lundi 11 juillet 2016

Monopolies, duopolies and oligopolies

I usually pick stocks that have great balance sheets and great ROE. I'm a disciple of Joel Greenblatt and his magic formula (which is reproduced by Jason Donville in Canada).

So, for me, the numbers are much more important than the nature of the business. But I think that I could work on that a little bit. Because, like some great investors said before: a business that can fix it's price has a great competitive advantage. And monopolies, duopolies and oligopolies (to a minor extent) can fix their prices. With such business, you also don't have to worry too much about competition.

It's hard to find a real example of a monopoly.

In Québec, we have Hydro-Québec that is the only big producer of electricity. It's not a perfect monopoly, but it's probably the best example. There's also Canada Post which is a monopoly that faces a great decline. There's also the SAQ in Québec. It's the only place where we can find good wine.

But on the stock market, what can we find? Here's some examples:

Monsanto (a monopoly?)
Microsoft (a monopoly with free software as a competition)
Stericycle (monopoly?)
Intel and AMD (duopoly)
Apple and Samsung (duopoly?)
Coke and Pepsi (duopoly);
Mastercard and Visa (duopoly with smaller players as a competition and American Express which is a different player);
Varian Medical and Elekta (duopoly)
Dollar Tree and Dollar General (duopoly)
Metro, Loblaws, Empire (oligopoly)
Canadian Banks (oligopoly)
Logistec (oligopoly?) 

Please note that I'm not an expert in monopolies, duopolies and oligopolies. I may be wrong on many names above. But I invite you to write other examples in the comments section. It may be a very good place to select future investments (you may notice that most of these business have a ROE higher than 20, which indicates that a monopoly/duopoly/oligopoly usually performs well).

That would be the kind of list that we should always have in the back of our mind. Always remembering these names, waiting for our price to come.

5 commentaires:

  1. Excellent post. You gave us another good example on this blog recently. The great gun duopoly of Smith & Wesson and Sturm Ruger.

    1. I forgot it! I'm not a specialist about guns, so it may be a duopoly on the stock market but not for the consumer...

  2. -CP, CNR in Canada and UNP, NSC, CSX in US?
    -I think Dollarama is monopoly now as its competitions are extremely fragmented mom and pop which are dying quickly
    -I love Mastercard and Visa combo a lot. Waiting patiently for bad news to come

    1. Year, Dollarama looks like a Monopoly and railroads are an oligopoly or duopoly, depending on the area. Thanks for the precision.

  3. Joel Greenblatt's The Little Book that Still Beats the Market was a great read by the way. His focus on high ROE and low PE was amazing and his statistical proof convinced me fully. It was like a short version of The Warren Buffett Way by Robert Hagstrom. I like his website poops out the magic list where I can dig further and pick my favorites based on my preference (high free cash flows, higher ROE, growing revenue etc...)