The Roman empire that lasted almost 1000 years collapsed at the back of several factors including disease (plague), weak economy, climate change leading to lower agricultural output with the final nail in the coffin coming from the attack by the barbarians.
General Electric, founded in 1892 thrived and remained one of the largest companies in the world for a long time, till a new aggressive culture started to weaken its core leading to its ouster from Dow Jones in 2018 and now the talk of splitting up the company further.
Kongo Gumi, the worlds’ longest lasting business that has been around for over 1400 years.
It built the first temple in the year 578 BC and thrived over several years by keeping its business simple, focus on its core competence and passing on several opportunities to scale up in different direction.
The lure or the greed of growth however enticed them in 1980 leading to them venturing into broader commercial real estate business and they levered their books.
This was just prior to the bursting of the Japanese economy and propelled by a change in the Japanese culture when the donations to temples (bread and butter for Kongo Gumi) fell leading to collapse in their revenue and led to the collapse of the company and take over in 2006.
What’s Common here?
Even those who stay in control for 100’s of years can collapse over a single generation if they don’t adapt.
What led to the success itself became a curse?
Focus on maximisation or optimisation (in corporate lingo) over sharpening the saw may well lead to collapse.
Venturing beyond the core competence without attention to what might/might not work can prove detrimental to the franchise.
Think about the massive collapse in Sri Lanka.
While multiple factors including covid, tourism revenue collapse, corruption might be counted.
A whimsical decision to allow only organic farming without scientific basis, led to the large agricultural economy finding itself on path of destruction with millions of dollars lost in the tea business itself.
In the game of cricket, there have been only 2-3 one day matches (50 overs a side) in which a team has scored at the rate of 10 runs per over.
However, teams routinely score at over 10 runs an over in a twenty over match.
It is often easier to score at a fast clip for shorter periods of time.
However, if you are playing in a longer format, you need to find a way to last the full quota of over as twenty overs of 10 run rate will not give you a competitive score to win the match in a 50 over format.
That’s why you see attack in the beginning and end and consolidation in the middle overs.
As an investor that’s the strategy you are looking for.
When a crisis happens, investors over-react and valuations come in your favor, so you build aggressively your position in businesses you like.
Then market comes back, and you consolidate positions in the best businesses that you own while booking out of cyclical trades.
Then, you watch for opportunities to deploy.
If you try to hit a six every ball, you will probably last an over or 2.
However, if you hit a six and then consolidate the score with singles while playing each ball on its merit, your chances are higher.
Investing is a long journey just like building a business or empire, it will collapse if you are not vigilant or are in too much hurry.
It requires work and then requires patience.
It also requires you to be active and vigilant to risks and opportunities and if you are not up to the task, finding a good manager who aligns with you, is your best choice.
Now go back and read again the tweet on top.
Thank you for reading