STREET DOGS
Ten investment myths
Michel Pireu provides an adaptation of John Kay’s The Business economics
An adaptation of John Kay’s The Business of Economics: Myth 1 — "Profits are higher in fast-growing industries." They’re not. Returns are often higher in unfashionable activities. Best are industries that grow faster than expected – whether expectations are high or low.Myth 2 — "Most industries are concentrating around a few global companies." Some are, some aren’t.Myth 3 — "A company can get a middleman’s profit by vertical integration." But will have to pay for it. Vertical integration pays only when a company can use it to extend its market power, or take control of assets that are specific to its business.Myth 4 — "Diversification increases the quality of business earnings." Sorry, but a company’s shareholders can diversify more cheaply than it can.Myth 5 — "New technologies increase profits." If they are generally applicable, then competition means that the benefits will go to consumers.Myth 6 — "Look at industry specifics, not assertions about trends." Few generalisations abou...
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