We've spent a lot of time talking about competitive advantages in the Rule Maker Portfolio lately. In fact, it's the focus of this year's Rule Maker seminar, which we're about halfway through. 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.