Successful long-term investing depends in part upon recognizing significant trends—as they emerge—with transformative potential for broad swaths of the economy. This requires thinking broadly, in terms of organizing principles, across sectors and industries.
Logistics is a good example of this.
Say the word “logistics” and most people think of distribution companies in the business of delivering parcels. But logistics is far more than that. When we widen our lens, we can see logistics at play in the success of all kinds of companies.
For instance, in the fast fashion business, profits ultimately depend upon selling a lot of what’s hot and dropping production of what’s not. Inventory that has to be sold at a discount eats into margins. The fast fashion retailer with the shortest feedback loop between the sales floor, design department and production center, who can deliver the correct inventory, the fastest, to the right sales floor, wins. Are these fashion companies? Or are they logistics companies?
What about suppliers of highly varied, small-volume goods to professional service providers? One of the biggest headaches for plumbers is the wide range of parts they need as they go from one job to another. They want one supplier who stocks anything and everything they need, ready for delivery, at any time. Similar needs exist among the world’s electricians. There are companies exploiting these opportunities successfully and they’ve grown into regional and global leaders in their space. Are they flow system and electrical supply companies? Or are they logistics companies?
There are many more examples of the significant role of logistics in industries ranging from chemicals to restaurant supply. In order to see this trend and the opportunities it’s creating, it is necessary to think of logistics as an organizing principle rather than an industry segment for a sector specialist to analyze.
The urge toward specialization is endemic in the equity investment industry. It is full of analysts devoted to understanding a particular sector, industry, or even segments of an industry, in intricate detail. But these “verticals” too often can become boxes, limiting the focus of those within them and blocking the view of broader transformational trends so important to long-term investors. To see those verticals, one has to think outside of the sectors and segments, or, in the case of logistics, beyond parcels.
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