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On Finding the Winners

February 22, 2016

Owning a great business is a fantastic experience, similar to being a Boston Celtics fan in the 1960s or a Chicago Bulls fan in the 1990s. In the 60s, the Celtics won NBA basketball championships nine years in a row. Between 1991 and 1998, the Bulls took home NBA championship trophies six out of eight years.
 

Why do great teams win? The simple answer: it is because they have a competitive edge. The Celtics of the 60s had great players, including legendary center Bill Russell. They also had one of the all-time great coaches in Red Auerbach. The Bulls of the 90s were led on the court by iconic superstar Michael Jordan, and coached by Phil Jackson. Phil Jackson ended his coaching career with more championship rings than fingers to wear them. Each of the above players and coaches were, not surprisingly, inducted into the Hall of Fame.

 

Why do great companies win? Same answer: it is because they have a competitive edge. It may seem obvious that competitive advantage is the key to winning, but I have found that people will look at all sorts of things – growth trends, balance sheet ratios, market share statistics, even stock price – before they ask themselves whether a company has any lasting competitive advantage in its industry.

 

The Celtics and Bulls didn’t win every game, and it might have been hard to predict exactly which games they were going to win, but given their tremendous advantages, it should have been pretty obvious these teams were going to win a lot of games. The same is true for businesses with clear and sustainable competitive advantages.

 

When searching for winning companies in the stock market, I probably spend more time studying competitive factors than I do analyzing any other aspect of a business, reflecting my opinion as to its importance. I am looking for long-term winners. I am looking for businesses destined for the Hall of Fame.

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