29 Jan

The best book ever written on Competition and Strategy: “Understanding Michael Porter”

Posted by Pierre in Books

If you ever thought that you understood what Competition and Strategy are about, then think otherwise.

Understanding Michael Porter: the Essential Guide to Competition and Strategy

written by Joan Magretta, and published by HBR Press (2012), is the best book we have ever read on the topic, and most likely the best ever written.

It is a very, very good summary of Michael Porter’s work and contains many real-life examples (IKEA, Dell, Zara, Southwest Airlines, to name a few). And above all the book is very enjoyable and easy to read. If you have not done so already, then buy it and read it! You will gain a competitive advantage over those in the industry who have not read it so far.

In particular, you will learn that:

  • “Competition is about profit, not market share. There is no honor in size or growth if those are profitless.
  • Vying to be the best is an intuitive but self-destructive approach to competition. Competitive advantage is not about beating rivals; it’s about creating unique value for customers. If you have a competitive advantage, it will show up in your P&L.
  • A distinctive value proposition will translate into a meaningful strategy only if the best set of activities to deliver it is different from the activities performed by rivals. Competitive advantage lies in the activities, in choosing to perform activities differently or to perform different activities from rivals.
  • No strategy is meaningful unless it makes clear what the company will NOT do. Making trade-offs is the linchpin that makes competitive advantage possible and sustainable.
  • Good strategies depend on many choices, not one, and on the connections among them. A core competence alone will rarely produce a sustainable competitive advantage.”

Thanks Joan for writing this fantastic book. You’ll find the book on Amazon UK, as well as many other bookshops.

17 Jul

Warren Buffett and the Interpretation of Financial Statements

Posted by Pierre in Books

For those of you who are either new to financial statements, or want to learn how to read financial statements like Waren Buffett does, and better understand “what he saw”, there is this fantastic easy-to-read little book:

Warren Buffett and the Interpretation of Financial Statements: The search for the Company with a Durable Competitive Advantage

from Simon & Schuster. Check it on Amazon.

Forget P/E ratios when buying stocks! This book invites you to put your focus on what really matters: Gross Margin; SG&A; EBIT Margin; Earnings / Price ratio; Fixed assets; R&D expenses; Retained earnings and growth in Retained earnings; Debt; Return on Equity; Return on Assets.

Interestingly you will also learn why Warren does like high-tech firms – they have to spend huge amounts of money on R&D to keep their competitive advantage; and even then, their durable advantage might wear out. Think of Nokia and how its market capitalisation went down from USD 78bn in early 2006 to USD 7bn in July 2012 (-90%). Warren does not like that, and the book explains why these stocks are not the right ones to become mega-rich over the long term. And why buy stocks if you don’t want to become rich?

Even more important, you will learn how Warren looks at a share as an ‘equity bond’ i.e. its pre-tax earnings (equivalent to the bond coupon / interest payment), the historical growth of earnings and their relation to the current share price. When Warren bought Coca-Cola in the late 80s at USD 6.5 a share, he bought shares in a company that was essentially generating a pre-tax earning of 11% on his USD 6.5 investment, and had been growing its earnings at an annual rate of 15% historically. 20 years later, Coca-Cola generates an EBIT per share of more than USD 4, so the company is paying Warren a pre-tax yield of 60% (post-tax 40%) on his initial investment. Do you know a bond that increases its coupon from 11% to 60% over 20 years?

Whatever the current stock market price of Coca-Cola is, the Coca-Cola ‘equity bond’ was a fantastic investment for Warren. And whatever the ups and downs on the stock market, the market eventually recognises this kind of performance and increases the price of the shares to a level that reflects their true value. And the value of a Coca-Cola share is around USD 76 in mid-July 2012…

07 May

To create successful businesses, take advise from serial entrepreneurs

Posted by Pierre in News

Serial entrepreneurs are a great source of knowledge for all those who want to create successful and lasting businesses, whether small or large.

And the best thing about it is that their advice is available for free. Take a look at It’s called fishing not catching, a web site maintained by Ben T Smith IV. Ben is an Advisor to, investor in, and founder of technology and media companies.

Enjoy the tips and insight!