“Business is a doggie dog world….” During the “Prince Family Paper” episode of “The Office”, the inimitable Michael Scott states that business is a doggie dog world. Of course he meant that business is a dog eat dog world, and it is.
First Bankers Notes Volume 1 Issue 5
Business is a Doggie Dog World
“Business is a doggie dog world….” During the “Prince Family Paper” episode of “The Office”, the inimitable Michael Scott states that business is a doggie dog world. Of course he meant that business is a dog eat dog world, and it is. Do you remember Radio Shack? It invented the electronics specialty store, which made it tough for small department stores to thrive, and many of which went out of business. Circuit City and Best Buy arose and made the goings difficult for Radio Shack; then Amazon emerged on the scene changing the landscape still again and, well, Circuit City and Radio Shack have been competed out of business and Best Buy is hanging by a thread. Business is a doggie dog world.
Creative Destruction refers to the incessant product and process innovation mechanism by which new production units replace outdated ones. It was coined by Joseph Schumpeter (1942), who considered it 'the essential fact about capitalism' (MIT Economics). Businesses that innovate, adapt, innovate again and adapt again thrive. Sounds simple enough but it is actually quite difficult to achieve and then maintain excellence through every competitive challenge and change in customer behavior. Over a longer period, at least two generations, it is easy to imagine that some companies might falter eventually. It’s actually more dramatic than you might have thought. What do Bristol Myers, Boeing, Pepsi, Pfizer, Northrop Grumman and United Technologies have in common? They are among the 60 members of the Fortune 500 from 1955 that are still in business. That’s only 12%!
There is no such thing as a permanent investment. In investment-speak, there is a huge difference between ‘buy to hold’ and “buy and hold”. A common saying of a “buy and hold” investor might be “good companies always come back”. Plain and simple, they do not. “Good to Great” by Jim Collins, published in 2001, is one of the seminal management books of this century and an inspiration for the HedgeHog principle of investing at First Bankers Trust Company. In his book, Collins describes how companies can transition from good companies to great ones. Still, after just 17 years since publication, only nine of the eleven companies profiled as excellent remain in business. Of those nine, maybe three of them are still great. It is a doggie dog world.
The view is worth the climb… At First Bankers Trust Company, we are “buy to hold” investors, seeking to own excellent companies as long as they remain so and doing our very best to continually identify tomorrow’s excellent firms. Because of creative destruction and the doggie dog world, we expect our average holding period for each stock to be about four years. The benefits of owning a diversified portfolio of excellent companies paying rising dividends far outweigh the challenges of the search for excellence. We aim to be vigilant and continue to make the climb on your behalf.