Sunday, 15 March 2015

The Top Five Economic Extractors...

Over the course of this past week I started looking at the idea of what makes a good economic extractor. 

I found elements of whom and what businesses made for leaders in this field of operation. By economic extractors I mean businesses that take cash out of an economy or simply put; take the money out. 

  • The entertainment business is an economic extractor. We assembly around the TV for the sitcoms, music videos and information to decide where to go for an evening out. Las Vegas was built on deserted land with the hub of its business activities embedded in entertainment. Everything else spins off entertainment. Getting married, room and board, food services, cleaning services and the supporting utilities to keep that engine going to complete that ecosystem. It's light, action and camera.
  • The global conglomerates are those businesses that go searching for bolt on-s and/or tuck in-s businesses to complete their collection of cash generating units (CGU) with a kind of management that treat this collection of business like a closed user group (CUG). Berkshire Hathaway is a wonderful conglomerate that keeps growing and growing like a lying Pinocchio nose or better yet,  going like a energizer battery in a bunny rabbit. Berkshire is a great cash extractor. 
  • The financial services are the pipeline of the cash ecosystem that feeds capital into the society and at the same time takes away a piece of that capital to perpetuate its relevance and continuity. In essences, it's the oxygen or life blood of all economic activities. Capital is the linchpin in the scheme of things that establishes the connection between labor and land/internet. In this year's Berkshire annual report of 2014 Mr. Buffett recommended the book: Where are the customer's yachts?: or a good look at Wall Street by Fred Schweds Jr. Financial services business is a helper that turns up party requiring capital, but it does so as extractor.
  • The internet based business is all about the connection economy. The internet is the ultimate scaler of an idea and it redefines what an economic moat looks like without land and water. Land and water no longer get into the way of commercial activities in an information age. A smart phone, the computer cloud and big data is all that matters in the world today. Google, Microsoft and Apple hold cash reserves standing over $300 billion which is more than a Germany's and U.S combined.
  • The Chinese people are the most innovative people in the field of reverse engineering and copycat learning. There is very little comparison to the Asian people when it comes to continuous learning which compounds like interest rate. The Chinese people copy everything and most of all crowd out any market that gives them competitive advantage. China leads the world in people count and they have been using that advantage as their driver for economic growth. People are everything to enable the extractor.
The investment insight here is simply to copy what existed before, build on it and succeed.

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Feel free to ask question and make comment.

FII