Today we are focusing on disruption and innovation. This is an important area of assessment for us in assessing any investment case. Ultimately, disruption risk is what could undo your investment case. So we spend a lot of time kicking the tyres effectively and making sure that the companies we buy have a lower risk of disruption.
We're also assessing leadership risk. This is where we are assessing whether a company that's already in a leadership position has got an ability to sustain that leadership over the long term. Equally, this is where we're assessing companies that might be new entrants into a market or entering a new market altogether whether they are able to get to a leadership position.
Finally, we're also assessing innovation risk as part of this topic. And this is an ability for a company to continue to innovate to maintain that leadership and to continue to innovate to fend off any disruption risk that could be coming its way.
We're assessing disruption risk over the very long term and part of our discussions around every stock in our disruption and innovation series is to think very, very long term and very left field. Ultimately, we're trying to stress test this investment case to an extent that we're comfortable with the potential prospect.
innovation risk - this is an ability to for a company to continue to innovate to fend off any disruption risk that could be coming its way.
And it's been some of our most productive and most creative research discussions in this disruption and innovation series, because we've been able to really think very, very long term, very blue sky. Examples such as: “can Ferrari continue to exist when there are no more cars on the road?” This is the kind of thinking that we do to make sure that we're comfortable with the investment prospects that we consider.
As part of that, we're also assessing the private equity market very closely. Ultimately, private equity tends to back new entrants; tends to back companies that have become disruptive in an existing market.
So part of our assessment is to look at where is private equity putting the money at the moment. What are the ventures that they funding? Because those could be the potential disruptors of the companies we're invested in - in five, ten or 15 years’ time. And we've got very detailed assessment of that private equity space.
One of my favourite books, Clayton Christensen's The Innovator's Dilemma, as well as the follow-up books The Innovators Solution, and Seeing What's Next, are to me, must read as investors.
Ultimately, as I mentioned at the start of the video, disruption risk is an important area of assessment for us. It is the essence of what could destroy a company's potential, it is the essence of what could make large companies fail, for example. And that's why we're assessing this structure.
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