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WHAT’S NOT GOING TO CHANGE: BUSINESS MODEL STABILITY IN AN AGE OF DISRUPTION

COMGEST INVESTMENT TEAM - 01/05/2019

“I very frequently get the question: ‘What’s going to change in the next 10 years?’ And that is a very interesting question; it’s a very common one. I almost never get the question: ‘What’s not going to change in the next 10 years?’ And I submit to you that that second question is actually the more important of the two – because you can build a business strategy around the things that are stable in time.” – Jeff Bezos, Amazon.com CEO1

Change has been a human obsession for thousands of years. The fashion industry is built on change. The whole point of a New Year’s resolution is to say that a changed version of you is better than the existing version. The concept of “planned obsolescence” intentionally pushes change on consumers whether they want it or not. Not surprisingly, thousands of people have written millions of pages on the topic; if you go to Amazon.com’s website – Jeff Bezos’s own company – and search for books on change, you get over 60,000 results.

And yet change is notoriously difficult to predict accurately. We’ve been expecting flying cars and teleporting since The Jetsons and Star Trek, and neither is around the corner. And we’re no closer to nuclear-powered vacuum cleaners now than we were in the 1950s. People have been making horrible predictions about change for as long as people have been making predictions.

For investors and markets this is extremely important, because stock prices reflect a set of beliefs about future events, discounted back to the present. If that set of beliefs is inaccurate, then so are stock prices. If we can’t predict the Next Big Thing, how can we know where to invest?

Investing in the Next Big Thing makes for a great story at a party. Not so for investing in businesses that resist change.

There’s another way to think about this conundrum, and that’s by turning the question on its head: Instead of asking what will change, think about what won’t change. We’re not alone in this approach. Warren Buffett said, “Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it‘s the lack of change that appeals to me. I don‘t think it is going to be hurt by the Internet. That’s the kind of business I like.”3

At Comgest we like that kind of business too, and we also like that it seems most investors don’t think that way. Investing in the Next Big Thing makes for a great story at a party, but investing in businesses that resist change doesn’t. Our experience says that many investors get sucked in by the excitement of trying to forecast change, leaving those other opportunities for people like us.

Read the full article

This paper was originally published in 2018. This version was updated in May 2019 and has not been changed since publication.

 

1 https://www.goodreads.com/quotes/966699-i-very-frequently-get-the-question-what-s-going-to-change
2 See article published by online magazine PCWorld: https://www.pcworld.com/article/155984/worst_tech_predictions.html
3 Andrews, David. “The Oracle Speaks: Warren Buffett In His Own Words.” p. 68

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