotected. Can be predictable or unpredictable.)• No competitive advantage. More unpredictable future.
• Lots of companies here that seem fine. Just operationally intensive. Often
can be growing and showing profits.
• Too Hard• Can’t figure it out.
• Or too complicated.www.jeffreytowson.com
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Is the Company “Great, Good, Bad or Too Hard”?
48
Good
(preserving)
or Great
(creating)
Too HardBad
(unprotected)
1 2 3 4 5 6
Company Filters are Industry Specific
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t0
MP
IV0IVLT
Great Companies Grow Over Time in Economic
Value Per Share. Often Cash Producers.
49www.jeffreytowson.com
Good co.
(protected and
wealth-preserving)
• Rule #1 is Never
Lose Money
Great co.
(protected and
wealth-creating)
• Time is Our Ally
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t0 tLTt-LT tNT
50
Good (i.e,. Protected) Companies Don’t
Decrease in Economic Value Per Share.
Predictable on the Downside.
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”The difference between a good
business and a bad business is that
good businesses throw up one easy
decision after another. The bad
businesses throw up painful decisions
time after time.”
– Charlie Munger, Vice Chairman,
Berkshire Hathaway
Page 51
51www.jeffreytowson.com
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52
1 2 3 4 5 6
www.jeffreytowson.com
Good
(preserving)
or Great
(creating)
Too HardBad (unprotected)
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Bruce Greenwald on Competitive Advantage
53
Makes you cheaper than competitors
• Proprietary technology – it makes you cheaper
• Lower cost of capital – nope
• Lower cost of labor – nope. Transitory
• Smarter – nope
• Learning curve – probably. Makes you cheaper
• Special resources – Yes. Makes you cheaper
Makes your demand higher than competitors – therefore can
raise prices or lower overhead as % of sales
• Customer habit – yes. Like Starbucks
• High search costs – yes. Hard to find another you’re
comfortable with. Surgeons, management consultants,
complex services.
• High switching costs – yes. Like banks and computer systems
• Brand – nope. Can buy it.
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Bruce Greenwald on CA (continued)
54
Sustainable Competitive Advantages
• New customers
• New technologies
• Economies of scale
• Others can’t match your costs (you beat them on fixed costs).
Determined by footprint of fixed costs
• Can’t match benefits of using systems
• But this only works if you have barriers to entry. You need to keep
your competitors small
Examples:
• Oxford has local economies of scale over national plans
• Dr. Pepper has local economies of scale in south over coke
• Local franchises are very defensible
• Can also do local economies of scale that are non-geographic
• Intel did CPUs
• MSFT did operating systemswww.jeffreytowson.com
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Bruce Greenwald on CA (continued)
55
Who Knows What?
Banks, HMOs, etc. know a lot
Financial services – they have the best customers
Government regulation
Both Coke and Pepsi have CA but don’t want to compete
THIS IS ALMOST ALWAYS ABOUT LOCAL CONCENTRATION
• Dominant market share relative to competitors
• Allows you to drop costs
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56
• Nine Investment Questions
• Ques #2a: Has a Competitive Advantage? Is the
Company GGTB?
• Break – 20 min
• Case: SABMiller
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“Rule No 1: Never lose money.
Rule No. 2: Never forget rule No. 1.”
- Warren Buffett
(i.e., think the red line first)
Page 57
57www.jeffreytowson.com
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Contact Info:
Jeffrey Towson
www.jefftowson.com