Most investors are obsessed with the "next big thing." We look at stock charts, hype cycles, and revenue growth as if they tell the whole story. But if you look closer, you realize that growth is often a trap.
The legendary Harvard professor Michael Porter spent decades teaching us a hard truth: Being "better" is not a strategy.
If your favorite tech company adopts a new AI tool to code faster, and their competitor does the exact same thing a week later, nobody wins. That is just "operational effectiveness." It is running the same race, just slightly faster.
Real wealth is created by companies that choose to run a completely different race.
The "Five Forces" Still Rule the World
It is tempting to think that the rules of capitalism change every time a new technology arrives. They don't. Whether it is railroads in the 1800s or the cloud computing wars of today, the structure of profit remains the same.
Porter famously identified the "Five Forces" that determine if a company is actually worth your money.
Too many retail investors look at a disruptive technology, like the internet or Artificial Intelligence, and assume it automatically means profit. It doesn't. You have to ask how that technology impacts the underlying forces:
Barriers to Entry: Does this tech make it easier for anyone to start a competing business? (If yes, profits will vanish).
Customer Power: Does it make it easier for customers to switch to a cheaper rival?
Rivalry: Does it force companies to fight a price war?
For example, streaming services changed how we consume media, but the rivalry is so intense that profitability is incredibly hard to sustain. Contrast that with a company like Novo Nordisk in healthcare. They aren't just "growing"; they are solving a massive societal problem (obesity and diabetes) in a way that creates a deep, defensible moat.
The Trillion-Dollar Opportunity: Shared Value
This leads to the most important insight for the modern investor. We used to think that "doing good" was just for charity, and "doing business" was just for profit.
Porter argues that the next wave of massive growth isn't coming from social media apps or ad-tech. It is coming from Shared Value.
This is not corporate philanthropy. This is when a company solves a massive societal problem (like climate change, healthcare access, or financial literacy) as their core business model.
Old View: A factory pollutes less to avoid fines.
Shared Value: A company invents a circular manufacturing process that cuts costs and eliminates waste, creating a competitive advantage.
When you look at your portfolio, ask yourself: Is this company just extracting value, or are they solving a fundamental friction in society? The companies that bridge the gap between "societal need" and "corporate profit" are the ones that will compound for the next twenty years.
The Investor's Responsibility
Finally, remember that your capital has power. There is a difference between "trading" (betting on price movements) and "investing" (funding the real economy).
When we allocate capital to companies with true competitive advantages and a purpose beyond just "beating the quarter," we aren't just building our own wealth. We are fueling the engine that solves real-world problems.
That is how you relax your way to rich.
What is one company in your portfolio that solves a genuine societal problem while making a profit? Let me know in the comments!
- William