"Makes things as simple as possible, but not simpler."
Years ago, a private equity firm client retained us to objectively and to quantitatively identify firms which enjoyed oligopoly competitive positions, which were below $100 million dollars in equity market capitalization in the United States. Like many investment firms, they were interested in recreating another Berkshire Hathaway (BRK.A) that enjoyed stable cash flows from outstanding businesses. They agreed with our approach to objectively identify such firms, which we termed (somewhat humbly!) Long's Law. Long's Law states that long-term free cash flow margins (FCF/revenue) in any industry over a multi-decade time frame tend towards the inverse of the number of competitors in that industry. For example,...