In their recent episode of the VALUE: After Hours Podcast, Jake Taylor, Bill Brewster, and Tobias Carlisle discussed Today’s Cambrian Explosion Is Stifling Competition. Here’s an excerpt from the episode:
Tobias: The problem that we have at the moment is that all of the COVID restrictions make it much, much more difficult for little companies than it does for big companies, because big companies can– I’m not sure whether it’s Costco. I forget exactly who it is, but there’s a container shipping blockage all over the world there. You can’t get container ships, you can’t get pallets. Everything’s backed up at the LA port. You can see it out in the water here. So, some of these bigger retailers have been able to buy a ship, load the ship up, and they’re using a dedicated ship now to do their own shipping. A little company’s not going to be able to do that. They’re subject to and now because it’s so hard to get a container. Container is super expensive. You got to prepay your shipping. We need to get back to normalcy for competition to really start kicking in. At the moment, this is massively beneficial for big companies and tough for small companies.
Jake: In the Cambrian explosion, one theory of why it happened and– what that is, I don’t know, roughly 500 million years ago, we saw a sudden wide diversification of species. That’s what we’re talking about here is that like, there’s a few dominant large species and not enough broad niches being filled by a lot of different species. We’ve talked about this on the show with adaptive radiation. But one of the theories is that ecologically, there was all of a sudden, a lot of oxygen available right before the Cambrian explosion and the idea there is that then animals that– oxygen is hugely important for the Krebs cycle and creation of energy within an animal, and the vitality of the animal is dictated by the amount of oxygen in the atmosphere. It feels like maybe COVID has sucked the oxygen out of the economic ecology in a lot of ways and then therefore, there’s maybe less vitality for smaller competitors against bigger competitors.
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One Comment on “Today’s Cambrian Explosion Is Stifling Competition”
Hey Toby,
I wanted to comment on the S03E38 podcast and specifically regarding the value and quality conversation. At one point you mention about looking for value within quality (around 16:30). Firstly, I wanted to go back to the article by verdad on “how does quality work?”. My interpretation of that graph is value stocks are generally not quality stocks and vice-versa. Hoping to find an intersection of stocks actually will actually worsen our returns from either side of value and quality. Second, If you look at http://global-q.org/testingportfolios.html and check the performance of EBIT/EV (Enterprise Multiple) against Gross profitability (GPA or quality as Verdad calls it), they have actually provided similar returns over very long term (I could not share the graph I have here ..) basically value alone works, quality alone works, Best may be rebalancing them equally investing every year. I think one graph that stands out to me is graph no 4. In fact in your own book “Quantitative Value..” you find that it is not a good idea to go with quality + value and better to go with pure value. Another option may be what you suggest in “quantitative value..” do value first and then select quality stocks amongst them or may be do a quality first sort and then select cheapest amongst them in the quality list. It seems that returns to quality are not dictated by how much you pay .. at least that is what the data suggests.. do we agree?