So how do we ensure that the company which we have invested in doesn’t get disrupted out of business, or if it does, how can we spot it soon enough and exit before the final nail is in the coffin?
Well, firstly, we have to keep a close eye not only on the company we’re invested in, but also on the competition and also more broadly the wider sector. This is why, as a shareholder in Shoprite* and Woolies*, I also read the results from Pick n Pay, Spar and Massmart, but also international retailers such as Tesco, Walmart and other global players.
This helps us understand how our investments are doing relative to the direct and broad competition, and also helps us better understand the industry.
It is also about understanding the trends and whether a certain trend is a mere f lash in the pan or something that is more significant and a possible threat to the current profitable business model. Ultimately, we have to make a fairly bold decision about the future of the business model. The company may help in their reporting to shareholders about threats and what it’s doing about them, but we’re going to have to decide to exit long before the writing is on the wall, and sometimes we will get it wrong.
But if sales are slipping (or even just f lat) and competition is going down a different path, we have to ask what our company is doing to head off the threat or adjust accordingly.
That said, be wary if your company is trying to lead the way in a new space - first movers often end up failing and at a huge expense. So this is far from a perfect science but something we need to keep an eye on.
Lastly, an important point is that disruption or even being obsolete is not the end of the world if the company adapts. Microsoft makes serious money from the Xbox and has cloud services as well as mobile phones, and even recently announced HoloLens as an up-andcoming profit area. The Office Suite also still makes a packet, so giving away Windows for free is not a threat to the company’s overall survival. *The writer owns shares in Shoprite and Woolworths.
Microsoft’s Ashley Frank talks about Windows 10 during Microsoft shareholders’ meeting on 3 December 2014 in Bellevue, Washington, USA.