The Valor Blog.
Investment News and Views, Direct from Our Team.

Disruption Fad

Disruption is the word of the day.

There are numerous funds that only invest in disruptive companies.

I think it is a fad.

The issue with most of the disruptive companies that I analyse is that they are selling their services or items at below cost. This is not disruption, it is destruction (of capital).

If potatoes cost $1 kilo to grow, selling them for 50c is not disruption, it is destruction.

A company selling potatoes at 50c will be a very fast growing company. The demand for their services will certainly be there as they steal market share.

Investing in loss making “growth” companies is fraught with danger when they are selling their items or services at below what it costs to produce.

Many of these companies are playing the “Adjusted EBITDA” game. I can make almost any company look profitable if I adjust the earnings for just about anything that actually costs the company money.

Caveat emptor.