Buy and Hold was (and sometimes still is) a strategy to find great companies: purchase their stock and put it away to hold for decades. I still believe in buy and hold, but the timeline for the holding period has significantly shortened. I recently read a book by Fred Crawford and Ryan Mathews called The Myth of Excellence: Why Great Companies Never Try to Be the Best at Everything, and it got me thinking. In the 2010s, the lifespan of a dominating company is shrinking at a rate that CEOs find alarming. Today, the average lifespan of a company in the S&P 500 is only 18 years1. That is an incredibly short amount of time when we compare it to the lifespans of companies that have come and gone in the previous decades. If we look back to June of 2001, some of the biggest companies in the S&P 500 were Walmart, AOL, LUV, Lexus, Eddie Bauer, Citibank, and even Dell. Now think of how many of those companies carry the same power today as they did fifteen years ago. Think too of how commonplace newspapers and record stores and travel agencies were only fifteen years ago, all three of which were essentially replaced by the smart phone and the digitalization of media. So how, with this daunting reality, does a company stand a chance at maintaining relevancy? The Myth of Excellence has a few ideas that I think have value in finding companies that investors can buy and hold for a number of years
The Myth of Excellence approaches business through the lens of five attributes: Price, Service, Access, Experience, and Product.
Price: a survey mentioned by Myth states that Price, for most respondents, is not finding the service or product at the cheapest, but an “honest and fair price.” Price has become less about getting the cheapest option that does the job and more about finding quality and fairness. Striking that balance is what is important.
Service: the authors of Myth found that the surveyed were most impressed when they were treated well – “like an individual” on a day-to-day basis. When you order your coffee from your favorite joint, do they spell your name right? Are you told about the day’s specials? Or are you rushed out the door and treated like just another skinny venti cappuccino with sugar-free vanilla that has to get spun out?
Access: more than just physical location, access is the ability for customers to understand and feel comfortable with a service or product. There is a psychological aspect; is a product or service being sold with an honest, straightforward campaign?
Experience: it isn’t about being entertained, but experience is about, as with service, being treated like an individual – having questions answered correctly and interactions personalized. When you call the “help” line, is there a recording on the other end, or a person? Does the design of the store or website stand out and make you feel comfortable and want to go back?
Product: not necessarily about having the “best” product, but one that customers prefer, product focuses on creating a brand that is trusted, that has a culture that customers prefer, and that they will consistently choose over alternatives. Consider your relationship with your favorite brand of smart phone or cereal: what draws you to them above all others?
In order to stand out as a company and still maintain an economically viable company, a great company is one that truly “dominates” in one attribute, “differentiates” in another, and is adequate in the other three. It is not realistic, in most cases, to dominate or even differentiate in every single one. Finding what a company is good at and focusing on those areas is the most efficient and cost-effective way to stand apart in a world with massive competition and short lifespans.
Finding a company which is aware and capable of attributes and is able to use them to their advantage makes a decent contender for your buy-and-hold stock option.
- Foster, Richard. Innosight.com. Creative Destruction Whips though Corporate America. Found: http://www.innosight.com/innovation-resources/strategy-innovation/upload/creative-destruction-whips-through-corporate-america_final2015.pdf