All Things, Including Duopolies, Must Pass

Yesterday’s Wall Street Journal carried a piece detailing the possible threat to the aerospace duopoly of Boeing (BA) and its fierce European rival, Airbus. While a Detroit/Big-3 type fall is hardly the immediate fate for these two companies, companies like Bombardier and others are successfully moving into the market for smaller aircraft.

The current dynamics of the aerospace industry serve as a useful reminder in value investing fundamentals. Much of my analysis is predicated on examining historical free cash flows but in most cases, the key question is will the company in question be able to maintain or grow the current FCF trend. When evaluating this question, I always keep in mind the limits to how much I can really know about a particular company or industry — a false sense of security could lead to a step outside of my circle of compentence and ultimately, loss of capital.

Warren Buffett has stated that he likes to answer easy questions. For most companies, trying to gauge a company’s competitive position is usually a hard question, no matter what the pundits may say. Overestimating our ability to gauge these matters will inevitably lead to capital erosion.

4 Responses to “All Things, Including Duopolies, Must Pass”

  1. HelicalZz Says:


    You should look at the book ‘Stall Points’ put out (promotionally) by The Corporate Executive Board. While it iterates an older study, and could stand to have more anecdotes and detail, it is one of those ‘worth having read’ books.

    In my opinion, you can’t be a large cap / dividend investor without a good sense of the potential for rule breaking / invasive technologies and industry.

  2. Turniptruck Says:


    Just a thought, recently I’ve become aware of a duopoly in the mining industry: Joy Global (JOYG) and Bucyrus International (BUCY), a couple of mid-caps who make the big machines (and sell lots of high margin replacement parts for those machines). While these are not necessarily cheap today, if one factors in a little global instability going forward, maybe there is something here worth a look:

    Sort of paraphrasing Jim Rogers – the commodity guru – his global outlook for 2010/2011 resembles a big, bloated bug buzzing blindly around oblivious to the fast approaching windshield.

    While piling new debt atop of old debt, governments globally continue to print money for what they cannot borrow. His belief, then, is to sell paper money and buy assets/commodities which will appreciate in (some) proportion to the amount of paper being created. Assets will go up for the simple reason that there will be more paper chasing the same (approximate) number of assets.

    So I’m thinking that maybe some of this paper will find its way to pick and shovel companies whose products will become increasingly in demanded to dig for new assets. As in the Cali gold rush of 1848, the miners themselves profited little, but suppliers danced all the way to the bank.

    Ahem (here it comes), as I believe mining is solidly within your circle, do you think that there might be a story here worth investigating for (hint, hint) E-A premium subscribers?



  3. Davy Bui Says:

    Hey guys, thanks for the comments. The book looks interesting; without having read it, I can’t comment too much but it seems a worthy addition and hopefully helps business people (& investors) walk that fine line between obsolescence, missed opportunities and the misguided instinct to grow at any costs (see MSFT).

    Thomas, both companies have been on my watchlist for years — they never make it to subscribers because they simply aren’t cheap enough. They would have if EA-Premium had been active last March & in fact, I did seriously consider adding JOYG to the portfolio but alas, another missed opportunity. I kid you not when I say the most valuable aspect of EA-Premium may be the stocks I highlight but DON’T BUY! I know at least one subscriber made a nice gain on Monsanto (MON) earlier this year when I spotlighted it as a possible Charlie Munger great-company-fair-price opportunity.

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