The 3 Stages of a Maverick (Part 3)

Stage 3: The Leaders - Companies defining how their industries function

I buy and share baskets of stocks called Coffee Cans. You can see the most up to date list of stocks and their performance here on my Scorecard. 

Note: Coffee Can 5 is now under construction; This one is likely a riskier basket than those in the past.

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Two weeks ago, I introduced the notion of Disruptors (Stage 1 Mavericks), innovative companies who approach their end markets in brand new ways, thereby delivering great products and experiences much better than the status quo.

Last week, I spoke about Contenders (Stage 2 Mavericks). These are Disruptors who have demonstrated initial success. They continue to innovate, but now need to defend their turf in order to prove their legitimacy to the world. 

When Contenders succeed, they move onto Stage 3: They become what I call Leaders. Leaders are the companies that have the best shot at becoming the greatest companies of our time. 

What’s a Leader?

Leaders are Disruptors who’ve grown up, and are defining how their industries function. They are companies who have likely reached escape velocity, and will be around for a long time to come. 

Leaders that succeed do so because they are able to adapt to changing business environments and more importantly, to changing customer needs. Companies that lose their leadership positions tend to focus only on incremental improvements. Such companies focus on optimizations like cost reductions, unnecessary product upgrades, short term stock price movements etc and less on the dynamic changes in customer needs. This creates blind spots. This may be due to myopia, or perhaps inertia or misaligned organizational incentives. This inability of established companies to evolve creates the opportunity for Mavericks.

The best Mavericks are Leaders that gain sufficient scale, efficiency, and influence so as to change how their industry operates, or better yet, create a brand new industry altogether. The classic example is Netflix. It became so successful that Blockbuster wasn’t able to compete and is now bankrupt. Today, several other companies are following Netflix’s path and are offering streaming services. They’re now playing Netflix’s game. Oh how the tables have turned…

Of course, being a Leader does not guarantee success. Leaders can and do get dethroned, be it because of missteps, competition, or unexpected market changes. Therefore, we as investors must always pay attention to whether Leaders are becoming more relevant or less relevant in the world. In fact, increased relevance in the world could be a massive predictor of future market returns.

Leaders Make Great Long-Term Investments

Leaders can be great long-term investments. They exhibit substantially lower risk compared to Disruptors and Contenders, yet can outperform the market for years, even after it is apparent that they’re dominant businesses. Buying or increasing stakes in these businesses as they continue to prove their dominance can be very rewarding.

Don’t believe me? 

Let me say this: You could have bought Google for $100 Billion dollars and still made a 10X! 

Take a minute to let that sink in. 

When did it become obvious that Google was a Leader? I’d argue, a long time ago. And you didn’t need any complicated accounting or specialized business knowledge to come to that conclusion yourself. 

We could say the same about many other companies. Take Amazon for example, or Visa or Mastercard. I’d argue they have been the most dominant businesses in their respective industries for many many years. And they continue to be.

From the stocks I have shared so far on my Performance Scoreboard, below is the list of companies that I consider to be emerging Leaders. It will be interesting to look back a few years from now and see which ones remain so.

• DocuSign (DOCU)

• Etsy (ETSY)

• Mercado Libre (MELI)

• Shopify (SHOP)

• Teladoc (TDOC)

• Tesla (TSLA)

• The Trade Desk (TTD)

In Conclusion

This concludes my series on the 3 Stages of a Maverick (Part 1 here and Part 2 here).

I believe approaching stocks like Venture Capital can beat the market. This requires investing in innovative companies, called Mavericks. These are companies which are bringing the world forward, and are poised to one day become the greatest companies of our time.

Mavericks are special:

1. First they disrupt. 

2. Then they defend their turf. 

3. And if successful, they get a chance to lead.

Think Starbucks or Netflix in the early days. Companies that, IF they succeed, have the potential to 10X in 10 years.

The above framework is simply a philosophical lens through which I choose to view the world.

It’s not fool-proof. 

It will probably evolve over time.

And it may not work for everyone. 

But as I said at the beginning, this is my truth, one I hope to prove and codify over time.  Hope you come along for the ride!

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Related Articles:

• The 3 Stages of a Maverick (Part 1): The Disruptors

• The 3 Stages of a Maverick (Part 2): The Contenders

• Investing in Mavericks

• What Maverick Returns Need To Be