Successful investors such as Warren Buffett and investment thinkers such as Harvard's Michael Porter focus on identifying businesses with lasting competitive advantages, not spotting the fastest-growing company or slickest technology. This makes sense to us. Actually, while we love to find fast-growth companies, growth can be a siren's song. Growth puts tremendous strain on an organization and needs to be managed carefully. It attracts competitors, spurs innovation, and creates high expectations leading to high stock prices.
Fast growth is a rocky shoreline.
This is why the company, famous for its direct-sales model, stopped selling any products in retail outlets around 1994. Retail sales were growing quickly but unprofitably. What this lifecycle tells us is that the fastest-growing companies aren't always the best investments, not when the rains come. We saw it in the Internet sector recently. We look for companies that can sustain growth as a result of competitive advantages that slow competitors, and lock in above-average profits for several years.