scorpioncapital

I see several narrow moat companies (at least as defined by Morningstar) with very high market share. Why does this happen? Say Vmware. There are several huge and smaller competitors. Is it just a temporary switching cost issue? Also some companies in biological lab equipment, reagents, genetic sequencing (e.g. Ilmn). None of them are making anything that can't really be produced by anyone else. Why do competitors have trouble making inroads in such situations or is it just "a matter of time"

It’s about 4% and 1/2 year with of profit. BRK is known of naming their price and sticking too it. No if and when or renegotiation. Keeping it simple may cost them some deals, but it will also make their offers a simple proposition and prevents them from becoming duped like OXY did. when they thwarted CVX. I thought Berkshire makes something like 20-30 billion a year. At the higher end that's 82 million a day. So 200m is about 2-3 days of profits, on top of the cash hoard I guess.

He lost it for 200 million. Isn't that like 1.5 or 2 days of annual profit? Seems trivial...just saying. If anything, the argument would be that he would be outbid again. But maybe not. Even if he was he would have pushed the price higher which is at least a secondary goal of competitive bidding.

In the situation you mentioned there are virtually no regulatory costs except corporate tax return. The reason I say this is because for this situation I suggest a much simpler solution. Incorporate a company for $1000 with your relative and yourself as shareholders. Your only real running costs are annual tax returns which shouldn't run more than $2000. I can't imagine anything cheaper than this solution except...there is also an IB platform product called family office which allows you to trade on behalf of your relative's capital. You can segregate funds and even set a compensation fee percentage. This is probably even cheaper as it's just in your own name. Given the relationship I do not think there is any regulatory requirement.

I am suspicious of the claim that Greece is booming. But like any near death experience, it usually feels better, but only because the comparison is against death, so the standard is really low.

I think there was talk of a parallel currency using tax receipts in Italy. It's an interesting idea. The European countries that do not use the Euro feel better to me. Not sure why Greece did not go off the currency, maybe they thought even with austerity and deflation they are better off than a severe currency devaluation? I am not so sure.

He has a point that it is extremely hard to maintain a moat for a long time. Good analysis and selection may extend the shelf life but I read somewhere that of the Dow 30 stocks, very few remain today. It's all been merged into other companies or replaced. I know Buffett says to make a good decision and you don't have to monitor your stocks so often but this is very difficult. Perhaps you can have a good working lifetime of good stocks. I really think owning an index that replaces stocks into it like S&P or Dow is not a bad idea given this fact of life.

Just look at your own portfolio. Do you go max aggressive? What if you're wrong? I gave up lots of gains by diversifying into say 10 major positions instead of 5 , and the ones I thought might do well sometimes did very well. Others didn't. It would be reckless to go max, especially if you have another asset in the field. E.g JPM when you got a ton of WFC and BAC and a ton of insurance cos which are also in the financial sector. Will you give up max return? Of course. But it's risk-adjusted return. And risk is the invisible variable. Seldom visible like a stock price.

I think Buffett once said we could have made trillions if we used leverage but that he didn't want to push the pedal to the metal. He said if you can get rich and have cash and sleep well why do you need to get ultra rich, and risk potentially a disaster?

Yet it's also market timing if you buy up into a bubble hoping to unload before a crash. Not participating may be market timing but so is participating. Really it's not so much market timing as time arbitrage. I remember the line that when rates are low you can afford to wait to get your profits later. When rates are high, you must get your profits immediately as the discount rate is so high. In other words at 1%, you can wait. But if rates are 10% and stocks are collapsing and bonds are yielding 10% you should put that money to work.

Agree. Like Canadian banks, an investor is happy the state provides monopoly profits. If the state were ever to take it away or require a bail-in or out, it's another story. It's funny because a free for all, capitalist, unregulated market may have pricing so low that investors actually make poor profits. So are we in an upside down world were pure capitalism leads to lower profits and only by the grace of socialism-government intervention do we actually get fat profits in some industries? )

And that's something I see, current (or former) state built projects. It's a different model. Similar to alot of the issues between USA and China where many projects are state funded or built. For the consumer it actually looks great in one place vs the other but there may be other consequences for investors. I would think globalization has changed the nature of anti-trust. I also see anti-trust agencies acting for political reasons to protect a domestic competitor with very little objective balancing or protecting all interests function. It sometimes feels like anti-trust bodies are treating some players as State favoured enterprises. Fascinating world we live in!

For example, I've always been amazed. Everywhere I travel in Europe, North America, Asia the price per litre of gas for your car is approximately the same. Plus-minus but about the same..Regardless if the country is poor or rich and if the cost is more onerous in the poorer ones. Yet you take something like cable broadband and there I see price differences far greater than oil! For example, in Ukraine or Romania I can get 4g lte unlimited for under $10 USD, sometimes $5 USD. In Canada or USA, the same thing would cost say $30 to $40 usd. There has to be something going on. Is oil a better business because everywhere you sell it you get the same price? Or is cable just a horrible subsidized non profitable business in some places vs others? And why the difference in outcomes for various lines of businesses? Is government the reason or something else?

"The US has literally distrusted size since Day-1 of the constitution." It's interesting because while this may be so there are some counter-examples. For example US cable/broadband. Far more consolidated than in Europe. You definitely have bigger size in USA than Europe on this one. Another example maybe is the tech companies. Then you have politicians like Trump pushing 'Our Great Companies' as a global unit. I wonder if the distrust of size is breaking down , or may reverse. There is talk for example of examining the tech giants by US anti-trust recently.

"For example, if you need 20% of the market to be competitive, how many competitors can there really be? On the other hand, an industry with minimal economies of scale and low barriers to entry often will have many competitors." Ok, it sounds like this is partially a case of first mover advantage. Not because they have any advantage but because they can get that critical mass and the next entrant will need more capital and/or there is less space. Let's say you do need 20% of the market to be competitive - and get it. There are 5 players. Now we are saying the government would decide not to allow more consolidation to 1 or 2? The first mover advantage is interesting because I can foresee several cases where simply being first gets you a semi-permanent position in that sub-industry. Maybe it's not particularly profitable or it's cyclical but there just isn't much room for someone else. Then your company is kind of a public service almost, at least for shareholders wanting a reasonable return.

Sounds like it's a judgement call to balance all the interests. Monopolies lead to underinvestment and high returns...until someone steps in. Either new technology or regulation perhaps? Commodity businesses have high investment and lower returns - and here...I guess do we see consolidation or trying to become large 'block' duopolies or monopolies to corner pricing? I'm sure the government also tries to balance this out, although the bar would have to be pretty high. While I can see a world where very few monopolists last in the very long term, there are definite medium term advantages, let's call them advantages-lite. But I still don't understand the stable equilibrium of 3-4 big players and nobody else. I wonder why nobody else gets in beyond that, while I can maybe see why government would prevent 4 becoming 1.

I guess we also have a bit of a poor view looking only at public markets. For example, I follow some semi-commodity businesses, say in automation IT, or basic material processing. As public investors we only see the public stocks. But probably there are many smaller private businesses too. However I did recently see some anti-trust cases where the government was willing to prevent a combination on the grounds that *future* advantage would be suppressed in a critical/new industry. Of course, if such a company would go bankrupt between now and then, the government could be accused of picking winners and losers. I'm also remembering the fuel cell industry in the 2000s. I think this technology didn't really pan out. There were not too many mergers though as capital just didn't want to flow into it. I do see some duopoly, or let's say up to 4 major players in some industries and no more. I don't understand why there are 3 or 4 of them and not more. I also don't understand why Standard Oil was disbanded many decades ago. Was oil not viewed as a 'commodity' back then, or did John Rockefeller do something somewhat shady to his competitors? "in the US it is meant to protect competition" Can you elaborate on the difference between protecting competitors and protecting competition?

Ok, interesting. Would this impact the desire of players to commit large capital, knowing the return will be dispersed among the fragments which won't be allowed to consolidate and thus limit the return potential for the investment to be made? Also, is it conceivable that this could lead to the perverse situation where a player could go bankrupt or dilute shareholders into really poor performance because it can't be bought up by a bigger player on the ground that it would then eliminate a competitor?

Why is there anti trust issues in commodity businesses with high capital costs (mergers for example)? I mean if money was raised (or money was almost free) and someone decided to own it all or maybe 80 percent, how could the government justify fragmenting the industry ? For example standard oil. Or any modern day duopoly. Is the goal of government to keep an industry fragmented? Couldn't they regulate pricing Instead ?

I get maybe 315% for the SP500 total return and 328% for Berkshire last 10 years to date. It's so close to call a triple that one can probably say it's the same thing. I'd be very curious to see a 10 year period where the divergence is more striking.

It is not prudent to assume the correctness of his claims. There are many types of bubbles. If interest rate on bonds goes to 10% in an accident waiting to happen, 128 billion at 10% is a mighty good return. Those companies operating with debt will be paying 10%...those tech companies with 50x earnings will be worth 10x. Berkshire is 60/30 investments to cash. That's prudent. As Buffett said once, ANYTHING can happen in markets. I mean ANYTHING. He even said in an interview the markets could shut down. So who is being imprudent and gambler saying markets don't 'seem high'?

this kinda sh*t is a disease of the Western world. I travel alot and 99.99% of the time nothing like this in Central East Europe, Russia, Ukraine, Asia. It seems the wealthier a country is the more scams. It's an interesting subject of research.

What I gather from this discussion is that this is a dynamic process. Companies that had advantage may at some point become victims of their own success. Is it also possible that the mere threat of new entrants causes a few existing giants to always be price takers? It seems incredibly difficult to maintain a barrier to entry or advantage forever except for a very few privileged few.

sure COHR and IPGP - laser producers, very price sensitive, very cyclical. charter, comcast - broadband, not cyclical, pricing power. chevron, shell, oxy, phillips, lukoil, exxon, bp, many small producers - fragmented somewhat, but cyclical with no pricing power, yet why so many? apple and android - pricing power, few alternatives, good profitability boeing and airbus regional supermarkets are there some dynamics like regional vs global regulation, end markets? recurring vs one time sales of high cost items or services? In a way intel and amd are the only 2 choices, as are android and ios, yet the latter are hugely more profitable even though every computer you buy probably has one of those 2 chips. Of course one buys a computer far less frequently than an app in the store.

Does anyone understand why some cyclical industries end up with a kind of duopoly instead of a fragmented market? I mean something like Intel/AMD for most personal (and even server) computing vs say oil and gas producers. And also why such duopolies are still very cyclical and price sensitive despite there being few alternatives.