– Does the business operate in a country with defined property rights, bankruptcy courts, rule of law, and a population that actively participate in some form of competitive capitalism?

– Is the 10 year Treasury note yield below 10%?


– Is a firm grasp on the industry value chain understood? Do you really understand the reputations, suppliers, producers, dumb money players, bargaining power etc. (SWOT)?

– Does the industry have a history of creating wealth for shareholders?

– Has the industry produced dynastic wealth?

– Does the industry rely on government dollars for their returns? Do they deserve the returns the government is providing/sponsoring/endorsing?

– Does the industry have stable market share? Is there a history of dramatic shifts in market share? Why?

– Is the industry growing with or at a multiple of world output or home country GDP?


– Does the company provide a good or service at the current price points that is either unable to be replicated, or irreplaceable/perceived as irreplaceable by their customers?

– Do the customers hate being forced to consume or use the product? Why or why not do the customers hate or love using the product?

– Is the business insulated from the competitive forces of capitalism? Are you comfortable with the assessment of insulation from competition for at least the next 10 years?

-How is the business insulated from competitive capitalism? Why won’t the company’s customers stop buying their product?

-Does the management team know how to compete? Do they have a reputable background and understand their role in their value chain?

– Are you comfortable with the capital structure of the firm? Would there be more than 1 active bidder for the assets in a bankruptcy?

– Are you confident that the revenues are able to be predicted? Why? (Recurring revenue, captive customers, high switching costs, lowers user search costs etc.)

Entry Point:

– Historical case studies are the best way to identify something attractive, be familiar with your industry and understand that these things tend to repeat or come up again and again, most of the time you just have to be patient:

1.) The company has encountered temporary macro or operational issues or is transitioning from a growth phase to maturity. The current price of the firm provides a next-twelve-month or T+2 8–10% earning power yield to the equity holders. The company is bought because the investor believes that despite the current issues, the company and industry are capable of reinvesting capital to create an earnings growth reinvesting capitalrate with nominal world product and distributing the rest.

2.) An asset in a given industry has either emerged from bankruptcy, been spun out, dealt with some legal action, done a transformative M&A transaction, removed a malicious management team or a bad product segment etc. to create a situation where it is dramatically under-earning. The market prices in the next-twelve-month of growth rather than the total step-function growth of an asset transitioning from under-earning into earning the return it deserves.

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