investing etc. 0022

Collective Intelligence edition: Ageing, Ambiguity, Demographic time bomb, Trumpety Trump Trump, Cerillion, Dewhurst, Goldplat, Hollywood Bowl, Renew, RWS, Solid State, Spirax, Victrex.

The comedian Milton Jones is famous for delivering rapid-fire jokes. They are funny, but after two hours of relentless one-liners at Cambridge Corn Exchange a few years ago I was exhausted, my brain mushed, my lungs barely able to acknowledge the next gag.

Reading John Kay’s The Corporation in the 21st Century (hitherto TCIT21stC) was a bit like reading an earnest Milton Jones. The chapters are short, but then so are Jones’ jokes. The assertions are layered on so thick, at times I couldn’t see over them to imagine where the book was going.

I got where the book was going, and on page 348 something coalesced. Resting my Kindle down with relief, I surprised myself by scrawling some “Immediate thoughts on” TCIT21stC. Then I went and told my wife Rachael that I had finished, because I had told her I was labouring with it.

John Kay got my attention when I read that return on capital is no more meaningful than “return on water”.

Embracing ambiguity

The key that unlocked this brain dump was in the penultimate chapter of the book: “Ambiguity is a Feature, Not a Bug”.

Kay says the development of corporations is an evolutionary process. Companies adapt, and, due to competition, successful adaptations proliferate and unsuccessful adaptations die out. The process resembles natural selection, but it is less random. The mutations are often deliberate, and sometimes we deliberately kill them off.

Corporate evolution has produced complex, ambiguous, unique, sometimes wonderful and almost unfathomable firms. The early corporations Kay describes were not like this. Owners of capital (factories and machines) controlled businesses. Firms in the same industry, textile manufacturers say, did pretty much the same thing the same way.

Today, the owners of capital do not run the largest corporations (Kay shows the notion of capital and ownership can no longer even be precisely defined). Companies like Amazon do not own warehouses, they rent them from specialised and much less significant property firms.

The value is not in the warehouse, it is in what Amazon does with it. Kay describes modern corporations as “collective intelligences”. Their capital is the unique combination of capabilities that make them, and their products and services, special. The product of labour has become the principal form of capital.

Not all progress is good, though. The development of collective intelligences has gone hand in hand with the financialisation of the firm. Companies are no longer run by owners, but by managers hired to maximise profit. The managers are advised by investment banks that collect fees for dreaming up ways to maximise profit quickly. Dealmaking and financial engineering often destroy the capabilities collective intelligences must nurture to flourish.

If you read the book hoping for a resolution, a way to let corporations flourish without handicapping them with financialisation, you will be disappointed.

Kay says we live in a world of radical uncertainty: “...every situation, every point of decision, is unique. And in that world, the question ‘What is going on here?’ needs to be posed again and again.”

TCIT21stC, he says, “...is written in the hope that a better account of how business and its stakeholders flourish will point the way not just to a better understanding of business, but to the better conduct of business itself.”

Kay has explained what is going on. He’s embraced the complexity, given me indigestion, and expects us collectively to do something about the problems the book raises. He will do his bit in a successor volume.

While I wait for that book, Kay’s mantra has inspired me to focus on what is going on with every business that I research, a question I pose again, and again. My aim, of course, is to find companies that have more good adaptations than bad ones.

Research

• Profitable companies in challenging industries
  Telecoms software supplier Cerillion, Goldplat, which cleans up after miners in Africa, and infrastructure maintenance and renewal expert Renew, are the first companies to achieve less than three strikes in 2025.

• 15 quality businesses that are improving
  A filter on companies that passed the 5 Strikes test in 2024 reveals 15 that should pass the test again in 2025. Hidden champion Spirax is one.

Score

• A top 5 stock that’s ‘absurdly cheap’

  Lift component supplier Dewhurst is a real steady-eddie with a growing cash pile. The shares appear to be absurdly cheap.

• A FTSE 250 stock at a low price
  It’s a make-or-break year for polymer manufacturer Victrex, which is long overdue a cyclical recovery and the fruition of its mega-programme strategy

• Why I like this highly rated market leader
  Hollywood Bowl is a finely tuned business. It is trying to bring the same discipline to Canada and other indoor activities

• Stuck in a technological arms race
  RWS is changing from a translation company that uses technology to a technology company that does translation. Is that enough to withstand the commoditisation of language?

Trade

• Three firms on the buy list. Here’s the one I chose
  The force is not with the share price of Solid State, a manufacturer and distributor of electronic components and systems. That’s one of the reasons I added more shares.

etc.

• You might well be asking “what is going on here” as the new US administration issues executive order after executive order like a power crazed Milton Jones. Perhaps it’s not worth stressing about it.

• My family is helping our aging parents now they can no longer do everything for themselves. Underprepared for my part in this, I have reached for The Golden Rule: Lessons in Living from a Doctor of Aging by Dr Lucy Pollock. My Kindle offered it to me for just 99p, and though I have regretted bargains like this, I’m well past the point where I know I will finish.

• The Golden Rule is a collection of stories about interactions, good and bad, between Dr Pollock, other medical people, patients, and their relatives. I do not know what the Golden Rule is, and I have resisted skipping ahead to find out. The book seeds humility.

• A chapter on ageing without children awakened me to an aspect of the demographic time bomb. Smaller families mean fewer children to support parents in their old age. Dr Pollock says: “...I think of Andrea... It became apparent that she had been providing unstinting and stoical support to eight parents - her mother and stepfather, her father and stepmother, and her husband's parents and stepparents too.”

Thanks for reading

investing etc. 0023 should be with you on Saturday 8 March.