Drivers of Disruption | Michael Mauboussin
Tips: Watch for 30 minutes â unfortunately in Q&A host took guest to stock market discussion than Industries & Companies discussion.
Abstracts:
A. Number of synapses will grow in child from 0 to 2 yrs and then gradually decreases till adult age and than its stable.
As per author same happens with industries.
As e.g. US Auto industries:
From 1895 to 1920 there will be 70-80 companies which gradually decreasing till 1960 (about 10-20)
E.g. US Personal Computer industries:
From 1976 to 1987 there were 100 companies which gradually decreasing to 4-5 companies in 1992. However revenues of those remaining companies increased; which is something like winners takes all.
E.g. Electric Vehicle:
Itâs stared from 1995 and at present in 2020 there are 100 companies.
B. US companies going from Tangible to intangible investments.
In 1980 US has 5% companies with negative net income (author taking about free cash flow â Operating cash is positive, post investment itâs negative cash flow); currently about 50% companies has negative net income. E.g. initially Wal-Mart has negative free cash flow for 15 yrs.
Intangible investment includes: Software. R & D, Training etc.
Microsoft: 2020, NOPAT was $ 48 B, out of that itâs investment is $ 10 and $ 38 us FCF.
In 2020, MST spent 44 B = 19.3 B in R & D, 19.6 B in Sales and 5.1 Admin exp
Hence itâs generating lots of intangible assets.
C. Interesting characteristics of tangible and intangible assets
Tangible assets are rivalry (means used by one person at a time; pen in your hand).
Also tangible assets are excludable (limited usages)
E.g. Rival & Excludable (Cloths or own car)
Rival & non-Excludable (Bike sharing or public transportation)
Non Rival & Excludable (Software or patents)
Non Rival & Non Excludable (Open source software)
D. 4 Character of intangible assets:
Scalability: High upfront cost but low incremental costs (Software or music)
Network effects: Social media (Whatsapp or telephone)
Sunkenness (Submerged): Tangible assets retain more resale. Like real estate retains its value longer. Whereas non-tangible may loss value drastically.
Spillovers: Intangible assets are easily imitated (Copied)
Synergies: Innovation arises from combining existing technologies
Implications for investors:
Earning relevance for Top spenders are negligible vs 30% earning relevance for bottom spenders. It means market reacts less of earning for top spenders.
Traditional measures like PE or PB fails to see large disruptions.
EndâŠ