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| The RSVX is our stock portfolio. We started the portfolio on January 2010 and we will measure the performance against the S & P 500. Click here to read more about the RSVX and the underlying stocks. |
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| | Competitive Position
Companies with competitive advantages will generate higher profit margins and faster growth compared to their competitors. It also provides pricing power. Pricing power enables a company to increase prices due to inflation.
However high profit margins tend to attract competitors and in reality it is very difficult to sustain a competitive advantage. Companies with sustainable competitive advantages are rare.
So the more durable a competitive advantage is, the more valuable. A sustainable competitive advantage can only be acheived by having a unique asset that can not be copied.
A company can have one or more of the following competitive advantages:
- lower price because of economies of scale (examples are Walmart, Hennes & Maurits, Ikea, Dell)
- strong brand and high brand loyalty of customers (examples are Coca Cola, Nike, Coach, Ikea, Google, McDonalds, Gillette, Porsche, Harley Davidson)
- strong bargaining power with suppliers (examples are Walmart, Coca Cola)
- exclusive licenses/concessions (examples are toll roads, trains, airports)
- high switching cost (Stryker)
- network effects: the value of a particular good or service increases for both new and existing users as more people use that good or service (examples Ebay, Amazon.com)
- Intellectual property: to prevent other companies from duplicating a good or service, like patents (Merck, Johnson And Johnson, Qualcomm, Microsoft)
A competitive advantage is enhanced if customers regularly have to replace the product and makes the company less vulnerable to economic downturns.
However the introduction of a new product does not mean that the company will have a durable competitive advantage, as competitors can copy the product. Competitive advantages could decrease if new entrants access the market or if substitutes are introduced.
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