Did it occur to you some companies in an industry continue to make money while others barely survive. The classic case is that of airline industry where large airlines are accumulating huge losses whereas airline component manufacturers are earning above average returns on capital for last 4 decades

Can we find great investments in lousy industries or industry sub segments?

To answer above one has to construct an Industry map and do a profit pool analysis, let’s take help of Michael J. Mauboussin & Dan Callahan to understand these terms

From their ground-breaking paper on Measuring the Moat

The goal of an industry map is to understand the current and potential interactions that ultimately shape the sustainable value creation prospects for the whole industry as well as for the individual companies within the industry

A profit pool shows how an industry’s value creation is distributed at a particular point in time. The horizontal axis is the percentage of the industry, typically measured as invested capital or sales, and the vertical axis is a measure of economic profitability

Like always we will learn to create them by using an Indian example – In this post we would try to create an … Read the rest