This is a new way of writing - I am live commenting (minimal editing) the piece The Gospel According to Michael Porter from the Institutional Investor magazine. This is of a lot of interest to me as I have read the key chapter of "Competitive Advantage", sometimes when looking for a strategic way out. It is also interesting to note that reddit has a good thread on this article: https://www.reddit.com/r/SecurityAnalysis/comments/7btb25/the_gospel_according_to_michael_porter/
Here we go.
Porter vs. Graham
The argument is that Porter claims returns are generated through power, whereas Benjamin Graham argues those that going against the consensus leads to outperformance.
Notes:
The take-way is obvious - writing while reading does not work. I do not want to end up re-writing the piece to comment on it. But, I leave up this post anyway, maybe it is still interesting. These comments are quite random, this is not a deep assessment of the piece.
- Power drives the need for market share in pricing
The author argues that the drive for market share is a result of the five forces theory. That is because power is equated with market share. This to me is very interesting since my preference outside extrem growth cases would be to manage on cashflow. Simply because I imagine it very, very difficult to run a large organisation successfully without clear metric. "Growth" is a much less clear metric than free cash flow because it also needs definition of growth in which sector and at what cost. Besides this more managerial point, the author argues that even if growth works, i.e. high market share is achieved this does not translate into profits. Interesting!
- Power as the methodology for anti-trust
It is quite fascinating that business and economic power sometimes does end up in front of a legal system. That is in the case of antitrust law cases. Here without going deeper into the issue which is fascinating, it is ruled that market share in and of itself is not proof of negative influence on the consumer (which would result in excess returns to the company). Read more here: https://www.justice.gov/atr/competition-and-monopoly-single-firm-conduct-under-section-2-sherman-act-chapter-2
- The author
Realising only after the fact that the author is Dan Rasmussen who has an interesting investing strategy by himself. Listen to a good podcast where he explains that here: http://investorfieldguide.com/rasmussen/