Most people’s circle of competence is not in technology
Most people don’t believe civilian production industry could be super growth stocks. However, since the chapter 3 of my book “The Rules of Super Growth Stocks Investing” discussed in detail how I discover super growth stocks in the technology industry, I also advocate that investors should guard their own ability to select stocks. But here comes the problem. Most investors do not have a background in technology industry, and it will be difficult to make in-depth investment judgments on listed companies in technology industry.
Even if everyone knows that the chance of finding growth stocks in the technology industry is the greatest, but due to the ability circle, it can only be negative. After all, most people have common sense in the consumer industries such as food, clothing, household and transportation. The question is, is it possible for most people to find super-growth stocks in civilian production industry?
Regarding the circle of investment competence, you can refer to the description of my other blog post, “The importance of circle of competence“.
Everyone understands the civilian production industry
The probability of non-tech industries becoming super-growth stocks is indeed relatively low. The reason is that I expressed my opinion in Chapter 3; but it is not without opportunities. Some people reported this dilemma to me, but the people’s livelihood industry is a circle of competence that everyone has. This type of stock is also possible, such as Nike (ticker: NKE) and Starbucks (ticker: SBUX), which I ever held. These two are typical representative of super growth stocks in the non-tech industry, and it also meets the three fast filtering criteria I used to find super growth stocks in Chapter 3 of my book：
- Industry or company market must be large enough, and needed by “everyone.”
- Have disruptive solutions that can solve existing problems。
- The industry or company is futuristic, and the market is not yet saturated.
The characteristics of civilian production industry
The civilian production industry has a characteristic, it’s needed by “everyone”. As long as it stands out, its sustainable profitability and potential market are much larger than the technology industry. There are many examples that can continue to grow into more than a century. Blue chips such as Coca-Cola (ticker: KO), Colgate-Palmolive (ticker: CL) and Procter & Gamble (ticker: PG). Nike and Starbucks, if compared with Coca-Cola, Colgate and Procter & Gamble , are still very young; this is far superior to the technology industry.
Food and apparel are better
I think that in the two major areas of food and apparel, it is easier to find growth stocks in the civilian production industry than in other civilian production industries. The reason is that these two are basic human needs and have a huge consumer market. But these two major industries also have a trouble: they must be able to survive the rapid changes in consumer trends and tastes, can last for many years, and the probability of becoming a super-growth stock will increase year by year.
Under Armour and Lululemon
A good example is Under Armour (ticker: UAA), which is an example of a failure to challenge Nike. After Under Armour went on the market, there was a period of great success, and it once threatened Nike to a certain extent; it fail, mainly because all product lines almost overlapped with Nike. With the brand advantage established by Nike in 40 to 50 years, it is too difficult to defeat Nike.
The Canadian manufacturer Lululemon Athletica (ticker: LULU), which was almost the same period with Under Armour, succeeded and became a super growth stock. There is no other reason, because Lululemon chooses sports and leisure clothing that Nike is not good at. At the beginning, it locks in female-oriented yoga clothing and supplies. These are exactly the two weakest areas of Nike (women and yoga sports).
Below is the stock price chart of Under Armour (orange red) and Lululemon (green) from 2010 to mid-May 2021. The stock price movements of the two reflect Lululemon’s success as a super growth stock, while Under Armour fails.
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