[The Weekend Bulletin] #173: Understanding Capital Expertise in Business
A deep dive in to the moat that rises from capital allocation
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
We'll skip the usual sections to deep dive into an important but not oft spoken about topic in business and investing:
Chuck Akre famously conceptualised the 'three-legged stool' philosophy in investing. As per Akre, 'This metaphoric three legged stool describes what we look for in an investment: (1) extraordinary business, (2) talented management and (3) great reinvestment opportunities and histories'. A similar three-factor model has been conceptualised about management ability. As per research, 'people who have achieved a high level of business expertise have a deep understanding of the following three core areas: (1) factors involved in effective operations, (2) forces influencing the market, and (3) those driving business finance and economic climates. Consistently successful business leaders have been shown to intuitively understand these areas and their impact on each other, and to pay attention to this fundamental triad in a uniquely dynamic way within a guiding context of business strategy.'. While quite a lot has been written about operational efficiency and market strategy, not as much is printed about capital allocation. Indeed, many investors have spoken about the need for a good capital allocation policy. However, not much has been said about the same from a business perspective - what exactly is a good capital allocation policy? The following series of articles attempt to answer that question from a business operator's perspective by looking at some real life examples:
Dell's Capital Expertise: A look at how Michael Dell used capital to his advantage at various stages of growth in Dell's journey and how those decision defined the future of Dell.
The Skill of Capital: This article looks at how different businesses have used different forms of capital to create a long growth runway and a sustainable competitive advantage.
Lee Walker and the Dell Growth Plateau: This article goes back to the example of Dell. This time it demonstrate how a business operator has to balance all the three core areas spoke of above. Beyond the obvious, the article also shows how a long term business success is overcoming a series of hurdles rather than one giant leap. It also shows the role the luck and constraints play in long term success.
The Capital Cycle: This article looks at the concept of 'capital cycle' as popularised by the book Capital Returns and how both investors and business operators can take advantage of this cycle.
[This is a 5 part series, however, one of the instalments is behind a paywall, and hence have linked on four.]
Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
📖 My pal, Sean Delaney, recently released his maiden book called Masterpiece In Progress.
Sean is very passionate about the subject of impactful personal development and has been interviewing high achievers for years, in addition to being a highly successful life coach. These lessons - his own and those from the interviews - have been distilled as a collection of 365 inspiring passages, like the one below, that will act as daily catalysts to shape your life. I have had the privilege to read the book, and would highly recommend it. So please get yourself a copy of the book and shower your love through some positive reviews, and by spreading the word. 🙏🏼
The mind is a powerful tool. It's our greatest ally, but it can also be our biggest barrier. Often it is our own mind that crafts the cages we find ourselves locked in. Our prison is made solid by the bars of doubts, fears, insecurities, and limiting beliefs. These barriers are not of the world, but of the mind. They're what's known in Hinduism as mayas, or illusions of the mind.
But here's the empowering twist: just as our mind can build these cages, it holds the key to unlock them. Every cage formed by the mind can be dismantled by the mind.
Your mind holds the power to challenge and change its own constructs. It can question its doubts, face its fears, overcome its insecurities, and shatter its limiting beliefs. This is the beauty of the human mind: its potential for growth and change is limitless.
Unlocking the cage is not a one-time act; it's a continuous process. It requires awareness, courage, and persistence. It's about recognizing when you're standing in your own way and then daring to step aside.
So let's begin the process of stepping aside. Here's how.
Recognize your cage. Start by acknowledging the bars of your cage. Are you held back by self-doubt, fear of failure, or a need for perfection?
Understand your cage. Investigate your thoughts and beliefs. Where do they come from? Are they serving you?
Unlock your cage. Challenge the thoughts and beliefs that limit you. Embrace a growth mindset. Believe in your ability to change and grow.
Step out of your cage. Take action. Even small steps matter. It's the accumulation of many small steps that leads to significant change.
Remember, your mind can be your cage, but it is also the key. You have the power to unlock the cages you've built, free yourself from self-imposed limitations, and step into the vast potential of your life.
The key is in your hand. Will you use it?
- From Masterpiece in Progress by Sean Delaney
Quotable Quotes
"Many people have a hard time making decisions because they don't know what is important.
When you have a clear mission and you are completely sure what is important to you, most decisions become easy. Once you're fully committed, you don't need rules for how to spend your time. It's obvious which decision to make. It's clear what to prioritize.
Many people don't need productivity or time management advice. They need conviction."
- James Clear
* * *
That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Oct 01, 2023]