Growth is not my game. I think it was Peter Lynch who said, give me the low cost producer in a boring industry that can just crank out 12% growth year after year by cutting costs and buying competitors. As opposed to buying into the fastest growing industries. Because guess where the new competition is going to emerge? Not in the railcar industry, but I would bet Rambus is going to have some company.
For me its not about growth, its about competitive dynamics and barriers to entry. Microsoft and Intel have had both. But look at the internet retailers. I could see a very likely scenario where the market continues to grow rapidly for a while, but still nobody makes much money. AOL is by no means a sure thing either until we see how this new consumer market develops.
I think I read somewhere a few years ago that technology has basically been a big zero in terms of economic profit (return in excess of cost of capital, i.e. EVA). That since the birth of the computer, only a few companies (we know who they are) have made all the money, and the others' losses wiped all of that out net-net. Its not so hard to believe if you think back to all the companies selling computers in the early 80s and the Wangs and the Digitals and those are the ones that have survived (sort of).
Now I see what the logic of your Gorilla Game is - to buy them all and then winnow the list down. Interesting approach, but it sounds like you've got to be pretty damned smart to do that in real life. For instance if ten experts had started with all computer manufacturers in 1982 or 1985, I would bet none of them would own Dell or Compaq today. Compaq went through several crises where its survival was in doubt, let alone its "dominance". This is the kind of strategy which looks great in hindsight, but then when you ask, hmm, what if I had been wrong and narrowed my bet to the wrong horse? You'd have been wiped out. There's a book I probably have to read. Thanks.
And Wright, where might I find a copy of that Munger UCLA speech?
JJC |
