Chapter Three How to Find Good Businesses and Avoid Bad Businesses
As explained in Chapter 2, the consultants BCG showed that the best businesses to own are those with high relative market share: these businesses typically earn higher margins than competitors; they have competitive advantage. When these businesses are growing they can often fund their growth out of retained profits. When they mature, they generate large amounts of free cash flow. BCG went on to show that relative market share is only one way to earn higher margins, other factors such as technology or location can give competitive advantage and so drive attractive margins.
Another dimension that leads to attractive profits is the appeal of the market. Michael Porter, the ...
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