investment strategy: the ‘Big fish in a small pond’ strategy can do wonders for your wallet

We are often impressed by successful companies; those who are constantly increasing income and profit and beating everyone else to become the greatest. Although this is one approach for success, today I argue that it is not the only one. Instead of starting out as a small fish in a big pond, starting out as a big fish in a small pond might not be so bad – not bad for art, not bad for investing, and certainly not unsuitable for use. the life. Now, here’s a bit of French art history before we get into the companies.

During the 1900s, art played a huge role in the cultural life of France. A ministry regulated the art of painting, which was then considered a profession, as medicine is today. An artist studied at the National School of Fine Arts in Paris. The excellent students won medals and the bad ones were eliminated. Finally, the artists would submit their most beautiful paintings to a jury of experts to be presented at the largest exhibition in Europe – The Salon. Over a million people visited it, and exhibiting a work here was considered the supreme seal of approval for an artist. So much so that an artist named Jules Holtzapffel shot himself in the head in 1866 when he was rejected by Le Salon.

The Salon’s attitude, however, was traditional. “The works had to be microscopically precise, properly finished and formally framed with an appropriate perspective and familiar artistic conventions,” explains art historian Sue Roe.

For some it was absurd. Édouard Manet, Edgar Degas, Paul Cézanne, Auguste Renoir and Camille Pissarro (now known as the Impressionists) had an entirely different view of what constituted art, writes Malcolm Gladwell in David and Goliath. They painted everyday life, their brushstrokes were visible and their faces indistinct. For the Salon jury, their work was amateurish. Complying with his standard would force painters to create art that made no sense to them, and without Le Salon their careers were doomed.

Eventually, they decided to stop bending to The Salon and started their own collective. There was no competition, no jury and no medals. Every artist was equal. Their exhibition opened in April 1874 and only slowly began to attract rave reviews. Nevertheless, today, the Impressionists are very numerous and their collective work is valued at more than a billion dollars.

A few companies follow a similar route – choose to plot their own route instead of meeting the accepted standard. While we can all be related to Apple, let me share the story of one Indian company.

Until 2006, it was a struggling company with a market cap of less than $ 100 million. It was a conglomerate selling trucks, buses, tractors, shoes, clothes, and a few other goods, but it barely made any money. Although the conglomerates were in favor during this time, Eicher realized that there was a need to focus. He sold all businesses except motorcycles and trucks.

Sales, however, continued to be a challenge due to glaring issues. The company’s technology was outdated, and bikes often broke down. In 2005, 6.5 million Indian two-wheelers were sold in one year, generating $ 250 million in annual profits. Eicher could have competed in the mass market, but instead chose to create his niche. She released the Classic 350 in 2009 (a 350cc motorcycle when the majority of units sold were closer to 100cc), which changed her fortunes. In 2019, while its market share of units sold increased to 3.7% (against 0.5% in 2006), its profitability share rose to 20% (against 3% in 2006).

Choosing to become a bigger fish in a smaller pond (higher cc bikes) helped Eicher tremendously. Over the past 15 years, its market capitalization has increased 84-fold to over $ 9 billion (up from $ 100 million in 2006). In comparison, the market capitalization of the two-wheeler industry has increased only four times.

Eicher could have competed with the big fish (Hero and Bajaj) in a large pond (100cc market), but chose to carve out his own niche and decided to become a big fish in a small pond (300cc segment). It paid off for Eicher. Despite a volume market share of just under 4 percent, its profitable market share is 20 percent. And the markets have generously rewarded him for it (27% of the industry’s market cap).

While there are equally compelling stories of companies that have become category and income leaders through courage and forethought, sometimes the most rewarding stories come from companies that have chosen to become the biggest fish in the smallest pond. Identifying a few early enough can do wonders for your wallet.

(The author, Jigar Mistry is co-founder of Buoyant Capital. His views are his own.)

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