Following the new money
I was going through the BRW Young Rich List from 2014. It’s very useful as a rough proxy as to how new money is made these days versus old money that had been inherited and compounded (highly relevant given I certainly am not in the latter category). What was striking was that the top 15 were all businesses that were either creating new technology or applying technology in new ways to existing industries.
Having been in the private equity industry for more than half a decade, I have always been in the mindset of investing in established businesses with solid cashflow profiles. Why? because these businesses have a “moat” (typically signified by fat margins) which protects the business from free unfettered competition (which by definition means subsistence level of margin and economic returns).
In other words, the moat that makes these established businesses so great, is exactly the same moat that will keep a young buck with no capital out.
Therefore I firmly believe that, unless you’re buying your way into an industry, the only way to build that next big organisation and stake your position in an industry from scratch is to do things differently and take advantage of the exponential changes in technology and globalisation going on around us.