I think it's really up to you and what you define as a "killable" scenario. For example, I passed on Acme United, a large manufacturer of knives, cutting tools, rules, pencil sharpeners, and first-aid kits, because a retailer like Amazon (Acme's second largest customer) can fairly easily replace Acme's products with its own and start selling them. Same could be said about other customers like Walmart, Target, and so on. On top of that, they are essentially selling a commodity product with no differentiation in many of its segments. At a multiple of 12x, even though the business has historically done fairly well, there is no way I can know what the future looks like with a high degree of certainty given factors mentioned above. If any of these scenarios play out, the business will be "killed."
Compare this to something like Kaspi where competitors have to really try hard and spend hundreds of millions to even try competing. It is very hard to come up with a compelling scenario that "kills" Kaspi in terms of business quality (i.e. not looking at government or geopolitical risk). If you gave me 10 years and $100mm to destroy Kaspi, I'd hand the money back to you.
Could also be as simple as poor management, value-destructive growth, toxic culture, erosion of pricing power, and so on.
Great post, can you mention a few of the arguments you look for to be able to kill a companies stock to buy idea?
I think it's really up to you and what you define as a "killable" scenario. For example, I passed on Acme United, a large manufacturer of knives, cutting tools, rules, pencil sharpeners, and first-aid kits, because a retailer like Amazon (Acme's second largest customer) can fairly easily replace Acme's products with its own and start selling them. Same could be said about other customers like Walmart, Target, and so on. On top of that, they are essentially selling a commodity product with no differentiation in many of its segments. At a multiple of 12x, even though the business has historically done fairly well, there is no way I can know what the future looks like with a high degree of certainty given factors mentioned above. If any of these scenarios play out, the business will be "killed."
Compare this to something like Kaspi where competitors have to really try hard and spend hundreds of millions to even try competing. It is very hard to come up with a compelling scenario that "kills" Kaspi in terms of business quality (i.e. not looking at government or geopolitical risk). If you gave me 10 years and $100mm to destroy Kaspi, I'd hand the money back to you.
Could also be as simple as poor management, value-destructive growth, toxic culture, erosion of pricing power, and so on.
Sorry for the late response. But thanks for answering with examples my doubts. So is really on a case by case situation.
Brilliant!