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Investors Should Bet on Things That Rarely Change

'What is not going to change' is the wise question to ask among managers and investors

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Steven Chen
Oct 17, 2019
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"I very frequently get the question: 'What’s going to change in the next 10 years?' That’s a very interesting question.

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." - Jeff Bezos

Things that are not going to change in the next decade - do they sound tedious or exciting to you? Well, in our opinion, these non-changes are precisely what investors should crave.

Around things that are stable throughout time, the management can make easy calls and build business strategies, which can, in turn, efficiently be executed by the team. As a result, equity investors are more likely to harvest low-risk alpha thanks to high predictability.

One thing that adds to downside protection for shareholders is when businesses are under fewer attacks in a slowly-moving or no-change space, which makes existing competitive advantages more sustainable. In contrast, in a highly disruptive and uncertain market, companies have to rebuild their economic moats continually. Innovative projects are typically more exciting, likely attracting more capital (and therefore, more competition) than "boring" no-changers.

Computers vs. handbags

Let's compare Apple (

AAPL, Financial) and Hermes (RMS). Admittedly, both are wonderful businesses with effective economic moats to fend off competition. Apple's moat is probably even wider, as the business benefits from its world-class brand and scale advantage, as well as some networking effects. Nonetheless, the company operates at the intersection of electronic products and technology services. Both areas face changes to some degree. Consumer tastes in the electronics world could easily shift, and fashions may fade out sooner than expected. In the technology world, new trends are always emerging, and building the so-called next big thing is on the top of the agenda of many company executives.

As a result, Apple often finds itself battling against strong competitors like Xiaomi (HKSE:01810) and Sony (

SNE, Financial) on the electronics side and Microsoft (MSFT, Financial) and Alphabet Inc. (GOOG) (GOOGL) on the technology side. Such a business has to rebuild its moat quite often by releasing new generations of products, upgrading existing ones or tapping into new verticals to stay competitive.

Hermes, on the other hand, sells luxury goods, intending to satisfy the status-conscious needs of the super-rich. This is a domain that seldom experiences any change. For decades, the company has been fulfilling this aim through one thing and one thing only - its ultra-prestigious brand name, which has enough history to maintain an economic moat that is more than enough to protect the business castle in this slow-growth industry.

Some of you may have heard about the Lindy Effect, which states that the future life expectancy of non-perishable things is proportional to their current age and every additional period they survive. The first iPhone was introduced in 2007, while the first Hermes bag was born in 1935. In this regard, it should be easy for investors to choose between these two businesses if they have to choose one over another as their long-term bet. Even though Apple appears to have a wider moat than Hermes, that moat might not be wide enough in the categories where Apple operates in the long run.

Both companies' competitive edges are evident in light of the free cash flow returns on total assets (referred to as "FCROA," one of our favorite metrics to gauge business quality) shown below. Nonetheless, as you may expect, Apple, which relies on product innovation and technology breakthrough, experienced a bit higher volatility in its FCROA.


Source: YCharts; data as of Oct. 16.

So what are the other industries that rarely change? Below we list a few more examples.




Riding in an elevator used to be dangerous business, until American inventor Elisha Otis invented the "safety elevator," a device that could prevent a passenger elevator from falling if its rope broke. The "safety elevator" debuted more than 160 years ago in Manhattan, and it becomes probably the most enduring technology with the least change over time. Many of the world's oldest safety elevators are still up running, including the historic Otis Elevator installed in 1910 in San Fransisco (shown in the picture above).

Elevator companies like KONE Oyj (KNEBV) typically charge high margins on maintenance service of their installed products that are being predictably used by consumers with little competition. As a result, KONE generates relatively stable returns on tangible assets, as you can see below over the past 10 years.


Source: YCharts; data as of 10/16/2019.

KONE does not have to worry about frequently-emerging market trends. Most elevators in operation today will very likely work the same way 10 or 20 years from now.


Jeff Bezos once stated at his all-hands meeting that if Amazon (

AMZN, Financial) wants to last over a hundred years, alcohol is key. Indeed, most of the century-old companies are breweries thanks to the stability of the alcoholic beverage industry.

There have been quite a few ancient products in this space. For example, Guinness, a dark Irish dry stout that originated in 1759, is now one of the most successful beer brands worldwide, brewed in almost 50 countries and available in over 120. Jack Daniel’s, the world’s best-selling whiskey from North America’s oldest registered distillery, was founded in 1866 by Mr. Jack Daniel and has nowadays become synonymous with southern living.

As you can imagine, both brands helped their parent companies, Diageo (

DEO, Financial) and Brown–Forman (BF.A, Financial) (BF.B, Financial) respectively, to deliver consistently high FCROA for the past decade.


To conclude, successful investing is more about protecting the downside than capturing the upside. Stable markets offer long-term visibility to management and shareholders. They lead to fewer opportunities for competition, making winners keep winning without rebuilding their economic moats over time. Assuming everything else is almost equal, investors should bet on things that rarely change.

What is your favorite no-changer industry as an investor? Feel free to comment below.

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