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The Road Not Taken

Road not Taken

“I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood and I –
I took the one less travelled by,
And that has made all the difference.”
Robert Frost, The Road Not Taken

To travel hopefully is better to arrive. Stephenson’s 19th Century adage was one of the first pieces of stock market analysis I received in the late 1980s. It was provided by a market maker trying to explain a stock price’s negative reaction to an apparently positive set of figures. “Better to travel” was regularly offered to the young analyst who was asked to “see what the pitch says”. This was often accompanied by the sage analysis that there were“more sellers than buyers” before the parting shot; “come back with you have less time”.

The thing about progress is that it does not stop. It simply describes a different pace, reflecting society and economics at any one time. At present, automotive technology is developing at an increasing pace; both in terms of the amount of tech available and the number of cars of all price points on which it is placed.

Despite this trend, traffic jams have not reduced and, as we emerge from the Pandemic, are apparently increasing. Research conducted by Inrix in 2019 showed that Parisiennes spend an average of 165 hours a year in a traffic jam. Given the French requirement on working hours per week, that is equivalent to 5 weeks a year spent in a car and not in an office or factory. Perhaps surprisingly, the French are only second in this ranking. The Italians spend 167 hours per year similarly engaged.

Why is this important?

Traffic flows are analogous to economic flows.

Both use a system which describes moving from one point to another, and the issues each flow faces in so doing. Both are reliant on a “guiding hand” akin to Adam Smith’s analysis which is essentially a version of crowd control at the aggregate or macro level. Equally, both are liable to be disrupted by outliers who move either too slowly or too quickly. Finally, both are liable to disruption through exogenous shock; be that weather or war.

The physics of traffic jams are interesting.

This quadratic shows that, if there are no other cars on the road (k = 0), a single car will drive at the speed limit. As new cars join the flow, and density increases, the velocity decreases until they cannot move, and a traffic jam is created.

Economically, this can be described as follows.
A new company develops a new product, addressing a need, and has the market to its self. It proceeds at a pace governed by its own ability to grow and limited by regulation in the market. As the market increases in value, it attracts other companies
The market will grow efficiently if all companies grow at the same pace and maintain a discipline allowing other companies to proceed. However, market failure will occur if some of the new entrants grow too slowly or too fast. Under the traffic jam analogy, the density of the market has increased and given the individual behaviour of new entrants, the velocity of the market will reduce.

In such a situation, stagflation for example, some argue that economic actors, like drivers in a jam, seek Differential Accumulation (passim The Long Run VIVA Investment Partners ® 2020). This describes a strategy of beggar thy neighbour where more powerful participants seek to gain comparative rather than absolute advantage. In traffic jams, this is often seen in the “cutting up” or “cutting in” by drivers, typically piloting a hot hatch or venerable BMW.

By definition, entrepreneurs take the road less travelled. They seek the opportunity to work, supply, succeed differently in an absolute sense. And yet they run the risk of being too successful as much as they face the risk of failure. Specifically, they can see the road which they are on as forever and cannot countenance an off ramp or a change of direction.

The list of such companies is long, and informative. Take Nokia, Yahoo, Blockbuster, Palm, even Toys R Us. They all, at one time or another, led their markets from a dominant position. They failed to maintain this leadership position because, when faced with a fork in the road, they took the obvious route, and not the road less travelled.

Entrepreneurs should read the histories of these businesses as much as they read the epigraphs devoted to Apple, Google, and Amazon which, collectively, consigned many of these previously dominant companies to answers to Trivial Pursuit questions.
It is the ability to not only spot, but act on the fork in your road which distinguishes success in entrepreneurship. Critically, be not afraid of change. You will hear from investors that “sticking to your knitting” is the preferred strategy on an “if it ain’t broke, don’t fix it” maxim.

To these proponents, I would counter that they are at risk of not “seeing the wood for the trees”. The capital markets are littered with examples of companies which started out as growth stocks, flirted with being bid targets, and are now consigned to value and the hope of a return to former glories.

Gamestop remains a leitmotif for the chaos of the early Pandemic but also for the phenomenon of carrying on regardless. From a share price of US$4.42 on 8 January 2021, the stock rose to US$81.25 on 29 January 2021 after a social media campaign prompted retail investors to save the company. Almost two years later, Gamestop persists but, while its share price remains a multiple of the lows of early January 2021, it closed yesterday at US$28.59. Its most recent quarterly earnings report, to July 2022, showed a decline in sales and a larger loss than the comparative period. One wonders, should the price fall again, whether the retail investors will support the company as they did two years ago.

VIVA Investment Partners supports and celebrates entrepreneurs and entrepreneurship. It works with those who seek out and navigate the road less travelled, not taken by others. Yet, we remind entrepreneurs who succeed, after years of effort and a modicum of luck, that they must continue to seek those roads.
From Frost to Dylan, there are words of wisdom to consider and, perhaps, live by.

“The line it is drawn, the curse it is cast
The slowest now, will later be fast
As the present now will later be past
The order is rapidly fadin’
And the first one now will later be last
‘Cause the times they are a-changin’ “

Bob Dylan The Times, They Are a-Changin’

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