★★★★★
“Action is the first principle of strategy, just as it is in business. This is about as far removed from the orderly analytics of strategic planning as you can imagine.”
“Action, creation, risk—these lie at the root of invention. Business value does not start with bloodless analytics.”
“Often in the explosive growth stage, companies will exhibit quite attractive financials. Unfortunately, if a company has not established Power, competitive arbitrage will catch up as soon as growth slows; fundamentals will assert themselves, and the favorable early returns will prove fleeting.”
Review
From 1994 to 2015, Helmer achieved an average annual rate of return of 41.5% per year versus 14.9% per year for the S&P 500. An extraordinary feat, which Hamilton explains through a lens of simplicity focusing on 7 key powers (which he claims form the basis of his outperformance). There are lessons baked into this.
In its simplest form, business is a game of power and a company that develops and retains power over a longer period, becomes a successful and enduring enterprise. Power: the set of conditions creating the potential for persistent differential returns.
I like idea of Power requiring a Benefit (to the wielder of Power) and a Barrier (to a competitor). A Benefit ultimately results in increased cash flow via reduced cost, improved pricing or reduced investment requirements. A Barrier is an unwillingness or inability of a competitor being able to arbitrage out this Benefit. Benefits are common, and they often bear little positive impact on company value, as they are generally subject to full arbitrage. The true potential for value lies in those rare instances in which you can prevent such arbitrage, and it is the Barrier which accomplishes this.
Highlights
There are 7 Powers: