Old Companies Ruling the Roost

[Blake Hampton]

I’ve been reading Peter Lynch’s book “Beating the Street” and it’s had me thinking. In the book, Lynch talks about how he analyzed, and later bought, companies like Home Depot and various restaurants that are now household names. It seems that during his prime there was a lot of opportunity as many of the now great businesses were either just starting or in the process of significant growth. Anyways, my question is do you think that there is a smaller amount of opportunities today due to a lack of competition. There are a large amount of conglomerates that seemingly own everything while also having extremely strong footholds in their given markets. They can use their scale to utilize the vast amount of today’s data to create an even larger advantage between them and future competition. Thoughts?

Edited September 7, 2023 by blakehampton

[Gregmal]

St Joe. The good things Florida has going for it are tailwinds, and if you look deep enough, you'll see the bad stuff for most of Florida is also a tailwind. Hamilton Thorne too I can see just having a forever runway. Nintendo as well. The cool thing is you only really need one or two of these type of investments to work to be in great shape, life-wise. 

[Guest]

I do think politicans were somewhat less owned by corporate interests 30 years ago. They used to really drive hard against monopolies..now, not so much. Now companies just keep getting bigger and bigger and hurts compeition. Even the numbers of stocks available, I believe, is a lot lower than 30 years ago. So yes, I think you are, in large part correct.

 

Eventually (hopefully) that tide will turn.

[dwy000]

3 hours ago, blakehampton said:

I’ve been reading Peter Lynch’s book “Beating the Street” and it’s had me thinking. In the book, Lynch talks about how he analyzed, and later bought, companies like Home Depot and various restaurants that are now household names. It seems that during his prime there was a lot of opportunity as many of the now great businesses were either just starting or in the process of significant growth. Anyways, my question is do you think that there is a smaller amount of opportunities today due to a lack of competition. There are a large amount of conglomerates that seemingly own everything while also having extremely strong footholds in their given markets. They can use their scale to utilize the vast amount of today’s data to create an even larger advantage between them and future competition. Thoughts?

I think its a bunch of things:

- far less public companies today as the benefits of being public are far outweighed by the hassle of reporting requirements, PR, legal liability and costs - all of which really only works at scale;

- Peter Lynch wrote that in the 80's before the internet - most of those companies he pointed to as "buy what you know" were retailers or restaurants opening new stores.  That doesn't exist as much anymore although new food concepts seem to be flourishing.

- technology - most startups and fast growth companies nowadays are tech based which scales faster but is easily replicable so it makes moats more difficult 

- globalization -  I don't think there's less competition as much as the competition is no longer just local or national, it's global.  Between technology and global competitors margins are lower and you need scale to compete and that results in consolidation.

- more investors using better technology to screen from fewer options.  There's no operating under the radar screen until some enterprising investor discovers your stock.  

- etc. etc.

 

The book was and is one of the all time best investing books for newbies.  But I don't think the opportunities are as broad as they used to be.

Edited September 7, 2023 by dwy000

[Saluki]

There are always new companies popping up.  The tech companies are super large but that doesn't mean that they aren't subject to disruption.  When Facebook bought Instagram, Insta had like 10 employees.  And ChatGpt erased hundreds of billions from Google's value when it was released, but it wasn't something that required a lot of time and tens of billions of dollars to develop. 

 

The number of publicly traded companies is fewer than it was in the 1980s, there are more investors with better access to information, and the Nasdaq 2000 has about 40% of it's companies with no profit.  So fewer places to fish, more fishermen, and less good fish is a tough row to hoe. 

 

Still, if you think of old companies, there can still be some bargains.  Coke has been around for 150+ years, so it's not likely to go away soon, but you can find others that are likely to be around for a long time because they have already been around for a long time (an idea that Nassim Taleb likes to promote). I own Smith and Wesson, and it's also 150 years old, and it's less $500mm (and an industry that people hate) so it's a good place to find a bargain.  I had a big win with Vitesse. The company is new but oil isn't and it isn't going to be disrupted by an app anytime. 

 

Also, part of the reason that there are fewer companies is a lot of them have merged. So think about consolidating industries. Asbury and Lithia are auto dealers and are the biggest players, but combined they are less than 10% of the industry.  Energy companies and certain sectors of shipping are consolidating too.  Railroads did too, and now they are more profitable than ever. 

[bizaro86]

I don't think that's true at all - I think it's just hindsight bias. It's easy to see the growth companies of the 80s because you already know how it turned out, which makes it seem obvious. If it was easy/obvious at the time Lynch's results wouldn't have been so much better than everyone else's.

 

I don't know what the current crop of amazing growth companies are, but I'm pretty confident they exist. 

[Gregmal]

13 minutes ago, bizaro86 said:

I don't think that's true at all - I think it's just hindsight bias. It's easy to see the growth companies of the 80s because you already know how it turned out, which makes it seem obvious. If it was easy/obvious at the time Lynch's results wouldn't have been so much better than everyone else's.

 

I don't know what the current crop of amazing growth companies are, but I'm pretty confident they exist. 

Exactly. More or less summed up as, how come the past is so much easier to predict than the future. 5-10 years ago who cared about Nvidia?

[Spekulatius]

1 hour ago, Gregmal said:

Exactly. More or less summed up as, how come the past is so much easier to predict than the future. 5-10 years ago who cared about Nvidia?

Everything is obvious in hindsight. The Winners in 2050  that exist today will be obvious in hindsight. Same with losers.