Hi Folks -
I wanted to see how people typically approach these questions:
1) Would you rather own a bad company in a good industry or a good company in a bad industry?
2) Would rather own a good company in a great industry or a great company in a good industry?
Thank you!
| +23 | The Difference Between a Good Business and a Good Acquisition | 7 | 21h |
| +18 | Career / Life Crossroads | 5 | 16h |
| +14 | Partners misalignmet common? | 4 | 2d |
| +14 | Leave MF PE for FP&A Manager at Top Company? | 22 | 1d |
| +11 | on-cycle possible after lateraling? | 2 | 16h |
| +10 | How to prep for HH calls? | 3 | 4d |
| +9 | What to do - advice needed for incoming 27 associate | 2 | 1d |
| +9 | Opinions on DTCP? | 3 | 7h |
| +9 | Why India’s SME Market Is Getting More Interesting | 1 | 19h |
| +9 | PE Associate Recruiting from a PE Analyst Program | 2 | 13m |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
1) I'm assuming you mean bad company in good industry vs good company in bad industry. I think I would lean towards bad company in good industry on principle because it's relatively easier to improve a company tactically (improve operations) than to improve a company strategically (pivot industries). However, I would caveat to this, it also depends on the market structures of each of these industries. If it turns out that the bad company operates in a high barriers to entry "good" industry that's already very consolidated (monopoly/oligopoly) and they are not a part of the "winners" I could potentially prefer a good company in a bad industry with the thinking being that both the loser in a consolidated good industry and operators in a bad industry are doomed to zero economic profits in the long-term, so maybe I'd prefer the one that's better operated.
2) Good company great industry for a similar reason to the above, additionally, the "good" company could be relatively cheaper than the "great" company with more room for growth.
1) Bad company in a good industry. Listen to what Buffett says - When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
2) Depends on many factors, I would start probing the interviewer with questions like are they thinking about any one specific industry or business model. Good company in a great industry = you can have multiple players who win and capture share. Industry growth can carry the industry participants even if product's aren't differentiated / have a competitive advantage. Great company in a good industry = over the long-term can still outperform (i.e. think cyclicals)
But defining a GREAT industry really comes down to 1) rate of change in the industry, 2) supply / demand dynamics which in turns drives pricing trends and growth, 3) barriers to entry, and 4) nature of relationships between the customer and business
Autem illo est eligendi incidunt nemo reprehenderit possimus et. Veritatis saepe tenetur ducimus. Voluptatibus aut dicta ipsum ipsam quae rem a. Assumenda recusandae et provident explicabo et praesentium.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Omnis mollitia rerum repellendus ut nesciunt. Ut quas perspiciatis sequi in accusamus delectus corrupti. At occaecati voluptatem molestiae quis voluptatem. Consequatur quam ipsam et velit illo.
Non culpa sit neque nesciunt eveniet culpa. Doloribus tempore voluptatum qui non maxime placeat. Quas ut sed officiis adipisci eum accusamus odio.
Tempore iure maiores excepturi qui nobis consectetur qui. Animi omnis commodi vitae velit et reiciendis excepturi. Repellendus quis adipisci et est. Distinctio qui temporibus minus.