The companies forget what it means to make great products. The product sensibility and the product genius that brought them to that monopolistic position gets rotted out by people running these companies who have no conception of a good product versus a bad product. They have no conception of the craftsmanship that’s required to take a good idea and turn it into a good product. And they really have no feeling in their hearts usually about wanting to really help the customers.
Monthly archives of “May 2017”
Compounding Knowledge
Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.
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Accelerating India’s Innovation Boom
Over the last three years, entrepreneurship has captured India’s imagination, and for good reasons. Never in our history has it been possible for first-generation entrepreneurs to start companies, raise seed capital and build a business in the way we have…
Indexing Inefficiency
One of the perverse effects of increased indexing and ETF activity is that it will tend to “lock in” today’s relative valuations between securities. When money flows into an index fund or index-related ETF, the manager generally buys into the securities in an index in proportion to their current market capitalization (often to the capitalization of only their public float, which interestingly adds a layer of distortion, disfavoring companies with large insider, strategic, or state ownership).
Thus today’s high-multiple companies are likely to also be tomorrow’s, regardless of merit, with less capital in the hands of active managers to potentially correct any mispricings. Conversely with money pouring into market indices, stocks outside the indices may be cast adrift, no longer attached to the valuation grid but increasingly off of it. This should give long-term value investors a distinct advantage. The inherent irony of the efficient market theory is that the more people believe in it and correspondingly shun active management, the more inefficient the market is likely to become.