It normally takes a lot less time to destroy a thing than to create it. That’s true on building sites, in careers and of reputations. “It takes 20 years to build a reputation and five minutes to ruin it,” said Warren Buffett. Such is the nature of entropy.
Yet in business, the reverse can often seem the case. It’s never been easier to start up a new company. In the US, business formation is running at the highest level on record. Companies can be spun up from idea to $2 billion valuation in the space of fifteen months. And, at the larger end of the scale, Facebook is a reminder of how quickly value can be created – this week, it became a $1 trillion company after being around for just seventeen years (I have cardigans older than that!) These companies open new markets and/or promise to disrupt existing ways of doing things.
On the other side though, the incumbents they disrupt can often hold on for a lot longer than anyone thinks possible. Kodak, Blockbuster, Sears – they all took years to be put out of their misery.
Warren Buffett makes the observation about autos that, “what you really should have done in 1905 or so, when you saw what was going to happen with the auto is you should have gone short horses. There were 20 million horses in 1900 and there’s about 4 million horses now. So it’s easy to figure out the losers, you know the loser is the horse.” But you would have needed a lot of staying power to have been short horses. Historic horse prices are hard to come by but, using Buffett’s proxy, the number of horses stayed above 20 million for a further 25 years after he says you should have gone short.
Read on or listen to our conversation (recorded on July 7, 2021):
This conversation is available as an episode of Invest Intelligently, a member podcast of MOI Global. (Learn how to access member podcasts.)
About This Audio Series:
MOI Global is delighted to engage in illuminating conversations on the financial sector with Marc Rubinstein, whose Net Interest newsletter we have found to be truly exceptional. Our goal is to bring you Marc’s insights into financial services businesses and trends on a regular basis, with Marc’s weekly essays serving as inspiration for our discussions.
About Marc Rubinstein:
Marc is a fellow MOI Global member, managing partner of Fordington Advisors, and author of Net Interest. He is a former analyst and hedge fund manager, most recently at Lansdowne Partners, with more than 25 years of experience in the financial sector. Marc is based in London.
About Net Interest:
Net Interest, authored by Marc Rubinstein, is a newsletter of insight and analysis from the world of finance. Enjoyed by the most senior executives and smartest investors in the industry, it casts light on this important sector in an easy-to-read style. Each post explores a theme trending in the sector. Between fintech, economics and investment cycles—there’s always something to talk about!
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