My least favorite books are investment books. Reading an investment book to learn about investing is like attending a lot of MLM presentations in order to find a job.
My favorite books, on the other hand, are decade-spanning business histories that show how an industry changed, how the major competitors responded and what ripple effects these changes had beyond the industry.
It’s like reading 30 years of annual reports for the top 10 companies in an industry. And the characters are usually pretty lively.
The Box is one of these books. The Box provides an overview of how containerization developed. I have graduated from junior high, so this isn’t a book report, but a few takeaways as a current investor…
1. Malcom McLean developed the container industry in the U.S. although before doing so, he owned a trucking company and had zero experience in the shipping industry. Change frequently comes from someone who is a novice and willing to look at options that no one within a closed framework would consider. Man with a hammer syndrome comes to mind here.
2. Entrenched interests will fight tooth and nail to preserve the status quo. Port workers’ unions and various ports that weren’t suitable for container shipping put up an amazing fight to prevent containers from being widely adopted. President Johnson was forced to intervene and bring the parties back to the negotiating tables.
3. This point is probably the most relevant to me as an investor. Capital intensive industries provide large barriers to entry, but also dramatically increase your fixed costs and risk associated with mistaken long-term investments or fluctuating revenues. McLean Industries, founded by Malcom McLean–see above, went bankrupt about 15 years after it began. When you are buying multiple ships or thousands of containers, the payoff from these investments will not occur for decades and if something changes in the intervening time, it will be very difficult to change course. Additionally, your long-term forecasts become much more important when a capital investment is relying on projections about shipping prices 10-20 years into the future.
4. Technological change typically brings great benefits of efficiencies. However, as an investor it is often unclear who the ultimate winners, if any, will be. Buffett’s famous quip about airlines (“Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down”) is certainly applicable in containerization. Few of the original companies survived. However, other companies and their customers, think clothing retailers, have benefitted dramatically from the ability to move production to lower-cost countries due to rapidly declining shipping costs. The container companies dramatically lowered the shipping costs, but it has been difficult for them to capture any increased profits from these lower costs.
The takeaway is sticking to industries that change little, and if any, slowly, requiring little capital expenditures along this path.