As previously discussed, I think the most sustainable competitive advantages are, in descending order: Economies of scale combined with customer captivity; A network effect; A government licence; Patent protection; and, Customer captivity[1]. In this post I will explain when I think a business has an economies of scale competitive advantage. When does a business have [...]
Archive for March, 2010
What is an Economies of Scale Competitive Advantage?
Posted in Economies of Scale on March 25, 2010 | Leave a Comment »
Normalising a Business’s Earnings
Posted in Normalising Earnings on March 18, 2010 | 2 Comments »
Why normalising a business’s earnings is so important A crucial part of valuing a business is determining what is the likely future earnings, and earnings growth, of the business.[1] I think the best way to do this is to simply look at the business’s historical earnings data and make a naive prediction about what I [...]
My Quantitative Valuation Model – Part 2
Posted in My Quantitative Valuation Model - 2 on March 12, 2010 | 1 Comment »
Why my valuation model assumes a business will only have profitable asset growth for five years Searching for the ‘Holy Grail’ I think the most difficult part of valuing a business is deciding what value, if any, to attach to the business’s earnings growth prospects. In this post, I discuss how I value a [...]
My Quantitative Valuation Model – Part 1
Posted in My Quantitative Valuation Model - 1 on March 10, 2010 | 1 Comment »
I have spent a lot of time on this blog discussing a number of qualitative factors that I think are very important in determining the value of a business. In this post I will discuss how I ‘quantify’ the value of a business. My quantitative valuation model is a basic ‘Economic Value Model’. I determine [...]
The linkage between ROIC, Market Value, Replacement Value, and a Sustainable Competitive Advantage
Posted in Competitive Advantage - 3 on March 3, 2010 | 3 Comments »
I define the replacement value of a business as what the business’s assets would be worth if it’s ROIC was equal to its cost of capital. The market value of a business with a high ROIC and no sustainable competitive advantage should (assuming the market eventually prices a business at its intrinsic value[1]) fall to [...]
What factors are not a sustainable competitive advantage
Posted in Competitive Advantage - 2 on March 1, 2010 | Leave a Comment »
As previously discussed, I want a business, which I have predicted will have a high ROIC, to have a sustainable competitive advantage. However, I think a sustainable competitive advantage is limited to a small number of competitive advantages.[1] I think it is very useful, when deciding whether a business has a sustainable competitive advantage, to [...]
Categories
- Asset Allocation
- Competitive Advantage – 1
- Competitive Advantage – 2
- Competitive Advantage – 3
- Controlling emotions
- Customer Captivity
- Earnings Growth and Profitability
- Economies of Scale
- Falsifying scenario’s
- Group Decision Making
- Ignoring market moves
- My Circle of Competence
- My Discount Rate
- My Quantitative Valuation Model – 1
- My Quantitative Valuation Model – 2
- Normalising Earnings
- ROIC and Competitive Advantage
- ROIC versus ROE
- Talking to Management
- Technology and Competition
- The Basics – Part 1
- The Basics – Part 2
- The Basics – Part 3
- Valuing using scenarios
- When to Sell
- Will the business survive?
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