The Daily Buffett

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The Illusion of Growth

December 10th

For these investors, it would have been far better if Orville had failed to get off the ground at Kitty Hawk: The more the industry has grown, the worse the disaster for owners.

Warren Buffett

The glamour of a thriving industry can often blind investors to the stark realities of a weak investment. The success of the Wright brothers at Kitty Hawk may have ignited the era of aviation but it also birthed a sector filled with fierce competition and marginal returns for investors.

The expansion of an industry might lead one to assume that this growth translates directly to lucrative returns. Yet, an industry's growth does not ensure a proportionate growth in the investors' returns. Often, the larger an industry grows, the fiercer the competition becomes, leading to dwindling profits.

The boom of an industry often inflates the market prices of the companies within it, obscuring their actual worth. It's essential to look beyond the spectacle and assess a company's profitability and competitive advantage rigorously.

It's not about chasing the next big thing but about discerning a remarkable company from a mediocre one. This discernment is what distinguishes a wise investor from an average one, and it's a skill that demands our attention and development.

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