Primates and Royalty
Tinker,
<< Hold Royalty lightly and when the tornado looks like it will peter out, sell. Any other opinions regarding this particular rule of thumb? >>
That rule of thumb hews rather closely to Moore's "Rule 6," in summary format where he lumps Kings and Princes under the same umbrella.
It isn't my rule of thumb, and it is not exactly the way I interpret the substance that backs up "Rule 6," at least as it applies to Kings as opposed to Princes, and particularly descendant Princes.
Personally I hold or have held (several) Kings (lightly), held/hold Princes occasionally, and Serfs seldom if at all.
If I hold/held a Prince, typically I have held it either because I thought it had the capability to become a market leader - preferably with 2x or better market share than their next closest competitor, and have generally sold when I realized they weren't likely to become the market leader.
As for holding Kings, I an inclined to follow the substance of Moore's advice and look for strong evidence of erosion in the King's market position or a reversal of fortune as to margins, cash flow, etc., as a signal to sell.
I wouldn't necessarily or usually entertain selling a King simply because a tornado peters out, any more than I would consider selling a gorilla because the tornado peters out, since legitimate Kings typically enjoy an extended CAP and in general enjoy the same competitive clout and economies of scale as a gorilla.
I would thus typically hold a King not only while they are a "rising star," but well into main street when they become a "cash cow," when they often produce better margins and generate better cash flow from operations than when they were in tornado growth.
If the tornado has run its course and there is an inflection point between generational shifts of the product type that the King maintains market leadership in, I would be evaluating the probability of the current Kings positioning to maintain or enhance market share in the tornado that hopefully will follow when a new generation begins to replace the old.
Best,
- Eric - |
