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by Jason Van Bergen

It is no accident that companies within a particular industry move in lock-step with one another. Companies in a single industry are forever bound by the type of product or service that they provide, and they are constantly competing with one another for market share, consumer acceptance and technological leadership in their particular sub-sectors. These competitive and consumer forces shape an industry’s corporations and determine the status of the industry as a whole. These forces have followed roughly the same patterns over time. Here we take a look at these stages and how they affect the companies that follow them.

Initial Growth / Emerging Industries
All companies have to start somewhere, and it takes only a single company or small group of companies to jumpstart an entire industry. Looking back in time, we see that it was not even a company but an individual by the name of Alexander Graham Bell who, with the invention of the telephone, started the entire industry of telecommunications. More recently, companies like Texas Instruments and Fairchild Semiconductor Corporation pioneered the semiconductor industry with the invention of the microchip, the central component of all computers and most high-tech electronics gear.

Warren Buffett’s Magic Formula In 1965?

I recently read through Buffett’s Partnership Letters again. This time I paid particular attention to one of the strategies he used to perform better than the market in down years. Buffett employed three such techniques from 1956-1965:

Generals – Private Owner – Large margin of safety was a cushion when markets fell.

Workouts – Special situations were not correlated to the market.
Controls – Accounting of “controls” typically outperformed the market in down years.
In his January 15, 1965 letter to partners, Buffett introduced a fourth category called:

4. Generals -Relatively Undervalued

“We have recently begun to implement a technique which gives promise of very substantially reducing the risk from an overall change in valuation standards; e.g., we buy something at 12 times earnings when comparable or poorer quality companies sell at 20 times earnings, but then a major revaluation takes place so the latter only sells at 10 times earnings. The risk has always bothered us enormously because of the helplessness position in which we be left compared to the “Generals -Private Owner” or “Workout” types. With this risk diminished, we think this category has a promising future.”

The economy collapse two years ago proved to the economic world that no matter what new inventions are made in investing business, we should always stick to the basics of investing. The basics are creating an emergency fund, always contributing to your retirement fund, allocating your investments in diverse area and different places and balancing your portfolio to minimize the risk.

Warren Buffet, the second richest man in the world and the CEO of Berkshire Hathaway, is an agent of common sense investing. Many people will raise their brows to the way he invests. He buys stock for less than its fundamental value. You can use some investment websites in the internet to find out the trusted value funds which have consistent records.

Berkshire had warned all the manufacturers where it has a stake before the recession including H.H. Brown, Nebraska Furniture Mart, Dairy Queen, McLane, and Borshiems. Berkshire itself owns 70 firms and they varied from one area to other, from American Express to Coca Cola. It obviously does not put its eggs in one basket for that matter. This is one of the main reasons it can survive the recession which put many business to an end, but not this one.