top of page

Competitive Advanatage Checklist:

  • Competitive advantage: Supply, Demand or Economy of scale?

  • Is the customer local, bounded either geographically or in product space, or large and scattered?

  • Is the market fragmented to the extent that high fixed costs per unit advantage are eliminated?

  • MKT by MKT assessment of existence and source of competitive advantage; if there are none is operational efficiency sustainable?

  • If barrier to entry exists, what does the company do that the competition does not?

  • Is barrier to entry incumbent or entrant? If it is entrant than the C/A is transitory.

  • What is the captivity? How can that be challenged?

  • What are the switching costs, time, $, familiarity? What other risks are there in switching?

  • Does the incumbent understand its competitive advantage, and is it savvy enough to defend it?

  • Is it a high growth MKT? If so, then barriers to entry are nearly non-existent.

  • Is the company cheap/hated enough where operational effectiveness can alter the investment thesis?

  • Is the company focused enough to be operationally efficient?

  • Can EOS be developed because there are significant fixed costs and the market is fragmented? If there is a degree of customer captivity then this could be defensible.

  • Examine CEO’s comments and whether they are synchronous with action? Growth, product, capital allocation history.

  • Is the management stake continually allocated and redeemed b/c then  not true stakes and are simply company expenses?

  • ROIC past and projections? Over 25%?

  • If MKT share stability and profitability indicate the existence of c/a, the third step is to identify the source. Do dominant firms benefit from prop. tech or other cost advantages, is there a captive customer thanks to consumer habit formation, switching costs or search costs, are there economies of scale combined with at least some degree of cust. captivity?

Focus and Hydra funds will often run higher cash balances than traditional fund s in order to be in a position to benefit nevitable occurrences.                       



bottom of page